Chesapeake Energy 2012 Annual Report Download - page 76

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During 2011, we completed tender offers to purchase $1.373 billion in aggregate principal amount of certain of
our senior notes and $531 million in aggregate principal amount of certain of our contingent convertible senior notes.
Associated with the tender offers, we recorded losses of approximately $166 million related to the senior notes and
$8 million related to the contingent convertible senior notes. Also during 2011, we purchased $140 million in aggregate
principal amount of our 2.25% Contingent Convertible Senior Notes due 2038 for approximately $128 million. Associated
with these purchases, we recognized a loss of $2 million in 2011.
During 2010, we redeemed in whole for an aggregate redemption price of approximately $1.366 billion,
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 a $2 million loss
(including a nominal amount of deferred charges associated with the exchanges).
Impairment of Investments. We recorded $16 million of impairments of certain investments in 2010. Each of our
investees was impacted by the dramatic slowing of the worldwide economy and the credit markets in 2009 and 2010.
The economic weakness resulted in significantly reduced natural gas and oil prices which led to a meaningful decline
in the overall level of activity in the markets served by our investees. Associated with the weakness in performance of
certain of the investees, as well as an evaluation of their financial condition and near-term prospects, we recognized
that an other than temporary impairment had occurred on certain investments.
Other Income. Other income was $8 million, $23 million and $16 million in 2012, 2011 and 2010, respectively.
The 2012 income consisted of $1 million of interest income and $7 million of miscellaneous income. The 2011 income
consisted of $3 million of interest income and $20 million of miscellaneous income. The 2010 income consisted of $8
million of interest income and $8 million of miscellaneous income.
Income Tax Expense (Benefit). Chesapeake recorded an income tax benefit of $380 million in 2012 compared
to income tax expense of $1.123 billion in 2011 and income tax expense of $1.110 billion in 2010. Our effective income
tax rate was 39% in both 2012 and 2011 and 38.5% in 2010. Our effective tax rate can fluctuate as a result of the
impact of state income taxes and permanent differences.
Net Income Attributable to Noncontrolling Interests. In 2012, Chesapeake recorded $175 million of net income
attributable to noncontrolling interests related to third-party ownership in CHK Utica, CHK C-T, the Chesapeake Granite
Wash Trust and our consolidated investments in Wireless Seismic, Inc. and Big Star Crude Company, L.L.C. CHK
Utica and the Chesapeake Granite Wash Trust were formed in the fourth quarter of 2011 and CHK C-T was formed in
the first quarter of 2012. We began consolidating our investment in Wireless Seismic, Inc. and Big Star Crude Company,
L.L.C. in the fourth quarter of 2012. In 2011, Chesapeake recorded $15 million of net income attributable to noncontrolling
interests related to third-party ownership in CHK Utica and the Chesapeake Granite Wash Trust.