-----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, ICyIzAbgtZt3UvJImqEWPwDt1vBesgNLi01Gl+vgrc8UNNKvX/wS0sWcjCi1m3cd f7uNVMrv9rCX8b7T7tfxfQ== 0000950129-98-004567.txt : 19981113 0000950129-98-004567.hdr.sgml : 19981113 ACCESSION NUMBER: 0000950129-98-004567 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981112 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: SEC FILE NUMBER: 001-04300 FILM NUMBER: 98744023 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 APACHE CORPORATION - DATED 09/30/1998 1 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 September 30, 1998 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 2000 Post Oak Boulevard, Houston, TX 77056-4400 - ---------------------------------------- ---------- (Address of Principal Executive Offices) (Zip Code) 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 September 30, 1998......................97,757,070 2 PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS APACHE CORPORATION AND SUBSIDIARIES STATEMENT OF CONSOLIDATED INCOME (UNAUDITED)
FOR THE QUARTER FOR THE NINE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, -------------------------- -------------------------- 1998 1997 1998 1997 ---------- ---------- ---------- ---------- (In thousands, except per common share data) REVENUES: Oil and gas production revenues $ 182,801 $ 233,068 $ 590,606 $ 714,196 Gathering, processing and marketing revenues 29,756 45,181 88,872 144,600 Equity in income (loss) of affiliates -- (1,412) (1,558) (1,423) Other revenues (874) (89) (164) 44 ---------- ---------- ---------- ---------- 211,683 276,748 677,756 857,417 ---------- ---------- ---------- ---------- OPERATING EXPENSES: Depreciation, depletion and amortization 94,818 98,170 290,604 280,969 Operating costs 49,344 54,866 158,511 172,577 Gathering, processing and marketing costs 28,970 44,542 86,590 142,806 Administrative, selling and other 13,860 8,707 34,026 26,790 Financing costs: Interest expense 30,167 26,551 90,498 75,014 Amortization of deferred loan costs 1,107 1,919 3,415 4,497 Capitalized interest (12,883) (9,103) (36,271) (26,901) Interest income (1,090) (420) (3,560) (1,562) ---------- ---------- ---------- ---------- 204,293 225,232 623,813 674,190 ---------- ---------- ---------- ---------- INCOME BEFORE INCOME TAXES 7,390 51,516 53,943 183,227 Provision for income taxes 4,189 20,731 24,150 73,819 ---------- ---------- ---------- ---------- NET INCOME 3,201 30,785 29,793 109,408 Preferred stock dividends 584 -- 584 -- ---------- ---------- ---------- ---------- INCOME ATTRIBUTABLE TO COMMON STOCK $ 2,617 $ 30,785 $ 29,209 $ 109,408 ========== ========== ========== ========== NET INCOME PER COMMON SHARE: Basic $ .03 $ .34 $ .30 $ 1.21 ========== ========== ========== ========== Diluted $ .03 $ .33 $ .30 $ 1.17 ========== ========== ========== ==========
The accompanying notes to consolidated financial statements are an integral part of this statement. 1 3 APACHE CORPORATION AND SUBSIDIARIES STATEMENT OF CONSOLIDATED CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, -------------------------------- 1998 1997 ------------- ------------- (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 29,793 $ 109,408 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization 290,604 280,969 Amortization of deferred loan costs 3,415 4,497 Provision for deferred income taxes 2,771 47,912 Loss on sale of stock held for investment and other 364 -- Cash distributions in excess of earnings of affiliates 1,523 1,565 Changes in operating assets and liabilities: Decrease in receivables 54,338 13,660 Increase in advances to oil and gas ventures and other (3,510) (4,794) Decrease in deferred charges and other 16,276 740 Decrease in payables (62,585) (26,710) Increase (decrease) in accrued expenses (3,988) 13,609 Increase in advance from gas purchaser 56,891 107,144 Decrease in deferred credits and noncurrent liabilities (4,486) (8,344) ------------- ------------- Net cash provided by operating activities 381,406 539,656 ------------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property and equipment (512,515) (561,697) Non-cash portion of net oil and gas property additions (29,130) (12,579) Proceeds received from sales of property and equipment 130,753 5,789 Proceeds from sale of assets held for resale 62,998 -- Proceeds from sale of stock held for investment 26,147 1,183 Purchase of stock held for investment -- (1,170) Other, net (15,418) (21,722) ------------- ------------- Net cash used in investing activities (337,165) (590,196) ------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Long-term borrowings 446,248 577,066 Payments on long-term debt (498,420) (501,177) Dividends paid (20,335) (18,944) Proceeds from issuance of preferred stock 98,630 -- Common stock activity, net 1,085 8,949 Treasury stock activity, net (21,430) (365) Cost of debt and equity transactions (420) (2,554) ------------- ------------- Net cash provided by financing activities 5,358 62,975 ------------- ------------- NET INCREASE IN CASH AND CASH EQUIVALENTS 49,599 12,435 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 9,686 13,161 ------------- ------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 59,285 $ 25,596 ============= =============
The accompanying notes to consolidated financial statements are an integral part of this statement. 2 4 APACHE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31, 1998 1997 ------------- ------------ (Unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 59,285 $ 9,686 Receivables 168,974 224,025 Inventories 35,562 36,041 Advances to oil and gas ventures and other 19,032 15,579 Assets held for resale -- 62,998 ------------ ------------ 282,853 348,329 ------------ ------------ PROPERTY AND EQUIPMENT: Oil and gas, on the basis of full cost accounting: Proved properties 5,717,038 5,530,991 Unproved properties and properties under development, not being amortized 553,535 453,556 International concession rights, not being amortized 79,000 79,000 Gas gathering, transmission and processing facilities 305,881 246,049 Other 85,476 71,067 ------------ ------------ 6,740,930 6,380,663 Less: Accumulated depreciation, depletion and amortization (2,922,640) (2,647,478) ------------ ------------ 3,818,290 3,733,185 ------------ ------------ OTHER ASSETS: Deferred charges and other 43,151 57,119 ------------ ------------ $ 4,144,294 $ 4,138,633 ============ ============
The accompanying notes to consolidated financial statements are an integral part of this statement. 3 5 APACHE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31, 1998 1997 ------------- ------------ (Unaudited) LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of long-term debt $ 6,000 $ 17,200 Accounts payable 117,335 178,361 Accrued operating expense 20,823 20,153 Accrued exploration and development 53,077 82,392 Accrued compensation and benefits 12,290 17,600 Accrued interest 22,730 20,598 Other accrued expenses 6,638 7,479 ------------ ------------ 238,893 343,783 ------------ ------------ LONG-TERM DEBT 1,304,830 1,501,380 ------------ ------------ DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES: Income taxes 355,697 355,619 Advances from gas purchaser 211,437 154,546 Other 70,776 54,128 ------------ ------------ 637,910 564,293 ------------ ------------ SHAREHOLDERS' EQUITY: Preferred stock, no par value, 5,000,000 shares authorized, 100,000 shares of 5.68% Cumulative Series B issued and outstanding in 1998 98,515 -- Common stock, $1.25 par, 215,000,000 shares authorized, 99,778,978 and 94,478,788 shares issued, respectively 124,724 118,098 Paid-in capital 1,238,187 1,085,063 Retained earnings 570,543 561,981 Treasury stock, at cost, 2,021,908 and 1,174,247 shares, respectively (36,936) (15,506) Accumulated other comprehensive income (32,372) (20,459) ------------ ------------ 1,962,661 1,729,177 ------------ ------------ $ 4,144,294 $ 4,138,633 ============ ============
The accompanying notes to consolidated financial statements are an integral part of this statement. 4 6 APACHE CORPORATION AND SUBSIDIARIES STATEMENT OF CONSOLIDATED SHAREHOLDERS' EQUITY (UNAUDITED)
ACCUMULATED OTHER TOTAL COMPREHENSIVE PREFERRED COMMON PAID-IN RETAINED TREASURY COMPREHENSIVE SHAREHOLDERS' (In thousands) INCOME STOCK STOCK CAPITAL EARNINGS STOCK INCOME EQUITY ------------- --------- --------- ---------- --------- --------- ------------- ------------ BALANCE AT DECEMBER 31, 1996 $ -- $114,030 $1,002,540 $432,588 $(15,152) $ (15,490) $ 1,518,516 Comprehensive income: Net income $ 109,408 -- -- -- 109,408 -- -- 109,408 Currency translation adjustments, net of applicable income tax benefit of $795 (1,476) -- -- -- -- -- (1,476) (1,476) ----------- Comprehensive income $ 107,932 =========== Dividends ($.21 per common share) -- -- -- (18,971) -- -- (18,971) Common shares issued -- 492 8,457 -- -- -- 8,949 Treasury shares purchased -- -- -- -- (365) -- (365) -------- -------- ---------- -------- -------- ----------- ----------- BALANCE AT SEPTEMBER 30, 1997 $ -- $114,522 $1,010,997 $523,025 $(15,517) $ (16,966) $ 1,616,061 ======== ======== ========== ======== ======== =========== =========== BALANCE AT DECEMBER 31, 1997 $ -- $118,098 $1,085,063 $561,981 $(15,506) $ (20,459) $ 1,729,177 Comprehensive income: Net income $ 29,793 -- -- -- 29,793 -- -- 29,793 Currency translation adjustments, net of applicable income tax benefit of $6,415 (11,913) -- -- -- -- -- (11,913) (11,913) ----------- Comprehensive income $ 17,880 =========== Dividends: Preferred -- -- -- (584) -- -- (584) Common ($.21 per share) -- -- -- (20,647) -- -- (20,647) Preferred shares issued 98,515 -- -- -- -- -- 98,515 Common shares issued -- 6,626 153,124 -- -- -- 159,750 Treasury shares purchased, net -- -- -- -- (21,430) -- (21,430) -------- -------- ---------- -------- -------- ----------- ----------- BALANCE AT SEPTEMBER 30, 1998 $ 98,515 $124,724 $1,238,187 $570,543 $(36,936) $ (32,372) $ 1,962,661 ======== ======== ========== ======== ======== =========== ===========
The accompanying notes to consolidated financial statements are an integral part of this statement. 5 7 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 generally accepted accounting principles 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. 1. DIVESTITURES During the nine months ended September 30, 1998, Apache sold largely marginal North American properties containing 29.3 million equivalent barrels of proved reserves for $129.2 million. In addition, the Company completed the sale of a 10 percent interest in the East Spar gas field and related production facilities in Western Australia for a total sales price of $63.0 million in cash. 2. STRATEGIC ALLIANCE WITH CINERGY In June 1998, Apache formed a strategic alliance with Cinergy Corporation (Cinergy) to market substantially all the Company's natural gas production from North America and sold its 57 percent interest in Producers Energy Marketing LLC (ProEnergy) for 771,258 shares of Cinergy common stock valued at $26.5 million, subject to adjustment. ProEnergy will continue to market Apache's North American natural gas production for 10 years, with an option to terminate after six years, under an amended and restated gas purchase agreement effective July 1, 1998. During this period, Apache is generally obligated to deliver most of its North American gas production to Cinergy and, under certain circumstances, may have to make payments to Cinergy if certain production quotas are not met. Accordingly, Apache recorded a deferred gain of $20.0 million on the sale of ProEnergy that is being amortized over six years. In September 1998, Apache sold its shares of Cinergy common stock for $26.1 million and recorded a loss of $.4 million. 3. NON-CASH INVESTING AND FINANCING ACTIVITIES A summary of non-cash investing and financing activities is presented below: In March 1998, Apache acquired certain oil and gas property interests for approximately 177,000 shares of Apache common stock. In January 1998, approximately 90 percent, or $155.6 million principal amount, of the Company's 6-percent convertible subordinated debentures was converted into approximately 5.1 million shares of Apache common stock at a conversion price of $30.68 per share. 6 8 The following table provides supplemental disclosure of cash flow information:
FOR THE NINE MONTHS ENDED SEPTEMBER 30, ------------------------- 1998 1997 ---------- ---------- (In thousands) Cash paid during the period for: Interest (net of amounts capitalized) $ 52,095 $ 41,610 Income taxes (net of refunds) 21,379 25,902
4. DEBT In February 1998, Apache issued $150 million principal amount, $148.2 million net of discount, of senior unsecured 7-percent notes maturing on February 1, 2018. The notes are not redeemable prior to maturity. In January 1998, approximately 90 percent, or $155.6 million principal amount, of the Company's 6-percent convertible subordinated debentures was converted into approximately 5.1 million shares of Apache common stock at a conversion price of $30.68 per share. The remaining $16.9 million principal amount of the 6-percent debentures was redeemed for $17.4 million in cash, plus accrued and unpaid interest. The Company recorded an $.8 million loss on the early extinguishment of debt in January 1998. 5. COMPREHENSIVE INCOME In the first quarter of 1998, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income," which requires companies to report the components of comprehensive income in a financial statement with the same prominence as other financial statements. The Company has chosen to disclose comprehensive income, which is comprised of net income and foreign currency translation adjustments, in the accompanying statement of consolidated shareholders' equity. This information is shown for all periods presented. 6. PREFERRED STOCK In August 1998, Apache issued $100 million of 5.68 percent Series B Cumulative Preferred Stock (the Preferred Stock) in the form of one million depositary shares each representing 1/10th of a share of Preferred Stock. The Preferred Stock has no stated maturity and is not subject to a sinking fund or mandatory redemption. The shares are not convertible into other securities of the Company. Apache has the option to redeem the shares at $100 per depositary share on or after August 25, 2008. Holders of the shares are entitled to receive cumulative cash dividends at an annual rate of $5.68 per depositary share when, and if, declared by Apache's board of directors. The net proceeds of approximately $98.5 million were used to repay debt outstanding under money market lines of credit and to reduce outstanding borrowings under the Canadian portion of the Company's global credit facility. 7 9 7. 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 SEPTEMBER 30, -------------------------------------------------------------------------------- 1998 1997 -------------------------------------- ------------------------------------- INCOME SHARES PER SHARE INCOME SHARES PER SHARE --------- --------- --------- --------- --------- --------- (In thousands, except per share amounts) BASIC: Net income $ 3,201 $ 30,785 Less: Preferred stock dividends (584) -- --------- --------- Income attributable to common stock 2,617 98,205 $ .03 30,785 90,396 $ .34 ========= ========= EFFECT OF DILUTIVE SECURITIES: Stock option plans -- 132 -- 585 3.93% convertible notes -- -- 535 2,778 6% convertible subordinated debentures -- -- 1,752 5,623 --------- --------- --------- --------- DILUTED: Income attributable to common stock after assumed conversions $ 2,617 98,337 $ .03 $ 33,072 99,382 $ .33 ========= ========= ========= ========= ========= =========
FOR THE NINE MONTHS ENDED SEPTEMBER 30, -------------------------------------------------------------------------------- 1998 1997 -------------------------------------- ------------------------------------- INCOME SHARES PER SHARE INCOME SHARES PER SHARE --------- --------- --------- --------- --------- --------- (In thousands, except per share amounts) BASIC: Net income $ 29,793 $ 109,408 Less: Preferred stock dividends (584) -- --------- --------- Income attributable to common stock 29,209 98,131 $ .30 109,408 90,276 $ 1.21 ========= ========= EFFECT OF DILUTIVE SECURITIES: Stock option plans -- 299 -- 484 3.93% convertible notes -- -- 1,581 2,778 6% convertible subordinated debentures -- -- 5,166 5,623 --------- --------- --------- --------- DILUTED: Income attributable to common stock after assumed conversions $ 29,209 98,430 $ .30 $ 116,155 99,161 $ 1.17 ========= ========= ========= ========= ========= =========
The 6-percent convertible subordinated debentures, which were converted into shares of Apache common stock or redeemed in January 1998, are not included in the computation of diluted earnings available per common share for the nine months ended September 30, 1998, because to do so would have been antidilutive. 8 10 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Apache's results of operations and financial position for the first nine months of 1998 were significantly impacted by the following factors: Commodity Prices - Apache's average realized oil price decreased $6.22 per barrel from $19.42 per barrel in the first nine months of 1997 to $13.20 per barrel in the comparable 1998 period, reducing revenues by $109.7 million. The average realized price for natural gas decreased $.24 per thousand cubic feet (Mcf) from $2.19 per Mcf in the first nine months of 1997 to $1.95 per Mcf in 1998, negatively impacting revenues by $39.6 million. Operations - Oil production increased 15 percent for the first nine months of 1998 when compared to the same period last year, while gas production decreased two percent for the same period. The increase in oil production favorably impacted revenues by $35.8 million. Earnings for the first nine months of 1998 were also positively impacted by a $14.1 million, or eight percent, decrease in operating costs compared to the same period of 1997. RESULTS OF OPERATIONS Apache reported 1998 third quarter income attributable to common stock of $2.6 million versus $30.8 million in the prior year. Basic net income per common share of $.03 for the third quarter of 1998 was significantly lower than in 1997. Higher oil production and lower operating costs were offset by a sharp decline in oil and gas prices, decreased gas production and higher administrative, selling and other (G&A) expense. The increase in G&A expense was primarily the result of employee separation payments associated with the sale of largely marginal North American properties. For the first nine months of 1998, income attributable to common stock of $29.2 million, or $.30 per basic common share, decreased from $109.4 million, or $1.21 per basic common share, in the comparable 1997 period. This decrease is primarily the result of a 32 percent decrease in oil prices, an 11 percent decrease in gas prices, a two percent decrease in gas production and higher depreciation, depletion and amortization (DD&A) expense partially offset by a 15 percent increase in oil production and lower operating costs, compared to a year ago. For the third quarter of 1998, revenues decreased 24 percent to $211.7 million compared to $276.7 million in 1997, driven by a 22 percent decrease in oil and gas production revenues. The decrease in oil and gas production revenues is primarily the result of a 32 percent decrease in the average realized oil price, a nine percent decrease in the average realized price for natural gas and a seven percent decrease in gas production. Crude oil, including natural gas liquids, contributed 46 percent and natural gas contributed 54 percent of oil and gas production revenues. For the first nine months of 1998, revenues decreased 21 percent to $677.8 million as compared to $857.4 million for the same period in 1997. Revenues from oil and gas production decreased 17 percent from the same period in 1997, with crude oil, including natural gas liquids, contributing 46 percent and natural gas contributing 54 percent of oil and gas production revenues. 9 11 Volume and price information for the Company's oil and gas production is summarized in the following table:
FOR THE QUARTER ENDED SEPTEMBER 30, FOR THE NINE MONTHS ENDED SEPTEMBER 30, ---------------------------------------- ------------------------------------------ INCREASE INCREASE 1998 1997 (DECREASE) 1998 1997 (DECREASE) ---------- ---------- ---------- ---------- ---------- ---------- Natural Gas Volume - Mcf per day: United States 413,818 505,981 (18%) 443,546 497,043 (11%) Canada 107,651 93,310 15% 101,102 86,368 17% Egypt 2,044 726 182% 986 547 80% Australia 52,544 20,238 160% 48,988 21,137 132% ---------- ---------- ---------- ---------- Total 576,057 620,255 (7%) 594,622 605,095 (2%) ========== ========== ========== ========== Average Natural Gas price - Per Mcf: United States $ 2.07 $ 2.23 (7%) $ 2.14 $ 2.37 (10%) Canada 1.28 1.12 14% 1.30 1.28 2% Egypt 1.68 2.76 (39%) 1.78 2.79 (36%) Australia 1.43 1.80 (21%) 1.52 1.84 (17%) Total 1.86 2.05 (9%) 1.95 2.19 (11%) Oil Volume - Barrels per day: United States 31,691 40,746 (22%) 35,330 40,664 (13%) Canada 2,107 2,289 (8%) 2,067 2,032 2% Egypt 27,892 20,223 38% 28,801 18,728 54% Australia 9,717 3,786 157% 8,359 3,205 161% ---------- ---------- ---------- ---------- Total 71,407 67,044 7% 74,557 64,629 15% ========== ========== ========== ========== Average Oil price - Per barrel: United States $ 12.19 $ 18.43 (34%) $ 13.14 $ 19.60 (33%) Canada 11.70 18.36 (36%) 13.12 19.38 (32%) Egypt 12.60 18.39 (31%) 13.13 18.76 (30%) Australia 13.29 19.66 (32%) 13.75 21.08 (35%) Total 12.49 18.48 (32%) 13.20 19.42 (32%) Natural Gas Liquids (NGL) Volume - Barrels per day: United States 2,025 1,347 50% 2,010 1,677 20% Canada 577 546 6% 613 607 1% ---------- ---------- ---------- ---------- Total 2,602 1,893 37% 2,623 2,284 15% ========== ========== ========== ========== Average NGL Price - Per barrel: United States $ 9.09 $ 11.66 (22%) $ 8.58 $ 15.23 (44%) Canada 6.09 10.82 (44%) 6.52 13.63 (52%) Total 8.43 11.42 (26%) 8.10 14.80 (45%)
THIRD QUARTER 1998 COMPARED TO THIRD QUARTER 1997 Natural gas sales for the third quarter of 1998 totaled $98.8 million, 16 percent lower than the third quarter of 1997. Average realized natural gas prices decreased nine percent, negatively affecting revenue by $10.8 million. The weakening of the Australian currency relative to the U.S. dollar contributed to the 21 percent decline in the Australian average natural gas price. The Company periodically engages in hedging activities, including fixed price physical and financial contracts. The net result of these activities increased the Company's realized gas price by $.06 per Mcf during the third quarter of 1998 and had no impact on the Company's realized price during the third quarter of 1997. Natural gas production decreased 44.2 million cubic feet per day (MMcf/d), or seven percent, on a worldwide basis, unfavorably impacting revenue by $7.6 million. U.S. natural gas production decreased 18 percent due to sales of largely marginal properties in the first half of 1998 and natural reservoir depletion. Increases in natural gas production in Egypt, Canada and Australia were principally due to development activities and the impact of producing property acquisitions in Australia during late 1997. 10 12 The Company's crude oil sales for the third quarter of 1998 totaled $82.0 million, a 28 percent decrease from the third quarter of 1997, due to lower average realized prices, which were partially offset by production increases in Egypt and Australia. Third quarter 1998 oil production increased seven percent compared to the prior year primarily as a result of increases in Egyptian and Australian production. Egyptian oil production accounted for 39 percent of the Company's worldwide oil production, compared to 30 percent in the third quarter of 1997, resulting in an increase in revenues of $8.9 million. The increase in Egyptian production was primarily a result of drilling and development activity and the price-driven dynamics of certain production sharing contracts. In addition, Australian oil production increased 157 percent in the third quarter of 1998 primarily due to initial production from the Stag field and the acquisition on November 20, 1997, of all the capital stock of three companies (subsidiaries of Mobil Exploration & Producing Australia Pty Ltd) owning interests in certain oil and gas properties and production facilities offshore Western Australia. U.S. oil production decreased 22 percent in the third quarter of 1998 primarily due to sales of largely marginal properties in the first half of 1998 and natural reservoir depletion. The Company's realized price for sales of crude oil in the third quarter of 1998 decreased $5.99 per barrel, or 32 percent, resulting in a decrease in revenue of $36.9 million compared to the same period in 1997. Revenue from the sale of natural gas liquids totaled $2.0 million for the third quarters of 1998 and 1997. A 37 percent increase in natural gas liquids production was offset by a 26 percent decline in realized prices. YEAR-TO-DATE 1998 COMPARED TO YEAR-TO-DATE 1997 Natural gas sales for the first nine months of 1998 of $316.1 million decreased $46.2 million, or 13 percent, from those recorded in the same period of 1997 as a result of lower natural gas prices and a decline in production. Average realized natural gas prices decreased 11 percent, negatively affecting revenue by $39.6 million. U.S. natural gas production, which comprised 75 percent of the Company's worldwide gas production, sold at an average price of $2.14 per Mcf, 10 percent lower than in 1997. Natural gas production decreased 10.5 MMcf/d, or two percent, on a worldwide basis, negatively impacting revenue by $5.6 million. Development activities and the impact of producing property acquisitions in Australia during late 1997 increased natural gas production in Australia and Canada by 27.9 MMcf/d and 14.7 MMcf/d, respectively. U.S. natural gas production declined 53.5 MMcf/d due to sales of largely marginal properties in the first half of 1998 and natural reservoir depletion. The weakening of the Australian currency relative to the U.S. dollar contributed to the 17 percent decrease in the Australian average natural gas price. The Company periodically engages in hedging activities, including fixed price physical and financial contracts. The net result of these activities increased the Company's realized gas price by $.06 per Mcf during the first nine months of 1998 and by $.02 per Mcf during the first nine months of 1997. For the first nine months of 1998, oil revenues of $268.7 million decreased $73.9 million, or 22 percent, from the same period in 1997 due to lower oil prices, which were partially offset by production increases. On a worldwide basis, average oil prices decreased 32 percent to $13.20 per barrel negatively impacting oil sales by $109.7 million. Oil production increased 9,928 barrels per day, or 15 percent, for the first nine months of 1998 primarily due to increases in Egypt and Australia. Egyptian oil production increased by 10,073 barrels per day, or 54 percent, as a result of drilling and development activity and the price-driven dynamics of certain production sharing contracts. Australian oil production increased by 5,154 barrels per day, or 161 percent, primarily due to initial production from the Stag field and the acquisition, on November 20, 1997, of all the capital stock of three companies (subsidiaries of Mobil Exploration & Producing Australia Pty Ltd) owning interests in certain oil and gas properties and production facilities offshore Western Australia. U.S. oil production decreased by 5,334 barrels per day, or 13 percent, primarily due to sales of largely marginal properties in the first half of 1998 and natural reservoir depletion. Natural gas liquid revenues for the first nine months of 1998 of $5.8 million decreased 37 percent from the same period in 1997. Natural gas liquid production increased 339 barrels per day, or 15 percent, while natural gas liquid prices declined by $6.70 per barrel, or 45 percent. 11 13 OTHER REVENUES AND OPERATING EXPENSES During the third quarter and first nine months of 1998, Apache's gas gathering, processing and marketing revenues decreased 34 percent and 39 percent, respectively, to $29.8 million and $88.9 million, as a result of lower prices and volumes compared to the prior year periods. Although revenues decreased with respect to these activities, there was a greater decrease in gas gathering, processing and marketing costs, thus higher margins were realized for both periods of 1998 compared to 1997. The Company's DD&A expense for the third quarter and first nine months of 1998 totaled $94.8 million and $290.6 million, respectively, compared to $98.2 million and $281.0 million for the same periods in 1997. On an equivalent barrel basis, full cost DD&A expense decreased $.20 per barrel of oil equivalent (boe), from $5.84 per boe in the third quarter of 1998 to $5.64 per boe in the same period in 1997. For the nine months ended September 30, 1998, the full cost DD&A rate was $5.62 per boe compared to $5.78 per boe in 1997. Production increases in Canada, Australia and Egypt, countries which have a lower DD&A rate per boe than the U.S., contributed to the decrease in the overall rate. The U.S. DD&A rate has remained relatively constant at $6.11 per boe in the first nine months of 1997 compared to $6.12 per boe in the first nine months of 1998. U.S. production accounted for 63 percent of worldwide production in the first nine months of 1998 compared to 75 percent in the same period of 1997. Operating costs, including lease operating expense and severance taxes, decreased 10 percent from $54.9 million in the third quarter of 1997 to $49.3 million for the same period in 1998. For the first nine months of 1998, operating costs totaled $158.5 million, a decrease of $14.1 million, or eight percent, compared to the same period in 1997. For the third quarter and first nine months of 1998, lease operating expense, excluding severance taxes, totaled $43.3 million and $136.5 million, respectively, compared to $45.2 million and $143.1 million for the comparable periods in 1997. On an equivalent barrel basis, lease operating expense declined from $2.85 per boe in the third quarter of 1997 to $2.77 per boe in the third quarter of 1998. For the first nine months of 1998, lease operating expense averaged $2.84 per boe, a nine percent decrease from $3.12 per boe, for the same period in 1997. Domestic per unit costs were significantly reduced due to lower Gulf Coast region repairs, maintenance, power and fuel costs resulting from the sale of largely marginal properties, and by lower Western and Offshore region repairs and maintenance costs. G&A expense in the third quarter of 1998 and first nine months of 1998 increased $5.2 million or 59 percent, and $7.2 million or 27 percent, respectively, from a year ago. On an equivalent barrel basis, G&A expense for the first nine months of 1998 increased to $.71 per boe compared to $.58 per boe for the same period in 1997. The increase in G&A expense per boe in the first nine months of 1998 was primarily the result of employee separation payments associated with the sale of largely marginal North American properties. Net financing costs for the third quarter of 1998 decreased $1.6 million, or nine percent, from the prior year primarily due to higher capitalized interest. Gross interest expense increased $3.6 million due to a higher average outstanding debt balance and a higher weighted average interest rate. Net financing costs increased six percent from $51.0 million in the first nine months of 1997 to $54.1 million in the comparable 1998 period, due to higher average debt outstanding and a higher weighted average interest rate, partially offset by an increase in capitalized interest, interest income and lower amortization of deferred loan costs. Additional capitalized interest associated with Egyptian pipeline projects under construction contributed to the increase. The increase in interest income was due to a higher cash balance in the first nine months of 1998. The provision for income taxes for the third quarter of 1998, as a percentage of income before income taxes, increased to 57 percent compared to 40 percent in the same period last year. The increase is attributable to higher tax rates associated with the Company's Egyptian operations which generated a larger percentage of income during 1998. 12 14 MARKET RISK COMMODITY 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. Price volatility is expected to continue. See "Results of Operations" above. The information set forth under "Market Risk - Interest Rate Risk and - Foreign Currency Risk" in Item 7 of the Company's annual report on Form 10-K for the year ended December 31, 1997, is incorporated herein by reference. CASH FLOW, LIQUIDITY AND CAPITAL RESOURCES CAPITAL COMMITMENTS 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. During the first nine months of 1998, the Company repurchased 850,000 shares of its own common stock on the open market and may, from time to time, purchase additional shares. Apache budgets capital expenditures based upon projected cash flow and routinely adjusts its capital expenditures in response to changes in oil and natural gas prices and corresponding changes in cash flow. The Company is not in a position to predict future product prices. Capital expenditures for 1998 are expected to exceed internally generated cash flow. Capital Expenditures - A summary of oil and gas capital expenditures during the first nine months of 1998 and 1997 is presented below (in millions):
FOR THE NINE MONTHS ENDED SEPTEMBER 30, ------------------------- 1998 1997 ---------- ---------- Exploration and development: United States $ 173.4 $ 276.1 Canada 55.1 41.2 Egypt 80.3 93.9 Australia 60.3 41.7 Other international 35.1 16.9 ---------- ---------- 404.2 469.8 Capitalized Interest 36.3 26.9 ---------- ---------- Total $ 440.5 $ 496.7 ========== ========== Acquisition of oil and gas properties $ 18.2 $ 32.8 ========== ==========
In North America, Apache completed 157 producing wells out of 212 wells drilled during the first nine months of 1998, while internationally the Company discovered 32 new producers out of 60 wells drilled. Worldwide, the Company was drilling or completing an additional 74 wells as of September 30, 1998. In addition, Apache completed 402 production enhancement projects, including 157 recompletions, during the first nine months of 1998. Property acquisitions in the first nine months of 1998, primarily represented acquisitions of additional interests in producing properties in the Company's existing focus areas. 13 15 CAPITAL RESOURCES AND LIQUIDITY Net Cash Provided by Operating Activities - Apache's net cash provided by operating activities during the first nine months of 1998 totaled $381.4 million, a decrease of 29 percent from $539.7 million in the first nine months of 1997. This decrease was primarily due to lower product prices, partially offset by higher oil production, as compared to last year. Preferred Stock Issuance - In August 1998, Apache issued $100 million of 5.68 percent Series B Cumulative Preferred Stock. The net proceeds of approximately $98.5 million were used to repay debt outstanding under money market lines of credit and to reduce outstanding borrowings under the Canadian portion of the Company's global credit facility. The preferred stock has no stated maturity and is not subject to a sinking fund or mandatory redemption. The shares are not convertible into other securities of the Company. Long-Term Borrowings - In January 1998, approximately 90 percent, or $155.6 million principal amount, of the Company's 6-percent convertible subordinated debentures was converted into approximately 5.1 million shares of Apache common stock at a conversion price of $30.68 per share. The remaining $16.9 million principal amount of the 6-percent debentures was redeemed for $17.4 million in cash, plus accrued and unpaid interest. The Company recorded an $.8 million loss on the early extinguishment of debt in January 1998. In February 1998, Apache issued $150 million principal amount, $148.2 million net of discount, of senior unsecured 7-percent notes maturing on February 1, 2018. The notes are not redeemable prior to maturity. Liquidity - The Company had $59.3 million in cash and cash equivalents on hand at September 30, 1998, up from $9.7 million at December 31, 1997. Apache's ratio of current assets to current liabilities at September 30, 1998 was 1.18:1 compared to 1.01:1 at December 31, 1997. Apache believes that cash on hand, net cash generated from operations, and unused committed borrowing capacity under its global credit facility will be adequate to satisfy the Company's financial obligations to meet future liquidity needs for at least the next two fiscal years. As of September 30, 1998, Apache's available borrowing capacity under its global credit facility was $851 million. 14 16 IMPACT OF THE YEAR 2000 ISSUE The Year 2000 Issue poses a serious threat of business disruption to any organization that utilizes computer technology and computer chip technology in their business systems or equipment. Apache has formed a Year 2000 Task Force with representation from major business units to inventory and assess the risk of hardware, software, telecommunications systems, office equipment, embedded chip controls and systems, process control systems, facility control systems and dependencies on external trading partners. The project phases, expected completion dates and percentage complete are as follows:
PHASE COMPLETION DATE % COMPLETE --------------------------------------- ------------------- --------------- Organization July 1998 100% Assessment November 1998 70% Desktop Computers Network Hardware Software Embedded Systems External Trading Partners Building/Infrastructure Systems Telecommunications Systems Implementation/Replacement July 1999 40% Computer Hardware Core Business Software Desktop Software Embedded Systems Building Systems Contact External Trading Partners February 1999 10% Contingency Planning March 1999 20%
To date, the Company is not aware of any significant issues that would cause problems in the area of safety, environmental or business interruption in the Year 2000. The Company will assess the risk associated with hardware, software, infrastructure, embedded chips and external trading partners that are not Year 2000 compliant. While Apache is confident that Year 2000 remediation efforts will succeed in minimizing exposure to business disruption, plans are being developed which will allow continuation of business in all but the worst case scenarios. All remediation and replacement efforts and contingency planning are expected to be complete by July 1999. All critical external trading partners will be contacted to determine Year 2000 readiness and contingency plans will be developed where assurance of Year 2000 compliance is not received by February 28, 1999. In 1997, the Company initiated a project to replace existing business software as it relates to Apache's production, land, marketing, accounting and financial systems to more effectively and efficiently meet its business needs. Replacement computer systems selected by the Company from SAP America, Inc., PricewaterhouseCoopers LLP, Innovative Business Solutions and Landmark Graphics will properly recognize dates beyond December 31, 1999. The Company plans to implement the replacement software by March 31, 1999. The business system replacement project is 60 percent complete and the Company believes that the March 31, 1999 deadline is attainable. The Company expects the cost to achieve Year 2000 compliance will not exceed $4 million. The cost of implementing business replacement systems is not included in these cost estimates. 15 17 The Company presently believes that with conversions to new software and completion of efforts planned by the Year 2000 Task Force, the risk associated with Year 2000 will be significantly reduced. However, the Company is unable to assure that the consequences of Year 2000 failures of systems maintained by the Company or by third parties will not materially adversely impact the Company's results of operations, liquidity or financial condition. FUTURE TRENDS Apache's strategy is to increase its oil and gas reserves, production, cash flow and earnings by continuing to explore on and develop its inventory of existing projects and making carefully targeted acquisitions of new assets. Robust oil and gas prices early in 1997 gave way to weaker prices later in the year and on into 1998. Crude oil prices have fallen near their lowest level of the 1990's. While lower prices have negatively impacted Apache's earnings and cash from operations for the first nine months of 1998 (see "Market Risk-Commodity Risk" above), Apache anticipated lower prices and took steps early in 1998 to expand its financial capacity. As a result, Apache is positioned to take advantage of opportunities that might result from today's industry adversity. Specific actions that have been or may be taken which should impact the Company's activities in 1998 and beyond, include: 1. Selling and trading non-strategic properties to upgrade the Company's property portfolio and enhance financial flexibility. 2. Curtailing projected exploration and development expenditures early in the year; expanding them in the second half of the year after drilling costs declined. 3. Calling for redemption of $172.5 million principal amount of debentures of which 90 percent, or $155.6 million, was converted to equity in January 1998. Common shares were issued at $30.68 each. 4. Repurchasing 850,000 shares of its own common stock at an average market price of $25.25 per share. Apache may, from time to time, purchase additional shares on the open market. 5. Issuing $100 million of 5.68 percent Series B Cumulative Preferred Stock. The above steps help strengthen Apache's financial position and generally add liquidity. With property acquisition prices beginning to fall from the premium prices commanded in 1997, Apache may seek to undertake a significant acquisition. Apache will continue to review its level of capital expenditures quarterly in light of financial results, product prices, drilling costs, prevailing industry conditions and available opportunities. Even at a reduced capital expenditure level, Apache expects to remain an active operator in North America drilling moderate-risk wells. Apache's international properties should continue to grow in importance with respect to Apache's financial results and future growth prospects. Apache's international efforts remain focused on development of its discoveries in Egypt, offshore Western Australia, The People's Republic of China and the Ivory Coast, and exploration efforts on the Company's concessions in Egypt and in Poland. While international exploration is recognized as higher risk than Apache's North American activities, the Company believes it offers potential for greater rewards and significant reserve additions. Apache also believes that reserve additions in these international areas may be made through higher risk exploration and through improved production practices and recovery techniques. Under the full cost accounting rules of the Securities and Exchange Commission (SEC), the Company reviews the carrying value of its oil and gas properties each quarter on a country-by-country basis. Under full cost accounting rules, capitalized costs of oil and gas properties may not exceed the present value of estimated future net revenues from proved reserves, discounted at 10 percent, plus the lower of cost or fair market value of unproved properties, as adjusted for related tax effects and deferred income taxes. Application of these rules generally requires pricing future production at the unescalated oil and gas prices in effect at the end of each fiscal quarter and requires a write-down if the "ceiling" is exceeded, even if prices declined for only a short period of time. The Company did not have a write-down due to ceiling test limitations as of September 30, 1998. Given historical volatility in oil and gas prices, there is the potential, while not a certainty, that a write-down may occur. If a write-down is required, the one-time charge to earnings would not impact cash flow from operating activities. 16 18 CHANGES IN ACCOUNTING PRINCIPLES DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133 establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value, and requires that changes in a derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement, and requires that a company formally document, designate, and assess the effectiveness of transactions that receive hedge accounting treatment. SFAS No. 133 is required to be adopted on January 1, 2000, although earlier adoption is permitted. The Company is analyzing the effects of SFAS No. 133, but has not yet quantified the potential financial statement impact, if any, or determined the timing or method of adoption. 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 on 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, 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 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. Future oil and gas prices also could affect results of operations and cash flows. Although Apache makes use of futures contracts, swaps, options and fixed-price physical contracts to mitigate risk, fluctuations in oil and gas prices may affect the Company's financial position and results of operations. 17 19 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The information set forth in Note 10 to the Consolidated Financial Statements contained in the Company's annual report on Form 10-K for the year ended December 31, 1997 (filed with the SEC on March 20, 1998) is incorporated herein by reference. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS (a) None (b) On August 15, 1998, Apache issued 100,000 shares of its 5.68% Cumulative Preferred Stock Series B, no par value per share (the Series B Preferred Stock). The Series B Preferred Stock ranks prior and superior to all of Apache common stock, outstanding on August 15, 1998 or thereafter, and to the Series A Junior Participating Preferred Stock of the Company, as to payment of dividends and distribution of assets upon dissolution, liquidation or winding up of the Company. (c) None (d) 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 18 20 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 3.1 - Form of Certificate of Designations, Preferences and Rights of 5.68% Cumulative Preferred Stock, Series B (incorporated by reference to Exhibit 4.1 to Amendment No. 2 on Form 8-K/A to Apache's Current Report on Form 8-K, dated August 18, 1998, SEC File No. 1-4300). 3.2 - Apache's Bylaws, as amended September 17, 1998. 27.1 - Financial Data Table 99.1 - Statement of computation of ratio of earnings to combined fixed charges and preferred stock dividends (b) Reports filed on Form 8-K The following current report on Form 8-K was filed during the fiscal quarter ended September 30, 1998: August 18, 1998 - Item 5. Other Events Offering to the public of one million Depositary Shares each representing 1/10th of a share of Apache's Series B Preferred Stock, no par value, registered pursuant to Apache's Registration Statement on Form S-3 (Registration No. 333-57785). 19 21 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. APACHE CORPORATION Dated: November 12, 1998 /s/ Roger B. Plank ------------------------------------------ Roger B. Plank Vice President and Chief Financial Officer Dated: November 12, 1998 /s/ Thomas L. Mitchell ------------------------------------------ Thomas L. Mitchell Vice President and Controller (Chief Accounting Officer) EX-3.2 2 BYLAWS - DATED 09/17/1998 1 Exhibit 3.2 BYLAWS OF APACHE CORPORATION (AS AMENDED SEPTEMBER 17, 1998) 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 2 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 and shall be called by the chairman of the board 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 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, 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. Page 2 3 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. 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 Page 3 4 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 60 days nor more than 90 days prior to the meeting; provided, however, that in the event that less than 70 days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely, must be so received not later than the close of business on the tenth day following the day on which the notice of the date of the annual meeting was mailed or public disclosure was made. A stockholder's 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 not less than 60 days nor more than 90 days prior to the meeting; provided, however, that in the event that less than 70 days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the tenth day following the day on which the notice of the date of the meeting was mailed or public disclosure was made. 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 Page 4 5 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 board of directors shall consist of not less than seven nor more than 13 members; 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 directors shall be elected in the manner set forth in Article Ninth of the Certificate of Incorporation of the corporation. 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. 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. Page 5 6 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 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 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 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 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 shall preside. In the absence of the chairman and vice chairman of the board, 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 Page 6 7 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 shall be an ex officio member 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 as ex 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. Page 7 8 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. (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 include only outside directors of the corporation. 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 shall have 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. 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 or these bylaws. Page 8 9 I. AUTHORITY AND RESPONSIBILITY. (a) The audit committee is vested with the authority to (i) review with the independent and internal auditors of the corporation their respective audit and review programs and procedures; (ii) review the corporation's financial statements; (iii) review the adequacy of the corporation's system of internal accounting controls and the scope and results of internal audit engagements, special services provided by them and related fees; and (iv) make recommendations to the board of directors regarding the independence of the independent auditors and their engagement or discharge. (b) The audit committee, in addition to the authority vested in it under subsection (a) above, may be vested with other specific powers and authority by resolution of the board of directors. 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. Page 9 10 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. 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 10 11 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. 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. Page 11 12 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 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. Page 12 13 (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 officers who are subject to appointment in accordance with Section 19 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. ARTICLE VI. OFFICERS SECTION 1. OFFICERS. The officers of the corporation shall be a chairman of the board, vice chairman of the board, 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. Page 13 14 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, 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 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 be the chief executive officer 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 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, 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 from which the chairman of the board may be absent, and shall perform such other duties that shall be specifically assigned to him from time to time by the board of directors or the chairman of the board. SECTION 10. 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. Page 14 15 SECTION 11. 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 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 12. 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 13. 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 14. 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. Page 15 16 SECTION 15. 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 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 16. 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 17. 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 18. 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 19. REGIONAL VICE PRESIDENTS. A. ELECTION. One or more regional vice presidents may be appointed by the chairman of the board, or the authority for such appointments may be delegated by the chairman of the board to the president of the corporation. Page 16 17 B. TENURE. The regional vice presidents appointed by the chairman of the board or the president of the corporation shall hold office for one year and until their successors are chosen and qualify in their stead. Any regional vice president so appointed may be removed at any time by the chairman of the board or the president of the corporation. C. DUTIES. The regional vice presidents shall do and perform those duties that shall from time to time be specifically designated or assigned by the chairman of the board or the president of the corporation; however, the regional 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 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 Page 17 18 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. 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. Page 18 19 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. 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. Page 19 20 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 chairman of the board 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. 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, 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, president, vice president, treasurer, assistant treasurer, secretary or assistant secretary may be facsimiles. All certificates shall be consecutively Page 20 21 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, 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, 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. 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 21 22 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 22 23 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 23 EX-27 3 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS DEC-31-1998 JAN-01-1998 SEP-30-1998 59,285 0 168,974 0 35,562 282,853 6,740,930 2,922,640 4,144,294 238,893 1,304,830 0 98,515 124,724 1,739,422 4,144,294 679,478 677,756 535,705 535,705 0 0 54,082 53,943 24,150 29,793 0 0 0 29,793 .30 .30
EX-99.1 4 STATEMENT OF COMPUTAION OF RATIO OF EARNINGS 1 EXHIBIT 99.1 APACHE CORPORATION STATEMENT OF COMPUTATION OF RATIOS OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30, --------------------- 1998 1997 1997 1996 -------- -------- -------- -------- EARNINGS Pretax income from continuing operations(1) $ 53,943 $183,227 $258,640 $200,195 Add:Fixed charges excluding capitalized interest 60,430 54,801 78,531 68,091 -------- -------- -------- -------- Adjusted Earnings $114,373 $238,028 $337,171 $268,286 ======== ======== ======== ======== FIXED CHARGES Interest expense including capitalized interest(2) $ 90,498 $ 75,014 $105,148 $ 89,829 Amortization of debt expense 3,415 4,497 6,438 5,118 Interest component of lease rental expenditures(3) 2,788 2,191 3,438 3,856 Preferred stock requirements(4) 1,057 -- -- -- -------- -------- -------- -------- $ 97,758 $ 81,702 $115,024 $ 98,803 ======== ======== ======== ======== Ratio of earnings to combined fixed charges and preferred stock dividends 1.17 2.91 2.93 2.72 ======== ======== ======== ======== 1995 1994 1993 -------- -------- -------- EARNINGS Pretax income from continuing operations(1) $ 33,143 $ 66,234 $ 62,067 Add:Fixed charges excluding capitalized interest 77,220 39,008 34,355 -------- -------- -------- Adjusted Earnings $110,363 $105,242 $ 96,422 ======== ======== ======== FIXED CHARGES Interest expense including capitalized interest(2) $ 88,057 $ 37,838 $ 34,205 Amortization of debt expense 4,665 3,987 3,896 Interest component of lease rental expenditures(3) 3,539 3,217 2,533 Preferred stock requirements (4) -- -- -- -------- -------- -------- $ 96,261 $ 45,042 $ 40,634 ======== ======== ======== Ratio of earnings to combined fixed charges and preferred stock dividends 1.15 2.34 2.37 ======== ======== ========
- ------------------ (1) Undistributed income of less-than-50%-owned affiliates is excluded. (2) Apache guaranteed and was contingently liable for certain debt. This debt, primarily associated with partnership operations, totaled $1.7 million at December 31, 1996. The outstanding balance was repaid in January 1997 and the facility was terminated. 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. (3) 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% to 34% applies for all periods presented. (4) Represents the amount of pre-tax earnings that would be required to cover preferred stock dividends of $0.6 million for the nine months ended September 30, 1998. -----END PRIVACY-ENHANCED MESSAGE-----