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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT MAY 26, 1998
------------------------------------
DATE OF EARLIEST EVENT REPORTED MARCH 10, 1998
------------------------------------
CHESAPEAKE ENERGY CORPORATION
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its Charter)
OKLAHOMA 1-13726 73-1395733
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
6100 NORTH WESTERN AVENUE, OKLAHOMA CITY, OKLAHOMA 73118
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(Address of principal executive offices) (Zip Code)
(405) 848-8000
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(Registrant's telephone number, including area code)
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INFORMATION TO BE INCLUDED IN THE REPORT
This Form 8-K/A amends the registrant's Form 8-K dated March 10, 1998,
which was filed on March 26, 1998.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements of businesses acquired:
The financial statements of Hugoton Energy Corporation
("Hugoton") as of and for the year ended December 31, 1997
filed as a part of Hugoton's annual report on Form 10-K for
the year ended December 31, 1997 are incorporated herein by
reference.
(b) Pro forma financial information:
The unaudited pro forma financial information required
pursuant to Article 11 of Regulation S-X is filed herewith.
(c) Exhibits:
2.1 Agreement and Plan of Merger dated November 12, 1997
among Chesapeake Energy Corporation, Chesapeake
Acquisition Corp. and Hugoton Energy Corporation, as
amended by Amendment No. 1 thereto dated as of
February 9, 1998. Incorporated herein by reference to
Exhibits 2.1 and 2.2 to the Company's Registration
Statement on Form S-4 (No. 333-46129).
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
CHESAPEAKE ENERGY CORPORATION
BY: /S/ AUBREY K. MCCLENDON
---------------------------------------
AUBREY K. MCCLENDON,
Chairman of the Board and
Chief Executive Officer
Dated: May 26, 1998
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INDEX TO PRO FORMA COMBINED FINANCIAL DATA
CHESAPEAKE ENERGY CORPORATION & SUBSIDIARIES
<TABLE>
<S> <C>
Unaudited Pro Forma Combined Balance Sheet as of December 31, 1997.................. 7
Unaudited Pro Forma Combined Statement of Operations for the
Year Ended December 31, 1997...................................................... 8
Notes to Unaudited Pro Forma Combined Financial Data................................ 9
</TABLE>
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PRO FORMA COMBINED FINANCIAL DATA
The following unaudited pro forma combined financial statements give
effect to the merger of Hugoton Energy Corporation ("Hugoton") and an indirect
subsidiary of Chesapeake Energy Corporation (`Chesapeake") on March 10, 1998.
The information is derived from the historical financial statements of
Chesapeake and Hugoton. The Unaudited Pro Forma Combined Statement of Operations
for the year ended December 31, 1997 reflects the Hugoton acquisition (accounted
for as a purchase) as if it had occurred on January 1, 1997. The Unaudited Pro
Forma Combined Balance Sheet at December 31, 1997 reflects the consummation of
the Hugoton acquisition as if it had occurred on December 31, 1997. The
unaudited pro forma combined financial information should be read in conjunction
with the notes thereto and the historical financial statements of Chesapeake and
Hugoton, including the notes thereto, which are incorporated by reference in
this Form 8-K/A.
The unaudited pro forma combined financial statements do not purport to
be indicative of the results of operations that would actually have occurred if
the Hugoton acquisition had occurred as presented in such statements or that may
occur in the future. In addition, future results may vary significantly from the
results reflected in such statements due to general economic conditions, oil and
gas commodity prices, Chesapeake's ability to successfully integrate the
operations of Hugoton with its current business and several other factors, many
of which are beyond Chesapeake's control.
The Hugoton acquisition is accounted for using the purchase method, and
the purchase cost has been allocated to the Hugoton assets and liabilities based
on their respective fair values. The final allocation of the actual purchase
price for the acquisition is subject to the final valuation of the acquired
assets, but that allocation is not expected to differ materially from the
preliminary allocation.
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CHESAPEAKE ENERGY CORPORATION & SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
--------------------------------------------------------------
CHESAPEAKE HUGOTON ADJUSTMENTS AS ADJUSTED
----------- ----------- ----------- -----------
ASSETS
<S> <C> <C> <C> <C>
Current assets .................................................. $ 217,721 $ 14,227 $ -- $ 231,948
----------- ----------- ----------- -----------
Property, plant & equipment
Proved ........................................................ 1,095,363 262,783 49,196 (a) 1,407,342
Unproved ...................................................... 125,155 14,466 -- 139,621
Accumulated depreciation, depletion and amortization........... (602,391) (83,901) (54,870)(a)(h) (741,162)
----------- ----------- ----------- -----------
Net proved and unproved
properties .................................................. 618,127 193,348 (5,674)(a) 805,801
Other, net .................................................... 61,060 4,068 -- 65,128
----------- ----------- ----------- -----------
Total property, plant &
equipment, net ............................................ 679,187 197,416 (5,674) 870,929
----------- ----------- ----------- -----------
Other ........................................................... 55,876 1,577 -- 57,453
----------- ----------- ----------- -----------
Total assets ................................................ $ 952,784 $ 213,220 $ (5,674) $ 1,160,330
=========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities ............................................. $ 153,480 $ 12,531 $ 15,000(a) $ 181,011
----------- ----------- ----------- -----------
Long-Term debt .................................................. 508,992 110,000 -- 618,992
----------- ----------- ----------- -----------
Other liabilities ............................................... 10,106 460 -- 10,566
----------- ----------- ----------- -----------
Stockholders' equity
Common stock .................................................. 743 198 60(a) 1,001
Paid-in capital ............................................... 460,733 135,745 72,322(a) 668,800
Accumulated earnings (deficit) ................................ (181,270) (45,714) (93,056)(a) (320,040)
----------- ----------- ----------- -----------
Total stockholders' equity .................................. 280,206 90,229 (20,674) 349,761
----------- ----------- ----------- -----------
Total liabilities and
stockholders' equity ...................................... $ 952,784 $ 213,220 $ (5,674) $ 1,160,330
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this pro forma combined
balance sheet.
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CHESAPEAKE ENERGY CORPORATION & SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
TWELVE MONTHS ENDED DECEMBER 31, 1997
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
---------------------------------------------------------------
CHESAPEAKE HUGOTON ADJUSTMENTS AS ADJUSTED
--------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Oil and gas sales............ $ 198,410 $ 75,703 -- $ 274,113
Oil and gas marketing sales.. 104,394 -- -- 104,394
Interest and other........... 87,673 1,039 -- 88,712
--------- -------- -------- ---------
Total revenues............. 390,477 76,742 -- 467,219
Costs and expenses:
Operating costs.............. 19,327 25,694 -- 45,021
Oil and gas marketing expenses 103,819 -- -- 103,819
Depreciation, depletion
and amortization........... 131,789 35,639 (11,774) (d) 155,654
Exploration.................. -- 20,304 (20,304) (c) --
Writedown.................... 346,000 36,209 102,561 (h) 484,770
General and administrative... 10,910 9,981 (2,316) (c) 18,575
Interest..................... 29,782 6,752 (1,576) (c) 34,958
Other........................ -- 794 -- 794
--------- -------- -------- ---------
Total costs and expenses... 641,627 135,373 66,591 843,591
Loss before income taxes
and extraordinary item....... (251,150) (58,631) (66,591) (376,372)
Income tax benefit............. (17,898) (16,128) -- (e) (34,026)
--------- -------- -------- ---------
Net loss before extraordinary item $(233,252) $(42,503) $(66,591) $(342,346)
========= ======== ======== =========
Earnings per share - Basic and
diluted...................... $ (3.30) $ (3.55)
========= =========
Weighted average shares
outstanding (i).............. 70,672 96,463
========= =========
</TABLE>
The accompanying notes are an integral part of this pro forma
combined statement of operations.
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NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS)
(a) Chesapeake issued approximately 25.8 million shares of common stock at $8
per share, gave effect to the exchange and immediate vesting of Hugoton
stock options for Chesapeake stock options by recording a $2 million
purchase price adjustment related to the estimated fair value of such
options and incurred costs of approximately $15 million (including $7.5
million estimated termination costs for Hugoton executives and employees)
to acquire Hugoton. The following is the allocation of the purchase price:
<TABLE>
<S> <C>
Issuance of common stock .............................. $ 206,325
Fair value of converted Hugoton stock options ......... 2,000
Other acquisition costs ............................... 15,000
---------
Purchase price .............................. $ 223,325
=========
Current assets ........................................ $ 14,227
PP&E - proved properties .............................. 311,978
PP&E - unevaluated properties ......................... 14,466
Other PP&E ............................................ 4,068
Other assets .......................................... 1,577
Current liabilities ................................... (12,531)
Debt .................................................. (110,000)
Other liabilities ..................................... (460)
---------
Purchase price .............................. $ 223,325
=========
</TABLE>
(b) Chesapeake changed its fiscal year end from June 30 to December 31. The
following is a reconciliation of financial information, as reported, to the
Chesapeake historical financial data included in this pro forma
information:
<TABLE>
<CAPTION>
CHESAPEAKE (AS REPORTED)
--------------------------------------------------------
Year Ended Six Months Ended Six Months Ended Twelve Months Ended
June 30, 1997 December 31, 1996 December 31, 1997 December 31, 1997
--------------- ----------------- ----------------- -------------------
<S> <C> <C> <C> <C>
Revenues ..................... $ 280,315 $ (122,702) $ 232,864 $ 390,477
Costs & expenses ............. 460,645 (83,456) 264,438 641,627
Income tax ................... (3,573) (14,325) -- (17,898)
Income (loss) before
extraordinary item ......... $ (176,757) $ (24,921) $ (31,574) $ (233,252)
</TABLE>
(c) Hugoton accounted for its oil and gas properties and results of operations
on the successful efforts method. The following reflects the entries to
convert Hugoton to the full cost method. The entries were derived from the
historical accounting records of Hugoton.
<TABLE>
<CAPTION>
Twelve Months Ended
December 31, 1997
-------------------
COSTS AND EXPENSES:
<S> <C>
Exploration .......................... $(20,304)
Internal costs(1) .................... $ (2,316)
Interest ............................. $ (1,576)
</TABLE>
- ----------
(1) Internal costs, consisting of costs directly related to
acquisition, exploration and development activities, were
previously reported as general and administrative.
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(d) To record DD&A expense of oil and gas properties using $1.34 per Mcfe for
Chesapeake and Hugoton.
(e) SFAS 109 requires that the Company record a valuation allowance when it is
more likely than not that some portion or all of the deferred tax assets
will not be realized. In the six months ended December 31, 1997 and the
fourth quarter of fiscal 1997, the Company recorded a $110 million
writedown and a $236 million writedown, respectively, related to the
impairment of oil and gas properties. On a pro forma basis, the Company
recorded an additional $139 million writedown related to the impairment of
its oil and gas properties as of December 31, 1997. The writedowns and
significant tax net operating loss carryforwards (caused primarily by
expensing intangible drilling costs for tax purposes) resulted in a net
deferred tax asset at December 31, 1997 (on an actual and pro forma
basis). Management believes it is more likely than not that the Company
will generate future tax net operating losses for at least the next five
years, based in part on the Company's continued drilling efforts.
Therefore, the Company has recorded a valuation allowance equal to the net
deferred tax asset. Had the Company recorded the income tax effect of the
pro forma adjustments using a statutory rate of 40%, the pro forma income
tax benefit would have been $61 million.
(f) EPS has been calculated using the weighted average shares outstanding
assuming the transaction had been consummated at the beginning of the
period and is calculated as follows:
<TABLE>
<CAPTION>
Twelve Months Ended
December 31, 1997
------------------
<S> <C>
Chesapeake's weighted average shares
Outstanding, as reported ....................... 70,672
Issuance of common stock to Hugoton .............. 25,791
------
As adjusted ...................................... 96,463
======
</TABLE>
As of December 31, 1997, common shares outstanding for Hugoton were
19,838,000.
(g) Estimated total proved pro forma reserves at December 31, 1997 were as
follows:
<TABLE>
<CAPTION>
PROVED
RESERVES
(MMCFE)
---------------
<S> <C>
Chesapeake ................................................. 448,474
Hugoton .................................................... 246,193
As adjusted ............................................ 694,667
</TABLE>
(h) Capitalized costs, less accumulated amortization and related deferred
income taxes, may not exceed an amount equal to the sum of the present
value of estimated future net revenues less estimated future expenditures
to be incurred in developing and producing the proved reserves, less any
related income tax effects. At December 31, 1997 and on a pro forma basis,
capitalized costs of Hugoton's oil and gas properties exceeded the
estimated present value of future net revenues from Hugoton's proved
reserves, net of related income tax considerations, resulting in a pro
forma writedown in the carrying value of oil and gas properties of an
additional $139 million.
(i) On March 17, 1997, the Company issued $150 million principal amount of
7.875% Senior Notes due 2004 and $150 million principal amount of 8.5%
Senior Notes due 2012. Had the Company issued the notes on January 1, 1997,
the Company would have incurred additional interest costs of $17.4 million.
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