Chesapeake Energy 2010 Annual Report Download - page 101

Interest Expense. Interest expense decreased to $19 million in 2010 compared to $113 million in 2009
and $271 million in 2008 as follows:
Years Ended December 31,
2010 2009 2008
($ in millions)
Interest expense on senior notes ................................... $ 718 $ 765 $ 637
Interest expense on credit facilities .................................. 61 60 117
Capitalized interest ............................................... (716) (633) (585)
Realized (gains) losses on interest rate derivatives ..................... (14) (23) (6)
Unrealized (gains) losses on interest rate derivatives ................... (66) (91) 85
Amortization of loan discount and other .............................. 36 35 23
Total interest expense .......................................... $ 19 $ 113 $ 271
Average long-term borrowings ...................................... $ 10,345 $ 11,167 $ 10,044
Interest expense, excluding unrealized (gains) losses on interest rate derivatives, was $0.08 per mcfe in
2010 compared to $0.22 per mcfe in both 2009 and 2008. The decrease in interest expense per mcfe from
2009 and 2008 is due to increased production volumes, a decrease in our senior notes outstanding and an
increase in capitalized interest. Capitalized interest increased in 2010 and 2009 as a result of a significant
increase in unevaluated properties, the base on which interest is capitalized.
Earnings (Losses) from Equity Investees. Earnings (losses) from equity investees was $227 million, ($39)
million and ($38) million in 2010, 2009 and 2008, respectively. The 2010 income consisted of $106 million
related to our equity in the net income of certain investments and $121 million related to the initial public
offering by CHKM and a private offering of common stock by Chaparral Energy, Inc., which represented our
proportionate share of the excess of offering proceeds over our carrying value. The 2009 and 2008 losses
related to our equity in the net losses of certain investments.
Loss on Redemptions or Exchanges of Debt. During 2010, we redeemed in whole for an aggregate
redemption price of approximately $1.366 billion, plus accrued interest, approximately $364 million in principal
amount of our outstanding 7.50% Senior Notes due 2013, $300 million in principal amount of our 7.50% Senior
Notes due 2014 and approximately $670 million in principal amount of our 6.875% Senior Notes due 2016.
Associated with the redemptions, we recognized a loss of $69 million in 2010. Also during 2010, we redeemed
in whole for a redemption price of approximately $619 million, plus accrued interest, all $600 million in principal
amount of our 6.375% Senior Notes due 2015. We recognized a loss of $19 million in 2010 associated with the
redemptions.
Additionally during 2010, we completed tender offers to purchase for cash $245 million of 7.00% Senior
Notes due 2014, $567 million of 6.625% Senior Notes due 2016 and $582 million of 6.25% Senior Notes due
2018. Following the completion of these tender offers, we redeemed the remaining $55 million of 7.00% Senior
Notes due 2014, $33 million of 6.625% Senior Notes due 2016 and $18 million of 6.25% Senior Notes due
2018 based on the redemption provisions in the indentures. Associated with these tender offers and
redemptions, we recognized a loss of $40 million in 2010.
Finally, in 2010, we privately exchanged approximately $11 million in aggregate principal amount of our
2.25% Contingent Convertible Senior Notes due 2038 for an aggregate of 298,500 shares of our common
stock valued at approximately $9 million. Through these transactions, we were able to retire this debt for
common stock valued at approximately 80% of the face value of the notes. Of the $11 million principal amount
of convertible notes exchanged in 2010, $7 million was allocated to the debt component of the notes and the
remaining $4 million was allocated to the equity conversion feature of the notes and was recorded as an
adjustment to paid-in-capital. The difference between the debt component and value of the common stock
exchanged in these transactions resulted in the $2 million loss (including a nominal amount of deferred charges
associated with the exchanges).
In 2009, we privately exchanged approximately $364 million in aggregate principal amount of our 2.25%
Contingent Convertible Senior Notes due 2038 for an aggregate of 10,210,169 shares of our common stock
valued at approximately $262 million. Through these transactions, we were able to retire this debt for common
stock valued at approximately 75% of the face value of the notes. Of the $364 million principal amount of
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