Chesapeake Energy 2000 Annual Report Download - page 99
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Please find page 99 of the 2000 Chesapeake Energy annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.GOTHIC ENERGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOUDATED FINANCIAL STATEMENTS
1. General and Accounting Policies
Organization and Nature of Operations
The consolidated financial statements include the accounts of Gothic Energy Corporation, ("Gothic Energy"),
a holding company, and its wholly owned subsidiary, Gothic Production Corporation ("Gothic Production") since
its formation in April of 1998 (collectively referred to as "Gothic" or the "Company"). All significant intercompany
balances and transactions have been eliminated. Through January 15, 2001, Gothic Production was an independent
energy company engaged in the business of acquiring, developing and exploiting natural gas and oil reserves in
Oklahoma, Texas, New Mexico and Kansas.
On January 16, 2001, Gothic Energy Corporation merged with Chesapeake Merger 2000 Corp., a wholly
owned subsidiary of Chesapeake Energy Corporation ("Chesapeake") (the "Merger"). Gothic was the surviving
corporation in the Merger and since January 16, 2001 has been a wholly owned subsidiary of Chesapeake.
Chesapeake had previously acquired all of Gothic's Series B Preferred Stock, substantially all of Gothic Energy's
14'/8% Senior Secured Discount Notes, and $31.6 million of Gothic Production's 11'/8% Senior Secured Notes.
Under terms of the Merger, Chesapeake issued 4.0 million shares of common stock to the Gothic stockholders, with
an exchange ratio of 0.1908 of a Chesapeake share for each share of Gothic common stock.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ from those estimates. In addition,
accrued and deferred lease operating expenses, gas imbalance liabilities, natural gas and oil reserves (see Note 11)
and the tax valuation allowance (see Note 5) also include significant estimates which, in the near term, could
materially differ from the amounts ultimately realized or incurred.
Cash Equivalents
Cash equivalents include cash on hand, amounts held in banks, money market funds and other highly liquid
investments with a maturity of three months or less at date of purchase.
Concentration of Credit Risk
Financial instruments, which potentially subject Gothic to concentrations of credit risk consist principally of
derivative contracts (see "Hedging Activities" below), cash, cash equivalents and trade receivables. Gothic's
accounts receivable are primarily from the purchasers (See Note 8 Major Customers) of natural gas and oil
products and exploration and production companies which own interests in properties operated by Gothic. The
industry concentration has the potential to impact Gothic's overall exposure to credit risk, either positively or
negatively, in that the customers may be similarly affected by changes in economic, industry or other conditions.
Gothic generally does not require collateral from customers. Gothic had an account receivable from one customer
(CMS Continental Natural Gas) of approximately $2.3 million at December 31, 1999 and $8.8 million at
December 31, 2000. The cash and cash equivalents are with major banks or institutions with high credit ratings. At
December 31, 1999 and 2000, Gothic had a concentration of cash of $5.8 million and $6.5 million, respectively, with
one bank, which was in excess of federally insured limits.
Fair Value of Financial Instruments
The following disclosure of the estimated fair value of financial instruments is made in accordance with the
requirements of Statement of Financial Accounting Standards No. 107, "Disclosures About Fair Value of Financial
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