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, 2003
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, 2003 and 2002
CHESAPEAKE ENERGY CORPORATION
SAVINGS AND INCENTIVE STOCK BONUS PLAN
Contents
December 31, 2003 and 2002
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PAGE
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.......................1
FINANCIAL STATEMENTS
Statements of Net Assets Available for Benefits...............................2
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).....................................10
Schedule of Reportable Transactions..........................................11
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Participants and the Members of the Employee Compensation and Benefits
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, 2003 and 2002, 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 statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
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. The 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 25, 2004
Oklahoma City, Oklahoma
1
CHESAPEAKE ENERGY CORPORATION
SAVINGS AND INCENTIVE STOCK BONUS PLAN
Statements of Net Assets Available for Benefits
December 31, 2003 and 2002
--------------------------------------------------------------------------------
2003 2002
Assets
Investments $ 53,858,347 $ 28,010,785
Receivables
Employer contributions 54,230 84,673
Participants' contributions 131,785 85,053
Dividends 98,622 72,339
-------------- ---------------
Total assets 54,142,984 28,252,850
-------------- ---------------
Liabilities
Accrued liabilities 18,780 28,794
--------------- --------------
Net assets available for benefits $ 54,124,204 $ 28,224,056
================ ===============
The accompanying notes are an integral part of these financial statements.
2
CHESAPEAKE ENERGY CORPORATION
SAVINGS AND INCENTIVE STOCK BONUS PLAN
Statements of Changes in Net Assets Available for Benefits
Years Ended December 31, 2003 and 2002
-------------------------------------------------------------------------------
2003 2002
ADDITIONS TO NET ASSETS ATTRIBUTED TO
Investment income
Interest and dividends $ 588,381 $ 293,691
Net appreciation in fair value of investments 18,439,319 1,572,008
-------------- --------------
Total investment income 19,027,700 1,865,699
-------------- --------------
Contributions
Employer 3,929,615 2,876,857
Participants 4,446,710 3,507,850
-------------- --------------
Total contributions 8,376,325 6,384,707
------------- --------------
Total additions 27,404,025 8,250,406
------------- --------------
DEDUCTIONS FROM NET ASSETS ATTRIBUTED TO
Benefits paid to participants 1,444,781 693,203
Administrative expenses 59,096 54,235
-------------- --------------
Total deductions 1,503,877 747,438
-------------- --------------
Net increase 25,900,148 7,502,968
NET ASSETS AVAILABLE FOR BENEFITS
Beginning of year 28,224,056 20,721,088
-------------- --------------
$ 54,124,204 $ 28,224,056
============== ==============
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, 2003 and 2002
--------------------------------------------------------------------------------
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 by the Plan. Participants may also
contribute amounts representing rollover distributions from other
qualified plans. The Company makes matching contributions of 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 2003 and 2002. 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. Participants may not
transfer or liquidate their investment in Common Stock arising from
employer contributions and earnings thereon until they elect to
withdraw from the Plan due to separation of service or elect an
in-service distribution upon attainment of age 59 1/2.
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. Prior to July 1, 2003,
participants received benefits based on a vesting schedule that
provided for 100 percent vesting upon completion of six years of
credited service. Effective July 1, 2003, a participant will be 100
percent vested after five years of credited service.
4
CHESAPEAKE ENERGY CORPORATION
SAVINGS AND INCENTIVE STOCK BONUS PLAN
Notes to Financial Statements
December 31, 2003 and 2002
--------------------------------------------------------------------------------
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, 2003 ranged from 4.00 percent to 9.50
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
$100,489 and $155,929 at December 31, 2003 and 2002, respectively.
During 2003 forfeited nonvested accounts of $63,008 were used to pay
administrative expenses of the plan and $75,000 to reduce employer
matching contributions.
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.
5
CHESAPEAKE ENERGY CORPORATION
SAVINGS AND INCENTIVE STOCK BONUS PLAN
Notes to Financial Statements
December 31, 2003 and 2002
-------------------------------------------------------------------------------
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.
RECLASSIFICATIONS
Certain reclassification adjustments have been made in the December 31,
2002 statement of net assets available for benefits to conform to the
current year presentation.
3. INVESTMENTS
The following presents investments that represented five percent or
more of the Plan's net assets:
2003 2002
Chesapeake Energy Corporation Common Stock $ 38,265,445 * $ 18,663,410 *
Fidelity Retirement Money Market Fund 1,961,837 ** 2,008,864
* Balances include nonparticipant-directed investments.
** Amount represents less than five percent of net assets at December
31, 2003, and is presented for comparative purposes only.
The Plan's investments (including gains and losses on investments
bought and sold, as well as held during the year) appreciated
(depreciated) in value as follows:
2003 2002
Mutual funds $ 2,600,468 $ (1,238,182)
Common stocks 15,838,851 2,810,190
-------------- --------------
$ 18,439,319 $ 1,572,008
============== ==============
6
CHESAPEAKE ENERGY CORPORATION
SAVINGS AND INCENTIVE STOCK BONUS PLAN
Notes to Financial Statements
December 31, 2003 and 2002
-------------------------------------------------------------------------------
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:
2003 2002
NET ASSETS
Chesapeake Energy Corporation common stock $ 38,265,445 $ 18,663,410
--------------- ----------------
CHANGES IN NET ASSETS
Contributions $ 4,605,462 $ 3,350,369
Dividend income 339,572 36,850
Net appreciation 15,838,851 2,810,190
Benefits paid to participants (980,729) (372,741)
Transfers to other investment options, net (201,121) (227,859)
--------------- ---------------
$ 19,602,035 $ 5,596,809
=============== ================
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.
7
CHESAPEAKE ENERGY CORPORATION
SAVINGS AND INCENTIVE STOCK BONUS PLAN
Notes to Financial Statements
December 31, 2003 and 2002
-------------------------------------------------------------------------------
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, 2003 net assets available for benefits in the amount
of $38,265,445 and $14,316,827 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, 2003 and 2002, as reflected in the accompanying
financial statements, to the Form 5500:
2003 2002
Net assets available for benefits per the financial statements $ 54,124,204 $ 28,224,056
Add: Accrued administrative expenses 18,780 28,794
Less: Accrued dividend income - (72,339)
---------------- ----------------
Net assets available for benefits per the Form 5500 $ 54,142,984 $ 28,180,511
================ ================
The following is a reconciliation of administrative expenses for the
years ended December 31, 2003 and 2002, as reflected in the
accompanying financial statements, to the Form 5500:
2003 2002
Administrative expenses per the financial statements $ 59,096 $ 54,235
Add: Previous year accrued administrative expenses 28,794 27,319
Less: Current year accrued administrative expenses (18,780) (28,794)
---------------- ----------------
Administrative expenses per the Form 5500 $ 69,110 $ 52,760
================ ================
Administrative expenses are recorded on the Form 5500 when paid.
8
The following is a reconciliation of interest and dividend income for
the year ended December 31, 2003 and 2002, as reflected on the
accompanying financial statements, to the form 5500:
2003 2002
Interest and dividends per the financial statements $ 588,381 $ 293,691
Add: Previous year accrued interest and dividend income 72,339 -
Less: Current year accrued interest and dividend income - (72,339)
---------------- ----------------
Interest and dividends per the Form 5500 $ 660,720 $ 221,352
================ ================
Prior to January 1, 2003 dividend income was recorded on the Form 5500
when paid. Effective January 1, 2003 dividend income was recorded on
the Form 5500 on the accrual basis of accounting.
9
CHESAPEAKE ENERGY CORPORATION
SAVINGS AND INCENTIVE STOCK BONUS PLAN
Schedule of Assets (Held at End of Year)
December 31, 2003 Schedule 1
-------------------------------------------------------------------------------
DESCRIPTION OF INVESTMENT
INCLUDING MATURITY DATE
IDENTITY OF ISSUE, BORROWER, RATE OF INTEREST, COLLATERAL, CURRENT
LESSOR, OR SIMILAR PARTY PAR, OR MATURITY VALUE COST VALUE
* Chesapeake Energy Corporation Common Stock $14,147,749 $ 38,265,445
* Fidelity Equity Inc. Mutual Funds ** 912,473
* Fidelity Growth Co. Mutual Funds ** 1,374,788
* Fidelity Inter Bond Mutual Funds ** 291,768
* Fidelity OTC Portfolio Mutual Funds ** 525,858
* Fidelity Low Priced Stock Fund Mutual Funds ** 2,175,546
* Fidelity Aggressive Growth Mutual Funds ** 1,137,226
* Fidelity Diversified International
Fund Mutual Funds ** 1,336,879
* Fidelity Freedom Income Mutual Funds ** 108,918
* Fidelity Freedom 2000 Mutual Funds ** 118,732
* Fidelity Freedom 2010 Mutual Funds ** 932,876
* Fidelity Freedom 2020 Mutual Funds ** 824,289
* Fidelity Freedom 2030 Mutual Funds ** 415,546
* Fidelity Freedom 2040 Mutual Funds ** 37,879
* Fidelity Retirement Money Market Mutual Funds ** 1,961,837
* Spartan US Equity Index Mutual Funds ** 1,863,641
Brokeragelink participant-directed Common Stocks & Mutual Funds **
brokerage accounts 336,355
Alger Small Cap Institutional Mutual Funds ** 177,039
Templeton Foreign A Mutual Funds ** 141,602
Lord Abbett Mid Cap Value Mutual Funds ** 81,108
* Participant Loans Interest Rates Ranging From ** 838,542
4.00 percent to 9.50 percent
--------------
$ 53,858,347
==============
* Identifies parties-in-interest
** Identifies participant-directed investment options for which presentation of
cost in the Schedule of Assets (Held at End of Year) is not required.
10
CHESAPEAKE ENERGY CORPORATION
SAVINGS AND INCENTIVE STOCK BONUS PLAN
Schedule of Reportable Transactions
Year Ended December 31, 2003 SCHEDULE 2
--------------------------------------------------------------------------------
TOTAL TOTAL
NUMBER OF NUMBER OF PURCHASE SELLING NET GAIN
DESCRIPTION OF ASSET PURCHASES SALES PRICE PRICE (LOSS)
*Chesapeake Energy Corporation
Stock Purchases 33 - $ 4,303,570 $ - $ -
-- - =========== ========== ==========
* Identifies parties-in-interest
11
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
By: /s/ MARY WHITSON
---------------------------------------
Mary Whitson, Plan Administrator
Date: June 28, 2004
12
EXHIBIT INDEX
Exhibit Description
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23 Consent of PricewaterhouseCoopers LLP
13