SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
ANNUAL REPORT PURSUANT TO SECTION 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Fee Required)
For the fiscal year ended December 31, 2002
Or
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d)OF THE SECURITIES EXCHANGE
ACT OF 1934
(No Fee Required)
For the transition period from ___________ to __________
Commission File No. 1-13726
A. Full title of the plan and the address of the plan, if different
from that of the issuer named below:
CHESAPEAKE ENERGY CORPORATION SAVINGS AND INCENTIVE
STOCK BONUS PLAN
6100 NORTH WESTERN AVENUE
OKLAHOMA CITY, OK 73118
B. Name of issuer of the securities held pursuant to the plan and the
address of its principal executive office:
CHESAPEAKE ENERGY CORPORATION
6100 NORTH WESTERN AVENUE
OKLAHOMA CITY, OK 73118
CHESAPEAKE ENERGY CORPORATION SAVINGS AND INCENTIVE STOCK BONUS PLAN
FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULES
DECEMBER 31, 2002 AND 2001
CHESAPEAKE ENERGY CORPORATION
SAVINGS AND INCENTIVE STOCK BONUS PLAN
CONTENTS
DECEMBER 31, 2002 AND 2001
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PAGE(S)
REPORT OF INDEPENDENT AUDITORS................................................2
FINANCIAL STATEMENTS
Statements of Net Assets Available for Benefits...............................3
Statements of Changes in Net Assets Available for Benefits....................3
Notes to Financial Statements.................................................4
SUPPLEMENTAL SCHEDULES
Schedule of Assets (Held at End of Year)......................................8
Schedule of Reportable Transactions...........................................9
REPORT OF INDEPENDENT AUDITORS
To the Participants and the Members of the Oversight Committee of the
Chesapeake Energy Corporation Savings and Incentive Stock Bonus Plan
In our opinion the accompanying statements of net assets available for benefits
and the related statements of changes in net assets available for benefits
present fairly, in all material respects, the net assets available for benefits
of the Chesapeake Energy Corporation Savings and Incentive Stock Bonus Plan (the
"Plan") at December 31, 2002 and 2001, and the changes in net assets available
for benefits for the years then ended, in conformity with accounting principles
generally accepted in the United States of America. These financial statements
are the responsibility of the Plan's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with auditing
standards generally accepted in the United States of America, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules of Assets
(Held at End of Year) and Reportable Transactions are presented for the purpose
of additional analysis and are not a required part of the basic financial
statements but are supplementary information required by the Department of
Labor's Rules and Regulations for Reporting and Disclosure under the Employee
Retirement Income Security Act of 1974. These supplemental schedules are the
responsibility of the Plan's management. These supplemental schedules have been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, are fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
PricewaterhouseCoopers LLP
June 6, 2003
Oklahoma City, Oklahoma
2
CHESAPEAKE ENERGY CORPORATION
SAVINGS AND INCENTIVE STOCK BONUS PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 2002 AND 2001
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2002 2001
------------- -------------
Assets $ 27,925,744 $ 20,727,877
Investments
Receivables
Employer contribution 84,673 -
Participants' contributions 85,053 -
Dividends 72,339 -
Cash 85,041 20,530
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Total assets 28,252,850 20,748,407
============= ============
Liabilities
Accrued liabilities 28,794 27,319
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Net assets available for benefits $ 28,224,056 $ 20,721,088
============= =============
The accompanying notes are an integral part of these financial statements.
CHESAPEAKE ENERGY CORPORATION
SAVINGS AND INCENTIVE STOCK BONUS PLAN
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
YEARS ENDED DECEMBER 31, 2002 AND 2001
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2002 2001
------------- -------------
Additions to net assets attributed to
Investment income
Interest and dividends $ 293,691 $ 216,172
Net appreciation (depreciation)
in fair value of investments 1,572,008 (6,773,115)
------------- --------------
Total investment income (loss) 1,865,699 (6,556,943)
------------- --------------
Contributions
Employer 2,876,857 1,837,636
Participants 3,507,850 2,298,617
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Total contributions 6,384,707 4,136,253
------------- --------------
Total additions 8,250,406 (2,420,690)
Deductions from net assets attributed to
Benefits paid to participants 693,203 392,858
Administrative expenses 54,235 59,260
------------- --------------
Total deductions 747,438 452,118
------------- --------------
Net increase (decrease) $ 7,502,968 $ (2,872,808)
Net assets available for benefits
Beginning of the year 20,721,088 23,593,896
------------- --------------
End of the year $ 28,224,056 $ 20,721,088
============= ==============
The accompanying notes are an integral part of these financial statements.
3
CHESAPEAKE ENERGY CORPORATION
SAVINGS AND INCENTIVE STOCK BONUS PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
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1. DESCRIPTION OF THE PLAN
The following is a brief summary of the various provisions of the
Chesapeake Energy Corporation Savings and Incentive Stock Bonus Plan
(the "Plan"). Participants should refer to the Plan agreement for a
complete description of the Plan's provisions.
GENERAL
The Plan is a defined contribution plan that covers all employees of
Chesapeake Energy Corporation and its subsidiaries (the "Company"),
except for the employees of NOMAC Drilling Corporation, a wholly-owned
subsidiary.
CONTRIBUTIONS
Each year, participants may contribute up to 15 percent of pre-tax
annual compensation, as defined in the Plan. Participants may also
contribute amounts representing rollover distributions from other
qualified plans. During 2001 the Company contributed 100 percent of the
first 10 percent of base compensation that a participant contributed to
the Plan. Effective January 1, 2002 the Plan was amended to increase
the maximum of employer matching contributions to 100 percent of the
first 15 percent of participant contributions. Profit sharing
contributions may be made at the discretion of the Company's board of
directors. No discretionary profit sharing contributions were made in
2002 and 2001. Contributions are subject to certain limitations.
The Company's matching contribution is used to purchase shares of
Chesapeake Energy Corporation Common Stock (the "Common Stock") on the
open market. Participants may also elect to direct all or a portion of
their contributions into the Common Stock.
PARTICIPANT ACCOUNTS
Each participant's account is credited with the participant's
contribution and allocations of the Company's contribution and Plan
earnings. Allocations are based on participant earnings or account
balances, as defined. The benefit to which a participant is entitled is
the benefit that can be provided from the participant's vested account
balance.
VESTING
Participants are immediately vested in their contributions plus actual
earnings thereon. Vesting in the Company's matching and profit sharing
contributions plus actual earnings thereon is based on years of
credited service or participant's age. A participant will be 100
percent vested after six years of credited service. Effective July 1,
2003, a participant will be 100 percent vested after five years of
credited service. Additionally, a participant will become fully vested
upon attaining age 55, early retirement age under the plan, and
completing five years of service.
4
PARTICIPANT NOTES RECEIVABLE
Participants may borrow from their accounts a minimum of $1,000 up to a
maximum equal to the lesser of $50,000 or 50 percent of their vested
account balance. Loan terms range from one to five years or up to ten
years for the purchase of a primary residence. The loans are
collateralized by the balance in the participant's account and bear
interest at the Prime Interest Rate. Principal and interest is paid
ratably through semi-monthly payroll deductions. Interest rates on
loans outstanding at December 31, 2002 ranged from 4.75 percent to 9.75
percent.
PAYMENT OF BENEFITS
Upon termination of service due to death, retirement or separation from
service, a participant may elect to receive either a lump-sum amount
equal to the value of the participant's vested interest in his or her
account, annual installments, or have the value rolled over to another
qualified plan or IRA. Those participants who were Plan participants as
of December 31, 1999 may elect to receive benefits in the form of
annuity payments.
AMOUNTS FORFEITED
Forfeited nonvested amounts are first used to pay administrative
expenses of the Plan or to restore unvested amounts to re-employed
participants. Any remaining forfeitures are used to reduce Company
contributions into the Plan. Forfeited nonvested accounts totaled
$155,929 and $151,097 at December 31, 2002 and 2001, respectively.
During 2002 forfeited nonvested accounts of $111,429 were used to
reduce employer matching contributions and $48,019 to pay
administrative expenses of the Plan.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The financial statements of the Plan are prepared under the accrual
method of accounting.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of net assets
available for benefits at the date of the financial statements and the
changes in net assets available for benefits during the reporting
period. Actual results could differ from those estimates.
INVESTMENT VALUATION AND INCOME RECOGNITION
The Plan's investments are stated at fair value. Shares of mutual funds
are valued at quoted market prices on the last business day of the
year. Chesapeake Energy Corporation common stock is valued at the
closing market price on the last business day of the year, according to
the New York Stock Exchange. Participant loans receivable are valued at
outstanding principal balance, which approximates fair value.
Purchases and sales of securities are recorded on a trade-date basis.
Investment income is recorded on the accrual basis. Dividends are
recorded on the ex-dividend date.
The Plan presents, in the statement of changes in net assets available
for benefits, the net appreciation (depreciation) in the fair value of
investments which consists of the realized gains or losses and the
unrealized appreciation (depreciation) on those investments.
PAYMENT OF BENEFITS
Benefits are recorded when paid.
RISKS AND UNCERTAINTIES
Investment securities are exposed to various risks, such as interest
rate, market, and credit risk. Due to the level of risk associated with
certain investment securities, it is at least reasonably possible that
changes in value of investment securities will occur in the near term
and that such changes could materially affect participants' account
balances and the amounts reported in the statement of net assets
available for benefits and the statement of changes in net assets
available for benefits.
5
3. INVESTMENTS
The following presents investments that represent five percent or more
of the Plan's net assets:
2002 2001
----------- --------------
Chesapeake Energy Corporation Common Stock $18,663,410 * $13,066,600 *
Fidelity Retirement Money Market Fund 2,008,864 1,444,950
* Balances include nonparticipant-directed investments
The Plan's investments (including gains and losses on investment bought
and sold, as well as held during the year) appreciated (depreciated) in
value as follows:
2002 2001
----------- -------------
Mutual Funds $(1,238,182) $ (574,569)
Chesapeake Energy Corporation Common Stock 2,810,190 (6,198,546)
----------- ----------
$ 1,572,008 $ (6,773,115)
============ =============
4. NONPARTICIPANT-DIRECTED INVESTMENTS
Investment in the Chesapeake Energy Corporation common stock includes
balances arising from nonparticipant-directed employer matching
contributions, as well as participant-directed contributions and
transfers from other investment options. Information about the net
assets and the significant components of the changes in net assets
relating to investments in the Chesapeake Energy Corporation common
stock is as follows:
2002 2001
------------- -------------
Net assets
Cheapeake Energy Corporation
common stock $ 18,663,410 $ 13,066,600
------------- --------------
Changes in net assets
Contributions $ 3,350,369 $ 2,288,132
Net appreciation (depreciation) 2,810,190 (6,198,546)
Benefits paid to participants (372,741) (218,364)
Transfers from (to) other
investments options, net (191,009) (151,513)
-------------- -------------
$ 5,596,809 $ (4,280,291)
-------------- -------------
5. PARTY-IN-INTEREST TRANSACTIONS
Certain Plan investments are shares of Chesapeake Energy Corporation
common stock. These transactions represent investments in the Company,
and, therefore, qualify as party-in-interest transactions. Further,
certain Plan investments are shares of mutual funds managed by Fidelity
Investments. Fidelity Management Trust Company is the trustee as
defined by the Plan, and, therefore, transactions in mutual funds
managed by Fidelity Investments qualify as party-in-interest
transactions.
6. TAX STATUS
The Plan obtained its latest determination letter on April 22, 1997, in
which the Internal Revenue Service stated that the Plan, as then
designed, was in compliance with the applicable requirements of the
Internal Revenue Code (the "IRC"). The Plan has been amended since
receiving the determination letter. However, the plan administrator and
the plan's tax counsel believe the Plan is currently designed and being
operated in compliance with the applicable requirements of the IRC.
Therefore, no provision for income taxes has been included in the
plan's financial statements.
6
7. PLAN TERMINATION
Although the Company has not expressed any intent to do so, the Company
reserves the right to change, amend or discontinue the Plan at any
time, subject to the provisions of ERISA. In the event of
discontinuance of the Plan, participants will become 100 percent vested
in their accounts.
8. CONCENTRATION OF INVESTMENTS
As of December 31, 2002 net assets available for benefits in the amount
of $18,663,410 and $8,422,856 were invested in Chesapeake Energy Common
Stock and mutual funds managed by Fidelity Investments, respectively.
9. RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500
The following is a reconciliation of net assets available for benefits
as of December 31, 2002 and 2001, as reflected in the accompanying
financial statements to the Form 5500:
2002 2001
------------- -------------
Net Assets available for
benefits per the
financial statements $ 28,224,056 $ 20,721,088
Add: Accrued administrative
expenses 28,794 27,319
Less: Accrued dividend
income 72,339 -
------------- -------------
Net assets available
for benefits per the Form 5500 $ 28,180,511 $ 20,748,407
------------- -------------
The following is a reconciliation of administrative expenses for the
year ended December 31, 2002 and 2001, as reflected in the accompanying
financial statements to the Form 5500:
2002 2001
------------- -------------
Administrative expenses per the
financial statements $ 54,235 59,260
Add: Previous year accrued
administrative expenses 27,319 -
Less: Current year accrued
administrative expenses (28,794) (27,319)
-------------- -------------
Administrative expenses per
the Form 5500 $ 52,760 $ 31,941
============= ============
Administrative expenses are recorded on the Form 5500 when paid.
7
CHESAPEAKE ENERGY CORPORATION
SAVINGS AND INCENTIVE STOCK BONUS PLAN
SCHEDULE H, Line 4i - Schedule of Assets (Held at End of Year)
DECEMBER 31, 2002
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Description of
Investment Including
Maturity Date
Identity of Issue, Borrower, Collateral Par, or
Lessor, or Similar Party Maturity Value Cost Value
*Chesapeake Energy Corporation Common Stock $ 9,639,691 $18,663,410
*Fidelity Equity Inc. Mutual Funds ** 464,155
*Fidelity Growth Co. Mutual Funds ** 594,248
*Fidelity OTC Portfolio Mutual Funds ** 287,575
*Fidelity Low Priced Stock Fund Mutual Funds ** 1,124,063
*Fidelity Aggressive Growth Mutual Funds ** 524,494
*Fidelity Diversified Mutual Funds **
International Fund Mutual Funds ** 807,177
*Fidelity Freedom Income Mutual Funds ** 55,011
*Fidelity Freedom 2000 Mutual Funds ** 75,647
*Fidelity Freedom 2010 Mutual Funds ** 532,643
*Fidelity Freedom 2020 Mutual Funds ** 434,014
*Fidelity Freedom 2030 Mutual Funds ** 245,924
*Fidelity Freedom 2040 Mutual Funds ** 6,307
*Fidelity Retirement Money Market Mutual Funds ** 2,008,864
*Spartan US Equity Index Mutual Funds ** 1,262,734
Brokeragelink participant- Common Stock ** 145,852
directed brokerage accounts
Alger Small Cap Institutional Mutual Funds ** 61,948
Templeton Foreign A Mutual Funds ** 70,833
Participant Loans Interest Rates Ranging **
From 4.75% to 9.75% 560,845
----------
$27,925,744
===========
* Identifies parties-in-interest
** Identifies particpant-directed investment options for which presentation of
cost in the Schedule of Assets (Held at End of Year) is not required.
8
CHESAPEAKE ENERGY CORPORATION
SAVINGS AND INCENTIVE STOCK BONUS PLAN
SCHEDULE H, Line 4j - Schedule of Reportable Transactions
DECEMBER 31, 2002
-------------------------------------------------------------------------------
Description Number of Number of Total Total
of Assets Purchases Sales Purchase Selling Net Gain
Price Price (Loss)
Chesapeake Energy
Corporation
Stock Purchases 27 - $ 3,002,355 $ - $ -
----------- ------- --------
9
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
trustee has duly caused this annual report to be signed on its behalf by the
undersigned hereunto duly authorized.
CHESAPEAKE ENERGY CORPORATION
SAVINGS AND INCENTIVE STOCK BONUS PLAN
/s/ Mary Whitson
----------------------------------
Mary Whitson, Plan Administrator
Date: June 30, 2003
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EXHIBIT INDEX
Exhibit Description
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23 Consent of PricewaterhouseCoopers LLP
99.1 - Marcus C. Rowland, Executive Vice President and Chief Financial Officer,
Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Martha A, Burger, Senior Vice President and Treasurer,
Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
11