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I need help with this exercise. The questions are all the way down, and the financial statements follow (so you

have to work your way up) Thank you so much for your help!







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Prof. Paul Zarowin Financial Reporting and Disclosure Fall, 2019 Mini-case Assignment #3 - Non-Current Liabilities - Chesapeake Energy, 2018 attached please find Income Statement, Balance Sheet, and footnote 3 on Debt from Chesapeake
Energy’s 2018 10K. All rates shown in the footnote are Coupon Rates. Assume annual
compounding. Answer the following questions. 1. For the 8.00% senior notes due 2015 (11Eh row), what is the effective market rate on these
notes? 2. What will be the carrying amount (NBV) at December 31, 2019?
3. Redo # 1 assuming that 8.00% is the effective market rate; i.e., compute the coupon rate.
4. Compute the firm’s ROA (NI/end of year TA). 5. Recompute the ratio in #4 assuming that right before year-end, the firm swapped these bonds
for new par bonds with a par and NBV of 1,500.

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CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
2018
2017
($ in millions)
CURRENT ASSETS:
Cash and cash equivalents ($1 and $2 attributable to our VIE)
4
$
5
Accounts receivable, net
1,247
1,322
Short-term derivative assets
209
27
Other current assets
138
171
Total Current Assets
1,598
1,525
PROPERTY AND EQUIPMENT:
Oil and natural gas properties, at cost based on full cost accounting:
Proved oil and natural gas properties
($488 and $488 attributable to our VIE)
69,642
68,858
Unproved properties
2,337
3,484
Other property and equipment
1,721
1,986
Total Property and Equipment, at Cost
73,700
74,328
Less: accumulated depreciation, depletion and amortization
(($465) and ($461) attributable to our VIE)
(64,685)
(63,664)
Property and equipment held for sale, net
15
16
Total Property and Equipment, Net
9,030
10,680
LONG-TERM ASSETS:
Long-term derivative assets
76
Other long-term assets
243
220
TOTAL ASSETS
$
10,947
$
12,425

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CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31,
2018
2017
2016
($ in millions except per share data)
REVENUES:
Oil, natural gas and NGL
5,155
$
4,985
$
3,288
Marketing
5,076
4,511
4,584
Total Revenues
10,231
9,496
7,872
OPERATING EXPENSES:
Oil, natural gas and NGL production
539
562
710
Oil, natural gas and NGL gathering, processing and transportation
1,398
1,471
1,855
Production taxes
124
89
74
Marketing
5,158
4,598
4,778
General and administrative
280
262
240
Restructuring and other termination costs
38
Provision for legal contingencies, net
26
(38)
123
Depreciation, depletion and amortization
1,145
995
1,107
Loss on sale of oil and natural gas properties
578
Impairments
53
5
3,025
Other operating expenses
10
413
365
Total Operating Expenses
9,349
3,357
12,283
INCOME (LOSS) FROM OPERATIONS
882
1,139
4,411)
OTHER INCOME (EXPENSE):
Interest expense
(487)
(426)
(296)
Gains (losses) on investments
139
(137)
Gains on purchases or exchanges of debt
263
233
236
Other income
70
19
Total Other Expense
(15)
184)
178)
INCOME (LOSS) BEFORE INCOME TAXES
867
955
4,589)
INCOME TAX EXPENSE (BENEFIT):
Current income taxes
(9)
(19)
Deferred income taxes
(10)
11
(171)
Total Income Tax Expense (Benefit)
(10)
190
NET INCOME (LOSS)
877
953
4,399)
Net (income) loss attributable to noncontrolling interests
(4)
(4)
NET INCOME (LOSS) ATTRIBUTABLE TO CHESAPEAKE
373
949
(4,390)
Preferred stock dividends
(92)
(85)
(97)
Loss on exchange of preferred stock
(41)
(428)
Earnings allocated to participating securities
(6)
(10)
NET INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS
$
775
$
813
$
(4,915)
EARNINGS (LOSS) PER COMMON SHARE:
Basic
0.85
$
0.90
$
(6.43)
Diluted
0.85
0.90
$
(6.43)
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING (in millions):
Basic
909
06
764
Diluted
909
906
764

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CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
3.
Debt
Our long-term debt consisted of the following as of December 31, 2018 and 2017:
December 31, 2018
December 31, 2017
Principal
Carrying
Principal
Carrying
Amount
Amount
Amount
Amount
$ in millions)
7.25% senior notes due 2018
44
44
Floating rate senior notes due 2019
380
380
380
380
6.625% senior notes due 2020
437
437
437
437
6.875% senior notes due 2020
227
227
227
227
6.125% senior notes due 2021
548
548
548
548
5.375% senior notes due 2021
267
267
267
267
4.875% senior notes due 2022
451
451
451
451
8.00% senior secured second lien notes due
2022()
1,416
1,895
5.75% senior notes due 2023
338
338
338
338
7.00% senior notes due 2024
850
850
8.00% senior notes due 2025
1,300
1,291
1,300
1,290
5.5% convertible senior notes due 2026(b)(c)(d)
1,250
866
1,250
837
7.5% senior notes due 2026
400
400
8.00% senior notes due 2027
1,300
1,299
1,300
1,298
2.25% contingent convertible senior notes
due 2038(5)tu)
9
8
Term loan due 2021
1,233
1,233
Revolving credit facility
419
419
781
781
Debt issuance costs
(53)
(63)
Interest rate derivatives
2
Total debt, net
8,168
7,722
9,981
9,973
Less current maturities of long-term debt,
net()
(381)
(381)
(53)
(52)
Total long-term debt, net
7,787
$
7,341
$
9,928
$
9,921
a) The carrying amount as of December 31, 2017 included a premium amount of $479 million associated with a
troubled debt restructuring. The premium was being amortized based on the effective yield method.
(b) We are required to account for the liability and equity components of our convertible debt instruments separately
and to reflect interest expense through the first demand repurchase date, as applicable, at the interest rate of
similar nonconvertible debt at the time of issuance. The applicable rates for our 2.25% Contingent Convertible
Senior Notes due 2038 and our 5.5% Convertible Senior Notes due 2026 are 8.0% and 11.5%, respectively.
(c) The conversion and redemption provisions of our convertible senior notes are as follows:
Optional Conversion by Holders. Prior to maturity under certain circumstances and at the holder's option,
the notes are convertible. The notes may be converted into cash, our common stock, or a combination of cash
and common stock, at our election. One triggering circumstance is when the price of our common stock exceeds
a threshold amount during a specified period in a fiscal quarter. Convertibility based on common stock price is
measured quarterly. During the fourth quarter of 2018, the price of our common stock was below the threshold
level and, as a result, the holders do not have the option to convert their notes in the first quarter of 2019 under
this provision. The notes are also convertible, at the holder's option, during specified five-day periods if the trading
price of the notes is below certain levels determined by reference to the trading price of our common stock. The
notes were not convertible under this provision during the year ended December 31, 2018. Upon conversion of
79

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