UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| x | Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended March 31, 2004
| ¨ | Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to
Commission File No. 1-13726
Chesapeake Energy Corporation
(Exact Name of Registrant as Specified in Its Charter)
| Oklahoma | 73-1395733 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
| 6100 North Western Avenue Oklahoma City, Oklahoma |
73118 | |
| (Address of principal executive offices) | (Zip Code) | |
(405) 848-8000
Registrant’s telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES x NO ¨
As of May 5, 2004, there were 242,196,292 shares of our $0.01 par value common stock outstanding.
CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
INDEX TO FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2004
| Page | ||||
| PART I. |
Financial Information |
|||
| Item 1. |
Condensed Consolidated Financial Statements (Unaudited): | |||
| Condensed Consolidated Balance Sheets as of March 31, 2004 and December 31, 2003 |
3 | |||
| Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2004 and 2003 |
4 | |||
| Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2004 and 2003 |
5 | |||
| 6 | ||||
| 7 | ||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 21 | ||
| Item 3. |
Quantitative and Qualitative Disclosures About Market Risk | 30 | ||
| Item 4. |
Controls and Procedures | 34 | ||
| PART II. |
||||
| Item 1. |
Legal Proceedings | 35 | ||
| Item 2. |
Changes in Securities and Use of Proceeds | 35 | ||
| Item 3. |
Defaults Upon Senior Securities | 36 | ||
| Item 4. |
Submission of Matters to a Vote of Security Holders | 36 | ||
| Item 5. |
Other Information | 36 | ||
| Item 6. |
Exhibits and Reports on Form 8-K | 36 | ||
2
CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| March 31, 2004 |
December 31, 2003 |
|||||||
| ($ in thousands) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS: |
||||||||
| Cash and cash equivalents |
$ | 189,425 | $ | 40,581 | ||||
| Accounts receivable: |
||||||||
| Oil and gas sales |
205,826 | 173,792 | ||||||
| Joint interest, net of allowances of $3,523,000 and $2,669,000, respectively |
40,408 | 37,789 | ||||||
| Short-term derivatives |
— | 1,777 | ||||||
| Related parties |
5,310 | 2,983 | ||||||
| Other |
32,618 | 26,830 | ||||||
| Deferred income tax asset |
76,671 | 36,705 | ||||||
| Short-term derivative instruments |
— | 2,690 | ||||||
| Inventory and other |
21,210 | 19,257 | ||||||
| Total Current Assets |
571,468 | 342,404 | ||||||
| PROPERTY AND EQUIPMENT: |
||||||||
| Oil and gas properties, at cost based on full-cost accounting: |
||||||||
| Evaluated oil and gas properties |
7,012,420 | 6,221,576 | ||||||
| Unevaluated properties |
301,657 | 227,331 | ||||||
| Less: accumulated depreciation, depletion and amortization |
(2,599,185 | ) | (2,480,261 | ) | ||||
| 4,714,892 | 3,968,646 | |||||||
| Other property and equipment |
240,378 | 225,891 | ||||||
| Less: accumulated depreciation and amortization |
(66,347 | ) | (61,420 | ) | ||||
| Total Property and Equipment |
4,888,923 | 4,133,117 | ||||||
| OTHER ASSETS: |
||||||||
| Long-term derivative instruments |
15,385 | 17,493 | ||||||
| Long-term investments |
33,357 | 31,544 | ||||||
| Other assets |
48,329 | 47,733 | ||||||
| Total Other Assets |
97,071 | 96,770 | ||||||
| TOTAL ASSETS |
$ | 5,557,462 | $ | 4,572,291 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES: |
||||||||
| Accounts payable |
$ | 246,892 | $ | 164,264 | ||||
| Accrued interest |
42,677 | 46,648 | ||||||
| Short-term derivative instruments |
202,606 | 92,651 | ||||||
| Other accrued liabilities |
117,851 | 108,020 | ||||||
| Revenues and royalties due others |
132,546 | 101,573 | ||||||
| Total Current Liabilities |
742,572 | 513,156 | ||||||
| LONG-TERM LIABILITIES: |
||||||||
| Long-term debt, net |
2,012,147 | 2,057,713 | ||||||
| Revenues and royalties due others |
14,829 | 13,921 | ||||||
| Asset retirement obligation |
57,476 | 48,812 | ||||||
| Long-term derivative instruments |
19,623 | 4,736 | ||||||
| Deferred income tax liability |
368,808 | 191,026 | ||||||
| Other liabilities |
11,828 | 10,117 | ||||||
| Total Long-term Liabilities |
2,484,711 | 2,326,325 | ||||||
| CONTINGENCIES AND COMMITMENTS (Note 3) |
||||||||
| STOCKHOLDERS’ EQUITY: |
||||||||
| Preferred Stock, $.01 par value, 10,000,000 shares authorized: 6.75% cumulative convertible preferred stock, 2,997,800 and 2,998,000 shares issued and outstanding as of March 31, 2004 and December 31, 2003, respectively, entitled in liquidation to $149,890,000 and $149,900,000 |
149,890 | 149,900 | ||||||
| 6.00% cumulative convertible preferred stock, 4,600,000 shares issued and outstanding as of March 31, 2004 and December 31, 2003, respectively, entitled in liquidation to $230,000,000 |
230,000 | 230,000 | ||||||
| 5.00% cumulative convertible preferred stock, 1,725,000 shares issued and outstanding as of March 31, 2004 and December 31, 2003, entitled in liquidation to $172,500,000 |
172,500 | 172,500 | ||||||
| 4.125% cumulative convertible preferred stock, 275,000 and 0 shares issued and outstanding as of March 31, 2004 and December 31, 2003, respectively, entitled in liquidation to $275,000,000 |
275,000 | — | ||||||
| Common Stock, $.01 par value, 350,000,000 shares authorized, 247,005,377 and 221,855,894 shares issued as of March 31, 2004 and December 31, 2003, respectively |
2,470 | 2,218 | ||||||
| Paid-in capital |
1,687,844 | 1,389,212 | ||||||
| Accumulated deficit |
(72,600 | ) | (168,617 | ) | ||||
| Accumulated other comprehensive income (loss), net of tax of $52,219,000 and $12,449,000, respectively |
(92,834 | ) | (20,312 | ) | ||||
| Less: treasury stock, at cost; 5,071,571 common shares as of March 31, 2004 and December 31, 2003 |
(22,091 | ) | (22,091 | ) | ||||
| Total Stockholders’ Equity |
2,330,179 | 1,732,810 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
$ | 5,557,462 | $ | 4,572,291 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three Months Ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| ($ in thousands, except per share data) |
||||||||
| REVENUES: |
||||||||
| Oil and gas sales |
$ | 419,793 | $ | 286,019 | ||||
| Oil and gas marketing sales |
143,336 | 90,308 | ||||||
| Total Revenues |
563,129 | 376,327 | ||||||
| OPERATING COSTS: |
||||||||
| Production expenses |
44,803 | 31,457 | ||||||
| Production taxes |
14,936 | 18,597 | ||||||
| General and Administrative Expenses: |
||||||||
| General and administrative (excluding stock based compensation) |
8,166 | 5,379 | ||||||
| Stock based compensation |
1,869 | — | ||||||
| Oil and gas marketing expenses |
139,664 | 89,358 | ||||||
| Oil and gas depreciation, depletion and amortization |
119,908 | 76,614 | ||||||
| Depreciation and amortization of other assets |
5,739 | 3,684 | ||||||
| Provisions for legal settlements |
— | 286 | ||||||
| Total Operating Costs |
335,085 | 225,375 | ||||||
| INCOME FROM OPERATIONS |
228,044 | 150,952 | ||||||
| OTHER INCOME (EXPENSE): |
||||||||
| Interest and other income |
1,343 | 763 | ||||||
| Interest expense |
(46,545 | ) | (37,004 | ) | ||||
| Loss on repurchases or exchanges of Chesapeake debt |
(6,925 | ) | — | |||||
| Total Other Income (Expense) |
(52,127 | ) | (36,241 | ) | ||||
| INCOME BEFORE INCOME TAX AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE |
175,917 | 114,711 | ||||||
| INCOME TAX EXPENSE: |
||||||||
| Current |
— | — | ||||||
| Deferred |
63,327 | 43,591 | ||||||
| Total Income Tax Expense |
63,327 | 43,591 | ||||||
| NET INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE |
112,590 | 71,120 | ||||||
| CUMULATIVE EFFECT OF ACCOUNTING CHANGE, NET OF INCOME TAXES OF $1,464,000 |
— | 2,389 | ||||||
| NET INCOME |
112,590 | 73,509 | ||||||
| PREFERRED STOCK DIVIDENDS |
(8,168 | ) | (3,526 | ) | ||||
| NET INCOME AVAILABLE TO COMMON SHAREHOLDERS |
$ | 104,422 | $ | 69,983 | ||||
| EARNINGS PER COMMON SHARE — BASIC: |
||||||||
| Income before cumulative effect of accounting change |
$ | 0.44 | $ | 0.34 | ||||
| Cumulative effect of accounting change |
— | 0.01 | ||||||
| $ | 0.44 | $ | 0.35 | |||||
| EARNINGS PER COMMON SHARE — ASSUMING DILUTION: |
||||||||
| Income before cumulative effect of accounting change |
$ | 0.38 | $ | 0.31 | ||||
| Cumulative effect of accounting change |
— | 0.01 | ||||||
| $ | 0.38 | $ | 0.32 | |||||
| CASH DIVIDEND DECLARED PER COMMON SHARE |
$ | 0.035 | $ | 0.03 | ||||
| WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING (in thousands): |
||||||||
| Basic |
236,884 | 197,608 | ||||||
| Assuming dilution |
299,241 | 230,672 | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Three Months Ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| ($ in thousands) | ||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
| NET INCOME |
$ | 112,590 | $ | 73,509 | ||||
| ADJUSTMENTS TO RECONCILE NET INCOME TO NET |
||||||||
| CASH PROVIDED BY OPERATING ACTIVITIES: |
||||||||
| Depreciation, depletion and amortization |
||||||||