-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HAC9k6nV8WtjywkCvkVr5c6vpquvVgO2EE64FXue3vmCtgGYS/V817YCqD9VSXF4 gVI/RI7bfsiAwBmuSmbeaw== 0000950129-02-002518.txt : 20020515 0000950129-02-002518.hdr.sgml : 20020515 ACCESSION NUMBER: 0000950129-02-002518 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: APACHE CORP CENTRAL INDEX KEY: 0000006769 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 410747868 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-04300 FILM NUMBER: 02647941 BUSINESS ADDRESS: STREET 1: 2000 POST OAK BLVD STREET 2: ONE POST OAK CENTER STE 100 CITY: HOUSTON STATE: TX ZIP: 77056-4400 BUSINESS PHONE: 7132966000 MAIL ADDRESS: STREET 1: 2000 POST OAK BLVD STREET 2: STE 100 CITY: HOUSTON STATE: TX ZIP: 77056-4400 FORMER COMPANY: FORMER CONFORMED NAME: APACHE OIL CORP DATE OF NAME CHANGE: 19660830 10-Q 1 h96753e10-q.txt APACHE CORPORATION - DATED 3/31/2002 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended March 31, 2002 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from ___________________ to _____________________ Commission File Number 1-4300 APACHE CORPORATION ------------------------------------------------------ (Exact Name of Registrant as Specified in Its Charter) Delaware 41-0747868 ------------------------------- -------------------- (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification Number) Suite 100, One Post Oak Central 77056-4400 2000 Post Oak Boulevard, Houston, TX ---------- - ---------------------------------------- (Zip Code) (Address of Principal Executive Offices) Registrant's Telephone Number, Including Area Code: (713) 296-6000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ----- ----- Number of shares of Registrant's common stock, outstanding as of March 31, 2002.........................137,412,151 PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS APACHE CORPORATION AND SUBSIDIARIES STATEMENT OF CONSOLIDATED OPERATIONS (UNAUDITED)
FOR THE QUARTER ENDED MARCH 31, --------------------------------- 2002 2001 ------------ ------------ (In thousands, except per common share data) REVENUES: Oil and gas production revenues ............... $ 521,729 $ 801,598 Other revenues (losses) ....................... (1,393) (6,455) ------------ ------------ 520,336 795,143 ------------ ------------ OPERATING EXPENSES: Depreciation, depletion and amortization ...... 211,039 172,530 International impairments ..................... 4,600 -- Lease operating costs ......................... 112,577 90,107 Severance and other taxes ..................... 14,499 21,293 Administrative, selling and other ............. 25,352 20,376 Financing costs: Interest expense ........................... 36,882 44,712 Amortization of deferred loan costs ........ 334 502 Capitalized interest ....................... (10,022) (15,085) Interest income ............................ (1,169) (877) ------------ ------------ 394,092 333,558 ------------ ------------ PREFERRED INTERESTS OF SUBSIDIARIES .............. 3,533 -- ------------ ------------ INCOME BEFORE INCOME TAXES ....................... 122,711 461,585 Provision for income taxes .................... 42,039 179,384 ------------ ------------ NET INCOME ....................................... 80,672 282,201 Preferred stock dividends ..................... 4,908 4,908 ------------ ------------ INCOME ATTRIBUTABLE TO COMMON STOCK .............. $ 75,764 $ 277,293 ============ ============ NET INCOME PER COMMON SHARE: Basic ......................................... $ 0.55 $ 2.03 ============ ============ Diluted ....................................... $ 0.55 $ 1.95 ============ ============
The accompanying notes to consolidated financial statements are an integral part of this statement. 1 APACHE CORPORATION AND SUBSIDIARIES STATEMENT OF CONSOLIDATED CASH FLOWS (UNAUDITED)
FOR THE QUARTER ENDED MARCH 31, ------------------------------- 2002 2001 ------------ ------------ (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income ................................................................. $ 80,672 $ 282,201 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization ............................. 211,039 172,530 Provision for deferred income taxes .................................. (348) 98,920 International impairments ............................................ 4,600 -- Amortization of derivative (gains)/losses ............................ (7,089) -- Other ................................................................ 334 3,376 Changes in operating assets and liabilities, net of effects of acquisitions: (Increase) decrease in receivables ................................... (28,973) 44,477 (Increase) decrease in advances to oil and gas ventures and other .... (18,533) (20,672) (Increase) decrease in product inventory ............................. 28 (107) (Increase) decrease in deferred charges and other .................... (582) (1,310) Increase (decrease) in payables ...................................... 12,774 58,364 Increase (decrease) in accrued expenses .............................. (42,464) 15,095 Increase (decrease) in advances from gas purchasers .................. (3,903) (3,547) Increase (decrease) in deferred credits and noncurrent liabilities ... (2,290) (6,782) ------------ ------------ Net cash provided by operating activities ........................ 205,265 642,545 ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property and equipment ........................................ (208,111) (344,982) Non-cash portion of net oil and gas property additions ..................... (36,973) 65,274 Acquisition of Fletcher subsidiaries ....................................... -- (465,018) Acquisition of Repsol YPF properties ....................................... -- (446,933) Proceeds from sales of oil and gas properties .............................. 796 128,663 Proceeds from sale of short-term investments ............................... 17,006 -- Other, net ................................................................. (3,954) (39,333) ------------ ------------ Net cash used in investing activities ............................ (231,236) (1,102,329) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Long-term borrowings ....................................................... 377,939 1,176,159 Payments on long-term debt ................................................. (344,331) (645,800) Dividends paid ............................................................. (18,256) (4,870) Common stock activity, net ................................................. 9,390 4,153 Treasury stock activity, net ............................................... (856) 98 Cost of debt and equity transactions ....................................... (18) (294) ------------ ------------ Net cash provided by financing activities ........................ 23,868 529,446 ------------ ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .......................... (2,103) 69,662 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ................................ 35,625 37,173 ------------ ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD .................................... $ 33,522 $ 106,835 ============ ============
The accompanying notes to consolidated financial statements are an integral part of this statement. 2 APACHE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (UNAUDITED)
MARCH 31, DECEMBER 31, 2002 2001 -------------- -------------- (In thousands) ASSETS CURRENT ASSETS: Cash and cash equivalents ....................................... $ 33,522 $ 35,625 Receivables ..................................................... 433,726 404,793 Inventories ..................................................... 101,995 102,536 Advances to oil and gas ventures and other ...................... 70,373 51,845 Short-term investments .......................................... 85,914 102,950 -------------- -------------- 725,530 697,749 -------------- -------------- PROPERTY AND EQUIPMENT: Oil and gas, on the basis of full cost accounting: Proved properties ............................................ 11,614,142 11,390,692 Unproved properties and properties under development, not being amortized .......................... 822,661 839,921 Gas gathering, transmission and processing facilities ........... 756,233 748,675 Other ........................................................... 172,938 168,915 -------------- -------------- 13,365,974 13,148,203 Less: Accumulated depreciation, depletion and amortization ..... (5,350,050) (5,135,131) -------------- -------------- 8,015,924 8,013,072 -------------- -------------- OTHER ASSETS: Goodwill ........................................................ 188,747 188,812 Deferred charges and other ...................................... 34,124 34,023 -------------- -------------- $ 8,964,325 $ 8,933,656 ============== ==============
The accompanying notes to consolidated financial statements are an integral part of this statement. 3 APACHE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (UNAUDITED)
MARCH 31, DECEMBER 31, 2002 2001 ------------ ------------ (In thousands) LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable .................................................................... $ 192,537 $ 179,778 Accrued operating expense ........................................................... 38,299 50,584 Accrued exploration and development ................................................. 138,955 175,943 Accrued compensation and benefits ................................................... 15,175 30,947 Accrued interest .................................................................... 38,364 28,592 Accrued income taxes ................................................................ 16,915 40,030 Other ............................................................................... 23,403 16,584 ------------ ------------ 463,648 522,458 ------------ ------------ LONG-TERM DEBT ......................................................................... 2,277,965 2,244,357 ------------ ------------ DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES: Income taxes ........................................................................ 985,832 991,723 Advances from gas purchasers ........................................................ 136,124 140,027 Other ............................................................................... 172,099 175,925 ------------ ------------ 1,294,055 1,307,675 ------------ ------------ PREFERRED INTERESTS OF SUBSIDIARIES .................................................... 440,700 440,683 ------------ ------------ SHAREHOLDERS' EQUITY: Preferred stock, no par value, 5,000,000 shares authorized - Series B, 5.68% Cumulative Preferred Stock, 100,000 shares issued and outstanding ......................................... 98,387 98,387 Series C, 6.5% Conversion Preferred Stock, 138,458 and 138,482 shares issued and outstanding, respectively ........................... 208,171 208,207 Common stock, $1.25 par, 215,000,000 shares authorized, 141,434,298 and 141,171,793 shares issued, respectively .......................... 176,793 176,465 Paid-in capital ..................................................................... 2,823,533 2,812,648 Retained earnings ................................................................... 1,398,886 1,336,478 Treasury stock, at cost, 4,022,147 and 4,068,614 common shares, respectively ..................................................................... (110,736) (111,885) Accumulated other comprehensive loss ................................................ (107,077) (101,817) ------------ ------------ 4,487,957 4,418,483 ------------ ------------ $ 8,964,325 $ 8,933,656 ============ ============
The accompanying notes to consolidated financial statements are an integral part of this statement. 4 APACHE CORPORATION AND SUBSIDIARIES STATEMENT OF CONSOLIDATED SHAREHOLDERS' EQUITY (UNAUDITED)
SERIES B SERIES C COMPREHENSIVE PREFERRED PREFERRED COMMON PAID-IN RETAINED (In thousands) INCOME STOCK STOCK STOCK CAPITAL EARNINGS ------------- --------- --------- ------- -------- --------- BALANCE AT DECEMBER 31, 2000 ............... $ 98,387 $ 208,207 $ 173,939 $ 2,157,370 $ 1,226,531 Comprehensive income: Net income ............................ $ 282,201 -- -- -- -- 282,201 Currency translation adjustments ...... (56,515) -- -- -- -- -- Unrealized loss on derivatives, net of income tax benefit of $31,427 .... (48,991) -- -- -- -- -- Unrealized loss on marketable securities, net of applicable income tax benefit of $163 ................. (316) -- -- -- -- -- ----------- Comprehensive income .................... $ 176,379 =========== Preferred dividends ..................... -- -- -- -- (4,908) Common shares issued .................... -- -- 2,399 102,618 -- Treasury shares issued, net ............. -- -- -- 974 -- ----------- ----------- ----------- ----------- ----------- BALANCE AT MARCH 31, 2001 .................. $ 98,387 $ 208,207 $ 176,338 $ 2,260,962 $ 1,503,824 =========== =========== =========== =========== =========== BALANCE AT DECEMBER 31,2001 ................ $ 98,387 $ 208,207 $ 176,465 $ 2,812,648 $ 1,336,478 Comprehensive income: Net income ............................ $ 80,672 -- -- -- -- 80,672 Currency translation adjustments ...... (1,115) -- -- -- -- -- Reclassification of unrealized gains into earnings: Derivatives, net of income tax benefit of $3,069 ................. (4,020) -- -- -- -- -- Marketable securities, net of income tax benefit of $67 ......... (125) -- -- -- -- -- ----------- Comprehensive income .................... $ 75,412 =========== Dividends: Preferred ............................. -- -- -- -- (4,908) Common ($.10 per share) ............... -- -- -- -- (13,356) Common shares issued .................... -- (36) 328 10,409 -- Treasury shares issued, net ............. -- -- -- 595 -- Other ................................... -- -- -- (119) -- ----------- ----------- ----------- ----------- ----------- BALANCE AT MARCH 31, 2002 .................. $ 98,387 $ 208,171 $ 176,793 $ 2,823,533 $ 1,398,886 =========== =========== =========== =========== =========== ACCUMULATED OTHER TOTAL TREASURY COMPREHENSIVE SHAREHOLDERS' (In thousands) STOCK INCOME (LOSS) EQUITY -------- -------------- ------------- BALANCE AT DECEMBER 31, 2000 ............... $ (69,562) $ (40,232) $ 3,754,640 Comprehensive income: Net income ............................ -- -- 282,201 Currency translation adjustments ...... -- (56,515) (56,515) Unrealized loss on derivatives, net of income tax benefit of $31,427 .... -- (48,991) (48,991) Unrealized loss on marketable securities, net of applicable income tax benefit of $163 ................. -- (316) (316) Comprehensive income .................... Preferred dividends ..................... -- -- (4,908) Common shares issued .................... -- -- 105,017 Treasury shares issued, net ............. 663 -- 1,637 ----------- ----------- ----------- BALANCE AT MARCH 31, 2001 .................. $ (68,899) $ (146,054) $ 4,032,765 =========== =========== =========== BALANCE AT DECEMBER 31,2001 ................ $ (111,885) $ (101,817) $ 4,418,483 Comprehensive income: Net income ............................ -- -- 80,672 Currency translation adjustments ...... -- (1,115) (1,115) Reclassification of unrealized gains into earnings: Derivatives, net of income tax benefit of $3,069 ................. -- (4,020) (4,020) Marketable securities, net of income tax benefit of $67 ......... -- (125) (125) Comprehensive income .................... Dividends: Preferred ............................. -- -- (4,908) Common ($.10 per share) ............... -- -- (13,356) Common shares issued .................... -- -- 10,701 Treasury shares issued, net ............. 1,149 -- 1,744 Other ................................... -- -- (119) ----------- ----------- ----------- BALANCE AT MARCH 31, 2002 .................. $ (110,736) $ (107,077) $ 4,487,957 =========== =========== ===========
The accompanying notes to consolidated financial statements are an integral part of this statement. 5 APACHE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) These financial statements have been prepared by Apache Corporation (Apache or the Company) without audit, pursuant to the rules and regulations of the Securities and Exchange Commission, and reflect all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim periods, on a basis consistent with the annual audited financial statements. All such adjustments are of a normal recurring nature. Certain information, accounting policies, and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the financial statements and the summary of significant accounting policies and notes thereto included in the Company's most recent annual report on Form 10-K. In September 2001, the Company declared a 10 percent stock dividend to shareholders of record on December 31, 2001. Quarterly share and per share information for 2001 have been restated to reflect the stock dividend. 1. ACQUISITIONS In March 2001, the Company completed two significant acquisitions. Apache acquired substantially all of Repsol YPF's (Repsol) oil and gas concession interests in Egypt for approximately $447 million in cash, and subsidiaries of Fletcher Challenge Energy (Fletcher) for approximately $465 million in cash and 1.8 million restricted shares of Apache common stock issued to Shell Overseas Holdings (valued at $55.49 per share). The following unaudited pro forma information shows the effect on the Company's consolidated results of operations as if the Fletcher and Repsol acquisitions occurred on January 1, 2001. The pro forma information is based on numerous assumptions and is not necessarily indicative of future results of operations.
FOR THE QUARTER ENDED MARCH 31, 2001 ----------------------------- AS REPORTED PRO FORMA ----------- --------- (In thousands, except per common share data) Revenues .............................. $ 795,143 $ 902,098 Net income ............................ 282,201 304,683 Preferred stock dividends ............. 4,908 4,908 Income attributable to common stock ... 277,293 299,775 Net income per common share: Basic ............................. $ 2.03 $ 2.17 Diluted ........................... 1.95 2.08 Average common shares outstanding ..... 136,268 137,975
2. DERIVATIVE INSTRUMENTS AND FIXED-PRICE PHYSICAL CONTRACTS Due to the uncertainty of how the collapse of Enron Corp. would impact the derivative markets, Apache closed out all of its derivative positions and certain fixed-price physical contracts during October and November 2001 (the "Unwind"). The Unwind of Apache's hedging activities and acquired derivative contracts resulted in a net unrealized gain recorded to accumulated other comprehensive income. This deferred gain will be reclassified into earnings over the remaining periods of the original hedge contracts (approximately two years). The remaining unrealized gain related to these contracts was $13 million and $20 million at March 31, 2002 and December 31, 2001, respectively. As part of the Unwind, Apache also terminated the gas price swap associated with its advances from gas purchasers, receiving proceeds of $78 million. These proceeds will be realized into earnings over the original life of the contracts and effectively increase the original contract's fixed prices by approximately 51 percent. As of March 6 31, 2002 and December 31, 2001, the Company had an unamortized gain of $76 million and $78 million related to the Unwind of the contracts. 3. NET INCOME PER COMMON SHARE A reconciliation of the components of basic and diluted net income per common share is presented in the table below:
FOR THE QUARTER ENDED MARCH 31, --------------------------------------------------------------------------- 2002 2001 ------------------------------------ ------------------------------------ INCOME SHARES PER SHARE INCOME SHARES PER SHARE ---------- ---------- ---------- ---------- ---------- ---------- (In thousands, except per share amounts) BASIC: Income attributable to common stock .... $ 75,764 137,293 $ .55 $ 277,293 136,268 $ 2.03 ========== ========== EFFECT OF DILUTIVE SECURITIES: Stock options and other ................ -- 1,532 -- 1,338 Series C Preferred Stock ............... -- -- 3,488 6,243 ---------- ---------- ---------- ---------- DILUTED: Income attributable to common stock, including assumed conversions ......... $ 75,764 138,825 $ .55 $ 280,781 143,849 $ 1.95 ========== ========== ========== ========== ========== ==========
4. SUPPLEMENTAL CASH FLOW INFORMATION The following table provides supplemental disclosure of cash flow information:
FOR THE QUARTER ENDED MARCH 31, ------------------------------- 2002 2001 ----------- ----------- (In thousands) Cash paid during the period for: Interest (net of amounts capitalized) ...... $ 17,088 $ 23,945 Income taxes (net of refunds) .............. 32,656 33,306
5. SHORT-TERM INVESTMENTS At December 31, 2001, Apache had $103 million of U.S. Government Agency Notes, $17 million of which were designated as "available for sale" securities. In January 2002, the Company sold all of the "available for sale" securities for approximately $17 million. The remaining $86 million is designated as "held to maturity" and is carried at amortized cost. These notes pay interest at rates from 6.25 percent to 6.375 percent and mature on October 15, 2002. 6. IMPAIRMENTS During the first quarter of 2002, the Company recorded a nonrecurring $5 million impairment ($3 million after tax) of unproved property costs in Poland. The Company will continue to evaluate its operations in Poland, which may result in additional impairments during 2002. 7. SUBSEQUENT EVENTS In April 2002, the Company issued $400 million principal amount, $397 million net of discount, of senior unsecured 6.25-percent notes maturing on April 15, 2012. The notes are redeemable, as a whole or in part, at our option, subject to a make-whole premium. The proceeds were used to repay a portion of the Company's outstanding commercial paper and for general operations. 7 8. BUSINESS SEGMENT INFORMATION Apache has five reportable segments which are primarily in the business of natural gas and crude oil exploration and production. The Company evaluates performance based on profit or loss from oil and gas operations before income and expense items incidental to oil and gas operations and income taxes. Apache's reportable segments are managed separately because of their geographic locations. Financial information by operating segment is presented below:
UNITED OTHER STATES CANADA EGYPT AUSTRALIA INTERNATIONAL TOTAL ------------ ------------ ------------ ------------ ------------- ------------ (IN THOUSANDS) FOR THE QUARTER ENDED MARCH 31, 2002 Oil and Gas Production Revenues ........... $ 220,252 $ 107,824 $ 117,777 $ 74,446 $ 1,430 $ 521,729 ============ ============ ============ ============ ============ ============ Operating Income (Loss) (1) .............. $ 52,604 $ 35,947 $ 60,870 $ 33,635 $ (4,042) $ 179,014 ============ ============ ============ ============ ============ Other Income (Expense): Other revenues (losses) ................ (1,393) Administrative, selling and other ...... (25,352) Financing costs, net ................... (26,025) Preferred interests of subsidiaries .... (3,533) ------------ Income Before Income Taxes ................ $ 122,711 ============ Total Assets .............................. $ 4,089,657 $ 2,213,727 $ 1,597,582 $ 896,415 $ 166,944 $ 8,964,325 ============ ============ ============ ============ ============ ============ FOR THE QUARTER ENDED MARCH 31, 2001 Oil and Gas Production Revenues ........... $ 532,563 $ 142,970 $ 76,729 $ 49,336 $ -- $ 801,598 ============ ============ ============ ============ ============ ============ Operating Income (Loss) (1) ............... $ 353,465 $ 91,025 $ 45,744 $ 27,445 $ (11) $ 517,668 ============ ============ ============ ============ ============ Other Income (Expense): Other revenues (losses) ................ (6,455) Administrative, selling and other ...... (20,376) Financing costs, net ................... (29,252) ------------ Income Before Income Taxes ................ $ 461,585 ============ Total Assets .............................. $ 4,209,502 $ 2,155,500 $ 1,443,559 $ 862,151 $ 185,582 $ 8,856,294 ============ ============ ============ ============ ============ ============
(1) Operating income (loss) consists of oil and gas production revenues less depreciation, depletion and amortization, international impairments, lease operating costs and severance and other taxes. 9. NEW ACCOUNTING PRONOUNCEMENTS The Company adopted Statement of Financial Accounting Standards (SFAS) No. 142 "Goodwill and Other Intangible Assets" effective January 1, 2002. SFAS 142 addresses financial accounting and reporting for acquired goodwill and other intangible assets and supersedes APB Opinion No. 17 "Intangible Assets". As a result of this pronouncement, goodwill is no longer subject to amortization. Rather, goodwill is subject to at least an annual assessment for impairment by applying a fair-value-based test. Apache had goodwill of $189 million at March 31, 2002, representing the excess of the purchase price over the estimated fair value of the assets acquired and liabilities assumed in the Fletcher and Repsol acquisitions. The initial fair-value-based goodwill impairment assessment is required to be completed by June 30, 2002. The Company is currently evaluating the impairment test and its impact on the consolidated financial statements, if any. In June 2001, the FASB issued SFAS No. 143 "Accounting for Asset Retirement Obligations." SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This statement requires companies to record the fair value of legal obligations associated with the retirement of tangible long-lived assets in the period in which it is incurred. The liability is capitalized as part of the related long-lived asset's carrying amount. Over time, accretion of the liability is recognized as an operating expense and the capitalized cost is depreciated over the expected useful life of the 8 related asset. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002, with earlier adoption encouraged. The Company's asset retirement obligations relate primarily to the dismantlement of offshore platforms. The Company expects to adopt this new standard effective January 1, 2003. The Company is currently evaluating the impact of adopting this new standard and accordingly has not quantified the impact on the consolidated financial statements. 10. SUPPLEMENTAL GUARANTOR INFORMATION Apache Finance Pty Ltd. (Apache Finance Australia) and Apache Finance Canada Corporation (Apache Finance Canada) are subsidiaries of Apache, which have issuances of publicly traded securities and require the following condensed consolidating financial statements be provided as an alternative to filing separate financial statements. Each of the companies presented in the condensed consolidating financial statements has been fully consolidated in Apache Corporation's consolidated financial statements. As such, the condensed consolidating financial statements should be read in conjunction with the financial statements of Apache Corporation and subsidiaries and notes thereto of which this note is an integral part. 9 APACHE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE QUARTER ENDED MARCH 31, 2002
ALL OTHER APACHE APACHE SUBSIDIARIES APACHE APACHE FINANCE FINANCE OF APACHE CORPORATION NORTH AMERICA AUSTRALIA CANADA CORPORATION ------------ ------------- ------------ ------------ ------------- (IN THOUSANDS) REVENUES: Oil and gas production revenues ............. $ 158,928 $ -- $ -- $ -- $ 402,822 Equity in net income (loss) of affiliates ... 68,616 4,502 7,480 14,438 (8,752) Other revenues (losses) ..................... 185 -- -- -- (1,578) ------------ ------------ ------------ ------------ ------------ 227,729 4,502 7,480 14,438 392,492 ------------ ------------ ------------ ------------ ------------ OPERATING EXPENSES: Depreciation, depletion and amortization .... 53,704 -- -- -- 157,335 International impairments ................... -- -- -- -- 4,600 Lease operating costs ....................... 50,967 -- -- -- 101,631 Severance and other taxes ................... 6,632 -- -- 9 7,858 Administrative, selling and other ........... 21,475 -- -- -- 3,877 Financing costs, net ........................ 15,683 -- 4,512 10,229 (4,399) ------------ ------------ ------------ ------------ ------------ 148,461 -- 4,512 10,238 270,902 ------------ ------------ ------------ ------------ ------------ PREFERRED INTERESTS OF SUBSIDIARIES ............ -- -- -- -- 3,533 ------------ ------------ ------------ ------------ ------------ INCOME (LOSS) BEFORE INCOME TAXES .............. 79,268 4,502 2,968 4,200 118,057 Provision (benefit) for income taxes ........ (1,404) -- (1,534) (4,464) 49,441 ------------ ------------ ------------ ------------ ------------ NET INCOME ..................................... 80,672 4,502 4,502 8,664 68,616 Preferred stock dividends ................... 4,908 -- -- -- -- ------------ ------------ ------------ ------------ ------------ INCOME ATTRIBUTABLE TO COMMON STOCK ............ $ 75,764 $ 4,502 $ 4,502 $ 8,664 $ 68,616 ============ ============ ============ ============ ============ RECLASSIFICATIONS & ELIMINATIONS CONSOLIDATED ----------------- ------------ (IN THOUSANDS) REVENUES: Oil and gas production revenues ............. $ (40,021) $ 521,729 Equity in net income (loss) of affiliates ... (86,284) -- Other revenues (losses) ..................... -- (1,393) ------------ ------------ (126,305) 520,336 ------------ ------------ OPERATING EXPENSES: Depreciation, depletion and amortization .... -- 211,039 International impairments ................... -- 4,600 Lease operating costs ....................... (40,021) 112,577 Severance and other taxes ................... -- 14,499 Administrative, selling and other ........... -- 25,352 Financing costs, net ........................ -- 26,025 ------------ ------------ (40,021) 394,092 ------------ ------------ PREFERRED INTERESTS OF SUBSIDIARIES ............ -- 3,533 ------------ ------------ INCOME (LOSS) BEFORE INCOME TAXES .............. (86,284) 122,711 Provision (benefit) for income taxes ........ -- 42,039 ------------ ------------ NET INCOME ..................................... (86,284) 80,672 Preferred stock dividends ................... -- 4,908 ------------ ------------ INCOME ATTRIBUTABLE TO COMMON STOCK ............ $ (86,284) $ 75,764 ============ ============
10 APACHE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE QUARTER ENDED MARCH 31, 2001
APACHE APACHE APACHE APACHE FINANCE FINANCE CORPORATION NORTH AMERICA AUSTRALIA CANADA -------------- -------------- -------------- -------------- (IN THOUSANDS) REVENUES: Oil and gas production revenues ............... $ 549,905 $ -- $ -- $ -- Equity in net income (loss) of affiliates ..... 69,121 2,047 3,040 16,764 Other revenues (losses) ....................... 529 -- 3,078 -- -------------- -------------- -------------- -------------- 619,555 2,047 6,118 16,764 -------------- -------------- -------------- -------------- OPERATING EXPENSES: Depreciation, depletion and amortization ...... 102,821 -- -- -- Lease operating costs ......................... 57,519 -- -- -- Severance and other taxes ..................... 18,659 -- -- -- Administrative, selling and other ............. 18,033 -- -- -- Financing costs, net .......................... 17,384 -- 4,582 6,609 -------------- -------------- -------------- -------------- 214,416 -- 4,582 6,609 -------------- -------------- -------------- -------------- INCOME (LOSS) BEFORE INCOME TAXES ................ 405,139 2,047 1,536 10,155 Provision (benefit) for income taxes .......... 122,938 -- (511) (2,882) -------------- -------------- -------------- -------------- NET INCOME ....................................... 282,201 2,047 2,047 13,037 Preferred stock dividends ..................... 4,908 -- -- -- -------------- -------------- -------------- -------------- INCOME ATTRIBUTABLE TO COMMON STOCK .............. $ 277,293 $ 2,047 $ 2,047 $ 13,037 ============== ============== ============== ============== ALL OTHER SUBSIDIARIES OF APACHE RECLASSIFICATIONS CORPORATION & ELIMINATIONS CONSOLIDATED -------------- ----------------- -------------- (IN THOUSANDS) REVENUES: Oil and gas production revenues ............... $ 420,526 $ (168,833) $ 801,598 Equity in net income (loss) of affiliates ..... (4,720) (86,252) -- Other revenues (losses) ....................... (10,062) -- (6,455) -------------- -------------- -------------- 405,744 (255,085) 795,143 -------------- -------------- -------------- OPERATING EXPENSES: Depreciation, depletion and amortization ...... 69,709 -- 172,530 Lease operating costs ......................... 201,421 (168,833) 90,107 Severance and other taxes ..................... 2,634 -- 21,293 Administrative, selling and other ............. 2,343 -- 20,376 Financing costs, net .......................... 677 -- 29,252 -------------- -------------- -------------- 276,784 (168,833) 333,558 -------------- -------------- -------------- INCOME (LOSS) BEFORE INCOME TAXES ................ 128,960 (86,252) 461,585 Provision (benefit) for income taxes .......... 59,839 -- 179,384 -------------- -------------- -------------- NET INCOME ....................................... 69,121 (86,252) 282,201 Preferred stock dividends ..................... -- -- 4,908 -------------- -------------- -------------- INCOME ATTRIBUTABLE TO COMMON STOCK .............. $ 69,121 $ (86,252) $ 277,293 ============== ============== ==============
11 APACHE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE QUARTER ENDED MARCH 31, 2002
APACHE APACHE APACHE APACHE FINANCE FINANCE CORPORATION NORTH AMERICA AUSTRALIA CANADA -------------- -------------- -------------- -------------- (IN THOUSANDS) CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES ............................................. $ (524,773) $ -- $ (3,545) $ (476) -------------- -------------- -------------- -------------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property and equipment .................... (69,337) -- -- -- Proceeds from sales of oil and gas properties .......... 650 -- -- -- Proceeds from sale of U.S. Government Agency Notes ..... -- -- -- -- Investment in subsidiaries, net ........................ (69,435) (3,500) -- -- Other, net ............................................. (846) -- -- -- -------------- -------------- -------------- -------------- NET CASH USED IN INVESTING ACTIVITIES .................... (138,968) (3,500) -- -- -------------- -------------- -------------- -------------- CASH FLOWS FROM FINANCING ACTIVITIES: Long-term debt activity, net ........................... 667,662 -- 45 476 Dividends paid ......................................... (18,256) -- -- -- Common stock activity, net ............................. 9,390 3,500 3,500 -- Treasury stock activity, net ........................... (856) -- -- -- Cost of debt and equity transactions ................... (18) -- -- -- -------------- -------------- -------------- -------------- NET CASH PROVIDED BY FINANCING ACTIVITIES ................ 657,922 3,500 3,545 476 -------------- -------------- -------------- -------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ....................................... (5,819) -- -- -- CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ...................................... 6,383 -- 2 -- -------------- -------------- -------------- -------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD .......................................... $ 564 $ -- $ 2 $ -- ============== ============== ============== ============== ALL OTHER SUBSIDIARIES OF APACHE RECLASSIFICATIONS CORPORATION & ELIMINATIONS CONSOLIDATED -------------- ----------------- -------------- (IN THOUSANDS) CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES ............................................. $ 734,059 $ -- $ 205,265 -------------- -------------- -------------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property and equipment .................... (175,747) -- (245,084) Proceeds from sales of oil and gas properties .......... 146 -- 796 Proceeds from sale of U.S. Government Agency Notes ..... 17,006 -- 17,006 Investment in subsidiaries, net ........................ (506,056) 578,991 -- Other, net ............................................. (3,108) -- (3,954) -------------- -------------- -------------- NET CASH USED IN INVESTING ACTIVITIES .................... (667,759) 578,991 (231,236) -------------- -------------- -------------- CASH FLOWS FROM FINANCING ACTIVITIES: Long-term debt activity, net ........................... (89,261) (545,314) 33,608 Dividends paid ......................................... -- -- (18,256) Common stock activity, net ............................. 26,677 (33,677) 9,390 Treasury stock activity, net ........................... -- -- (856) Cost of debt and equity transactions ................... -- -- (18) -------------- -------------- -------------- NET CASH PROVIDED BY FINANCING ACTIVITIES ................ (62,584) (578,991) 23,868 -------------- -------------- -------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ....................................... 3,716 -- (2,103) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ...................................... 29,240 -- 35,625 -------------- -------------- -------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD .......................................... $ 32,956 $ -- $ 33,522 ============== ============== ==============
12 APACHE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE QUARTER ENDED MARCH 31, 2001
APACHE APACHE APACHE APACHE FINANCE FINANCE CORPORATION NORTH AMERICA AUSTRALIA CANADA -------------- -------------- -------------- -------------- (IN THOUSANDS) CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES ....................................... $ 564,946 $ -- $ (1,550) $ (8) -------------- -------------- -------------- -------------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property and equipment .............. (150,819) -- -- -- Acquisitions ..................................... -- -- -- -- Proceeds from sales of oil and gas properties .... 81,434 -- -- -- Investment in subsidiaries, net .................. (894,794) (5,568) (5,568) (250,880) Other, net ....................................... (1,782) -- -- -- -------------- -------------- -------------- -------------- NET CASH USED IN INVESTING ACTIVITIES .............. (965,961) (5,568) (5,568) (250,880) -------------- -------------- -------------- -------------- CASH FLOWS FROM FINANCING ACTIVITIES: Long-term debt activity, net ..................... 468,535 -- 1,552 250,888 Dividends paid ................................... (4,870) -- -- -- Common stock activity, net ....................... 4,153 5,568 5,568 -- Treasury stock activity, net ..................... 98 -- -- -- Cost of debt and equity transactions ............. (294) -- -- -- -------------- -------------- -------------- -------------- NET CASH PROVIDED BY FINANCING ACTIVITIES .......... 467,622 5,568 7,120 250,888 -------------- -------------- -------------- -------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ................................. 66,607 -- 2 -- CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ................................ 5,257 -- -- -- -------------- -------------- -------------- -------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD .................................... $ 71,864 $ -- $ 2 $ -- ============== ============== ============== ============== ALL OTHER SUBSIDIARIES OF APACHE RECLASSIFICATIONS CORPORATION & ELIMINATIONS CONSOLIDATED -------------- ----------------- -------------- (IN THOUSANDS) CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES ....................................... $ 79,157 $ -- $ 642,545 -------------- -------------- -------------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property and equipment .............. (128,889) -- (279,708) Acquisitions ..................................... (911,951) -- (911,951) Proceeds from sales of oil and gas properties .... 47,229 -- 128,663 Investment in subsidiaries, net .................. (256,448) 1,413,258 -- Other, net ....................................... (37,551) -- (39,333) -------------- -------------- -------------- NET CASH USED IN INVESTING ACTIVITIES .............. (1,287,610) 1,413,258 (1,102,329) -------------- -------------- -------------- CASH FLOWS FROM FINANCING ACTIVITIES: Long-term debt activity, net ..................... 700,239 (890,855) 530,359 Dividends paid ................................... -- -- (4,870) Common stock activity, net ....................... 511,267 (522,403) 4,153 Treasury stock activity, net ..................... -- -- 98 Cost of debt and equity transactions ............. -- -- (294) -------------- -------------- -------------- NET CASH PROVIDED BY FINANCING ACTIVITIES .......... 1,211,506 (1,413,258) 529,446 -------------- -------------- -------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ................................. 3,053 -- 69,662 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ................................ 31,916 -- 37,173 -------------- -------------- -------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD .................................... $ 34,969 $ -- $ 106,835 ============== ============== ==============
13 APACHE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATING BALANCE SHEET AS OF MARCH 31, 2002
APACHE APACHE APACHE APACHE FINANCE FINANCE CORPORATION NORTH AMERICA AUSTRALIA CANADA ------------- ------------- ------------- ------------- (IN THOUSANDS) ASSETS CURRENT ASSETS: Cash and cash equivalents .................... $ 564 $ -- $ 2 $ -- Receivables .................................. 78,019 -- -- -- Inventories .................................. 18,198 -- -- -- Advances to oil and gas ventures and others .. 19,938 -- -- -- Short-term investments ....................... -- -- -- -- ------------- ------------- ------------- ------------- 116,719 -- 2 -- ------------- ------------- ------------- ------------- PROPERTY AND EQUIPMENT, NET .................... 3,086,035 -- -- -- ------------- ------------- ------------- ------------- OTHER ASSETS: Intercompany receivable, net ................. 1,429,083 -- (25) (251,493) Goodwill, net ................................ -- -- -- -- Equity in affiliates ......................... 2,048,416 196,882 462,520 1,095,202 Deferred charges and other ................... 27,378 -- -- 2,541 ------------- ------------- ------------- ------------- $ 6,707,631 $ 196,882 $ 462,497 $ 846,250 ============= ============= ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable ............................. $ 76,325 $ -- $ -- $ 23 Other accrued expenses ....................... 112,748 -- 2,709 6,827 ------------- ------------- ------------- ------------- 189,073 -- 2,709 6,850 ------------- ------------- ------------- ------------- LONG-TERM DEBT ................................. 1,046,090 -- 268,660 296,996 ------------- ------------- ------------- ------------- DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES: Income taxes ................................. 691,312 -- (5,754) 77 Advances from gas purchasers ................. 136,124 -- -- -- Other ........................................ 157,075 -- -- -- ------------- ------------- ------------- ------------- 984,511 -- (5,754) 77 ------------- ------------- ------------- ------------- PREFERRED INTERESTS OF SUBSIDIARIES ............ -- -- -- -- ------------- ------------- ------------- ------------- COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY ........................... 4,487,957 196,882 196,882 542,327 ------------- ------------- ------------- ------------- $ 6,707,631 $ 196,882 $ 462,497 $ 846,250 ============= ============= ============= ============= ALL OTHER SUBSIDIARIES OF APACHE RECLASSIFICATIONS CORPORATION & ELIMINATIONS CONSOLIDATED ------------- ----------------- ------------- (IN THOUSANDS) ASSETS CURRENT ASSETS: Cash and cash equivalents .................... $ 32,956 $ -- $ 33,522 Receivables .................................. 355,707 -- 433,726 Inventories .................................. 83,797 -- 101,995 Advances to oil and gas ventures and others .. 50,435 -- 70,373 Short-term investments ....................... 85,914 -- 85,914 ------------- ------------- ------------- 608,809 -- 725,530 ------------- ------------- ------------- PROPERTY AND EQUIPMENT, NET .................... 4,929,889 8,015,924 ------------- ------------- ------------- OTHER ASSETS: Intercompany receivable, net ................. (1,177,565) -- -- Goodwill, net ................................ 188,747 -- 188,747 Equity in affiliates ......................... (818,513) (2,984,507) -- Deferred charges and other ................... 4,205 -- 34,124 ------------- ------------- ------------- $ 3,735,572 $ (2,984,507) $ 8,964,325 ============= ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable ............................. $ 116,189 $ -- $ 192,537 Other accrued expenses ....................... 148,827 -- 271,111 ------------- ------------- ------------- 265,016 -- 463,648 ------------- ------------- ------------- LONG-TERM DEBT ................................. 666,219 -- 2,277,965 ------------- ------------- ------------- DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES: Income taxes ................................. 300,197 -- 985,832 Advances from gas purchasers ................. -- -- 136,124 Other ........................................ 15,024 -- 172,099 ------------- ------------- ------------- 315,221 -- 1,294,055 ------------- ------------- ------------- PREFERRED INTERESTS OF SUBSIDIARIES ............ 440,700 -- 440,700 ------------- ------------- ------------- COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY ........................... 2,048,416 (2,984,507) 4,487,957 ------------- ------------- ------------- $ 3,735,572 $ (2,984,507) $ 8,964,325 ============= ============= =============
14 APACHE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATING BALANCE SHEET AS OF DECEMBER 31, 2001
APACHE APACHE APACHE APACHE FINANCE FINANCE CORPORATION NORTH AMERICA AUSTRALIA CANADA ------------- ------------- ------------- ------------- (IN THOUSANDS) ASSETS CURRENT ASSETS: Cash and cash equivalents ...................... $ 6,383 $ -- $ 2 $ -- Receivables .................................... 94,881 -- -- -- Inventories .................................... 17,024 -- -- -- Advances to oil and gas ventures and others .... 24,644 -- -- -- Short-term investments ......................... -- -- -- -- ------------- ------------- ------------- ------------- 142,932 -- 2 -- ------------- ------------- ------------- ------------- PROPERTY AND EQUIPMENT, NET ...................... 3,098,485 -- -- -- ------------- ------------- ------------- ------------- OTHER ASSETS: Intercompany receivable, net ................... 1,426,455 -- (25) (251,025) Goodwill, net .................................. -- -- -- -- Equity in affiliates ........................... 2,566,969 188,925 455,039 1,082,328 Deferred charges and other ..................... 27,688 -- -- 2,564 ------------- ------------- ------------- ------------- $ 7,262,529 $ 188,925 $ 455,016 $ 833,867 ============= ============= ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable ............................... $ 75,164 $ -- $ -- $ -- Other accrued expenses ......................... 165,858 -- 2,599 1,246 ------------- ------------- ------------- ------------- 241,022 -- 2,599 1,246 ------------- ------------- ------------- ------------- LONG-TERM DEBT ................................... 1,605,201 -- 268,615 296,988 ------------- ------------- ------------- ------------- DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES: Income taxes ................................... 696,441 -- (5,123) 18 Advances from gas purchasers ................... 140,027 -- -- -- Other .......................................... 161,355 -- -- -- ------------- ------------- ------------- ------------- 997,823 -- (5,123) 18 ------------- ------------- ------------- ------------- PREFERRED INTERESTS OF SUBSIDIARIES .............. -- -- -- -- ------------- ------------- ------------- ------------- COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY ............................. 4,418,483 188,925 188,925 535,615 ------------- ------------- ------------- ------------- $ 7,262,529 $ 188,925 $ 455,016 $ 833,867 ============= ============= ============= ============= ALL OTHER SUBSIDIARIES OF APACHE RECLASSIFICATIONS CORPORATION & ELIMINATIONS CONSOLIDATED ------------- ----------------- ------------- (IN THOUSANDS) ASSETS CURRENT ASSETS: Cash and cash equivalents ...................... $ 29,240 $ -- $ 35,625 Receivables .................................... 309,912 -- 404,793 Inventories .................................... 85,512 -- 102,536 Advances to oil and gas ventures and others .... 27,201 -- 51,845 Short-term investments ......................... 102,950 -- 102,950 ------------- ------------- ------------- 554,815 -- 697,749 ------------- ------------- ------------- PROPERTY AND EQUIPMENT, NET ...................... 4,914,587 -- 8,013,072 ------------- ------------- ------------- OTHER ASSETS: Intercompany receivable, net ................... (1,175,405) -- -- Goodwill, net .................................. 188,812 -- 188,812 Equity in affiliates ........................... (812,827) (3,480,434) -- Deferred charges and other ..................... 3,771 -- 34,023 ------------- ------------- ------------- $ 3,673,753 $ (3,480,434) $ 8,933,656 ============= ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable ............................... $ 104,614 $ -- $ 179,778 Other accrued expenses ......................... 172,977 -- 342,680 ------------- ------------- ------------- 277,591 -- 522,458 ------------- ------------- ------------- LONG-TERM DEBT ................................... 73,553 -- 2,244,357 ------------- ------------- ------------- DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES: Income taxes ................................... 300,387 -- 991,723 Advances from gas purchasers ................... -- -- 140,027 Other .......................................... 14,570 -- 175,925 ------------- ------------- ------------- 314,957 -- 1,307,675 ------------- ------------- ------------- PREFERRED INTERESTS OF SUBSIDIARIES .............. 440,683 -- 440,683 ------------- ------------- ------------- COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY ............................. 2,566,969 (3,480,434) 4,418,483 ------------- ------------- ------------- $ 3,673,753 $ (3,480,434) $ 8,933,656 ============= ============= =============
15 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Led by production growth in our core international areas, we reported solid first quarter results, generating income attributable to common stock of $76 million ($.55 per diluted share) and cash from operating activities of $205 million. We achieved these results despite a 61 percent decline in realized gas prices and a 21 percent decline in realized oil prices, relative to the first quarter of 2001. Quarterly oil production increased 37,660 barrels of oil per day (b/d) to 159,156, a 31 percent increase from the first quarter of 2001. Egypt, Australia and Canada oil production increased 71 percent, 110 percent and 26 percent, respectively. Oil production from these countries now totals 65 percent of our worldwide oil production, up from 51 percent in the prior-year quarter. Our natural gas production increased 109.4 million cubic feet per day (MMcf/d) to 1.1 billion cubic feet per day (Bcf/d) with production increases of 116 percent in Egypt and 73 percent in Canada leading the way. Gas production from countries outside the U.S. has grown to 51 percent of our natural gas production compared to 36 percent in the comparable 2001 quarter. Our oil and gas production gains are a direct result of our commitment to pursue opportunities outside of the U.S., while maintaining a strong domestic base. Production growth in Egypt and Canada include the strategic acquisitions and subsequent drilling activities on the properties we acquired from Repsol and Fletcher late in the first quarter of 2001, and from Novus in the fourth quarter of 2001. Australia had three significant development projects that began producing in 2001. The Gypsy/North Gypsy field began producing late in the first quarter of 2001, while the Legendre and Simpson fields commenced production in May and November 2001, respectively. Our international drilling program continued to show strong results during the first quarter of 2002. We reported three discoveries in Egypt and initiated production at the Ras Kanayes development lease. We also reported four Flag Sandstone oil discoveries in the Carnarvon Basin of Western Australia. Our first quarter capital expenditures (including exploration and development, and expenditures related to gathering, transmission, and processing facilities) of $206 million are 64 percent of the $320 million we expended (excluding acquisitions) during the first quarter of 2001, a reflection of the uncertainty surrounding commodity prices and difficulty oil and gas producers face when planning capital budgets. We also had $1.1 billion of acquisitions in the prior year quarter. We will continue to monitor commodity prices and allocate our cash flow accordingly, not hesitating to pay down debt in lieu of increasing capital expenditures. To increase our financial flexibility and take advantage of historically low interest rates, we issued $400 million of 10-year notes in early April at a 6.25 percent coupon rate. Although these notes carry a higher interest rate than the short-term commercial paper we had been utilizing, we felt it prudent to secure these long-term funds given the highly uncertain economic times in which we find ourselves. On May 15, 2002, the mandatory conversion of our Series C Preferred Stock into approximately 6.2 million common shares will occur. This estimated number of shares assumes our common stock price averages at least $35 per share (quarter-end stock price was $56.88 per share) in the weeks preceding the conversion date. The conversion will reduce our preferred dividends by approximately $14 million a year and be replaced with $2 million of common dividends for an annual savings of $12 million. If our stock price remains consistent, converted holders will have seen an annualized return well above market rates, while existing shareholders benefited from the growth facilitated by the initial proceeds. 16 RESULTS OF OPERATIONS Revenues The table below presents oil and gas production revenues, production and average prices received from sales of natural gas, oil and natural gas liquids.
FOR THE QUARTER ENDED MARCH 31, ------------------------------- INCREASE 2002 2001 (DECREASE) -------------- -------------- ---------- Revenues (in thousands): Natural gas ............................ $ 219,453 $ 502,592 (56)% Oil .................................... 293,006 282,250 4% Natural gas liquids .................... 9,270 16,756 (45)% -------------- -------------- Total ............................... $ 521,729 $ 801,598 (35)% ============== ============== Natural Gas Volume - Mcf per day: United States .......................... 540,433 636,547 (15)% Canada ................................. 314,659 181,992 73% Egypt .................................. 117,525 54,415 116% Australia .............................. 120,645 114,718 5% Argentina .............................. 3,856 -- -- -------------- -------------- Total ............................... 1,097,118 987,672 11% ============== ============== Average Natural Gas price - Per Mcf: United States .......................... $ 2.29 $ 6.63 (65)% Canada ................................. 2.19 5.62 (61)% Egypt .................................. 3.05 3.66 (17)% Australia .............................. 1.23 1.26 (2)% Argentina .............................. .64 -- -- Total ............................... 2.22 5.65 (61)% Oil Volume - Barrels per day: United States .......................... 55,829 59,736 (7)% Canada ................................. 25,339 20,100 26% Egypt .................................. 44,378 25,970 71% Australia .............................. 32,941 15,690 110% Argentina .............................. 669 -- -- -------------- -------------- Total ............................... 159,156 121,496 31% ============== ============== Average Oil price - Per barrel: United States .......................... $ 20.49 $ 27.38 (25)% Canada ................................. 18.54 22.04 (16)% Egypt .................................. 21.42 25.17 (15)% Australia .............................. 20.60 25.75 (20)% Argentina .............................. 20.07 -- -- Total ............................... 20.46 25.81 (21)% Natural Gas Liquids (NGL) Volume - Barrels per day: United States .......................... 6,895 7,595 (9)% Canada ................................. 1,358 1,247 9% -------------- -------------- Total ............................... 8,253 8,842 (7)% ============== ============== Average NGL Price - Per barrel: United States .......................... $ 12.78 $ 20.03 (36)% Canada ................................. 10.95 27.28 (60)% Total ............................... 12.48 21.06 (41)%
17 Natural Gas Revenues Our natural gas production increased 109.4 MMcf/d (11 percent), contributing $22 million to our natural gas revenues. The production growth mitigated the impact of the $3.43 per Mcf (61 percent) decline in natural gas prices, which accounted for a $305 million reduction in revenues. The primary drivers of the increase in gas production for the period were acquisition of and subsequent drilling and development activities on properties in Canada and Egypt acquired from Fletcher and Repsol late in the first quarter of 2001, and properties acquired from Novus in the fourth quarter of 2001. Successful drilling results at Ladyfern field in Canada also contributed to the increase. These increases more than offset decreases related to property sales in the U.S. and from natural decline on more mature properties. Approximately 11 percent and 12 percent of our first quarter 2002 and 2001 domestic natural gas production, respectively, is subject to long-term fixed-price physical contracts. These contracts added $.05 per Mcf to our 2002 worldwide realized price and reduced our 2001 worldwide realized price by $.38 per Mcf. Crude Oil Revenues A 31 percent increase (37,660 b/d) in production generated an additional $69 million in revenues, more than offsetting the impact of the $5.35 per barrel (21 percent) decline in oil prices. The primary drivers of the increase in oil production for the period were the acquisitions and subsequent drilling and development activities discussed above. Also positively impacting oil production relative to the first quarter of 2001 was production from the Gypsy/North Gypsy field in Australia, which began production late in the first quarter of 2001 and the Legendre and Simpson fields in Australia where production commenced in May and November of 2001, respectively. Legendre and Simpson each contributed 30 percent to the increase in first quarter 2002 oil production. These increases more than offset decreases related to property sales in the U.S. and from natural decline on more mature properties. Operating Expenses The table below presents a detail of our expenses.
FOR THE QUARTER ENDED MARCH 31, --------------------------------------- 2002 2001 ------------- ------------- (In millions) Depreciation, depletion and amortization (DD&A): Oil and gas property and equipment.................. $ 197 $ 161 Other assets........................................ 14 12 International impairments............................. 5 - Lease operating costs (LOE)........................... 113 90 Severance and other taxes............................. 14 21 General and administrative expense (G&A).............. 25 20 Financing costs, net.................................. 26 30 ------------- ------------- Total....................................... $ 394 $ 334 ============== =============
Depreciation, Depletion and Amortization Apache's full cost DD&A expense is driven by many factors including certain costs incurred in the exploration, development, and acquisition of producing reserves, production levels, and estimates of proved reserve quantities and future developmental costs. On an equivalent barrel basis, full cost DD&A expense increased $.17 per barrel of oil equivalent (boe), from $6.07 per boe in the first quarter of 2001 to $6.24 per boe in 2002. This increase was primarily due to negative revisions for uneconomic reserves driven by the significant decrease in commodity prices from first quarter 2001. Increases in service costs, which resulted in higher drilling and finding costs in the U.S., plus transfers of unevaluated costs to the full-cost pool also contributed to the increase in rates. The DD&A rate for the U.S. increased $.66 per boe from $6.40 per boe, to $7.06 per boe. U.S. DD&A accounts for almost half of the Company's full-cost DD&A expense. 18 Impairments During the first quarter of 2002, the Company recorded a nonrecurring $5 million impairment ($3 million after tax) of unproved property costs in Poland. The Company will continue to evaluate its operations in Poland, which may result in additional impairments during 2002. Lease Operating Costs LOE increased $23 million in the first quarter of 2002. The increase on an absolute dollar basis was partially attributable to the acquisition of Egyptian and Canadian properties late in the first quarter 2001 and overall growth in Canada. Increased oil production in Australia and higher costs on non-operated properties in the Offshore Region also added to the rise in costs compared to the year-earlier period. On an equivalent barrel basis, LOE increased $.18 per boe to $3.57 per boe in the first quarter of 2002. Higher costs on Offshore properties, primarily non-operated, accounted for the increase on a Boe basis. Severance and Other Taxes Severance and other taxes, which generally are based on a percentage of oil and gas production revenues, decreased in the first quarter of 2002 primarily due to a decline in U.S. and Australian oil and gas production revenues. Administrative, Selling and Other Expenses G&A expense in the first quarter of 2002 increased from a year ago primarily due to higher insurance costs, higher employee separation costs, and costs related to amendments to our stock option plans affecting certain retiring employees. On an equivalent barrel basis, G&A expense for the first three months of 2002 increased $.03 per boe, to $.80 per boe. Financing Costs, Net Net financing costs for the first quarter of 2002 decreased 11 percent from the prior year primarily due to lower gross interest expense. Gross interest expense decreased due to a lower average effective rate, partially offset by higher average debt outstanding. MARKET RISK The Company's major market risk exposure continues to be the pricing applicable to its oil and gas production. Realized pricing is primarily driven by the prevailing worldwide price for crude oil and spot prices applicable to its United States and Canadian natural gas production. Historically, prices received for oil and gas production have been volatile and unpredictable. The information set forth under "Commodity Risk", "Interest Rate Risk" and "Foreign Currency Risk" in Item 7A of the Company's annual report on Form 10-K for the year ended December 31, 2001, is incorporated herein by reference. 19 OIL AND GAS CAPITAL EXPENDITURES
FOR THE QUARTER ENDED MARCH 31, ------------------------------- 2002 2001 -------------- -------------- (In thousands) Exploration and development: United States ................................................ $ 55,132 $ 176,989 Canada ....................................................... 82,245 105,752 Egypt ........................................................ 32,624 17,719 Australia .................................................... 24,242 24,817 Other International* ......................................... 4,005 (1,308) -------------- -------------- $ 198,248 $ 323,969 ============== ============== Capitalized Interest ............................................. $ 10,022 $ 15,085 ============== ============== Gas gathering, transmission and processing facilities ............ $ 7,646 $ (3,933) ============== ============== Acquisitions: Oil and gas properties ....................................... $ 108 $ 752,511 Gas gathering, transmission and processing facilities ........ -- 129,000 Goodwill ..................................................... -- 197,200 -------------- -------------- $ 108 $ 1,078,711 ============== ==============
* Includes reimbursement from the Chinese government in 2001 for previously paid costs. In March 2001, Apache completed the acquisition of substantially all of Repsol's oil and gas concession interests in Egypt for approximately $447 million in cash, subject to normal post closing adjustments. The properties include interests in seven Western Desert concessions and had estimated proved reserves of 66 million barrels of oil equivalent (MMboe) as of the acquisition date. The Company previously held interests in five of the seven concessions. In March 2001, Apache also completed the acquisition of subsidiaries of Fletcher for approximately $465 million in cash and 1.8 million restricted shares of Apache common stock issued to Shell Overseas Holdings (valued at $55.49 per share), subject to normal post closing adjustments. The transaction included properties located primarily in Canada's Western Sedimentary Basin. Estimated proved reserves totaled 120.8 MMboe as of the acquisition date. Apache assumed a liability of $103 million representing the fair value of derivative instruments and fixed-price commodity contracts entered into by Fletcher. CAPITAL RESOURCES Apache's primary cash needs are for exploration, development and acquisition of oil and gas properties, repayment of principal and interest on outstanding debt and payment of dividends. The Company funds its exploration and development activities primarily through internally generated cash flows. Apache budgets capital expenditures based upon projected cash flows and routinely adjusts its capital expenditures in response to changes in oil and natural gas prices and corresponding changes in cash flow. The Company cannot accurately predict future oil and gas prices. Net Cash Provided by Operating Activities Apache's net cash provided by operating activities during the first three months of 2002 totaled $205 million, a decrease of 67 percent from $643 million in the first three months of 2001. This decrease was primarily due to lower oil and gas revenues as a result of lower realized oil and gas prices as compared to last year. 20 LIQUIDITY The Company had $34 million in cash and cash equivalents on hand at March 31, 2002, down from $36 million at December 31, 2001. Apache's ratio of current assets to current liabilities at March 31, 2002 was 1.56 compared to 1.34 at December 31, 2001. The Company had $86 million in short-term securities (U.S. Government Agency Notes) at March 31, 2002, which will be available to reduce long-term debt after August 2002. During 2001, several of our subsidiaries issued a total of $443 million ($441 million, net of issuance costs) of preferred stock and limited partner interests to unrelated institutional investors. We pay a weighted average return to the investors of 123 basis points above the prevailing LIBOR interest rate. These subsidiaries are consolidated in the accompanying financial statements. For the quarter ending March 31, 2002, the subsidiaries paid $4 million to investors which is reflected as Preferred Interest of Subsidiaries on the Statement of Consolidated Operations. In April 2002, the Company issued $400 million principal amount, $397 million net of discount, of senior unsecured 6.25-percent notes maturing on April 15, 2012. The notes are redeemable, as a whole or in part, at our option, subject to a make-whole premium. The proceeds were used to repay a portion of the Company's outstanding commercial paper and for general operations. Apache believes that cash on hand, net cash generated from operations, short-term investments and unused committed borrowing capacity under its global credit facility and 364-day credit facility will be adequate to satisfy the Company's financial obligations to meet future liquidity needs for the foreseeable future. As of March 31, 2002, Apache's available borrowing capacity under its global credit facility and 364-day credit facility was $811 million. FUTURE TRENDS Apache's strategy is to increase its oil and gas reserves, production, cash flow and earnings through a balanced growth program that involves: o exploiting our existing asset base; o acquiring properties to which we can add incremental value; and o investing in high-potential exploration prospects. In order to maximize financial flexibility during a period of highly volatile natural gas prices coupled with a faltering U.S. economy, Apache reduced initially planned 2002 worldwide capital expenditures for exploratory and development drilling to approximately $590 million from $1.4 billion in 2001. Any excess cash flow will be used to reduce debt until such time that we elect either to increase drilling expenditures or to pursue acquisition opportunities should they become available at reasonable prices. Exploiting Existing Asset Base Apache seeks to maximize the value of our existing asset base by increasing production and reserves while reducing operating costs per unit. In order to achieve these objectives, we rigorously pursue production enhancement opportunities such as workovers, recompletions and moderate risk drilling, while divesting marginal and non-strategic properties and identifying other activities to reduce costs. Given the significant acquisitions completed over the last two years, Apache's inventory of exploitation opportunities has never been larger. Acquiring Properties to Which We Can Add Incremental Value Apache seeks to purchase reserves at appropriate prices by generally avoiding auction processes where we are competing against other buyers. Our aim is to follow each acquisition with a cycle of reserve enhancement, property consolidation and cash flow acceleration, facilitating asset growth and debt reduction. Recently exorbitant acquisition prices have caused Apache to sideline its acquisition activities until appropriate opportunities arise at reasonable prices. 21 Investing in High-Potential Exploration Prospects Apache seeks to concentrate our exploratory investments in a select number of international areas and to become the dominant operator in those regions. We believe that these investments, although higher-risk, offer potential for attractive investment returns and significant reserve additions. Our international investments and exploration activities are a significant component of our long-term growth strategy. They complement our North American operations, which are more development oriented. A critical component in implementing our three-pronged growth strategy is maintenance of significant financial flexibility. "A-ratings" on Apache's senior unsecured long-term debt from Moody's and Standard & Poor's illustrate our commitment to preserving a strong balance sheet and building a solid foundation and competitive advantage with which to pursue our growth initiatives. FORWARD-LOOKING STATEMENTS AND RISK Certain statements in this report, including statements of the future plans, objectives, and expected performance of the Company, are forward-looking statements that are dependent upon certain events, risks and uncertainties that may be outside the Company's control, and which could cause actual results to differ materially from those anticipated. Some of these include, but are not limited to, the market prices of oil and gas, economic and competitive conditions, inflation rates, legislative and regulatory changes, financial market conditions, political and economic uncertainties of foreign governments, future business decisions, and other uncertainties, all of which are difficult to predict. There are numerous uncertainties inherent in estimating quantities of proved oil and gas reserves and in projecting future rates of production and the timing of development expenditures. The total amount or timing of actual future production may vary significantly from reserves and production estimates. The drilling of exploratory wells can involve significant risks, including those related to timing, success rates and cost overruns. Lease and rig availability, complex geology and other factors can affect these risks. Although Apache may make use of futures contracts, swaps, options and fixed-price physical contracts to mitigate risk, fluctuations in oil and gas prices, or a prolonged continuation of low prices, may adversely affect the Company's financial position, results of operations and cash flows. 22 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The information set forth in Note 11 to the Consolidated Financial Statements contained in the Company's annual report on Form 10-K for the year ended December 31, 2001 (filed with the SEC on March 22, 2002) is incorporated herein by reference. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 3.1 - Bylaws of Registrant, as amended May 2, 2002. 10.1 - Amendment to Apache Corporation 401(k) Savings Plan, dated December 27, 2001, effective January 1, 2002. 10.2 - Amendment to Apache Corporation Money Purchase Retirement Plan, dated December 27, 2001, effective January 1, 2002. 12.1 - Statement of computation of ratio of earnings to fixed charges and combined fixed charges and preferred stock dividends. (b) Reports filed on Form 8-K The following current report on Form 8-K was filed by Apache during the fiscal quarter ended March 31, 2002: Item 4 - Changes in Registrant's Certifying Accountant - dated March 29, 2002, filed April 2, 2002. On March 29, 2002, Apache determined (i) not to engage Arthur Andersen LLP to act as Apache's independent public accountants and (ii) to engage Ernst & Young LLP to serve as Apache's independent public accountants for the fiscal year ending December 31, 2002. 23 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this amendment to be signed on its behalf by the undersigned thereunto duly authorized. APACHE CORPORATION Dated: May 13, 2002 /s/ Roger B. Plank ----------------------------------------- Roger B. Plank Executive Vice President and Chief Financial Officer Dated: May 13, 2002 /s/ Thomas L. Mitchell ----------------------------------------- Thomas L. Mitchell Vice President and Controller (Chief Accounting Officer) INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 3.1 - Bylaws of Registrant, as amended May 2, 2002. 10.1 - Amendment to Apache Corporation 401(k) Savings Plan, dated December 27, 2001, effective January 1, 2002. 10.2 - Amendment to Apache Corporation Money Purchase Retirement Plan, dated December 27, 2001, effective January 1, 2002. 12.1 - Statement of computation of ratio of earnings to fixed charges and combined fixed charges and preferred stock dividends.
EX-3.1 3 h96753ex3-1.txt BYLAWS OF REGISTRANT EXHIBIT 3.1 BYLAWS OF APACHE CORPORATION (AS AMENDED MAY 2, 2002) ARTICLE I. NAME OF CORPORATION The name of the corporation is Apache Corporation. ARTICLE II. OFFICES SECTION 1. The principal office of the corporation shall be in the City of Wilmington, County of New Castle, State of Delaware, and the name of its resident agent in charge thereof is The Corporation Trust Company. SECTION 2. The corporation may have such other offices either within or without the State of Delaware as the board of directors may designate or as the business of the corporation may from time to time require. ARTICLE III. SEAL The corporate seal shall have inscribed upon it the name of the corporation and other designations as the board of directors from time to time determine. There may be alternate seals of the corporation. ARTICLE IV. MEETINGS OF STOCKHOLDERS SECTION 1. PLACE OF MEETINGS. All meetings of the stockholders of the corporation shall be held at the office of the corporation in the City of Houston, Texas, or at any other place within or without the State of Delaware that shall be stated in the notice of the meeting. Page 1 SECTION 2. ANNUAL MEETINGS. The annual meeting of stockholders of the corporation shall be held at the place and time within or without the State of Delaware that may be designated by the board of directors, on the last Thursday in April in each year or on such other date as may be designated by the board of directors, if not a legal holiday, and if a legal holiday, then at the same time on the next succeeding business day for the purpose of electing directors and for the transaction of any other business that may properly come before the meeting. SECTION 3. SPECIAL MEETINGS OF THE STOCKHOLDERS. Special meetings of the stockholders of the corporation, for any purpose or purposes, unless otherwise prescribed by statute, may be called by the chairman of the board or the chief executive officer and shall be called by the chairman of the board, chief executive officer, or secretary at the request in writing of a majority of the board of directors. The request shall state the purpose or purposes of the proposed meeting. SECTION 4. NOTICE OF MEETING. Written or printed notice stating the place, day and hour of the meeting and in the case of special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than ten nor more than 50 days before the date of the meeting either personally, by mail or other lawful means by or at the direction of the chairman of the board, the chief executive officer, or the secretary to each stockholder of record entitled to vote at the meetings. If mailed, the notice shall be deemed to be delivered when deposited in the United States Postal Service, addressed to the stockholder at his address as it appears on the stock transfer books of the corporation with postage thereon prepaid. SECTION 5. CLOSING OF TRANSFER BOOKS FOR FIXING OF RECORD DATE. For the purpose of determining stockholders entitled to notice of or to vote at any meeting of stockholders or adjournment thereof, the board of directors may close the stock transfer books of the corporation for a period not exceeding 50 days preceding the date of any meeting of stockholders. In lieu of closing the stock transfer books, the board of directors may fix in advance a date, not exceeding 50 days preceding the date of any meeting of stockholders, as a record date for the determination of the stockholders entitled to notice of and to vote at the meeting and any adjournment thereof, and only the stockholders as shall be stockholders of record on the date so fixed shall be entitled to the notice of and to vote at the meeting and any adjournment thereof. SECTION 6. VOTING LISTS. The officer or agent having charge of the stock transfer books for shares of the corporation shall prepare and make, at least ten days before every meeting of the stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. The list shall be open to the examination of any stockholder during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the election is to be held and which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held, and the list shall be produced and kept at the time and place of the meeting during the whole time thereof, Page 2 and subject to the inspection of any stockholder who may be present. Upon the willful neglect or refusal of the board of directors of the corporation to produce a list at any meeting of the stockholders at which an election is to be held in accordance with this Section 6, they shall be ineligible to hold any office at such election. SECTION 7. VOTING RIGHTS. At each meeting of the stockholders of the corporation, every stockholder having the right to vote thereat shall be entitled to vote in person or by proxy, but no proxy shall be voted after three years from its date unless the proxy provides for a longer period. Except as otherwise provided by law or the Certificate of Incorporation, each stockholder shall have one vote for each share of stock having voting power registered in his name. The vote at an election for directors, and upon the demand of any stockholder, the vote upon any question before a meeting of the stockholders, shall be by written ballot. All elections shall be had and all questions decided by a plurality vote except where by statute, by provision in the Certificate of Incorporation or these bylaws it is otherwise provided. Prior to any meeting, but subsequent to the date fixed by the board of directors pursuant to Section 5 of Article IV of these bylaws, any proxy may submit his proxy to the secretary for examination. The certificate of the secretary as to the regularity of the proxy and as to the number of shares held by the persons who severally and respectively executed such proxies shall be received as prima facie evidence of the number of shares represented by the holder of the proxy for the purpose of establishing the presence of a quorum at the meeting and of organizing the same. SECTION 8. QUORUM. The holders of a majority of the stock issued and outstanding and entitled to vote thereat, initially present in person or represented by proxy, shall be requisite, and shall constitute a quorum of all meetings of the stockholders for the transaction of business except as otherwise provided by law, by the Certificate of Incorporation, or by these bylaws. If, however, a majority shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or by proxy, shall have power to adjourn the meeting from time to time, without notice, other than announcement at the meeting, until the requisite amount of voting stock shall be present. At the adjourned meeting at which the requisite amount of voting stock shall be represented, any business may be transacted which might have been transacted at the meeting as originally notified. SECTION 9. INSPECTORS. At each meeting of the stockholders, the polls shall be opened and closed. The proxies and the ballots shall be received and taken in charge and all questions touching the qualifications of voters and the validity of proxies and the acceptance or rejection of votes shall be decided by three inspectors. The inspectors shall be appointed by the board of directors before or at the meeting, or if no appointment shall have been made, then by the presiding officer at the meeting. If, for any reason any of the inspectors previously appointed shall fail to attend or refuse or be unable to serve, inspectors in place of any so failing to attend or refusing or unable to serve shall be appointed in like manner. Page 3 SECTION 10. WAIVER OF NOTICE. Whenever any notice whatever is required to be given pursuant to the provisions of a statute, the Certificate of Incorporation or these bylaws of the corporation, a waiver thereof in writing signed by the person or persons entitled to the notice, whether before or after the time stated therein, shall be deemed equivalent thereto. SECTION 11. STOCKHOLDER ACTION. Any action required or permitted to be taken by the stockholders must be effected at a duly called annual or special meeting of stockholders and may not be effected by any consent in writing by stockholders. SECTION 12. NOTICE OF STOCKHOLDER BUSINESS. At an annual meeting of the stockholders, only business shall be conducted that has been properly brought before the meeting. To be properly brought before an annual meeting, business must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the board of directors, (b) otherwise properly brought before the meeting by or at the direction of the board of directors, or (c) otherwise properly brought before the meeting by a stockholder, which stockholder must have given timely notice thereof in writing to the secretary of the corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the corporation not less than 120 days prior to the meeting. A stockholders' notice to the secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting (w) a brief description of the business desired to be brought before the annual meeting, (x) the name and address, as they appear on the corporation's books, of the stockholder proposing the business, (y) the class and number of shares of the corporation which are beneficially owned by the stockholder, and (z) any material interest of the stockholder in the business. Notwithstanding anything in these bylaws to the contrary, no business shall be conducted at an annual meeting except in accordance with the procedures set forth in this Section 12. The chairman of an annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section 12, and if he should so determine, he shall so declare to the meeting and any business not properly brought before the meeting shall not be transacted. This section sets forth only the procedure by which business may be properly brought before an annual meeting of stockholders and does not in any way grant additional rights to stockholders beyond those currently afforded them by law. SECTION 13. NOTICE OF STOCKHOLDER NOMINEES. Only persons who are nominated in accordance with the procedures set forth in this Section 13 shall be eligible for election as directors. Nominations of persons for election to the board of directors of the corporation may be made at a meeting of stockholders, by or at the direction of the board of directors or by any stockholder of the corporation entitled to vote for the election of directors at the meeting who complies with the notice procedures set forth in this Section 13. Any nominations, other than those made by or at the direction of the board of directors, shall be made pursuant to timely notice in writing to the secretary of the corporation. To be timely, a stockholder's notice shall be delivered to or mailed and received at the principal executive offices of the corporation Page 4 not less than 120 days prior to the meeting. The stockholder's notice shall set forth (a) as to each person whom the stockholder proposes to nominate for election or reelection as a director (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class and number of shares of the corporation which are beneficially owned by the person, and (iv) any other information relating to the person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including without limitation the person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); and (b) as to the stockholder giving the notice (i) the name and address, as they appear on the corporation's books, of the stockholder and (ii) the class and number of shares of the corporation which are beneficially owned by the stockholder. At the request of the board of directors, any person nominated by the board of directors for election as a director shall furnish to the secretary of the corporation that information required to be set forth in a stockholder's notice of nomination which pertains to the nominee. No person shall be eligible for election as a director of the corporation unless nominated in accordance with the procedures set forth in this Section 13. The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed by these bylaws, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. This section sets forth only the procedure by which nominations for directors may be made and does not in any way grant additional rights to stockholders beyond those currently afforded them by law. ARTICLE V. DIRECTORS SECTION 1. GENERAL POWERS. The property, business and affairs of the corporation shall be managed by its board of directors which may exercise all powers of the corporation and do all lawful acts and things as are not by statute or by the Certificate of Incorporation or by these bylaws directed or required to be exercised or done by the stockholders. SECTION 2. NUMBER, TENURE AND QUALIFICATIONS. The directors shall be elected in the manner set forth in Article Ninth of the Certification of Incorporation of the corporation; however, if the corporation has outstanding any shares of one or more series of stock with conditional rights to elect a set number of directors, and if the conditions precedent to the exercise of any such rights arise, the number of directors of the corporation shall be automatically increased to permit the exercise of the voting rights of each such series of stock. The term of office of directors shall be three years except as provided in Article Ninth of the Certificate of Incorporation of the corporation. Directors need not be stockholders or residents of the State of Delaware. Page 5 SECTION 3. VACANCIES AND NEWLY CREATED DIRECTORSHIPS. Any vacancies on the board of directors or any newly created directorships shall be filled by the board of directors in the manner set forth in Article Ninth of the Certificate of Incorporation of the corporation. If the directors then in office shall constitute less than a majority of the whole board (as constituted immediately prior to any increase therein), then upon application, any stockholder or stockholders holding at least ten percent of the total number of shares of the capital stock of the corporation at the time outstanding having the right to vote for directors may require the board of directors to call a special meeting of the stockholders for the purpose of electing directors to fill the vacancy or vacancies or newly created directorships or to replace the director or directors chosen by the directors then in office as aforesaid. The person or persons elected at a special meeting of the stockholders shall serve as director or as directors until the next annual meeting of stockholders and until their successors are duly elected and qualified and shall displace any person or persons who may theretofore have been appointed by the directors then in office as aforesaid. SECTION 4. CATASTROPHE. During any emergency period following a national catastrophe due to enemy attack, or act of God, a majority of the surviving members of the board who have not been rendered incapable of acting due to physical or mental incapacity or due to the difficulty of transportation to the place of the meeting shall constitute a quorum for the purpose of filling vacancies on the board of directors and among the elected and appointed officers of the corporation. SECTION 5. PLACE OF MEETINGS. The directors of the corporation may hold their meetings, both regular and special, at a place or places within or without the State of Delaware that the board of directors may from time to time determine. SECTION 6. FIRST MEETING. The first meeting of the board of directors following the annual meeting of stockholders shall be held at the time and place that shall be fixed by the chairman of the board or the chief executive officer and shall be called in the same manner as a special meeting. SECTION 7. REGULAR MEETINGS. Regular meetings of the board of directors may be held without notice at the time and place that shall from time to time be determined by the board of directors. SECTION 8. SPECIAL MEETINGS. Special meetings of the board of directors may be called by the chairman of the board or the chief executive officer on three days notice to each director, either personally or by mail, by telegram, or by facsimile or other lawful means; special meetings of the board of directors shall be called by the chairman of the board, chief executive officer, or secretary in like manner and upon like notice upon the written request of two directors. SECTION 9. QUORUM. At all meetings of the board of directors, a majority of the directors shall be necessary and sufficient to constitute a quorum for the transaction of business, and the act of a majority of the directors present at any meeting, at which there Page 6 is a quorum present, shall be the act of the board of directors, except as may be otherwise specifically provided by statute, the Certificate of Incorporation or by these bylaws. If at any meeting of the board of directors there shall be less than a quorum present, a majority of those present may adjourn the meeting from time to time without notice, other than by announcement at the meeting, until a sufficient number of directors to constitute a quorum shall attend. At any adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the original meeting as originally notified. SECTION 10. BUSINESS TO BE CONDUCTED. Unless otherwise indicated in the notice, any and all business may be transacted at a regular or special meeting of the board of directors. In the event a special meeting of the board of directors is held without notice, any and all business may be transacted at the meeting provided all directors are present. SECTION 11. ORDER OF BUSINESS. At all meetings of the board of directors, business shall be transacted in the order that from time to time the board may determine by resolution. At all meetings of the board of directors the chairman of the board or in his absence the vice chairman, or in their absence the chief executive officer shall preside. In the absence of the chairman and vice chairman of the board and the chief executive officer, the directors present shall elect any director as chairman of the meeting. SECTION 12. COMPENSATION OF DIRECTORS. Directors of the corporation shall receive the compensation for their services that the board of directors may from time to time determine and all directors shall be reimbursed for their expenses of attendance at each regular or special meeting of the board or any committee thereof. SECTION 13. COMMITTEES. The board of directors may by resolution passed by a majority of the board, in addition to the executive committee, designate one or more committees. Each such committee shall consist of one or more of the directors of the corporation, such number to be set by resolution of the board of directors, or as otherwise provided in Section 14 below. Any committee, to the extent provided in the resolution, shall have and may exercise the powers of the board of directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it. Any committee or committees shall have the name or names that may be determined from time to time by resolution adopted by the board of directors. Other than for a committee of one director, the chairman of the board and the chief executive officer shall be ex officio members of any board committee except the audit committee, the management development and compensation committee, and the stock option plan committee. SECTION 14. EXECUTIVE COMMITTEE. A. MEMBERS. The executive committee shall consist of such number of directors as set by resolution of the board of directors, with a minimum of four members, and shall include the chairman and vice chairman of the board and the chief executive officer as ex Page 7 officio members, together with the other members of the board of directors, as may be the case, designated by the board of directors. B. TERM OF OFFICE. Each of the elected members of the executive committee shall be elected for a one year term and shall serve until his successor shall have been duly elected and qualified. C. ELECTION. The election of members of the executive committee shall be held each year at the first meeting of the board of directors following the annual meeting of stockholders. Should a member of the executive committee for any reason be unable to serve for the term to which he was elected, the vacancy shall be filled by the board of directors at its next meeting following the occurrence of such vacancy. D. COMPENSATION. Each member of the executive committee shall receive the compensation that the board of directors shall from time to time determine and shall be reimbursed for their expenses of attendance at regular or special meetings. E. CHAIRMAN AND SECRETARY OF THE EXECUTIVE COMMITTEE. The chairman and secretary of the executive committee shall be elected by members of the executive committee. F. MEETINGS. Regular meetings of the executive committee may be held without call or notice of the time and place that the executive committee determines. Special meetings of the executive committee may be called by any member, either personally or by mail, by telegram, by facsimile or other lawful means forwarded not later than 48 hours prior to the date and time set forth for the meeting. Upon request of any member, the secretary of the corporation shall give the required notice calling the meeting. G. QUORUM. At any meeting of the executive committee, a majority of the committee members shall constitute a quorum. Any action of the executive committee to be effective must be authorized by the affirmative votes of a majority of committee members. H. RULES. The executive committee shall fix its own rules of procedure, provided the same do not contravene the provisions of the law, the Certificate of Incorporation or these bylaws. I. AUTHORITY AND RESPONSIBILITY. (a) The executive committee is vested with the authority to exercise the full power of the board of directors, within the policies established by the board of directors to govern the conduct of the business of the corporation, in the intervals between meetings of the board of directors. Page 8 (b) The executive committee, in addition to the general authority vested in it, may be vested with other specific powers and authority by resolution of the board of directors. J. REPORTS. All action by the executive committee shall be reported to the board of directors at its meeting next succeeding the action, and shall be subject to revision or alteration by the board of directors; provided, however, that no rights or acts of third parties shall be affected by any such revision or alteration. SECTION 15. AUDIT COMMITTEE. A. MEMBERS. The audit committee shall be composed of at least three (3) directors who shall satisfy the following criteria: (a) Each member shall be "independent," meaning a director who does not have a relationship that would interfere with the exercise of independent judgment. A director shall not be deemed to be independent if such director: (1) is currently or has been employed by the corporation or any of its affiliates in any of the past three years; (2) has a direct business relationship with the corporation or is a partner, controlling shareholder or an executive officer of an organization that has a business relationship with the corporation (unless the board of directors determines in its business judgment that the relationship does not interfere with the director's ability to exercise independent judgment); (3) is an executive with another entity where any of the corporation's executives serve on that entity's compensation committee; or (4) has an immediate family member who is currently or has been an executive officer of the corporation or any of its affiliates during any of the last three years. The board of directors shall specifically make a finding of independence when appointing each member of the audit committee. (b) Each audit committee member shall be "financially literate," meaning that each member shall be able to read and understand financial statements or be able to do so within a reasonable period of time after appointment to the committee. (c) At least one member of the committee shall have accounting or related financial management expertise, with the board of directors, in its business Page 9 judgment, determining what the necessary expertise shall be and whether a member of the committee has such expertise. B. TERM OF OFFICE. Each of the elected members of the audit committee shall be elected for a one year term and shall serve until a successor has been duly elected and qualified. C. ELECTION. The election of members of the audit committee shall be held each year at the first meeting of the board of directors following the annual meeting of stockholders. Should a member of the audit committee for any reason be unable to serve for the term to which he was elected, the vacancy shall be filled by the board of directors at its next meeting. D. COMPENSATION. Each member of the audit committee shall receive the compensation the board of directors determines and shall be reimbursed for their expenses for attendance at regular or special meetings. E. CHAIRMAN AND SECRETARY OF THE AUDIT COMMITTEE. The chairman and secretary of the audit committee shall be elected by the members of the audit committee. F. MEETINGS. The audit committee shall hold regular meetings as provided for in the Audit Committee Charter set forth in Annex A to these bylaws and may also hold special meetings. Regular meetings of the audit committee may be held without call or notice of the time and place that the audit committee determines. Special meetings of the audit committee may be called by any member, either personally or by mail, by telegram, by facsimile or other lawful means forwarded not later than 48 hours prior to the date and time set forth for the meeting. Upon request of any member, the secretary of the corporation shall give the required notice calling the meeting. G. QUORUM. At any meeting of the audit committee, a majority of committee members shall constitute a quorum. Any action of the audit committee to be effective must be authorized by the affirmative votes of a majority of committee members. H. RULES. The audit committee shall determine its own rules of procedure, provided the rules do not contravene the provisions of the law, the Certificate of Incorporation, these bylaws or the Audit Committee Charter set forth in Annex A to these bylaws. I. AUTHORITY AND RESPONSIBILITY. The audit committee shall have the powers and responsibilities set forth in the Audit Committee Charter set forth in Annex A to these bylaws. In addition, the audit committee may be vested with other specific powers and authorities by resolution of the board of directors. Page 10 J. REPORTS. All action by the audit committee shall be reported to the board of directors at its next meeting, and shall be subject to revision or alteration by the board of directors. SECTION 16. MANAGEMENT DEVELOPMENT AND COMPENSATION COMMITTEE A. MEMBERS. The management development and compensation committee shall include only outside directors of the corporation. B. TERM OF OFFICE. Each of the elected members of the management development and compensation committee shall be elected for a one year term and shall serve until a successor shall have been duly elected and qualified. C. ELECTION. The election of members of the management development and compensation committee shall be held each year at the first meeting of the board of directors following the annual meeting of stockholders. Should a member of the management development and compensation committee for any reason be unable to serve for the term to which he was elected, the vacancy shall be filled by the board of directors at its next meeting. D. COMPENSATION. Each member of the management development and compensation committee shall receive the compensation the board of directors determines and shall be reimbursed for their expenses for attendance at regular or special meetings. E. CHAIRMAN AND SECRETARY OF THE MANAGEMENT DEVELOPMENT AND COMPENSATION COMMITTEE. The chairman and secretary of the management development and compensation committee shall be elected by the members of the management development and compensation committee. F. MEETINGS. Regular meetings of the management development and compensation committee may be held without call or notice of the time and place that the management development and compensation committee determines. Special meetings of the management development and compensation committee may be called by any member, either personally or by mail, by telegram, by facsimile or other lawful means forwarded not later than 48 hours prior to the date and time set forth for the meeting. Upon request of any member, the secretary of the corporation shall give the required notice calling the meeting. G. QUORUM. At any meeting of the management development and compensation committee, a majority of committee members shall constitute a quorum. Any action of the management development and compensation committee to be effective must be authorized by the affirmative votes of a majority of committee members. Page 11 H. RULES. The management development and compensation committee shall determine its own rules of procedure, provided the rules do not contravene the provisions of the law, the Certificate of Incorporation or these bylaws. I. AUTHORITY AND RESPONSIBILITY. The management development and compensation committee has three principal responsibilities: (a) to monitor the corporation's management resources, structure, succession planning, development, and selection process, and the performance of key executives; (b) to review and approve executive compensation and changes; and (c) to make such reports on executive compensation as appropriate or required. The management development and compensation committee also serves as the committee administering all incentive compensation plans other than the corporation's stock option plans. J. REPORTS. All action by the management development and compensation committee shall be reported to the board of directors at its next meeting, and shall be subject to revision or alteration by the board of directors. SECTION 17. STOCK OPTION PLAN COMMITTEE A. MEMBERS. The stock option plan committee shall include only directors of the corporation who qualify as "outside directors" pursuant to Section 162(m) or any successor section(s) of the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder. B. TERM OF OFFICE. Each of the elected members of the stock option plan committee shall be elected for a one year term and shall serve until a successor shall have been duly elected and qualified. C. ELECTION. The election of members of the stock option plan committee shall be held each year at the first meeting of the board of directors following the annual meeting of stockholders. Should a member of the stock option plan committee for any reason be unable to serve for the term to which he was elected, the vacancy shall be filled by the board of directors at its next meeting. D. COMPENSATION. Each member of the stock option plan committee shall receive the compensation the board of directors determines and shall be reimbursed for their expenses for attendance at regular or special meetings. Page 12 E. CHAIRMAN AND SECRETARY OF THE STOCK OPTION PLAN COMMITTEE. The chairman and secretary of the stock option plan committee shall be elected by the members of the stock option plan committee. F. MEETINGS. Regular meetings of the stock option plan committee may be held without call or notice of the time and place that the stock option plan committee determines. Special meetings of the stock option plan committee may be called by any member, either personally or by mail, by telegram, by facsimile or other lawful means forwarded not later than 48 hours prior to the date and time set forth for the meeting. Upon request of any member, the secretary of the corporation shall give the required notice calling the meeting. G. QUORUM. At any meeting of the stock option plan committee, a majority of committee members shall constitute a quorum, provided that such quorum shall not be less than two members. Any action of the stock option plan committee to be effective must be authorized by the affirmative votes of a majority of committee members. H. RULES. The stock option plan committee shall determine its own rules of procedure, provided the rules do not contravene the provisions of the law, the Certificate of Incorporation or these bylaws. I. AUTHORITY AND RESPONSIBILITY. The stock option plan committee has two principal responsibilities: (a) to monitor and report on the corporation's stock option plans; and (b) to establish any performance goals under which compensation in the form of stock option grants is paid to employees of the corporation, and to make such grants of stock options, in the discretion of the stock option plan committee, on the terms and conditions set forth in the option plans or otherwise established by the stock option plan committee. J. REPORTS. All action by the stock option plan committee shall be reported to the board of directors at its next meeting, and is subject to ratification by the board of directors. SECTION 18. NOMINATING COMMITTEE. A. MEMBERS. The nominating committee may consist of any of the members of the board of directors. B. TERM OF OFFICE. Each of the elected members of the nominating committee shall be elected for a one year term and shall serve until a successor shall have been duly elected and qualified. Page 13 C. ELECTION. The election of members of the nominating committee shall be held each year at the first meeting of the board of directors following the annual meeting of stockholders. Should a member of the nominating committee for any reason be unable to serve for the term to which he was elected, the vacancy shall be filled by the board of directors at its next meeting. D. COMPENSATION. Each member of the nominating committee shall receive the compensation the board of directors determines and shall be reimbursed for their expenses for attendance at regular or special meetings. E. CHAIRMAN AND SECRETARY OF THE NOMINATING COMMITTEE. The chairman and secretary of the nominating committee shall be elected by the members of the nominating committee. F. MEETINGS. Regular meetings of the nominating committee may be held without call or notice of the time and place that the nominating committee determines. Special meetings of the nominating committee may be called by any member, either personally or by mail, by telegram, by facsimile or other lawful means forwarded not later than 48 hours prior to the date and time set forth for the meeting. Upon request of any member, the secretary of the corporation shall give the required notice calling the meeting. G. QUORUM. At any meeting of the nominating committee, a majority of committee members shall constitute a quorum. Any action of the nominating committee to be effective must be authorized by the affirmative votes of a majority of committee members. H. RULES. The nominating committee shall determine its own rules of procedure, provided the rules do not contravene the provisions of the law, the Certificate of Incorporation or these bylaws. I. AUTHORITY AND RESPONSIBILITY. (a) The nominating committee is vested with the authority and responsibility to (i) recommend to the board of directors criteria for selection of candidates to serve on the board of directors; (ii) recommend to the board of directors qualified candidates to fill any newly created directorships or vacancies on the board of directors which occur between annual meetings of stockholders without regard to race, sex, age, religion or physical disability; (iii) recommend candidates for election to the committees of the board of directors; (iv) periodically review, assess, and make recommendations to the board of directors with regard to the size and composition of the board of directors, and its evaluation of incumbent directors; (v) cause the names of all director candidates that are approved by the board of directors to be listed in the corporation's proxy materials and support the election of all candidates so nominated by the board of directors to the extent permitted by law; (vi) evaluate and recommend to the board of directors potential Page 14 candidates to serve in the future on the board of directors to assure the continuity and succession of the board of directors; and (vii) otherwise aid in attracting qualified candidates to the board of directors. (b) Only candidates recommended by the nominating committee shall be eligible for nomination by the board of directors for election, or to fill a vacancy or any newly created directorship, but if the board does not approve one or more of the candidates recommended by the nominating committee, the nominating committee shall submit a recommendation of other candidates. If for any reason the nominating committee shall fail to act or determines not to make a recommendation, the board of directors shall fill any vacancy or newly created directorship in the manner that it deems appropriate. (c) The nominating committee, in addition to the authority vested in it under subsections (a) and (b) above, shall have all additional powers necessary to carry out its responsibilities, and may be vested with other specific powers and authority by resolution of the board of directors. J. REPORTS. All action by the nominating committee shall be reported to the board of directors at its next meeting, and shall be subject to revision or alteration by the board of directors. K. RIGHTS OF STOCKHOLDERS. Nothing in this Section 18 shall affect or restrict the right of any stockholder to nominate any person for election as a director where such nomination is otherwise authorized by law and made in accordance with Section 13 of Article IV of these bylaws. SECTION 19. ELECTION OF OFFICERS. At the first meeting of the board of directors in each year, at which a quorum shall be present, following the annual meeting of the stockholders of the corporation, the board of directors shall proceed to the election of the officers of the corporation, except regional or staff officers who are subject to appointment in accordance with Section 20 of Article VI of these bylaws. SECTION 20. ACTION WITHOUT MEETING. Any action required or permitted to be taken at any meeting of the board of directors or of any committee thereof may be taken without a meeting, if prior to the action a written consent thereto is signed by all members of the board of directors or of the committee, as the case may be, and such written consent is filed with the minutes of the proceedings of the board of directors or committee. SECTION 21. WAIVER OF NOTICE. Whenever any notice whatever is required to be given pursuant to the provisions of a statute, the Certificate of Incorporation or these bylaws of the corporation, a waiver thereof in writing signed by the person or persons entitled to the notice, whether before or after the time stated therein, shall be deemed equivalent thereto. Page 15 ARTICLE VI. OFFICERS SECTION 1. OFFICERS. The officers of the corporation shall be a chairman of the board, vice chairman of the board, chief executive officer, president, one or more executive vice presidents, one or more senior vice presidents, one or more vice presidents, secretary, treasurer, controller and such assistant vice presidents, assistant secretaries, assistant treasurers and assistant controllers as the board of directors may provide for and elect. The chairman of the board and the vice chairman of the board shall be members of the board of directors. Any two or more offices may be held by the same person. The board of directors may appoint such other officers as they shall deem necessary, who shall have the authority and shall perform the duties that from time to time may be prescribed by the board of directors. In its discretion, the board of directors by a vote of a majority thereof may leave unfilled for any period that it may fix by resolution any office except those of president, treasurer and secretary. SECTION 2. ELECTION. The board of directors at their first meeting after each annual meeting of the stockholders or at any regular or special meeting shall elect, as may be required, a chairman of the board, vice chairman of the board, chief executive officer, president, and one or more executive vice presidents, senior vice presidents, vice presidents, a secretary, treasurer, controller, and assistant vice presidents, assistant secretaries, assistant treasurers, and assistant controllers. SECTION 3. TENURE. The officers of the corporation elected by the board of directors shall hold office for one year and until their successors are chosen and qualify in their stead. Any officer elected or appointed by the board of directors may be removed at any time by the affirmative vote of a majority of the board of directors. SECTION 4. SALARIES. The salaries of the officers of the corporation shall be recommended by the management development and compensation committee and approved by the board of directors. SECTION 5. VACANCIES. If the office of any officer of the corporation becomes vacant by reason of death, resignation, disqualification or otherwise, the directors by a majority vote, may choose his successor or successors. SECTION 6. RESIGNATION. Any officer may resign his office at any time, such resignation to be made in writing and take effect at the time of receipt by the corporation, unless some time be fixed in the resignation and then from that time. The acceptance of a resignation shall not be required to make it effective. SECTION 7. DELEGATION OF DUTIES. Duties of officers may be delegated in case of the absence of any officer of the corporation or for any reason that the board of directors may deem sufficient. The board of directors may delegate the powers or duties Page 16 of the officer to any other officer or to any director, except as otherwise provided by statute, for the time being, provided a majority of the entire board of directors concurs therein. SECTION 8. CHAIRMAN OF THE BOARD. The chairman of the board shall participate in the management of the corporation's business and affairs and shall also see that all the policies and resolutions of the board of directors are carried into effect, subject, however, to the right of the board of directors to delegate any specific powers, and shall perform such duties as shall be specifically assigned from time to time by the board of directors, except such as may be by statute exclusively conferred to any other officer or officers of the corporation. He shall preside at all meetings of stockholders and the board of directors at which he may be present. SECTION 9. VICE CHAIRMAN OF THE BOARD. The vice chairman shall preside at all meetings of the board of directors and stockholders at which he may be present and from which the chairman of the board may be absent, and shall perform such other duties as shall be specifically assigned from time to time by the board of directors or the chairman of the board, except such as may be by statute exclusively conferred to any other officer or officers of the corporation. SECTION 10. CHIEF EXECUTIVE OFFICER. The chief executive officer shall be the chief executive officer of the corporation and shall have, subject to the direction of the board of directors, general control and management of the corporation's business and affairs and shall also see that all the policies and resolutions of the board of directors are carried into effect, subject, however, to the right of the board of directors to delegate any specific powers, except such as may be by statute exclusively conferred on the president or to any other officer or officers of the corporation. He shall preside at all meetings of stockholders and the board of directors at which he may be present and from which the chairman and vice chairman of the board may be absent. SECTION 11. PRESIDENT. The president shall be the chief operating officer and shall perform those duties that shall be specifically assigned to him from time to time by the board of directors. In the absence of the chief executive officer or in the event of his death, inability or refusal to act, the president shall perform the duties of the chief executive officer, and when so acting shall have the powers of and be subject to all the restrictions upon the chief executive officer. SECTION 12. EXECUTIVE VICE PRESIDENTS, SENIOR VICE PRESIDENTS, AND VICE PRESIDENTS. In the absence of the president or in the event of his death, inability or refusal to act, the senior executive vice president present shall perform the duties of the president, and when so acting, shall have all the powers of and be subject to all the restrictions upon the president. In the absence of the president and all executive or senior vice presidents, or in the event of their deaths, inability or refusal to act, a vice president designated by the board of directors, or in case the board of directors has failed to act, designated by the chief executive officer, shall perform the duties of the president and when so acting shall have all the powers of and be subject to all the restrictions upon Page 17 the president. The executive vice presidents, the senior vice presidents, and all other vice presidents shall perform those duties consistent with these bylaws and that may be specifically designated by the president or by the board of directors. SECTION 13. ASSISTANT VICE PRESIDENTS. The assistant vice presidents shall perform those duties, not inconsistent with these bylaws, the Certificate of Incorporation or statute that may be specifically designated by the board of directors or the president. In the absence of the executive vice presidents, senior vice presidents, or vice presidents, an assistant vice president (or in the event there be more than one assistant vice president, the assistant vice presidents in the order designated at the time of their election, or in the absence of any designation, then in the order of their election) shall perform the duties of the executive vice presidents, senior vice presidents or vice presidents, and when so acting, shall have all the powers of and be subject to all restrictions upon the executive vice presidents, the senior vice presidents, and vice presidents. SECTION 14. SECRETARY. The secretary shall attend and keep all the minutes of all meetings of the board of directors and all meetings of the stockholders and, when requested by the board of directors, of any committees of the board of directors. He shall give, or cause to be given, notice of all meetings of the stockholders and board of directors and when so ordered by the board of directors, shall affix the seal of the corporation thereto; he shall have charge of all of those books and records that the board of directors may direct, all of which shall, at all reasonable times, be open to the examination of any director at the office of the corporation during business hours; he shall, in general, perform all of the duties incident to the office of secretary subject to the control of the board of directors or of the president, under whose supervision he shall be, and shall do and perform any other duties that may from time to time be assigned to him by the board of directors. SECTION 15. ASSISTANT SECRETARIES. In the absence of the secretary or in the event of his death, inability or refusal to act, the assistant secretary (or in the event there be more than one assistant secretary, the assistant secretaries in the order designated at the time of their election, or in the absence of any designation, then in the order of their election) shall perform the duties of the secretary, and when so acting shall have all the powers of and be subject to all the restrictions upon the secretary and shall perform any other duties that may from time to time be assigned to him by the board of directors, the president or the secretary. SECTION 16. TREASURER. The treasurer shall have custody of and be responsible for all funds and securities of the corporation, receive and give receipts for money due and payable to the corporation from any source whatsoever, and deposit all such moneys in the name of the corporation in those banks or depositories that shall be selected and designated by the board of directors and shall in general perform all of the duties incident to the office of treasurer and any other duties that may be assigned to him by the president or by the board of directors. If required by the board of directors, the Page 18 treasurer shall give bond for the faithful discharge of his duties in the sum and with the surety or sureties as the board of directors shall determine. SECTION 17. ASSISTANT TREASURERS. In the absence of the treasurer or in the event of his death, inability or refusal to act, the assistant treasurer (or in the event there be more than one assistant treasurer, the assistant treasurers in the order designated at the time of their election, or in the absence of any designation, then in the order of their election) shall perform the duties of the treasurer and when so acting shall have all the powers and be subject to all the restrictions upon the treasurer, and shall perform any other duties that from time to time may be assigned to him by the president, treasurer or the board of directors. The assistant treasurers shall, if required by the board of directors, give bonds for the faithful discharge of their duties in the sums and with the surety or sureties that the board of directors shall determine. SECTION 18. CONTROLLER. The controller shall maintain adequate records of all assets, liabilities and transactions of the corporation; see that adequate audits thereof are currently and regularly made; and, in conjunction with other officers and department heads, initiate and enforce measures and procedures whereby the business of the corporation shall be conducted with the maximum safety, efficiency and economy. Except as otherwise determined by the board of directors, or lacking a determination by the board of directors, then by the president, his duties and powers shall extend to all subsidiary corporations and, so far as may be practicable, to all affiliate corporations. He shall have any other powers and perform other duties that may be assigned to him by the president or by the board of directors. If required by the board of directors, the controller shall give bond for the faithful discharge of his duties in the sum and with the surety or sureties as the board of directors shall determine. SECTION 19. ASSISTANT CONTROLLERS. In the absence of the controller or in the event of his death, inability or refusal to act, the assistant controller (or in the event there be more than one assistant controller, the assistant controllers, in the order designated at the time of their election, or in the absence of any designation, then in the order of their election) shall perform the duties of the controller and when so acting shall have all the powers and be subject to all the restrictions upon the controller, and shall perform any other duties that from time to time may be assigned to him by the president, controller or the board of directors. The assistant controllers shall, if required by the board of directors, give bonds for the faithful discharge of their duties in the sums and with the surety or sureties that the board of directors shall determine. SECTION 20. REGIONAL OR STAFF VICE PRESIDENTS. A. ELECTION. One or more regional or staff vice presidents may be appointed by the chief executive officer, or the authority for such appointments may be delegated by the chief executive officer to the president of the corporation. B. TENURE. The regional or staff vice presidents appointed by the chief executive officer or the president of the corporation shall hold office for one year and until Page 19 their successors are chosen and qualify in their stead. Any regional or staff vice president so appointed may be removed at any time by the chief executive officer or the president of the corporation. C. DUTIES. The regional or staff vice presidents shall do and perform those duties that shall from time to time be specifically designated or assigned by the chief executive officer or the president of the corporation; however, the regional or staff vice presidents shall not perform "policy-making functions" as defined pursuant to Section 16 or any successor section(s) of the Securities Exchange Act of 1934, as amended, and shall be deemed not to be subject to such Section 16 and the rules and regulations promulgated thereunder. ARTICLE VII. INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS SECTION 1. The board of directors shall cause the corporation to indemnify any person (and that person's heirs and personal representatives) who was or is a party or is threatened or expected to be made a party to any threatened, pending or completed action, suit, arbitration or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee, partner or agent of another corporation, partnership (including a partnership in which the corporation is a partner), joint venture, trust or other enterprise, against expenses (including, but not limited to, attorneys' fees, expert fees, bonds, prospective or retroactive insurance premiums or costs, litigation, appeal and court costs and out-of-pocket expenses of such person during any investigation hearing, arbitration, trial, or appeal of any such action, suit or proceeding, including any interest payable thereon), judgments, damages, arbitration awards, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit, arbitration or proceeding, including any interest payable thereon, if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. SECTION 2. The board of directors shall indemnify any person (and that person's heirs and personal representatives) who was or is a party or is threatened or expected to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was Page 20 a director, officer, employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee, partner or agent of another corporation, partnership (including a partnership in which the corporation is a partner), joint venture, trust or other enterprise against expenses (including, but not limited to, attorneys' fees, expert fees, bonds, prospective or retroactive insurance premiums or costs, litigation, appeal and court costs, and out-of-pocket expenses of such person during any investigation, hearing, trial or appeal of any such action or suit, including any interest payable thereon), actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his duty to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. SECTION 3. To the extent that a present or past director, officer, employee or agent of the corporation has been successful on the merits or otherwise in defense of any action, suit, arbitration or proceeding referred to in Sections 1 and 2, or in defense of claim, issue or matter therein, he shall be indemnified against expenses (including, but not limited to, attorneys' fees, expert fees, bonds, prospective or retroactive insurance premiums or costs, litigation, appeal, and court costs, and out-of-pocket expenses of such person during any investigation, hearing, arbitration, trial or appeal of any such action, suit or proceeding) actually and reasonably incurred by him in connection therewith, including any interest payable thereon. SECTION 4. The board of directors shall cause the corporation to advance to any person covered by Sections 1 or 2 the expenses (including, but not limited to, attorneys' fees, expert fees, bonds, prospective or retroactive insurance premiums or costs, litigation, appeal, and court costs and out-of-pocket expenses, of such person during any investigation, hearing, arbitration, trial or appeal of any such action, suit, arbitration or proceeding) incurred by that person in defending a threatened, pending, or completed civil, criminal, administrative, or investigative action suit, arbitration, or proceeding, including any interest payable thereon, in advance of the final disposition of such action, suit or proceeding. SECTION 5. Any advance by the board of directors under Section 4 above to any employee or agent who is not a present or past director or officer of the corporation shall be conditional upon evidence of compliance with the terms and conditions, if any, deemed appropriate and specified by the board of directors for such advance if such employee or agent is determined ultimately to be not legally entitled to indemnification from the corporation. Page 21 SECTION 6. Any advance authorized by the board of directors under Section 4 above to a present or past officer or director shall be conditional upon prior receipt by the corporation of a written undertaking from that officer or director to repay such advance if he is determined ultimately to be not legally entitled to indemnification from the corporation. Such undertaking shall be in the form of a simple agreement by the officer or director to repay advances made to him in the event that it is determined ultimately that he is not legally entitled to indemnification by the corporation. Such undertaking shall specifically state that no bond, collateral or other security shall be required by the officer or director to insure its performance and that no interest on any amount advanced shall be required to be paid to the corporation if the officer or director is determined ultimately to be not legally entitled to indemnification from the corporation. SECTION 7. The board of directors, in its sole discretion, may establish and may fund in advance and from time to time, in whole or in part, a separate provision or provisions, which may be in the form of a trust fund, periodic or advance retainers to counsel, or otherwise as the board of directors may determine in each instance, to be used as payment and/or advances of indemnification obligations under this Article VII to officers, directors, employees and agents of the corporation; provided, however, that any amount which is contributed to such fund shall not in any way be construed to be a limitation on the amount of indemnification and/or advances of the corporation. SECTION 8. The board of directors shall cause the corporation to pay to any director, officer, employee or agent all expenses (including, but not limited to, attorneys' fees, expert fees, bonds, prospective or retroactive insurance premiums or costs, litigation, appeal, and court costs, and out-of-pocket expenses of such person during any investigation, hearing, arbitration, trial or appeal of any such action, suit, arbitration or proceeding, including any interest payable thereon), which may be incurred by such director, officer, employee or agent in enforcing his rights to indemnification (as set forth herein in Sections 1, 2 and 3) and/or advances (as set forth herein in Section 4) whether or not such director, officer, employee or agent is successful in enforcing such rights and whether or not suit or other proceedings are commenced. SECTION 9. Any amendment to this Article VII shall only apply prospectively and shall in no way affect the corporation's obligations to indemnify and make advances to officers, directors, employees and agents as set forth in this Article VII for actions or events which occurred before any such amendment, and provided that any amendment to this Article VII shall require affirmative vote of four-fifths of the entire board of directors. SECTION 10. Any indemnification granted under the provisions of Sections 1, 2, 3 and 8 above shall be subject to the provisions of subsections (d), (e), (f) and (g) of Section 145 of the General Corporation Law of the State of Delaware. Page 22 ARTICLE VIII. CONTRACTS, LOANS, CHECKS AND DEPOSITS SECTION 1. CONTRACTS. The board of directors may authorize any officer or officers, agent or agents to enter into any contract or execute and deliver any instrument in the name of and on behalf of the corporation. Such authority may be general or confined to specific instances. SECTION 2. LOANS. No loan shall be contracted on behalf of the corporation and no evidences of indebtedness shall be issued in its name, unless authorized by resolution of the board of directors. Such authority may be general or confined to specific instances. SECTION 3. CHECKS, DRAFTS, ETC. All checks, drafts or other order or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the corporation shall be signed by such officer or officers, agent or agents and in such manner that shall from time to time be determined by resolution of the board of directors. SECTION 4. DEPOSITS. All funds of the corporation not otherwise employed shall be deposited from time to time to the credit of the corporation in the bank or banks or other depositories that the board of directors may elect. ARTICLE IX. VOTING OF STOCK OF OTHER CORPORATIONS Unless otherwise ordered by the board of directors, the chief executive officer shall have full power and authority on behalf of the corporation to act and vote at any meeting of stockholders of any corporation in which the corporation may hold stock, and at any such meeting, shall possess, and may exercise, any and all of the rights and powers incident to the ownership of the stock, which, as the owner thereof, the corporation might have possessed and exercised if present. The board of directors by resolution from time to time, may confer like powers upon any other person or persons. Page 23 ARTICLE X. NOTICES SECTION 1. FORM OF NOTICE. Whenever under the provisions of the statutes, the Certificate of Incorporation, or these bylaws, notice is required to be given to any director or stockholder, it shall not be construed to mean personal notice, but the notice may be given in writing by mail, which shall mean depositing same in a United States Postal Service post office or letter box, in a postage paid, sealed envelope, addressed to the stockholder or director at the address that appears on the books of the corporation or, in default of other address, to such director or stockholder at the United States Postal Service general post office in the City of Wilmington, Delaware, and the notice shall be deemed to be given at the time when the same shall be thus mailed or by any other means expressly provided for in these bylaws. SECTION 2. WAIVER OF NOTICE. Whenever any notice is required to be given under the provision of the statutes, the Certificate of Incorporation or these bylaws, a waiver thereof in writing signed by the person or persons entitled to the notice whether before or after the time stated therein shall be deemed equivalent thereto. ARTICLE XI. STOCK CERTIFICATES SECTION 1. CERTIFICATES FOR SHARES. The certificates for shares of the capital stock of the corporation shall be in the form, not inconsistent with the Certificate of Incorporation, that shall be approved by the board of directors. The certificate shall be signed by the chairman of the board, chief executive officer, president or a vice president, and either the treasurer or an assistant treasurer, or the secretary or an assistant secretary, but where the certificate is signed by a transfer agent or an assistant transfer agent and a registrar, the signatures of the chairman of the board, chief executive officer, president, vice president, treasurer, assistant treasurer, secretary or assistant secretary may be facsimiles. All certificates shall be consecutively numbered, and the name of the person owning the shares represented thereby, with the number of shares and the date of issue shall be entered in the corporation's books. No certificate shall be valid unless it is signed by the chairman of the board, chief executive officer, president, or a vice president, and either the treasurer or an assistant treasurer, or the secretary or an assistant secretary, but where the certificate is signed by a transfer agent or an assistant transfer agent and a registrar, the signatures of the chairman of the board, chief executive officer, president, vice president, treasurer, assistant treasurer, secretary or assistant secretary may be facsimiles. All certificates surrendered to the corporation shall be canceled, and no new certificates shall be issued until the former certificate for the same number of shares of the same class shall have been surrendered and canceled. Page 24 SECTION 2. TRANSFER OF SHARES. Shares of the capital stock of the corporation shall be transferred only on the books of the corporation by the holder thereof in person or by his attorney upon surrender and cancellation of certificates for the same number of shares. SECTION 3. REGULATIONS. The board of directors shall have authority to make any rules and regulations that they may deem expedient concerning the issue, transfer and registration of certificates for shares of the capital stock of the corporation. The board of directors may appoint one or more transfer agents or assistant transfer agents and one or more registrars of transfers and may require all certificates to bear the signature of the transfer agent or assistant transfer agent and a registrar of transfers. The board of directors may at any time terminate the appointment of any transfer agent or any assistant transfer agent or any registrar of transfers by the vote of a majority of the board of directors. SECTION 4. FIXING DATE FOR DETERMINATION OF STOCKHOLDERS' RIGHTS. The board of directors may close the stock transfer books of the corporation for a period not exceeding 50 days preceding the date of any meeting of stockholders, or the date for payment of any dividend, or the date for the allotment of rights, or the date when any change or conversion or exchange of capital stock shall go into effect, or for a period not exceeding 50 days in connection with obtaining the consent of stockholders for any purpose. In lieu of closing the stock transfer books as aforesaid, the board of directors may fix a date not exceeding 50 days preceding the date of any meeting of stockholders, or the date for the payment of any dividend, or the date for the allotment of rights, or the date when any change or conversion or exchange of capital stock shall go into effect, or a date in connection with obtaining such consent, as a record date for the determination of the stockholders entitled to notice of, and to vote at, any meeting and any adjournment thereof, or entitled to receive payment of any dividend, or to any allotment of rights, or to exercise the rights in respect of any change, conversion or exchange of capital stock, or to give such consent, and in such case the stockholders and only the stockholders that shall be stockholders of record on the date so fixed shall be entitled to the notice or to receive payment of the dividend, or to receive the allotment of rights, or to exercise the rights or to give such consent, as the case may be, notwithstanding any transfer of any stock on the books of the corporation after any record date fixed as aforesaid. SECTION 5. REGISTERED STOCKHOLDERS. The corporation shall be entitled to treat the holder of record of any share or shares of stock as the holder in fact thereof and accordingly shall not be bound to recognize any equitable or other claim to or interest in the share or shares on the part of any other person whether or not it shall have express or other notice thereof except as otherwise provided by the laws of the State of Delaware. Page 25 SECTION 6. LOST CERTIFICATES. The board of directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost or destroyed, upon the making of an affidavit of that fact with the person claiming the certificate of stock to be lost or destroyed. When authorizing the issue of a new certificate or certificates, the board of directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of the lost or destroyed certificate or certificates, or his legal representative, to advertise the same in a manner that it shall require for each share of stock having voting power registered in his name and to give the corporation a bond in the sum that it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost or destroyed. SECTION 7. DIVIDENDS. The board of directors may from time to time declare, and the corporation may pay, dividends on its outstanding shares in the manner and upon the terms and conditions provided by law and the Certificate of Incorporation. SECTION 8. RESERVE FUNDS. Before payment of any dividend there may be set aside out of any funds of the corporation available for dividends the sum or sums that the board of directors may from time to time in their absolute discretion think proper as a reserve fund to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for any other purpose that the directors shall think conducive to the interest of the corporation and the board of directors may modify or abolish the reserve in the manner in which it was created. ARTICLE XII. GENERAL PROVISIONS SECTION 1. FISCAL YEAR. The fiscal year of the corporation shall begin on the first day of January in each year. SECTION 2. INSPECTION OF BOOKS. The board of directors shall determine from time to time whether, and if allowed, when and under what conditions and regulations, the accounts and books of the corporation (except as may be by statute specifically open to inspection) or any of them, shall be open to the inspection of the stockholders, and a stockholder's rights in this respect are, and shall be, restricted and limited accordingly. SECTION 3. GENDER. The use of the masculine gender in these bylaws shall be deemed to include the feminine gender. Page 26 ARTICLE XIII. AMENDMENTS TO AND SUSPENSION OF BYLAWS SECTION 1. AMENDMENTS. Subject to the provisions of Section 12 of Article IV, these bylaws may be altered or repealed at any regular meeting of the stockholders or at any special meeting of the stockholders at which a quorum is present or represented, provided notice of the proposed alteration or repeal be contained in the notice of the special meeting, by the affirmative vote of a majority of the stockholders entitled to vote at the meeting and present or represented thereat, or by the affirmative vote of a majority of the board of directors at any regular meeting of the board of directors or at any special meeting of the board of directors, if notice of the proposed alteration or repeal be contained in the notice of the special meeting. SECTION 2. SUSPENSION. Any provision of these bylaws may be suspended by vote of two-thirds of the votes cast upon the motion to suspend except that the suspension of the bylaw provision might be in contravention of any provision of any statute or of the Certificate of Incorporation. * * * Page 27 ANNEX A APACHE CORPORATION AUDIT COMMITTEE CHARTER I. Purposes of the Audit Committee: The purposes of the audit committee are to assist the board of directors: (a) in its oversight of the corporation's accounting and financial reporting principles and policies and internal audit controls and procedures; (b) in its oversight of the corporation's financial statements and the independent audit thereof; (c) in selecting (or nominating the outside auditors to be proposed for stockholder approval in any proxy statement), evaluating and, where deemed appropriate, replacing the outside auditors; and (d) in evaluating the independence of the outside auditors. The function of the audit committee is oversight. The management of the corporation is responsible for the preparation, presentation and integrity of the corporation's financial statements. Management is responsible for maintaining appropriate accounting and financial reporting principles and policies and internal controls and procedures designed to assure compliance with accounting standards and applicable laws and regulations. The outside auditors are responsible for planning and carrying out a proper audit and reviews, including reviews of the corporation's quarterly financial statements prior to the filing of each quarterly report on Form 10-Q, and other procedures. In fulfilling their responsibilities hereunder, it is recognized that members of the audit committee are not full-time employees of the corporation and are not, and do not represent themselves to be, accountants or auditors by profession or experts in the fields of accounting or auditing. As such, it is not the duty or responsibility of the audit committee or its members to conduct "field work" or other types of auditing or accounting reviews or procedures, and each member of the audit committee shall be entitled to rely on (i) the integrity of those persons and organizations within and outside the corporation that it receives information from and (ii) the accuracy of the financial and other information provided to the audit committee by such persons or organizations absent actual knowledge to the contrary (which shall be promptly reported to the board of directors). The outside auditors for the corporation are ultimately accountable to the board of directors (as assisted by the audit committee). The board of directors, Page A-1 with the assistance of the audit committee, has the ultimate authority and responsibility to select, evaluate and, where appropriate, replace the outside auditors (or to nominate the outside auditors to be proposed for stockholder approval in the proxy statement). The outside auditors shall submit to the corporation annually a formal written statement delineating all relationships between the outside auditors and the corporation ("Statement as to Independence"), addressing at least the matters set forth in Independence Standard No. 1 of the Independence Standards Board. II. Meetings of the Audit Committee: The audit committee shall meet four times annually, or more frequently if circumstances dictate, to discuss with management the annual audited financial statements and quarterly financial statements (and quarterly financial results.) In addition to such meetings of the audit committee as may be required to discuss the matters set forth in Article III below, the audit committee should meet separately at least annually with management, the director of the internal auditing department and the outside auditors to discuss any matters that the audit committee or any of these persons or firms believe should be discussed privately. The audit committee may request any officer or employee of the corporation or the corporation's outside counsel or outside auditors to attend a meeting of the audit committee or to meet with any members of, or consultants to, the audit committee. Members of the audit committee may participate in a meeting of the audit committee by means of conference call or similar communications equipment by means of which all persons participating in the meeting can hear each other. III. Duties and Powers of the Audit Committee: To carry out its purposes, the audit committee shall have the following duties and powers: (a) With respect to the outside auditors: (i) to provide advice to the board of directors in selecting, evaluating or replacing outside auditors; (ii) to review the fees charged by the outside auditors for audit and non-audit services; (iii) to ensure that the outside auditors prepare and deliver annually a Statement as to Independence (it being understood that the outside auditors are responsible for the accuracy and completeness of this Statement), to discuss with the outside auditors any relationships or services disclosed in this Statement that may impact the objectivity and independence of the corporation's outside auditors and to recommend that the board of Page A-2 directors take appropriate action in response to such Statement to satisfy itself of the outside auditors' independence; and (iv) to instruct the outside auditors that the outside auditors are ultimately accountable to the board of directors and audit committee. (b) With respect to the internal auditing department: (i) to review the appointment and replacement of the director of the internal auditing department; and (ii) to advise the director of the internal auditing department that he or she is expected to provide to the audit committee summaries of and, as appropriate, the significant reports to management prepared by the internal auditing department and management's responses thereto. (c) With respect to financial reporting principles and policies and internal audit controls and procedures: (i) to advise management, the internal auditing department and the outside auditors that they are expected to provide to the audit committee a timely analysis of significant financial reporting issues and practices; (ii) to consider any reports or communications (and management's and/or the internal audit department's responses thereto) submitted to the audit committee by the outside auditors required by or referred to in Statement of Auditing Standards No. 61 (as codified by AU Section 380), as may be modified or supplemented, including reports and communications related to: o deficiencies noted in the audit in the design or operation of internal controls; o consideration of fraud in a financial statement audit; o detection of illegal acts; o the outside auditor's responsibility under generally accepted auditing standards; o significant accounting policies; o management judgments and accounting estimates; Page A-3 o adjustments arising from the audit; o the responsibility of the outside auditor for other information in documents containing audited financial statements; o disagreements with management; o consultation by management with other accountants; o major issues discussed with management prior to retention of the outside auditor; o difficulties encountered with management in performing the audit; and o reviews of interim financial information conducted by the outside auditor; (iii) to meet with management and the outside auditors to discuss the quality of the corporation's accounting principals; (iv) to meet with management, the director of the internal auditing department and/or the outside auditors: o to discuss the scope of the annual audit; o to review and discuss the corporation's annual and quarterly financial statements; o to discuss any significant matters arising from any audit or report or communication referred to in items (b)(ii) or (c)(ii) above, whether raised by management, the internal auditing department or the outside auditors, relating to the corporation's financial statements; o to review the form of opinion the outside auditors propose to render to the board of directors and stockholders; o to discuss significant changes to the corporation's auditing and accounting principles, policies, controls, procedures and practices proposed or contemplated by the internal auditing department or management; and o to inquire about significant risks and exposures, if any, and the steps taken to monitor and minimize such risks; Page A-4 (v) to obtain from the outside auditors assurance that the audit was conducted in a manner consistent with Section 10A of the Securities Exchange Act of 1934, as amended, which sets forth certain procedures to be followed in any audit of financial statements required under the Securities Exchange Act of 1934; and (vi) to discuss with the corporation's General Counsel and management any significant legal matters that may have a material effect on the financial statements, the corporation's compliance policies, including material notices to or inquiries received from governmental agencies. (d) With respect to reporting and recommendations: (i) to prepare any report, including any recommendation of the audit committee, required by the rules of the Securities and Exchange Commission to be included in the corporation's annual proxy statement; (ii) to review this Charter at least annually, recommend any changes to the full board of directors for approval and have the document published as required by the rules of the Securities and Exchange Commission; and (iii) to report its activities to the full board of directors on a regular basis and to make such recommendations with respect to the above and other matters as the audit committee may deem necessary or appropriate. IV. Resources and Authority of the Audit Committee: The audit committee shall have the resources and authorities appropriate to discharge its responsibilities, including the authority to engage outside auditors for special audits, reviews and other procedures and to retain special counsel and other experts or consultants. * * * Page A-5 EX-10.1 4 h96753ex10-1.txt AMENDMENT TO APACHE CORP. 401(K) SAVINGS PLAN EXHIBIT 10.1 AMENDMENT TO APACHE CORPORATION 401(k) SAVINGS PLAN Apache Corporation ("Apache") sponsors the Apache Corporation 401(k) Savings Plan (the "Plan"). In section 10.4 of the Plan, Apache reserved the right to amend the Plan from time to time. Apache hereby exercises the right to amend the Plan by making the following changes to the Plan, effective January 1, 2002. REVISED MATCHING FORMULA SECTION 3.1(b)(i) SHALL BE REPLACED IN ITS ENTIRETY WITH THE FOLLOWING. (i) Standard Match. As of the last day of the Plan Year, the Committee shall make the final allocation of Company Matching Contributions (including such forfeitures occurring during the pay period that are treated as Company Matching Contributions pursuant to section 5.5) to each Participant who made Participant Before-Tax Contributions during the Plan Year as follows. Each Participant's allocation shall be equal to his Participant Before-Tax Contributions for the Plan Year, up to a maximum allocation of 6% of his Compensation. The Committee may make interim allocations of Company Matching Contributions during the Plan Year, reflecting the allocation earned thus far in the Plan Year. REVISED LOAN RULES SECTION 7.2(a) SHALL BE REPLACED IN ITS ENTIRETY WITH THE FOLLOWING. (a) Availability. Loans are available only to Employees, Participants who are parties-in-interest (within the meaning of ERISA section 3(14)), and beneficiaries who are parties-in-interest (collectively referred to in this section as "Borrowers"). The Committee shall temporarily reduce the amount a Participant may borrow or temporarily prevent the Participant from borrowing when, as described in section 13.9, the Committee is informed that a QDRO affecting the Participant's Accounts is in process or may be in process. Loans shall be temporarily unavailable to a prospective Borrower while the Committee has suspended loans because the Committee believes that the Plan may have a cause of action against the Participant, as explained in subsection 13.9(h). NEW RULES FOR ROLLOVERS SECTION 1.5(b)(i) SHALL BE REPLACED IN ITS ENTIRETY BY THE FOLLOWING. (i) Rollover Contributions to any defined contribution plan maintained by the Company or an Affiliated Entity; THE FOLLOWING SECTION 1.39A SHALL BE ADDED TO THE PLAN. 1.39A "Rollover Contribution" means the following. (a) Direct Transfers. A Rollover Contribution includes a direct transfer to a defined contribution plan by a Covered Employee of an eligible rollover distribution from: (i) a qualified plan described in Code section 401(a) (including after-tax contributions), Page 1 of 14 (ii) a qualified annuity plan described in Code section 403(a) (including after-tax contributions), (iii) an annuity contract described in Code section 403(b) (including after-tax contributions), or (iv) an eligible plan under Code section 457(b) that is maintained by an eligible employer described in Code section 457(e)(1)(A) (which generally includes state or local governments). (b) Regular Rollovers. A Rollover Contribution includes a contribution to a defined contribution plan by a Covered Employee of an eligible rollover distribution from: (i) a qualified plan described in Code section 401(a) (excluding after-tax contributions), (ii) a qualified annuity plan described in Code section 403(a) (excluding after-tax contributions), (iii) an annuity contract described in Code section 403(b) (excluding after-tax contributions), or (iv) an eligible plan under Code section 457(b) that is maintained by an eligible employer described in Code section 457(e)(1)(A) (which generally includes state and local governments). (c) Rollovers from IRAs. A Rollover Contribution includes a contribution to a defined contribution plan by a Covered Employee of the portion of a distribution from an individual retirement account or annuity described in Code section 408(a) or 408(b) that is eligible to be rolled over and that would otherwise be included in the Covered Employee's gross income. THE INTRODUCTORY PARAGRAPH TO ARTICLE III SHALL BE AMENDED BY REPLACING THE WORD "ROLLOVERS" WITH "ROLLOVER CONTRIBUTIONS." SECTION 3.2(b) SHALL BE REPLACED IN ITS ENTIRETY BY THE FOLLOWING SECTION 3.2(d). [NOTE: A NEW 3.2(b) AND 3.2(c) ARE BEING ADDED TO THE PLAN.] (d) Rollovers. The Plan may accept any Rollover Contribution from a Covered Employee, with the following limitations. The Committee shall decide from time to time which types of Rollover Contributions the Plan will accept, and the conditions under which the Plan will accept them. The Plan shall not accept any Rollover Contribution to the extent that it is a direct transfer of an amount that would, if not rolled over, be excluded from the Covered Employee's gross income (i.e., the Plan won't accept rollovers of after-tax contributions). If the Plan accepts a contribution and subsequently determines that the contribution did not qualify as a Rollover Contribution, the Plan shall distribute such contribution, as well as the net increase or decrease in the net value of the Trust Fund attributable to the contribution, to the Covered Employee as soon as administratively practicable. Rollover Contributions shall be allocated to Rollover Accounts. SECTION 4.1(c) SHALL BE REPLACED IN ITS ENTIRETY WITH THE FOLLOWING. (c) Rollover Account. A Rollover Account shall be established for each Participant who makes a Rollover Contribution to this Plan pursuant to subsection 3.2(d). Page 2 of 14 SECTION 6.6 SHALL BE REPLACED IN ITS ENTIRETY WITH THE FOLLOWING. 6.6 Direct Rollover Election. (a) General Rule. A Participant, an Alternate Payee who is the Spouse or former Spouse of the Participant, or a surviving Spouse of a deceased Participant (collectively, the "distributee") may direct the Trustee to pay all or any portion of his "eligible rollover distribution" to an "eligible retirement plan" in a "direct rollover." This direct rollover option is not available to other Account Owners (non-Spouse beneficiaries and Alternate Payees who are not the Spouse or former Spouse of the Participant). Within a reasonable period of time before an eligible rollover distribution, the Committee shall inform the distributee of this direct rollover option, the appropriate withholding rules, other rollover options, the options regarding income taxation, and any other information required by Code section 402(f). The distributee may waive the usual 30-day waiting period before receiving a distribution, and elect to receive his distribution as soon as administratively practicable after completing and filing his distribution election. (b) Definition of Eligible Rollover Distribution. An eligible rollover distribution is any distribution or in-service withdrawal other than (i) distributions required under Code section 401(a)(9), (ii) distributions of amounts that have already been subject to federal income tax (such as defaulted loans or after-tax voluntary contributions), other than a direct transfer to (A) another retirement plan that meets the requirements of Code sections 401(a) or 403(a), or (B) an individual retirement account or annuity described in Code section 408(a) or 408(b), (iii) installment payments in a series of substantially equal payments made at least annually and (A) made over a specified period of ten or more years, (B) made for the life or life expectancy of the distributee, or (C) made for the joint life or joint life expectancy of the distributee and his designated beneficiary, (iv) a distribution to satisfy the limits of Code section 415 or 402(g), (v) a deemed distribution of a defaulted loan from this Plan, to the extent provided in the regulations, (vi) a distribution to satisfy the ADP or ACP tests, (vii) any other actual or deemed distribution specified in the regulations issued under Code section 402(c), or (viii) any hardship withdrawal by an Employee. (c) Definition of Eligible Retirement Plan. An eligible retirement plan is an individual retirement account or annuity described in Code section 408(a) or 408(b), an annuity plan described in Code section 403(a), an annuity contract described in Code section 403(b), an eligible plan under Code section 457(b) that is maintained by an eligible employer described in Code section 457(e)(1)(A) (which generally includes state and local governments), or the qualified trust of a defined contribution plan described in Code section 401(a), that accepts eligible rollover distributions. (d) Definition of Direct Rollover. A direct rollover is a payment by the Trustee to the eligible retirement plan specified by the distributee. SECTION 15.2(g) SHALL BE REPLACED IN ITS ENTIRETY BY THE FOLLOWING. (g) Rollovers. If the Serviceman was a Covered Employee when he or she became a Serviceman, the Serviceman may make Rollover Contributions pursuant to subsection 3.2(d) until the day on which his or her potential USERRA reemployment rights expire. REPEAL OF THE MULTIPLE-USE TEST SECTION 3.7 SHALL BE DELETED IN ITS ENTIRETY, BUT SECTIONS 3.8 AND 3.9 SHALL NOT BE RE-NUMBERED. ALL REFERENCES TO THE MULTIPLE-USE TEST OR TO SECTION 3.7 SHALL BE DELETED FROM SECTIONS 1.13(c), 3.1(b)(ii), 3.1(c)(iv), 4.2(c)(iv), 5.2(b), 15.4(h)(i), AND 15.4(h)(ii)(F). Page 3 of 14 CHANGE TO THE LIMIT IN CODE SECTION 415 SECTION 3.4(a) SHALL BE REPLACED IN ITS ENTIRETY BY THE FOLLOWING. (a) The Annual Additions to a Participant's Account(s) in this Plan and to his or her accounts in any other defined contribution plans maintained by the Company or an Affiliated Entity for any Limitation Year shall not exceed in the aggregate the lesser of (i) $40,000 (as adjusted by the Secretary of the Treasury), or (ii) 100% of the Participant's Compensation. The limit in paragraph (ii) shall not apply to any contribution for medical benefits (within the meaning of Code section 419A(f)(2)) after separation from service that is treated as an Annual Addition. ADDITIONAL INVOLUNTARY DISTRIBUTIONS PERMITTED SECTION 6.5(d) SHALL BE REPLACED IN ITS ENTIRETY BY THE FOLLOWING. (d) Small Amounts. If the aggregate value of the nonforfeitable portion of a Participant's Accounts other than his Rollover Account is $5,000 or less on any date after the Participant ceases to be an Employee, then the Participant shall receive a single payment of the distributable amount as soon as practicable, provided that the aggregate value is $5,000 or less when the distribution is processed. The Committee may elect to check the value of the Participant's Accounts on an occasional (rather than a daily) basis, to determine whether to apply the provisions of this subsection. THE SECOND SENTENCE OF SECTION 13.9(f)(ii) SHALL BE REPLACED BY THE FOLLOWING SENTENCE. If the value of the nonforfeitable portion of an Alternate Payee's Account (ignoring any portion of the Participant's Rollover Account that was assigned to the Alternate Payee) is $5,000 or less, the Alternate Payee shall receive a single payment of the distributable amount as soon as practicable (without the Alternate Payee's consent), provided that the value is $5,000 or less when the distribution is processed. ELIMINATION OF THE SAME-DESK RULE THE SECOND SENTENCE OF SECTION 6.5(a)(i) SHALL BE ELIMINATED. SECTION 15.3(a) SHALL BE REPLACED IN ITS ENTIRETY BY THE FOLLOWING. (a) If a Serviceman is not reemployed before his or her potential USERRA reemployment rights expire, the Committee shall determine his or her Termination from Service Date by treating his or her service in the Uniformed Services as an approved leave of absence but treating the expiration of his or her potential USERRA reemployment rights as the failure to timely return from his or her leave of absence, with the consequence that his or her Termination from Service Date will generally be the date his or her potential USERRA rights expired. Once his or her Termination from Service Date has been determined, the Committee shall determine his or her vested percentage. For purposes of Article VI and section 7.1 (relating to distributions), the day the Serviceman's potential USERRA reemployment rights expired shall be treated as the day he or she terminated employment with the Company and Affiliated Entities. For purposes of subsection 5.2(d) (relating to the timing of forfeitures), the Serviceman's last day of employment shall be the day his or her potential USERRA reemployment rights expired. If the Serviceman has an outstanding loan from this Plan when his or her potential USERRA reemployment rights expire, his or her loan shall go into default on the last day of the calendar quarter after the calendar quarter in which his or her potential USERRA reemployment rights expired, unless, before the loan goes into default, he or she repays the loan or is rehired pursuant to subsection (b). APPENDICES D AND F SHALL BE ELIMINATED, AND APPENDIX E SHALL BE RE-DESIGNATED AS APPENDIX D. Page 4 of 14 APPENDIX C SHALL BE AMENDED BY REPLACING BOTH THE INTRODUCTORY PARAGRAPH AND THE "SALES" PARAGRAPH WITH THE FOLLOWING PARAGRAPHS. Over the years, Apache and its Affiliated Entities have engaged in numerous corporate transactions, both acquisitions and sales. This Appendix contains any special provisions that apply to employees affected by the corporate transaction, including both those who become Employees and those who cease to be Employees. Sales For an Employee who transferred to Natural Gas Clearinghouse ("NGC") pursuant to the terms of the Employee Benefits Agreement effective April 1, 1990 between Apache and NGC, a Period of Service shall be calculated by treating as employment with Apache any period(s) of employment after April 1, 1990 with NGC or any business that is then treated as a single employer with NGC pursuant to Code section 414(b), 414(c), 414(m), or 414(o). Employees terminated in connection with the summer 1995 sale of certain properties to Citation 1994 Investment Limited Partnership are fully vested in their Plan Accounts as of September 1, 1995. An Employee who transferred to Producers Energy Marketing LLC ("ProEnergy") in the first half of 1996 is fully vested in his or her Plan Accounts as of the date of transfer. If such an individual becomes an Employee again, all new contributions to his or her Plan Accounts shall vest according to the regular rules. SHORTENING THE SUSPENSION PERIOD AFTER HARDSHIP WITHDRAWALS THE THIRD-FROM-THE-LAST SENTENCE OF SECTION 3.2(a)(iii) SHALL BE REPLACED WITH THE FOLLOWING. If an Employee makes a hardship withdrawal from his Before-Tax Account under section 7.1 after 2001, his contribution rate shall be immediately reduced to 0%, and shall remain at 0% for at least 6 months. SECTION 7.1(c)(ii) SHALL BE REPLACED IN ITS ENTIRETY BY THE FOLLOWING. (ii) Satisfaction of Need. The withdrawal is deemed to be needed to satisfy the Employee's financial need if (A) the Employee has obtained all withdrawals and all non-taxable loans available from the Company's and any Affiliated Entities' qualified plans, and (B) for a period of at least 6 months from the date the Employee receives the withdrawal, he or she ceases to make Participant Before-Tax Contributions and elective contributions to all qualified and non-qualified plans maintained by the Company or any Affiliated Entity. CHANGE IN TOP-HEAVY RULES THE FIRST SENTENCE OF SECTION 12.2 SHALL BE AMENDED BY REPLACING THE PHRASE "WHO TERMINATED EMPLOYMENT WITHIN FIVE YEARS OF THE DETERMINATION DATE" WITH THE PHRASE "WHO TERMINATED EMPLOYMENT WITHIN ONE YEAR OF THE DETERMINATION DATE." THE THIRD SENTENCE OF SECTION 12.2 SHALL BE REPLACED BY THE FOLLOWING. For purposes of determining the account balance of any Participant, (a) the balance shall be determined as of the Determination Date, (b) the balance shall also include any distributions to the Participant during the one-year period ending on the Determination Date, and (c) the balance shall also include, for distributions made for a reason other than separation from service or death or disability, any distributions to the Participant during the five-year period ending on the Determination Date. Page 5 of 14 THE THIRD-FROM-THE-LAST SENTENCE OF SECTION 12.2 SHALL BE REPLACED BY THE FOLLOWING. If one or more of the plans required or permitted to be aggregated with this Plan is a defined benefit plan, a Participant's "account balance" shall mean the present value of the Participant's accrued benefit. THE LAST SENTENCE OF SECTION 12.4 SHALL BE REPLACED WITH THE FOLLOWING. If the minimum allocation is not otherwise satisfied for any Non-Key Employee, the Company shall contribute the additional amount needed to satisfy this requirement to such Non-Key Employee's Company Contributions Account. EXTRA CONTRIBUTIONS FOR THOSE 50 AND OLDER THE FOLLOWING SECTION SHALL BE ADDED TO THE PLAN. 1.5A "Catch-Up Contributions" means those contributions made to the Plan by the Company, at the election of the Participant pursuant to subsection 3.2(b) that meet the requirements of Code section 414(v). THE FOLLOWING SECTION SHALL BE ADDED TO THE PLAN. 1.21A "401(k) Contributions" means those contributions made to the Plan by the Company, at the election of the Participant pursuant to subsection 3.2(a), that are excludable from the Participant's gross income under Code sections 401(k) and 402(e)(3). SECTION 1.32 SHALL BE REPLACED IN ITS ENTIRETY BY THE FOLLOWING. 1.32 "Participant Before-Tax Contributions" means 401(k) Contributions and Catch-Up Contributions. THE TERM "PARTICIPANT BEFORE-TAX CONTRIBUTION" SHALL BE REPLACED, IN THE FOLLOWING SECTIONS, BY THE TERM "401(k) CONTRIBUTIONS": 1.5(a)(iii), 3.1(d), 3.3(b), 3.4(b)(iii), 3.4(b)(iv), 4.2(c)(iv), AND 5.2(b). SECTION 3.2(a) SHALL BE REPLACED IN ITS ENTIRETY BY THE FOLLOWING SECTIONS 3.2(a) AND 3.2(b). (a) 401(k) Contributions. (i) General Rules. A Participant may elect to defer the receipt of a portion of his or her Compensation during the Plan Year and contribute such amounts to the Plan as 401(k) Contributions. The Committee shall determine the maximum 401(k) Contributions that a Participant may make and shall establish other administrative rules governing the 401(k) Contributions; for example, the Committee may require 401(k) Contributions to be made in whole percentages of Compensation, the Committee may allow different contribution percentages from bonuses than are allowed from regular pay, and the Committee may limit 401(k) Contributions (for the year or for the pay period or for a bonus) to a percentage of Compensation (for the year or for the pay period or for the bonus). The Company shall pay the amount deducted from the Participant's Compensation to the Trustee promptly after the deduction is made. 401(k) Contributions shall be allocated to Participant Before-Tax Contributions Accounts. Page 6 of 14 (ii) Limitations on 401(k) Contributions. (A) Limit for Apache Plans. The sum of 401(k) Contributions to this Plan and elective deferrals (as defined in Code section 402(g)(3)) to any other plan maintained by the Company or an Affiliated Entity shall not exceed the dollar limit in effect under Code section 402(g)(1) in any calendar year. The Company shall inform the Committee if such limit has been exceeded, and the excess amount allocated to this Plan. The excess amount allocated to this Plan shall be reduced by any 401(k) Contributions returned pursuant to any other provision of this Article. Any remaining excess amount shall be recharacterized as a Catch-Up Contribution to the extent possible, and any remaining excess amount shall be returned to the Participant as soon as administratively possible, and in no event later than April 15 of the calendar year after the calendar year in which the excess occurred. Company Matching Contributions attributable to amounts returned under this subparagraph shall be forfeited. Unmatched 401(k) Contributions shall be returned first. The amount returned, recharacterized or forfeited shall be adjusted to reflect the net increase or decrease in the net worth of the Participant's Account attributable thereto for the Plan Year. The Committee may use any reasonable method to allocate this adjustment. (B) Participant Limit. If the sum of the 401(k) Contributions to this Plan and elective deferrals (as defined in Code section 402(g)(3)) to any other plan exceed the dollar limit in effect under Code section 402(g)(1) in a calendar year, and the Participant is an Employee on the last day of the Plan Year and informs the Committee of the amount of the excess allocated to this Plan, then that amount will be reduced by any 401(k) Contributions for that calendar year that were returned pursuant to any other provision in this Article. Any remaining excess amount shall be recharacterized as a Catch-Up Contribution to the extent possible, and any remaining excess amount shall be returned to the Participant as soon as administratively possible, and in no event later than April 15 of the calendar year after the calendar year in which the excess occurred. Company Matching Contributions attributable to amounts returned under this subparagraph shall be forfeited. Unmatched 401(k) Contributions shall be returned first. The amount returned, recharacterized, or forfeited shall be adjusted to reflect the net increase or decrease in the net worth of the Participant's Account attributable thereto for the Plan Year. The Committee may use any reasonable method to allocate this adjustment. (b) Catch-Up Contributions. (i) General Rules. A Participant whose 49th birthday occurred before the first day of the Plan Year may elect to defer the receipt of a portion of his or her Compensation during the Plan Year and contribute such amounts to the Plan as Catch-Up Contributions. The Company shall pay the amount deducted from the Participant's Compensation to the Trustee promptly after the deduction is made. The Committee shall determine after the end of each calendar year which Participant Before-Tax Contributions were Catch-Up Contributions and which were 401(k) Contributions. See sections 3.5 and 3.6 for instances in which Participant Before-Tax Contributions that would normally be Page 7 of 14 characterized as 401(k) Contributions are in fact characterized as Catch-Up Contributions. Catch-Up Contributions shall be allocated to Participant Before-Tax Contributions Accounts. (ii) Limitations on Catch-Up Contributions. (A) Limit for Apache Plans. The sum of Catch-Up Contributions to this Plan and similar deferrals under Code section 414(v) to any other plan maintained by the Company or an Affiliated Entity shall not exceed the dollar limit in effect under Code section 414(v)(2) in any calendar year. The Company shall inform the Committee if such limit has been exceeded, and the excess amount allocated to this Plan. The excess amount allocated to this Plan shall be reduced by any amounts returned pursuant to any other provision of this Article. Any remaining excess amount shall be returned to the Participant as soon as administratively possible, and in no event later than April 15 of the calendar year after the calendar year in which the excess occurred. Company Matching Contributions attributable to amounts returned under this subparagraph shall be forfeited. Unmatched Catch-Up Contributions shall be returned first. The amount returned or forfeited shall be adjusted to reflect the net increase or decrease in the net worth of the Participant's Account attributable thereto for the Plan Year. The Committee may use any reasonable method to allocate this adjustment. (B) Participant Limit. If the sum of the Catch-Up Contributions to this Plan and similar deferrals under Code section 414(v) to any other plan exceed the dollar limit in effect under Code section 414(v)(2) in a calendar year, and the Participant is an Employee on the last day of the Plan Year and informs the Committee of the amount of the excess allocated to this Plan, then that amount will be reduced by any Catch-Up Contributions for that calendar year that were returned pursuant to any other provision in this Article and any remaining excess amount shall be returned to the Participant as soon as administratively possible, and in no event later than April 15 of the calendar year after the calendar year in which the excess occurred. Company Matching Contributions attributable to amounts returned under this subparagraph shall be forfeited. Unmatched Catch-Up Contributions shall be returned first. The amount returned or forfeited shall be adjusted to reflect the net increase or decrease in the net worth of the Participant's Account attributable thereto for the Plan Year. The Committee may use any reasonable method to allocate this adjustment. (c) Procedures. Participant Before-Tax Contributions shall be made according to rules prescribed by the Committee, and may only be made after the Company has received authorization from a Participant to deduct such contributions from his or her Compensation. Such authorization shall remain in effect until revoked or changed by the Participant. The Participant may change his or her authorization as of the first day of any pay period by filing an election no later than the last day of the pay period. To be effective, any authorization, change of authorization, or notice of revocation must be filed with the Committee according to such restrictions and requirements as the Committee prescribes. The Committee shall establish procedures from time to time for Participants to change their contribution elections, which procedures shall be communicated to Participants. The Committee may establish different procedures for Participant Before-Tax Contributions from different types of Compensation, such as bonuses. The Committee's procedures for Page 8 of 14 Catch-Up Contributions shall allow all Participants who can make Catch-Up Contributions the effective opportunity to make the same dollar amount of Catch-Up Contributions for the calendar year. THE FOLLOWING NEW PHRASE SHALL BE ADDED TO THE END OF THE LAST SENTENCE OF SECTION 1.5(b), AND THE WORD "OR" IMMEDIATELY PRECEDING SECTION 1.5(b)(v) SHALL BE DELETED. , or (vi) salary deferrals within the meaning of Code sections 414(u)(2)(C) or 414(v)(6)(B). THE PHRASE "CODE SECTIONS 125, 132(f)(4), 402(e)(3), 402(h), 403(b), 408(p), OR 457" IN SECTION 1.13(a) AND 1.13(b) SHALL BE REPLACED BY THE PHRASE "CODE SECTIONS 125, 132(f)(4), 402(e)(3), 402(h), 403(b), 408(p), 414(u)(2)(C), 414(v)(6)(B), OR 457." THE LAST SENTENCE OF PARAGRAPH 3.1(c)(II) SHALL BE ELIMINATED. SECTION 3.1(d) SHALL BE REPLACED IN ITS ENTIRETY WITH THE FOLLOWING. (d) Contributions Contingent on Deductibility. The Company Contributions for a Plan Year (excluding forfeitures, contributions pursuant to paragraph 3.1(c)(v), and Catch-Up Contributions), when combined with Participant Before-Tax Contributions for the Plan Year, shall not exceed the amount allowable as a deduction for Apache's taxable year ending with or within the Plan Year pursuant to Code section 404. The amount allowable as a deduction under Code section 404 shall include carry forwards of unused deductions for prior years. If the Code section 404 deduction limit would be exceeded for any Plan Year, the Plan contributions shall be reduced, in the following order, until the Plan contributions equal the Code section 404 deduction limit: first, the Company Matching Contributions for those Highly Compensated Employees who are eligible to participate in the Company's Nonqualified Retirement/Savings Plan; second, the Participant Before-Tax Contributions for those Highly Compensated Employees who are eligible to participate in the Company's Nonqualified Retirement/Savings Plan; third, all but $1 of the Company Discretionary Contributions for those Highly Compensated Employees who are eligible to participate in the Company's Nonqualified Retirement/Savings Plan; fourth, any remaining unmatched Participant Before-Tax Contributions; fifth, any remaining matched Participant Before-Tax Contributions, and the corresponding Company Matching Contribution; sixth, any remaining Company Discretionary Contributions. Company Contributions other than QNECs, QMACs, and contributions pursuant to paragraph 3.1(c)(iv) shall be paid to the Trustee no later than the due date (including any extensions) for filing the Company's federal income tax return for such year; QNECs and QMACs shall be paid to the Trustee no later than 12 months after the close of the Plan Year; and contributions subject to paragraph 3.1(c)(iv) shall be paid to the Trustee as specified in section 15.4. Company Contributions may be made without regard to current or accumulated earnings and profits; nevertheless, this Plan is intended to qualify as a "profit sharing plan" as defined in Code section 401(a). The appropriate contribution of the Company to the Trust Fund may be paid by the Company in the form of Company Stock, cash, other assets of any character, or in any combination of the foregoing, as determined by the Company. SECTION 3.5 SHALL BE REPLACED IN ITS ENTIRETY BY THE FOLLOWING. 3.5 Contribution Limits for Highly Compensated Employees (ADP Test). (a) Limits on Contributions. Notwithstanding any provision in this Plan to the contrary, the actual deferral percentage ("ADP") test of Code section 401(k)(3) shall be satisfied. Code section 401(k) and the regulations issued thereunder are hereby incorporated by reference to the extent permitted by such regulations. In performing the ADP test for a Plan Year, the Plan will use that Plan Year's data for the Non-Highly Compensated Employees. (b) Permissible Variations of the ADP Test. To the extent permitted by the regulations under Code sections 401(m) and 401(k), 401(k) Contributions, QMACs, and QNECs may be used to satisfy the ACP Page 9 of 14 test of section 3.6 if they are not used to satisfy the ADP test. The Committee may elect to exclude from the ADP test those Non-Highly Compensated Employees who, at the end of the Plan Year, had not attained age 21 and/or whose Period of Service was for less than one year. (c) Advanced Limitation on 401(k) Contributions or Company Matching Contributions. The Committee may limit the 401(k) Contributions of any Highly Compensated Employee (or any Employee expected to be a Highly Compensated Employee) at any time during the Plan Year (with the result that his or her share of Company Matching Contributions may be limited). This limitation may be made, if practicable, whenever the Committee believes that the limits of this section or sections 3.4 or 3.6 will not be satisfied for the Plan Year. (d) Corrections to Satisfy Test. If the ADP test is not satisfied for the Plan Year, the Committee shall decide which one or more of the following methods shall be employed to satisfy the ADP test. All corrections shall be accomplished if possible before March 15 of the following Plan Year, and in no event later than 12 months after the close of the Plan Year. (i) The Committee may recommend to the Company and the Company may make QNECs to the Plan, pursuant to subsection 3.8(c). (ii) The Committee may recommend to the Company and the Company may designate some or all of the Company Discretionary Contributions allocated to Non-Highly Compensated Employees as QNECs, pursuant to subsection 3.8(b). (iii) The Committee may recommend to the Company and the Company may designate any Company Matching Contributions to the Plan as QMACs, pursuant to section 3.9. (iv) 401(k) Contributions of Highly Compensated Employees may be recharacterized as Catch-Up Contributions or returned to the Highly Compensated Employee, without the consent of either the Highly Compensated Employee or his or her Spouse, subject to the rules of subsection (f). (e) Order of Correction. The method described in subsection (c) shall be employed first, during the Plan Year. If that method is not used during the Plan Year, or if the net effect of such method was insufficient for the ADP test to be satisfied, the Company has the discretion to use any one or more of the methods described in paragraphs (d)(i), (d)(ii), and (d)(iii). If the Company does not choose to make the corrections described in paragraphs (d)(i), (d)(ii), and (d)(iii), or if such corrections are insufficient to satisfy the ADP test, then the correction method described in paragraph (d)(iv) shall be used. (f) Calculating the Amounts Returned or Recharacterized. If the ADP test is not satisfied, and 401(k) Contributions are returned or recharacterized pursuant to paragraph (d)(iv) above, the Committee shall determine the amount to be returned or recharacterized pursuant to paragraph (i) below, and shall then allocate that amount among the Highly Compensated Employees pursuant to paragraph (ii) below in the order specified in paragraph (iii) below. The amount actually recharacterized or returned to each Highly Compensated Employee shall be adjusted to reflect as nearly as possible the actual investment gains or losses thereon for the Plan Year, determined pursuant to Article IV, but shall not be adjusted to reflect any subsequent gains or losses. (i) Calculation of Amount of Excess Contributions. The amount of 401(k) Contributions to be recharacterized or returned to the group of Highly Compensated Employees as a whole (the "excess contributions") shall be equal to the hypothetical reduction in the 401(k) Contributions that are subject to the ADP test pursuant to subsection (b) (the "relevant 401(k) Contributions") that would be made under the Page 10 of 14 following procedure. The Highly Compensated Employee(s) with the highest "actual deferral ratio" has an amount hypothetically reduced until his or her actual deferral ratio is reduced to the actual deferral ratio of the Highly Compensated Employee with the next highest actual deferral ratio; this process is repeated to the extent necessary for the ADP test to be satisfied. The term "actual deferral ratio" is a fraction, the denominator of which is equal to the Participant's Compensation, and the numerator of which is equal to (A)+(B)+(C)-(D)-(E), where (A) is equal to the Participant's 401(k) Contributions for the Plan Year. (B) is equal to that portion of the Participant's QNECs and QMACs that are allocated to the Participant as of any date within the Plan Year, but only to the extent that the Committee elects to include them in the ADP test. (C) is equal to zero for a Non-Highly Compensated Employee, and, for each Highly Compensated Employee who participates in a cash or deferred arrangement sponsored by the Company or an Affiliated Entity that is permitted to be aggregated with this Plan, is equal to the contributions to the other plan that are subject to that plan's ADP test. (D) is equal to any of the amounts in (A) that are used in the ACP test pursuant to subsection (b). (E) is equal to any of the amounts in (A) or (B) or (C) that have been removed from the Participant's Accounts pursuant to any other corrective mechanisms described in this Article. (ii) Allocation of Excess Contributions. The excess contributions shall be allocated among the Highly Compensated Employees as follows. The Highly Compensated Employee(s) with the largest relevant 401(k) Contributions shall have an amount recharacterized or returned until his or her remaining relevant 401(k) Contributions are equal to those of the Highly Compensated Employee with the next largest relevant 401(k) Contributions. This process is repeated until the excess contributions have been completely recharacterized or returned to the Highly Compensated Employees. (iii) Ordering. For each Highly Compensated Employee allocated an excess contribution, the Plan shall take the following steps, in the following order. (A) Recharacterize matched 401(k) Contributions as Catch-Up Contributions to the extent possible. (B) Recharacterize unmatched 401(k) Contributions as Catch-Up Contributions to the extent possible. (C) Return unmatched 401(k) Contributions. (D) Return matched 401(k) Contributions and forfeit the corresponding Company Matching Contribution (unless it was returned to the Participant pursuant to paragraph 3.6(c)(iv)). Page 11 of 14 SECTION 3.6 SHALL BE REPLACED IN ITS ENTIRETY WITH THE FOLLOWING: 3.6 Contribution Limits for Highly Compensated Employees (ACP Test). (a) Limits on Contributions. Notwithstanding any provision in this Plan to the contrary, the actual contribution percentage ("ACP") test of Code section 401(m)(2) shall be satisfied. Code section 401(m) and the regulations issued thereunder are hereby incorporated by reference to the extent permitted by such regulations. In performing the ACP test for a Plan Year, the Plan will use that Plan Year's data for the Non-Highly Compensated Employees. (b) Permissible Variations of the ACP Test. To the extent permitted by the regulations under Code sections 401(m) and 401(k), 401(k) Contributions, QMACs, and QNECs may be used to satisfy this test if not used to satisfy the ADP test of section 3.5. The Committee may elect to exclude from the ACP test those Non-Highly Compensated Employees who, at the end of the Plan Year, had not attained age 21 and/or whose Period of Service was for less than one year. (c) Corrections to Satisfy Test. If the ACP test is not satisfied, the Committee shall decide which one or more of the following methods shall be employed to satisfy the ACP test. All corrections shall be accomplished if possible before March 15 of the following Plan Year, and in no event later than 12 months after the close of the Plan Year. (i) The Committee may recommend to the Company and the Company may make QNECs to the Plan, pursuant to subsection 3.8(c). (ii) The Committee may recommend to the Company and the Company may designate any portion of its Company Discretionary Contribution as a QNEC, pursuant to subsection 3.8(b). (iii) The Committee may recommend to the Company and the Company may make extra Company Matching Contributions to the Plan, pursuant to paragraph 3.1(b)(ii). (iv) The non-vested Company Matching Contributions allocated to Highly Compensated Employees as of any date during the Plan Year may be forfeited as of the last day of the Plan Year, and the vested Company Matching Contributions allocated to any Highly Compensated Employee for the Plan Year may be paid to such Highly Compensated Employee, without the consent of either the Highly Compensated Employee or his or her Spouse, subject to the rules of subsection (e). (v) Those 401(k) Contributions that are taken into account for this ACP test for any Highly Compensated Employee may be returned to such Highly Compensated Employee, without the consent of either the Highly Compensated Employee or his or her Spouse, subject to the rules of subsection (e). (d) Order of Correction. The method described in subsection 3.5(c) shall be employed first, during the Plan Year. If that method is not used during the Plan Year, or if the net effect of such method was insufficient for the ACP test to be satisfied, the Company has the discretion to use any one or more of the methods described in paragraphs (c)(i), (c)(ii), and (c)(iii). If the Company does not choose to make the corrections described in paragraphs (c)(i), (c)(ii), and (c)(iii), or if such corrections are insufficient to satisfy the ACP test, then the correction methods described in paragraphs (c)(iv) and (c)(v) shall be used, as described in subsection (e). Page 12 of 14 (e) Calculating the Corrective Reduction in Participants' Accounts. If the ACP test is not satisfied, and the correction methods described in paragraphs (c)(iv) and (c)(v) are to be used, the Committee shall determine the amount of the correction pursuant to paragraph (i) below, and shall then allocate that amount among the Highly Compensated Employees pursuant to paragraph (ii) below in the order specified in paragraph (iii). The amount of the correction shall be adjusted to reflect as nearly as possible the actual investment gains or losses thereon for the Plan Year, determined pursuant to Article IV, but shall not be adjusted to reflect any subsequent gains or losses. (i) Calculation of Amount of Excess Aggregate Contributions. The term "aggregate contributions" means those 401(k) Contributions and Company Matching Contributions that are taken into account for the ACP test pursuant to subsection (b). The amount of the excess aggregate contributions shall be equal to the hypothetical reduction in the aggregate contributions that would be made under the following procedure. The Highly Compensated Employee(s) with the highest "actual contribution ratio" has his or her aggregate contributions hypothetically reduced until his or her actual contribution ratio is lowered to the actual contribution ratio of the Highly Compensated Employee with the next highest actual contribution ratio; this process is repeated to the extent necessary for the ACP test to be satisfied. The term "actual contribution ratio" is a fraction, the denominator of which is equal to the Participant's Compensation, and the numerator of which is equal to (A)+(B)+(C)+(D)-(E), where (A) is equal to the Participant's Company Matching Contributions for the Plan Year. (B) is equal to the Participant's 401(k) Contributions that are used in the ACP test pursuant to subsection (b). (C) is equal to that portion of the Participant's QNECs and QMACs that are allocated to the Participant as of any date within the Plan Year, but only to the extent that the Committee elects to include them in the ACP test. (D) is equal to zero for a Non-Highly Compensated Employee, and, for each Highly Compensated Employee who participates in a cash or deferred arrangement sponsored by the Company or an Affiliated Entity that is permitted to be aggregated with this Plan, is equal to the contributions to the other plan that are subject to that plan's ACP test. (E) is equal to any of the amounts in (A) or (B) or (C) or (D) that have been removed from the Participant's Accounts pursuant to any other corrective mechanisms described in this Article. (ii) Allocation of Excess Aggregate Contributions. The excess aggregate contributions shall be allocated among the Highly Compensated Employees as follows. The Highly Compensated Employee(s) with the largest aggregate contributions shall have his or her aggregate contributions reduced until his or her remaining aggregate contributions are equal to those of the Highly Compensated Employee with the next largest aggregate contributions. This process is repeated until the excess aggregate contributions have been eliminated. (iii) Ordering. For each Highly Compensated Employee allocated an excess aggregate contribution, the Plan shall take the following steps, in the following order. Page 13 of 14 (A) Recharacterize matched 401(k) Contributions as Catch-Up Contributions to the extent possible. (B) Recharacterize unmatched 401(k) Contributions as Catch-Up Contributions to the extent possible. (C) Return unmatched 401(k) Contributions. (D) Pay the vested Company matching Contribution for the Plan Year to the Participant. (E) Return matched 401(k) Contributions and forfeit the corresponding Company Matching Contribution (unless it was returned to the Participant pursuant to paragraph 3.6(c)(iv)). (F) Forfeit the unvested Company Matching Contribution for the Plan Year. SECTION 9.2(a) SHALL BE REPLACED IN ITS ENTIRETY BY THE FOLLOWING. (a) Except as provided in subsection (b) below, (i) all taxes upon or in respect of the Trust shall be paid by the Trustee out of the Trust assets, and all expenses of administering the Plan and Trust shall be paid out of the Trust assets, to the extent permitted by law and to the extent such taxes and expenses are not paid by the Company or the Account Owner, and (ii) the Committee shall have full discretion to determine how to allocate taxes and expenses among Accounts. No fiduciary shall receive any compensation for services rendered to the Plan if the fiduciary is being compensated on a full time basis by the Company. SECTION 15.1(c) SHALL BE DELETED. SECTION 15.4(h)(ii)(D) SHALL BE REPLACED IN ITS ENTIRETY BY THE FOLLOWING. (D) The limits of paragraph 3.2(a)(ii) (relating to the maximum 401(k) Contributions) and paragraph 3.2(b)(ii) (relating to the maximum Catch-Up Contributions) for each calendar year shall be calculated by treating as 401(k) and Catch-Up Contributions his or her additional contributions pursuant to subsection (d) that are attributable to that calendar year's Deemed Compensation. EXECUTED this 27th day of December, 2001. APACHE CORPORATION By: /s/ Jeffrey M. Bender ---------------------------------- Title: Vice President, Human Resources ------------------------------- Page 14 of 14 EX-10.2 5 h96753ex10-2.txt AMEND. TO APACHE CORP. MONEY PURCHASE RETIRE. PLAN EXHIBIT 10.2 AMENDMENT TO APACHE CORPORATION MONEY PURCHASE RETIREMENT PLAN Apache Corporation ("Apache") sponsors the Apache Corporation Money Purchase Retirement Plan (the "Plan"). In section 9.4 of the Plan, Apache reserved the right to amend the Plan from time to time. Apache hereby exercises the right to amend the Plan by making the following changes to the Plan, effective January 1, 2002. NEW RULES FOR ROLLOVERS SECTION 1.5(b)(i) SHALL BE REPLACED IN ITS ENTIRETY BY THE FOLLOWING. (i) Rollover Contributions to any defined contribution plan maintained by the Company or an Affiliated Entity; THE FOLLOWING SECTION 1.35A SHALL BE ADDED TO THE PLAN. 1.35A "Rollover Contribution" means the following. (a) Direct Transfers. A Rollover Contribution includes a direct transfer to a defined contribution plan by a Covered Employee of an eligible rollover distribution from: (i) a qualified plan described in Code section 401(a) (including after-tax contributions), (ii) a qualified annuity plan described in Code section 403(a) (including after-tax contributions), (iii) an annuity contract described in Code section 403(b) (including after-tax contributions), or (iv) an eligible plan under Code section 457(b) that is maintained by an eligible employer described in Code section 457(e)(1)(A) (which generally includes state or local governments). (b) Regular Rollovers. A Rollover Contribution includes a contribution to a defined contribution plan by a Covered Employee of an eligible rollover distribution from: (i) a qualified plan described in Code section 401(a) (excluding after-tax contributions), (ii) a qualified annuity plan described in Code section 403(a) (excluding after-tax contributions), (iii) an annuity contract described in Code section 403(b) (excluding after-tax contributions), or (iv) an eligible plan under Code section 457(b) that is maintained by an eligible employer described in Code section 457(e)(1)(A) (which generally includes state and local governments). Page 1 of 4 (c) Rollovers from IRAs. A Rollover Contribution includes a contribution to a defined contribution plan by a Covered Employee of the portion of a distribution from an individual retirement account or annuity described in Code section 408(a) or 408(b) that is eligible to be rolled over and that would otherwise be included in the Covered Employee's gross income. SECTION 6.5 SHALL BE REPLACED IN ITS ENTIRETY WITH THE FOLLOWING. 6.5 Direct Rollover Election. (a) General Rule. A Participant, an Alternate Payee who is the Spouse or former Spouse of the Participant, or a surviving Spouse of a deceased Participant (collectively, the "distributee") may direct the Trustee to pay all or any portion of his "eligible rollover distribution" to an "eligible retirement plan" in a "direct rollover." This direct rollover option is not available to other Account Owners (non-Spouse beneficiaries and Alternate Payees who are not the Spouse or former Spouse of the Participant). Within a reasonable period of time before an eligible rollover distribution, the Committee shall inform the distributee of this direct rollover option, the appropriate withholding rules, other rollover options, the options regarding income taxation, and any other information required by Code section 402(f). The distributee may waive the usual 30-day waiting period before receiving a distribution, and elect to receive his distribution as soon as administratively practicable after completing and filing his distribution election. (b) Definition of Eligible Rollover Distribution. An eligible rollover distribution is any distribution or in-service withdrawal other than (i) distributions required under Code section 401(a)(9), (ii) distributions of amounts that have already been subject to federal income tax (such as defaulted loans or after-tax voluntary contributions), other than a direct transfer to (A) another retirement plan that meets the requirements of Code sections 401(a) or 403(a), or (B) an individual retirement account or annuity described in Code section 408(a) or 408(b), (iii) installment payments in a series of substantially equal payments made at least annually and (A) made over a specified period of ten or more years, (B) made for the life or life expectancy of the distributee, or (C) made for the joint life or joint life expectancy of the distributee and his designated beneficiary, (iv) a distribution to satisfy the limits of Code section 415 or 402(g), or (v) any other actual or deemed distribution specified in the regulations issued under Code section 402(c). (c) Definition of Eligible Retirement Plan. An eligible retirement plan is an individual retirement account or annuity described in Code section 408(a) or 408(b), an annuity plan described in Code section 403(a), an annuity contract described in Code section 403(b), an eligible plan under Code section 457(b) that is maintained by an eligible employer described in Code section 457(e)(1)(A) (which generally includes state and local governments), or the qualified trust of a defined contribution plan described in Code section 401(a), that accepts eligible rollover distributions. (d) Definition of Direct Rollover. A direct rollover is a payment by the Trustee to the eligible retirement plan specified by the distributee. CHANGE TO THE LIMIT IN CODE SECTION 415 SECTION 3.4(a) SHALL BE REPLACED IN ITS ENTIRETY BY THE FOLLOWING. (a) The Annual Additions to a Participant's Account(s) in this Plan and to his or her accounts in any other defined contribution plans maintained by the Company or an Affiliated Entity for any Limitation Year shall not exceed in the aggregate the lesser of (i) $40,000 (as adjusted by the Secretary of the Treasury), or (ii) 100% of the Participant's Compensation. The limit in paragraph (ii) shall not apply to any contribution for medical benefits (within the meaning of Code section 419A(f)(2)) after separation from service that is treated as an Annual Addition. Page 2 of 4 Change in Top-Heavy Rules THE FIRST SENTENCE OF SECTION 11.2 SHALL BE AMENDED BY REPLACING THE PHRASE "WHO TERMINATED EMPLOYMENT WITHIN FIVE YEARS OF THE DETERMINATION DATE" WITH THE PHRASE "WHO TERMINATED EMPLOYMENT WITHIN ONE YEAR OF THE DETERMINATION DATE." THE THIRD SENTENCE OF SECTION 11.2 SHALL BE REPLACED BY THE FOLLOWING. For purposes of determining the account balance of any Participant, (a) the balance shall be determined as of the Determination Date, (b) the balance shall also include any distributions to the Participant during the one-year period ending on the Determination Date, and (c) the balance shall also include, for distributions made for a reason other than separation from service or death or disability, any distributions to the Participant during the five-year period ending on the Determination Date. THE THIRD-FROM-THE-LAST SENTENCE OF SECTION 11.2 SHALL BE REPLACED BY THE FOLLOWING. If one or more of the plans required or permitted to be aggregated with this Plan is a defined benefit plan, a Participant's "account balance" shall mean the present value of the Participant's accrued benefit. THE LAST SENTENCE OF SECTION 11.4 SHALL BE REPLACED WITH THE FOLLOWING. If the Participant participates in both this Plan and the Apache Corporation 401(k) Savings Plan, then the Participant's minimum allocation to this Plan shall be reduced by any allocation of "Company Contributions" or forfeitures treated as Company Contributions that he or she receives in that plan for the Plan Year. MISCELLANEOUS THE PHRASE "CODE SECTIONS 125, 132(f)(4), 402(e)(3), 402(h), 403(b), 408(p), OR 457" IN SECTION 1.11(a) AND 1.11(b) SHALL BE REPLACED BY THE PHRASE "CODE SECTIONS 125, 132(f)(4), 402(e)(3), 402(h), 403(b), 408(p), 414(u)(2)(C), 414(v)(6)(B), OR 457." THE FOLLOWING NEW PHRASE SHALL BE ADDED TO THE END OF THE LAST SENTENCE OF SECTION 1.5(b), AND THE WORD "OR" IMMEDIATELY PRECEDING SECTION 1.5(b)(v) SHALL BE DELETED. , or (vi) salary deferrals within the meaning of Code sections 414(u)(2)(C) or 414(v)(6)(B). SECTION 8.2(a) SHALL BE REPLACED IN ITS ENTIRETY BY THE FOLLOWING. (a) Except as provided in subsection (b) below, (i) all taxes upon or in respect of the Trust shall be paid by the Trustee out of the Trust assets, and all expenses of administering the Plan and Trust shall be paid out of the Trust assets, to the extent permitted by law and to the extent such taxes and expenses are not paid by the Company or the Account Owner, and (ii) the Committee shall have full discretion to determine how to allocate taxes and expenses among Accounts. No fiduciary shall receive any compensation for services rendered to the Plan if the fiduciary is being compensated on a full time basis by the Company. Page 3 of 4 SECTION 13.1(c) SHALL BE DELETED. EXECUTED this 27th day of December, 2001. APACHE CORPORATION By: /s/ Jeffrey M. Bender ------------------------------------ Title: Vice President, Human Resources --------------------------------- Page 4 of 4 EX-12.1 6 h96753ex12-1.txt STATEMENT OF COMPUTATION OF RATIO OF EARNINGS EXHIBIT 12.1 APACHE CORPORATION STATEMENT OF COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES AND COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (IN THOUSANDS)
THREE MONTHS ENDED MARCH 31, ------------------------ 2002 2001 2001 2000 ----------- ----------- ----------- ----------- EARNINGS Pretax income (loss) from continuing operations before preferred interests of subsidiaries .............................................. $ 126,244 $ 461,585 $ 1,206,863 $ 1,203,681 Add: Fixed charges excluding capitalized interest and preferred dividend requirements of consolidated subsidiaries ..................... 30,471 32,424 134,484 116,190 ----------- ----------- ----------- ----------- Adjusted Earnings ........................................................ $ 156,715 $ 494,009 $ 1,341,347 $ 1,319,871 =========== =========== =========== =========== FIXED CHARGES AND PREFERRED STOCK DIVIDENDS Interest expense including capitalized interest (1) ...................... $ 36,882 $ 44,712 $ 178,915 $ 168,121 Amortization of debt expense ............................................. 334 502 2,460 2,726 Interest component of lease rental expenditures (2) ...................... 3,277 2,295 9,858 7,343 Preferred stock dividend requirements of consolidated subsidiaries (3) ... 3,909 -- 8,608 -- ----------- ----------- ----------- ----------- Fixed charges ............................................................ 44,402 47,509 199,841 178,190 Preferred stock dividend requirements (4) ................................ 7,466 8,027 32,495 33,386 ----------- ----------- ----------- ----------- Combined Fixed Charges and Preferred Stock Dividends ..................... $ 51,868 $ 55,536 $ 232,336 $ 211,576 =========== =========== =========== =========== Ratio of Earnings to Fixed Charges .......................................... 3.53 10.40 6.71 7.41 =========== =========== =========== =========== Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends ... 3.02 8.90 5.77 6.24 =========== =========== =========== =========== 1999 1998 1997 ----------- ----------- ----------- EARNINGS Pretax income (loss) from continuing operations before preferred interests of subsidiaries .............................................. $ 344,573 $ (187,563) $ 258,640 Add: Fixed charges excluding capitalized interest and preferred dividend requirements of consolidated subsidiaries ..................... 90,398 78,728 78,531 ----------- ----------- ----------- Adjusted Earnings ........................................................ $ 434,971 $ (108,835) $ 337,171 =========== =========== =========== FIXED CHARGES AND PREFERRED STOCK DIVIDENDS Interest expense including capitalized interest (1) ...................... $ 132,986 $ 119,703 $ 105,148 Amortization of debt expense ............................................. 4,854 4,496 6,438 Interest component of lease rental expenditures (2) ...................... 5,789 3,808 3,438 Preferred stock dividend requirements of consolidated subsidiaries (3) ... -- -- -- ----------- ----------- ----------- Fixed charges ............................................................ 143,629 128,007 115,024 Preferred stock dividend requirements (4) ................................ 24,788 2,905 -- ----------- ----------- ----------- Combined Fixed Charges and Preferred Stock Dividends ..................... $ 168,417 $ 130,912 $ 115,024 =========== =========== =========== Ratio of Earnings to Fixed Charges .......................................... 3.03 --(5) 2.93 =========== =========== =========== Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends ... 2.58 --(5) 2.93 =========== =========== ===========
- ---------- (1) Apache guaranteed and is contingently liable for certain debt. Fixed charges, relating to the debt for which Apache was contingently liable, have not been included in the fixed charges for any of the periods shown above. (2) Represents the portion of rental expense assumed to be attributable to interest factors of related rental obligations determined at interest rates appropriate for the period during which the rental obligations were incurred. Approximately 32 percent to 34 percent applies for all periods presented. (3) The Company does not receive a tax benefit for its preferred stock dividend requirements of consolidated subsidiaries. As a result, this amount represents the pre-tax earnings that would be required to cover preferred stock dividend requirements of consolidated subsidiaries of $4 million. (4) The Company does not receive a tax benefit for its preferred stock dividends. As a result, this amount represents the pre-tax earnings that would be required to cover preferred stock dividends of $5 million. (5) Earnings were inadequate to cover fixed charges and combined fixed charges and preferred stock dividends by $237 million and $240 million, respectively, due to the $243 million write-down of the carrying value of United States oil and gas properties. -----END PRIVACY-ENHANCED MESSAGE-----