Chesapeake Energy 2012 Annual Report Download - page 105

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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Capitalized Interest
During 2012, 2011 and 2010, interest of approximately $976 million, $727 million and $711 million, respectively,
was capitalized on significant investments in unproved properties that were not being currently depreciated, depleted
or amortized and on which exploration activities were in progress. The increase in 2012 compared to 2011 was primarily
the result of capitalizing additional interest on senior notes and term loans issued in 2012. Additional interest of $4
million, $6 million and $5 million was capitalized in 2012, 2011 and 2010, respectively, on midstream and oilfield services
assets which were under construction. Interest is capitalized using a weighted average interest rate based on our
outstanding borrowings.
Goodwill
Goodwill represents the excess of the purchase price of a business combination over the fair value of the net
assets acquired and is tested for impairment at least annually. Such test includes an assessment of qualitative and
quantitative factors. The impairment test requires allocating goodwill and all other assets and liabilities to assigned
reporting units. The fair value of each reporting unit is estimated and compared to the net book value of the reporting
unit. If the estimated fair value of the reporting unit is less than the net book value, including goodwill, then the goodwill
is written down to the implied fair value of the goodwill through a charge to expense.
Chesapeake's $43 million of goodwill as of December 31, 2012 consists of the excess consideration over the fair
value of assets acquired of $28 million in the Bronco Drilling Company acquisition and $15 million in the Horizon Drilling
Services acquisition. Quoted market prices are not available for these reporting units and their fair values are based
upon several valuation analyses, including discounted cash flows.
We performed annual impairment tests of goodwill in the fourth quarters of 2012 and 2011. Based on these
assessments, no impairment of goodwill was required. Our goodwill is included in our oilfield services segment.
Accounts Payable and Other Current Liabilities
Included in accounts payable as of December 31, 2012 and 2011 are liabilities of approximately $432 million and
$604 million, respectively, representing the amount by which checks issued, but not yet presented to our banks for
collection, exceeded balances in applicable bank accounts. Other current liabilities as of December 31, 2012 and 2011
are detailed below.
December 31,
2012 2011
($ in millions)
Revenues and royalties due others ................................................................................ $ 1,337 $ 1,090
Accrued natural gas, oil and NGL drilling and production costs ...................................... 525 590
Accrued acquisition costs ............................................................................................... 242 81
Joint interest prepayments received ............................................................................... 749 865
Accrued payroll and benefits .......................................................................................... 224 199
Accrued dividends .......................................................................................................... 101 99
Other ............................................................................................................................... 563 473
Total other current liabilities ...................................................................................... $ 3,741 $ 3,397