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Income Taxes. The amount of income taxes recorded by the Company requires interpretations of complex rules and regulations of both federal and state taxing jurisdictions. Income taxes are accounted for using the asset and liability approach. The Company has recognized deferred tax assets and liabilities for temporary differences between tax and book basis, tax credit carryforwards and net operating loss carryforwards. We routinely assess the realizability of our deferred tax assets and reduce such assets by a valuation allowance if it is more likely than not that some portion or all of the deferred tax assets will not be realized. In assessing the need for additional or adjustments to existing valuation allowances, we consider the preponderance of evidence concerning the realization of the deferred tax asset. Among the more significant types of evidence that we consider are: •

taxable income projections in future years;

reversal of existing deferred tax liabilities against deferred tax assets and whether the carryforward period is so brief that it would limit realization of the tax benefit;

future sales and operating cost projections that will produce more than enough taxable income to realize the deferred tax asset based on existing sales prices and cost structures; and

our earnings history exclusive of the loss that created the future deductible amount coupled with evidence indicating that the loss is an aberration rather than a continuing condition.

Our judgments and assumptions in estimating future taxable income include such factors as future operating conditions and commodity prices. As of December 31, 2016 and 2015, we had deferred tax assets of $4.690 billion and $4.122 billion, respectively, upon which we had a valuation allowance of $4.389 billion and $2.949 billion, respectively. The valuation allowance as of December 31, 2016 and 2015 was recorded against our net deferred tax assets. We have concluded that these deferred tax assets are not more likely than not to be realized. The Company routinely assesses potential uncertain tax positions and, if required, establishes accruals for such amounts. Accounting guidance for recognizing and measuring uncertain tax positions prescribes a threshold condition that a tax position must meet for any of the benefit of the uncertain tax position to be recognized in the financial statements. Guidance is also provided regarding de-recognition, classification and disclosure of these uncertain tax positions. Tax positions that do not meet or exceed this threshold condition are considered uncertain tax positions. We accrue interest related to these uncertain tax positions which is recognized in interest expense. Penalties, if any, related to uncertain tax positions would be recorded in other expenses. Additional information about uncertain tax positions appears in Note 6 of the notes to our consolidated financial statements included in Item 8 of this report. Disclosures About Effects of Transactions with Related Parties Our equity method investees are considered related parties. See Note 7 of the notes to our consolidated financial statements included in Item 8 of this report for further discussion of transactions with our equity method investees.


Profile for Chesapeake Energy

2016 Annual Report  

2016 Annual Report