Chesapeake Energy 2013 Annual Report Download - page 90

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
82
Other Property and Equipment
Other property and equipment consists primarily of oilfield services equipment, including drilling rigs, rental tools
and hydraulic fracturing equipment, natural gas compressors, buildings and improvements, land, vehicles, office
equipment, natural gas and oil gathering systems and treating plants. Substantially all of our natural gas gathering
systems and treating plants were sold in 2013 and 2012 as discussed in Note 15. Major renewals and betterments
are capitalized while the costs of repairs and maintenance are charged to expense as incurred. The costs of assets
retired or otherwise disposed of and the applicable accumulated depreciation are removed from the accounts, and the
resulting gain or loss is reflected in operating costs. See Note 15 for further discussion of our gains and losses on the
sales of other property and equipment and a summary of our other property and equipment held for sale as of
December 31, 2013. Other property and equipment costs, excluding land, are depreciated on a straight-line basis.
Realization of the carrying value of other property and equipment is reviewed for possible impairment whenever
events or changes in circumstances indicate that the carrying amount may not be recoverable. Assets are determined
to be impaired if a forecast of undiscounted estimated future net operating cash flows directly related to the asset,
including disposal value, if any, is less than the carrying amount of the asset. If any asset is determined to be impaired,
the loss is measured as the amount by which the carrying amount of the asset exceeds its fair value. An estimate of
fair value is based on the best information available, including prices for similar assets and discounted cash flow. During
2013, 2012 and 2011, we determined that certain of our property and equipment was being carried at values that were
not recoverable and in excess of fair value. See Note 16 for further discussion of these impairments.
Capitalized Interest
Interest from external borrowings is capitalized on significant projects until the asset is ready for service using
the weighted average cost of outstanding borrowings. Capitalized interest is determined by multiplying our weighted-
average borrowing cost on debt by the average amount of qualifying costs incurred. Capitalized interest is depreciated
over the useful lives of the assets in the same manner as the depreciation of the underlying asset.
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.
Our goodwill of $43 million as of December 31, 2013 and 2012 consisted of the excess consideration over the
fair value of assets acquired of $28 million in our Bronco Drilling Company acquisition and $15 million in our 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 2013 and 2012. Based on these assessments, no impairment of goodwill was required.
Goodwill is included in our oilfield services segment.
Accounts Payable
Included in accounts payable as of December 31, 2013 and 2012 are liabilities of approximately $397 million and
$432 million, respectively, representing the amount by which checks issued, but not yet presented to our banks for
collection, exceeded balances in applicable bank accounts.
Debt Issuance and Hedging Facility Costs
Included in other long-term assets are costs associated with the issuance of our senior notes, term loan, revolving
bank credit facilities and hedging facility. The remaining unamortized issuance costs as of December 31, 2013 and
2012 totaled $145 million and $182 million, respectively, and are being amortized over the life of the applicable debt
or facility using the effective interest method.