Page 44

continuation of salary and benefits for the respective terms

of the agreements in the event of termination of employment without cause. One agreement expires February 28, 1995, and the others expire June 30, 1995.

Due to the nature of the oil and gas business, the company and its subsidiaries are exposed to possible environmental risks. The company has implemented various policies and procedures to avoid environmental contamination risks and from environmental contamination. The company is not aware of any potential environmental issues or claims. NOTE 5. INCOME TAXES

As discussed in Note 1, the company has adopted SFAS No. 109. The components of the income tax provision for each of the periods are as follows (in thousands of dollars): 1994

YEARS ENDED JUNE 30,

1993

1992

)$ IN THOUSANDS)

Current Deferred Total

$

$

$

145

1,250

(99)

1,192

$1,250

$ (99)

$1,337

The effective income tax rate differed from the computed

"expected" federal income tax rate on earnings before income taxes for the following reasons: YEARS ENDED JUNE 30,

1994

1992

)$ IN THOUSANDS)

Deferred tax liabilities: Acquisition, exploration and development costs and related depreciation, depletion and amortization $(15,872) $(6,295) Deferred tax assets: Net operating loss carryforwards 12,879 5,332 Percentage depletion carryforward 780

13,659 Total Noncurrent

5,332

$ (2,213) $ (963)

$(2,449)

1,387

1,387

$(1,062)

At June 30, 1994, the company had net operating loss carryforwards of approximately $36 million available to offset future federal income taxes payable to the extent regular income taxes payable exceeds alternative minimum taxes payable. These loss carryforward amounts will expire

during the years 2007 through 2009. The company also had a percentage depletion carryforward of approximately $2.3 million at June 30, 1994, which is available to offset future federal income taxes payable and has no expiration

NOTE 6. RELATED PARTY TRANSACTIONS

Certain directors, shareholders and employees of the company have acquired working interests in certain of the

$1,753 $(l58) (780)

$ 927 299

277 $1,250

59

111

$(99) $1,337

Deferred income taxes are provided to reflect temporary

differences in the basis of net assets for income tax and financial reporting purposes. The tax effected temporary differences and tax loss carryforwards which comprise deferred taxes are as follows:

1993

1992

Computed "expected" income tax provision

Partnership operations prior to the Combination Other

1994

date. 1993

($ IN THOUSANDS)

(benefit) Tax percentage depletion

YEARS ENDED JUNE 30,

company's oil and gas properties. The owners of such working interests are required to pay their proportionate share of all costs. As of June 30, 1994, 1993 and 1992 the company had accounts receivable from these directors, shareholders and employees of $1,671,000, $1,580,000,

and $0, respectively. The aggregate average receivable balance due from these parties for the years ended June 30, 1994, 1993, and 1992 approximated $1,331,000, $1,153,000, and $3,779,000, respectively. During fiscal 1994, 1993, and 1992, the company

incurred legal expenses of $631,000, $723,000, and $507,000, respectively, for legal services provided by the law firm of which a director is a member.

From September 1993 to July 1994, the company owned a 40% interest in, and was represented on the operating committee of Wickford Energy Marketing, L.C. ("Wickford"), a limited liability company engaged in the

42

CHESAPEAKE ENERGY CORPORATION

Profile for Chesapeake Energy

Annual Report 1994  

Annual Report 1994