This excerpt taken from the CHK 10-Q filed Aug 9, 2006.
Gain on Sale of Investment. In the Current Period, Chesapeake sold its investment in publicly-traded Pioneer Drilling Company (Pioneer) common stock, realizing proceeds of $158.9 million and a gain of $117.4 million. We owned 17% of the common stock of Pioneer, which we began acquiring in 2003.
Loss on Repurchases or Exchanges of Chesapeake Debt. We repurchased or exchanged Chesapeake debt in the Prior Period and incurred losses in connection with the transactions. The following table shows the losses related to the transactions ($ in millions):
There were no repurchases or exchanges of Chesapeake debt in the Current Period.
Income Tax Expense. Chesapeake recorded income tax expense of $627.1 million in the Current Period, compared to income tax expense of $183.2 million in the Prior Period. Our effective income tax rate increased to 38.9% in the Current Period compared to 36.5% in the Prior Period. This increase included the impact that both state income taxes and permanent differences had on our overall effective rate along with the effect of a Texas tax law change. In May 2006, Texas House Bill 3 was signed into law which eliminated the existing franchise tax and replaced it with a new income-based margin tax. The new tax is effective for tax returns due on or after January 1, 2008 for our 2007 business activity. Although the new margin tax is not effective until 2007, the provisions of SFAS 109, Accounting for Income Taxes, require us to record the impact that this change has on our liability for deferred income taxes in the period of enactment. As a result, we recorded $15 million in additional deferred state income tax expense, net of the federal income tax benefit, in the Current Period. Excluding the effect of this adjustment, our effective income tax rate was 38% for the Current Period. All 2005 income tax expense was deferred, and we expect most, if not all, of our 2006 income tax expense to be deferred.