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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from ___________________ to _____________________
Commission File Number 1-4300
APACHE CORPORATION
-----------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 41-0747868
------------------------------- ----------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
Suite 100, One Post Oak Central 77056-4400
----------
2000 Post Oak Boulevard, Houston, TX (Zip Code)
------------------------------------
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code: (713) 296-6000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
----- ----
Number of shares of Registrant's common stock, outstanding as of
September 30, 2002.................................................143,966,713
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
APACHE CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED OPERATIONS
(UNAUDITED)
FOR THE QUARTER FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
-------------------------- --------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
(In thousands, except per common share data)
REVENUES:
Oil and gas production revenues ........... $ 655,917 $ 666,488 $ 1,837,570 $ 2,280,741
Other revenues (losses) ................... (10,728) (6,571) (8,070) (8,628)
----------- ----------- ----------- -----------
645,189 659,917 1,829,500 2,272,113
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Depreciation, depletion and amortization .. 208,788 217,021 630,617 598,203
International impairments ................. -- -- 4,600 65,000
Lease operating costs ..................... 117,296 102,720 342,921 293,086
Gathering and transportation costs ........ 9,869 8,074 29,214 25,845
Severance and other taxes ................. 15,082 16,656 45,392 58,197
General and administrative ................ 25,463 22,794 78,830 66,363
Financing costs:
Interest expense ....................... 38,787 44,140 117,120 138,106
Amortization of deferred loan costs .... 530 1,089 1,330 2,123
Capitalized interest ................... (10,029) (15,520) (30,493) (44,388)
Interest income ........................ (1,215) (1,988) (3,427) (4,240)
----------- ----------- ----------- -----------
404,571 394,986 1,216,104 1,198,295
----------- ----------- ----------- -----------
PREFERRED INTERESTS OF SUBSIDIARIES ........... 3,922 3,189 12,584 3,189
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES .................... 236,696 261,742 600,812 1,070,629
Provision for income taxes ................ 90,168 104,909 227,302 425,850
----------- ----------- ----------- -----------
NET INCOME .................................... 146,528 156,833 373,510 644,779
Preferred stock dividends ................. 1,406 4,908 9,395 14,693
----------- ----------- ----------- -----------
INCOME ATTRIBUTABLE TO COMMON STOCK ........... $ 145,122 $ 151,925 $ 364,115 $ 630,086
=========== =========== =========== ===========
NET INCOME PER COMMON SHARE:
Basic ..................................... $ 1.01 $ 1.11 $ 2.59 $ 4.59
=========== =========== =========== ===========
Diluted ................................... $ 1.00 $ 1.08 $ 2.55 $ 4.43
=========== =========== =========== ===========
The accompanying notes to consolidated financial statements
are an integral part of this statement.
1
APACHE CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS
(UNAUDITED)
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
2002 2001
----------- -----------
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................................ $ 373,510 $ 644,779
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization ............................ 630,617 598,203
Provision for deferred income taxes ................................. 83,271 277,234
International impairments ........................................... 4,600 65,000
Amortization of derivative (gains)/losses and other ................. (11,936) (45,339)
Changes in operating assets and liabilities:
(Increase) decrease in receivables .................................. (72,939) 162,703
(Increase) decrease in advances to oil and gas ventures and other ... (18,383) (40,789)
(Increase) decrease in product inventory ............................ (526) 1,061
(Increase) decrease in deferred charges and other ................... 961 (5,562)
Increase (decrease) in payables ..................................... 61,459 (57,587)
Increase (decrease) in accrued expenses ............................. (9,981) (26,186)
Increase (decrease) in advances from gas purchasers ................. (10,437) (9,336)
Increase (decrease) in deferred credits and noncurrent liabilities .. (20,947) (36,217)
----------- -----------
Net cash provided by operating activities ....................... 1,009,269 1,527,964
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment ....................................... (747,216) (1,114,324)
Acquisition of Fletcher subsidiaries....................................... -- (465,018)
Acquisition of Repsol YPF properties ...................................... -- (446,933)
Acquisition of Occidental properties ...................................... (11,000) (11,000)
Proceeds from sales of oil and gas properties ............................. -- 233,281
Proceeds from sale of short-term investments .............................. 17,006 --
Purchase of short-term investments, net ................................... -- (116,737)
Other, net ................................................................ (24,506) (58,530)
----------- -----------
Net cash used in investing activities ........................... (765,716) (1,979,261)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term borrowings ...................................................... 1,246,296 2,278,414
Payments on long-term debt ................................................ (1,327,471) (2,185,160)
Dividends paid ............................................................ (53,059) (14,686)
Common stock activity, net ................................................ 27,407 7,404
Treasury stock activity, net .............................................. 1,861 (43,003)
Cost of debt and equity transactions ...................................... (6,741) (1,648)
Proceeds from preferred interests of subsidiaries, net of issuance costs .. -- 440,654
----------- -----------
Net cash provided by (used by) financing activities ............. (111,707) 481,975
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS .................................... 131,846 30,678
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ............................... 35,625 37,173
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ................................... $ 167,471 $ 67,851
=========== ===========
The accompanying notes to consolidated financial statements
are an integral part of this statement.
2
APACHE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
2002 2001
--------------- ---------------
(In thousands)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .................................... $ 167,471 $ 35,625
Receivables .................................................. 477,796 404,793
Inventories .................................................. 106,060 102,536
Advances to oil and gas ventures and other ................... 70,271 51,845
Short-term investments ....................................... 84,810 102,950
--------------- ---------------
906,408 697,749
--------------- ---------------
PROPERTY AND EQUIPMENT:
Oil and gas, on the basis of full cost accounting:
Proved properties ......................................... 12,191,220 11,390,692
Unproved properties and properties under
development, not amortized ............................. 732,820 839,921
Gas gathering, transmission and processing facilities ........ 773,145 748,675
Other ........................................................ 186,603 168,915
--------------- ---------------
13,883,788 13,148,203
Less: Accumulated depreciation, depletion and amortization .. (5,769,049) (5,135,131)
--------------- ---------------
8,114,739 8,013,072
--------------- ---------------
OTHER ASSETS:
Goodwill, net ................................................ 189,252 188,812
Deferred charges and other ................................... 38,310 34,023
--------------- ---------------
$ 9,248,709 $ 8,933,656
=============== ===============
The accompanying notes to consolidated financial statements
are an integral part of this statement.
3
APACHE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
2002 2001
--------------- ---------------
(In thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable .............................................................. $ 241,479 $ 179,778
Accrued operating expense ..................................................... 42,929 50,584
Accrued exploration and development ........................................... 119,539 175,943
Accrued compensation and benefits ............................................. 28,605 30,947
Accrued interest .............................................................. 47,299 28,592
Accrued income taxes .......................................................... 37,206 40,030
Other ......................................................................... 20,143 16,584
--------------- ---------------
537,200 522,458
--------------- ---------------
LONG-TERM DEBT ................................................................... 2,163,182 2,244,357
--------------- ---------------
DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES:
Income taxes .................................................................. 1,068,948 991,723
Advances from gas purchasers .................................................. 129,590 140,027
Other ......................................................................... 152,214 175,925
--------------- ---------------
1,350,752 1,307,675
--------------- ---------------
PREFERRED INTERESTS OF SUBSIDIAIRES .............................................. 436,415 440,683
--------------- ---------------
SHAREHOLDERS' EQUITY:
Preferred stock, no par value, 5,000,000 shares authorized - Series B, 5.68%
Cumulative Preferred Stock,
100,000 shares issued and outstanding ................................... 98,387 98,387
Series C, 6.5% Conversion Preferred Stock, 138,482 shares
issued and outstanding for 2001 ......................................... -- 208,207
Common stock, $1.25 par, 215,000,000 shares authorized,
147,979,492 and 141,171,793 shares issued, respectively .................... 184,974 176,465
Paid-in capital ............................................................... 3,038,248 2,812,648
Retained earnings ............................................................. 1,658,081 1,336,478
Treasury stock, at cost, 4,012,779 and 4,068,614 shares,
respectively ............................................................... (110,616) (111,885)
Accumulated other comprehensive loss .......................................... (107,914) (101,817)
--------------- ---------------
4,761,160 4,418,483
--------------- ---------------
$ 9,248,709 $ 8,933,656
=============== ===============
The accompanying notes to consolidated financial statements
are an integral part of this statement.
4
APACHE CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED SHAREHOLDERS' EQUITY
(UNAUDITED)
SERIES B SERIES C
COMPREHENSIVE PREFERRED PREFERRED COMMON PAID-IN RETAINED
(In thousands) INCOME STOCK STOCK STOCK CAPITAL EARNINGS
--------------- ------------- ------------ ------------ --------------- -----------
BALANCE AT DECEMBER 31, 2000.............. $ 98,387 $ 208,207 $ 173,939 $ 2,157,370 $1,226,531
Comprehensive income (loss):
Net income........................... $ 644,779 -- -- -- -- 644,779
Currency translation adjustments..... (60,681) -- -- -- -- --
Unrealized gain on derivatives, net
of applicable income tax provision
of $30,115......................... 41,917 -- -- -- -- --
Unrealized loss on marketable
securities, net of applicable
income tax benefit of $278......... (539) -- -- -- -- --
--------------
Comprehensive income................... $ 625,476
==============
Dividends:
Preferred............................ -- -- -- -- (14,693)
Common ($.28 per share).............. -- -- -- -- (34,894)
Ten percent common stock dividend...... -- -- -- 545,050 (545,050)
Common shares issued................... -- -- 2,512 106,326 --
Treasury shares issued, net............ -- -- -- 1,211 --
---------- ---------- ---------- ------------- ----------
BALANCE AT SEPTEMBER 30, 2001............. $ 98,387 $ 208,207 $ 176,451 $ 2,809,957 $1,276,673
========== ========== ========== ============= ==========
BALANCE AT DECEMBER 31, 2001.............. $ 98,387 $ 208,207 $ 176,465 $ 2,812,648 $1,336,478
Comprehensive income (loss):
Net income........................... $ 373,510 -- -- -- -- 373,510
Currency translation adjustments..... 5,328 -- -- -- -- --
Reclassification of unrealized gains
into earnings:
Derivatives, net of income tax
benefit of $8,105................ (11,300) -- -- -- -- --
Marketable securities, net of
income tax benefit of $67........ (125) -- -- -- -- --
--------------
Comprehensive income................... $ 367,413
==============
Dividends:
Preferred............................ -- -- -- (9,395)
Common ($.30 per share).............. -- -- -- -- (42,512)
Common shares issued................... -- -- 706 24,561 --
Conversion of Series C Preferred Stock. -- (208,207) 7,803 200,404 --
Treasury shares issued, net............ -- -- -- 37 --
Other.................................. -- -- -- 598 --
---------- ---------- ---------- ------------- ----------
BALANCE AT SEPTEMBER 30, 2002............. $ 98,387 $ -- $ 184,974 $ 3,038,248 $1,658,081
========== ========== ========== ============= ==========
ACCUMULATED
OTHER TOTAL
TREASURY COMPREHENSIVE SHAREHOLDERS'
(In thousands) STOCK INCOME (LOSS) EQUITY
------------ --------------- ---------------
BALANCE AT DECEMBER 31, 2000.............. $ (69,562) $ (40,232) $ 3,754,640
Comprehensive income (loss):
Net income........................... -- -- 644,779
Currency translation adjustments..... -- (60,681) (60,681)
Unrealized gain on derivatives, net
of applicable income tax provision
of $30,115......................... -- 41,917 41,917
Unrealized loss on marketable
securities, net of applicable
income tax benefit of $278......... -- (539) (539)
Comprehensive income...................
Dividends:
Preferred............................ -- -- (14,693)
Common ($.28 per share).............. -- -- (34,894)
Ten percent common stock dividend...... -- -- --
Common shares issued................... -- -- 108,838
Treasury shares issued, net............ (42,376) -- (41,165)
---------- -------------- --------------
BALANCE AT SEPTEMBER 30, 2001............. $ (111,938) $ (59,535) $ 4,398,202
========== ============== ==============
BALANCE AT DECEMBER 31, 2001.............. $ (111,885) $ (101,817) $ 4,418,483
Comprehensive income (loss):
Net income........................... -- -- 373,510
Currency translation adjustments..... -- 5,328 5,328
Reclassification of unrealized gains
into earnings:
Derivatives, net of income tax
benefit of $8,105................ -- (11,300) (11,300)
Marketable securities, net of
income tax benefit of $67........ -- (125) (125)
Comprehensive income...................
Dividends:
Preferred............................ -- -- (9,395)
Common ($.30 per share).............. -- -- (42,512)
Common shares issued................... -- -- 25,267
Conversion of Series C Preferred Stock. -- -- --
Treasury shares issued, net............ 1,269 -- 1,306
Other.................................. -- -- 598
---------- -------------- --------------
BALANCE AT SEPTEMBER 30, 2002............. $ (110,616) $ (107,914) $ 4,761,160
========== ============== ==============
The accompanying notes to consolidated financial statements
are an integral part of this statement.
5
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
These financial statements have been prepared by Apache Corporation (Apache
or the Company) without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission, and reflect all adjustments which are, in
the opinion of management, necessary for a fair statement of the results for the
interim periods, on a basis consistent with the annual audited financial
statements. All such adjustments are of a normal recurring nature. Certain
information, accounting policies, and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles generally
accepted in the United States have been omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make the information presented not misleading. These financial statements should
be read in conjunction with the financial statements and the summary of
significant accounting policies and notes thereto included in the Company's most
recent annual report on Form 10-K.
In September 2001, the Company declared a 10 percent stock dividend to
shareholders of record on December 31, 2001. Quarterly share and per share
information for 2001 have been restated to reflect the stock dividend.
As a result of the consensus on Emerging Issues Task Force Issue 00-10,
"Accounting for Shipping and Handling Fees and Costs", third party gathering and
transportation costs have been reported as an operating cost instead of a
reduction of revenues as previously reported. Reclassifications have been made
to reflect this change in prior period statements of consolidated operations.
1. ACQUISITIONS
In March 2001, the Company completed two significant acquisitions. Apache
acquired substantially all of Repsol YPF's (Repsol) oil and gas concession
interests in Egypt for approximately $447 million in cash, and acquired
subsidiaries of Fletcher Challenge Energy (Fletcher) for approximately $465
million in cash and 1.8 million restricted shares of Apache common stock issued
to Shell Overseas Holdings (valued at $55.49 per share).
The following unaudited pro forma information shows the effect on the
Company's consolidated results of operations as if the Fletcher and Repsol
acquisitions occurred on January 1, 2001. The pro forma information is based on
numerous assumptions and is not necessarily indicative of future results of
operations.
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2001
--------------------------------------------
AS REPORTED PRO FORMA
----------------- ----------------
(In thousands, except per common share data)
Revenues............................................... $ 2,272,113 $ 2,392,924
Net income............................................. 644,779 670,356
Preferred stock dividends.............................. 14,693 14,693
Income attributable to common stock.................... 630,086 655,663
Net income per common share:
Basic.............................................. $ 4.59 $ 4.76
Diluted............................................ 4.43 4.59
Average common shares outstanding...................... 137,152 137,716
2. DEBT
In April 2002, the Company issued $400 million principal amount, $397
million net of discount, of senior unsecured 6.25-percent notes maturing on
April 15, 2012. The notes are redeemable, as a whole or in part, at Apache's
option, subject to a make-whole premium. The proceeds were used to repay a
portion of the Company's outstanding commercial paper and for general corporate
purposes.
6
On June 3, 2002, Apache entered into a new $1.5 billion global credit
facility to replace its existing global and 364-day credit facilities. The new
global credit facility consists of four separate bank facilities: a $750 million
364-day facility in the United States; a $450 million five-year facility in the
United States; a $150 million five-year facility in Australia; and a $150
million five-year facility in Canada. The financial covenants of the global
credit facility require the Company to: (i) maintain a consolidated tangible net
worth, plus the aggregate amount of any non-cash write-downs, of at least $2.2
billion as of September 30, 2002, adjusted for subsequent earnings, (ii)
maintain an aggregate book value for assets of Apache and certain subsidiaries,
as defined, on an unconsolidated basis of at least $2 billion as of September
30, 2002, and (iii) maintain a ratio of debt to capitalization of not greater
than 60 percent at the end of any fiscal quarter. The Company was in compliance
with all financial covenants at September 30, 2002.
The five-year facilities are scheduled to mature on June 3, 2007 and the
364-day facility is scheduled to mature on June 1, 2003. The 364-day facility
allows the Company to convert outstanding revolving loans at maturity into
one-year term loans. The Company may request extensions of the maturity dates
subject to approval of the lenders. At the Company's option, the interest rate
is based on (i) the greater of (a) The JPMorgan Chase Bank prime rate or (b) the
federal funds rate plus one-half of one percent, (ii) the London Interbank
Offered Rate (LIBOR) plus a margin determined by the Company's senior long-term
debt rating, or (iii) in the case of the U.S. $450 million five-year facility, a
margin that is determined by competitive bids from participating banks. At
September 30, 2002, the margin over LIBOR for committed loans was .30 percent on
the five-year facilities and .32 percent on the 364-day facility. If the total
amount of the loans borrowed under all of the facilities equals or exceeds 33
percent of the total facility commitments, then an additional .125 percent will
be added to the margins over LIBOR. The Company also pays a quarterly facility
fee of .10 percent on the total amount of each of the five-year facilities and
..08 percent on the total amount of the 364-day facility. The facility fees vary
based upon the Company's senior long-term debt rating.
The $450 million U.S. five-year facility and the $750 million U.S. 364-day
credit facility are used to support Apache's commercial paper program. The
available borrowing capacity under the global credit facility at September 30,
2002 was $1.2 billion.
3. DERIVATIVE INSTRUMENTS AND FIXED-PRICE PHYSICAL CONTRACTS
Due to the uncertainty of how the collapse of Enron Corp. might impact the
derivative markets, Apache closed out all of its derivative positions and
certain fixed-price physical contracts during October and November 2001 (the
"unwind"). The unwind of Apache's hedged positions and acquired derivative
contracts resulted in a net gain recorded to accumulated other comprehensive
income. This deferred gain will be reclassified into earnings over the remaining
periods of the original hedge contracts (approximately 15 months). The remaining
deferred gain related to these contracts was $1 million and $20 million at
September 30, 2002 and December 31, 2001, respectively.
As part of the unwind, Apache also terminated the gas price swap associated
with its advances from gas purchasers, receiving proceeds of $78 million. These
proceeds will be realized into earnings over the original life of the contracts
and effectively increase the original contract's fixed prices by approximately
51 percent. As of September 30, 2002 and December 31, 2001, the Company had an
unamortized gain of $72 million and $78 million, respectively, related to the
unwind of the contracts.
7
4. 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,
---------------------------------------------------------------------------
2002 2001
------------------------------------ ------------------------------------
INCOME SHARES PER SHARE INCOME SHARES PER SHARE
---------- ---------- ----------- ----------- ---------- ----------
(In thousands, except per share amounts)
BASIC:
Income attributable to common stock. $145,122 143,902 $ 1.01 $151,925 137,190 $ 1.11
======== ========
EFFECT OF DILUTIVE SECURITIES:
Stock options and other............. -- 1,179 -- 795
Series C Preferred Stock (1)........ -- -- 3,488 6,243
-------- -------- -------- --------
DILUTED:
Income attributable to common stock,
including assumed conversions...... $145,122 145,081 $ 1.00 $155,413 144,228 $ 1.08
======== ======== ======== ======== ======== ========
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------------------------------------------
2002 2001
------------------------------------ ------------------------------------
INCOME SHARES PER SHARE INCOME SHARES PER SHARE
---------- ---------- ----------- ----------- ---------- ----------
(In thousands, except per share amounts)
BASIC:
Income attributable to common stock. $364,115 140,681 $ 2.59 $630,086 137,152 $ 4.59
======== ========
EFFECT OF DILUTIVE SECURITIES:
Stock options and other............. -- 1,291 -- 1,080
Series C Preferred Stock (1)........ 5,149 3,063 10,464 6,243
-------- ------- -------- -------
DILUTED:
Income attributable to common stock,
including assumed conversions...... $369,264 145,035 $ 2.55 $640,550 144,475 $ 4.43
======== ======= ======== ======== ======= ========
(1) The Series C preferred stock converted to Apache common stock on May
15, 2002.
5. SUPPLEMENTAL CASH FLOW INFORMATION
The following table provides supplemental disclosure of cash flow
information:
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------------------
2002 2001
---------------- ---------------
(In thousands)
Cash paid during the period for:
Interest (net of amounts capitalized)............... $ 67,920 $ 80,501
Income taxes (net of refunds)....................... 115,363 149,996
6. SHORT-TERM INVESTMENTS
At December 31, 2001, Apache had $103 million of U.S. Government Agency
Notes, $17 million of which were designated as "available for sale" securities.
In January 2002, the Company sold all of the "available for sale" securities for
approximately $17 million. The balance was designated as "held to maturity" and
was carried at amortized cost. These notes paid interest at rates from 6.25
percent to 6.375 percent and matured on October 15, 2002.
8
7. IMPAIRMENTS
During the first quarter of 2002, the Company recorded a $5 million
impairment ($3 million after tax) of unproved property costs in Poland. No
impairment was recorded in the second or third quarter. At September 30, 2002,
Apache had $28 million in unproved property costs remaining in Poland. The
Company will continue to evaluate its operations, which may result in additional
impairments.
8. BUSINESS SEGMENT INFORMATION
Apache has five reportable segments which are primarily in the business of
natural gas and crude oil exploration and production. The Company evaluates
segment performance based on results from oil and gas sales and lease level
expenses. Apache's reportable segments are managed separately because of their
geographic locations. Financial information by operating segment is presented
below:
OTHER
UNITED STATES CANADA EGYPT AUSTRALIA INTERNATIONAL TOTAL
------------- ----------- ----------- ----------- ------------- -----------
(IN THOUSANDS)
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2002
Oil and Gas Production Revenues...... $ 799,716 $ 385,424 $ 402,236 $ 245,300 $ 4,894 $ 1,837,570
=========== =========== =========== =========== =========== ===========
Operating Income (Loss)(1)(2)........ $ 285,896 $ 149,584 $ 231,665 $ 120,529 $ (2,848) $ 784,826
=========== =========== =========== =========== ===========
Other Income (Expense):
Other revenues (losses)........... (8,070)
General and administrative........ (78,830)
Preferred interests of
subsidiaries.................... (12,584)
Financing costs, net.............. (84,530)
-----------
Income Before Income Taxes........... $ 600,812
===========
Total Assets......................... $ 4,111,676 $ 2,303,297 $ 1,668,826 $ 998,643 $ 166,267 $ 9,248,709
=========== =========== =========== =========== =========== ===========
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2001
Oil and Gas Production Revenues...... $ 1,224,415 $ 503,452 $ 357,786 $ 195,088 $ -- $ 2,280,741
=========== =========== =========== =========== =========== ===========
Operating Income (Loss)(1)(2)........ $ 689,412 $ 279,710 $ 230,351 $ 105,968 $ (65,031) $ 1,240,410
=========== =========== =========== =========== ===========
Other Income (Expense):
Other revenues (losses)........... (8,628)
General and administrative........ (66,363)
Preferred interests of
subsidiaries.................... (3,189)
Financing costs, net.............. (91,601)
-----------
Income Before Income Taxes........... $ 1,070,629
===========
Total Assets......................... $ 4,372,952 $ 2,183,618 $ 1,505,507 $ 878,381 $ 126,277 $ 9,066,735
=========== =========== =========== =========== =========== ===========
(1) Operating income (loss) consists of oil and gas production revenues less
depreciation, depletion and amortization, international impairments, lease
operating costs, gathering and transportation costs, and severance and
other taxes.
(2) During the second quarter of 2001, the Company recorded a $65 million
impairment ($41 million after-tax) of unproved property costs in Poland
and China. During the first quarter of 2002, the Company recorded an
additional $5 million impairment ($3 million after-tax) of unproved
property costs in Poland.
9
9. NEW ACCOUNTING PRONOUCEMENTS
The Company adopted Statement of Financial Accounting Standards (SFAS) No.
142 "Goodwill and Other Intangible Assets" effective January 1, 2002. SFAS No.
142 addresses financial accounting and reporting for acquired goodwill and other
intangible assets and supersedes Accounting Principles Board (APB) Opinion No.
17 "Intangible Assets". As a result of this pronouncement, goodwill is no longer
subject to amortization. Rather, goodwill is subject to at least an annual
assessment for impairment by applying a fair-value-based test. Apache had
goodwill of $189 million at September 30, 2002, representing the excess of the
purchase price over the estimated fair value of the assets acquired and
liabilities assumed in the Fletcher and Repsol acquisitions, adjusted for
currency fluctuations. Apache has recognized no impairment of goodwill as of
September 30, 2002. Had the principles of SFAS No. 142 been applied to prior
years, goodwill amortization of $2 million ($1 million after tax) and $5 million
($3 million after tax) expensed during the third quarter and first nine months
of 2001, respectively, would not have been incurred. Net income for the
comparative interim period adjusted to exclude the effect of goodwill
amortization would have increased diluted earnings per share by $.01 and $.02
for the three months and nine months ended September 30, 2001, respectively.
In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS
No. 143 "Accounting for Asset Retirement Obligations." SFAS No. 143 addresses
financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. This statement requires companies to record the present value of
obligations associated with the retirement of tangible long-lived assets in the
period in which it is incurred. The liability is capitalized as part of the
related long-lived asset's carrying amount. Over time, accretion of the
liability is recognized as an operating expense and the capitalized cost is
depreciated over the expected useful life of the related asset. SFAS No. 143 is
effective for fiscal years beginning after June 15, 2002. The Company's asset
retirement obligations relate primarily to the dismantlement of oil and gas
properties. The Company expects to adopt this new standard effective January 1,
2003. The Company is currently evaluating the impact of adopting this new
standard and accordingly has not quantified the impact on the consolidated
financial statements.
10. SUPPLEMENTAL GUARANTOR INFORMATION
Apache Finance Pty Ltd. (Apache Finance Australia) and Apache Finance
Canada Corporation (Apache Finance Canada) are subsidiaries of Apache, that have
issuances of publicly traded securities and require the following condensed
consolidating financial statements be provided as an alternative to filing
separate financial statements.
Each of the companies presented in the condensed consolidating financial
statements has been fully consolidated in Apache Corporation's consolidated
financial statements. As such, the condensed consolidating financial statements
should be read in conjunction with the financial statements of Apache
Corporation and subsidiaries and notes thereto of which this note is an integral
part.
10
APACHE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE QUARTER ENDED SEPTEMBER 30, 2002
(IN THOUSANDS)
APACHE APACHE
APACHE APACHE FINANCE FINANCE
CORPORATION NORTH AMERICA AUSTRALIA CANADA
------------- ------------- ------------- -------------
REVENUES:
Oil and gas production revenues............... $ 206,029 $ -- $ -- $ --
Equity in net income (loss) of affiliates..... 105,002 6,534 9,512 15,714
Other revenues (losses)....................... (497) -- -- --
----------- ----------- ----------- -----------
310,534 6,534 9,512 15,714
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Depreciation, depletion and amortization...... 46,851 -- -- --
Lease operating costs......................... 52,289 -- -- --
Gathering and transportation costs............ 4,250 -- -- --
Severance and other taxes..................... 8,695 -- -- 90
Administrative, selling and other............. 21,496 -- -- --
Financing costs, net.......................... 18,470 -- 4,512 10,268
----------- ----------- ----------- -----------
152,051 -- 4,512 10,358
----------- ----------- ----------- -----------
PREFERRED INTERESTS OF SUBSIDIARIES.............. -- -- -- --
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES................ 158,483 6,534 5,000 5,356
Provision (benefit) for income taxes.......... 11,955 -- (1,534) (4,948)
----------- ----------- ----------- -----------
NET INCOME....................................... 146,528 6,534 6,534 10,304
Preferred stock dividends..................... 1,406 -- -- --
----------- ----------- ----------- -----------
INCOME ATTRIBUTABLE TO COMMON STOCK.............. $ 145,122 $ 6,534 $ 6,534 $ 10,304
=========== =========== =========== ===========
ALL OTHER
SUBSIDIARIES
OF APACHE RECLASSIFICATIONS
CORPORATION & ELIMINATIONS CONSOLIDATED
------------ --------------- -------------
REVENUES:
Oil and gas production revenues............... $ 485,979 $ (36,091) $ 655,917
Equity in net income (loss) of affiliates..... (8,388) (128,374) --
Other revenues (losses)....................... (10,231) -- (10,728)
----------- ------------ -----------
467,360 (164,465) 645,189
----------- ------------ -----------
OPERATING EXPENSES:
Depreciation, depletion and amortization...... 161,937 -- 208,788
Lease operating costs......................... 101,098 (36,091) 117,296
Gathering and transportation costs............ 5,619 -- 9,869
Severance and other taxes..................... 6,297 -- 15,082
Administrative, selling and other............. 3,967 -- 25,463
Financing costs, net.......................... (5,177) -- 28,073
----------- ------------ -----------
273,741 (36,091) 404,571
----------- ------------ -----------
PREFERRED INTERESTS OF SUBSIDIARIES.............. 3,922 -- 3,922
----------- ------------ -----------
INCOME (LOSS) BEFORE INCOME TAXES................ 189,697 (128,374) 236,696
Provision (benefit) for income taxes.......... 84,695 -- 90,168
----------- ------------ -----------
NET INCOME....................................... 105,002 (128,374) 146,528
Preferred stock dividends..................... -- -- 1,406
----------- ------------ -----------
INCOME ATTRIBUTABLE TO COMMON STOCK.............. $ 105,002 $ (128,374) $ 145,122
=========== ============ ===========
11
APACHE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE QUARTER ENDED SEPTEMBER 30, 2001
(IN THOUSANDS)
APACHE
APACHE APACHE FINANCE APACHE
CORPORATION NORTH AMERICA AUSTRALIA FINANCE CANADA
----------- ------------- ----------- --------------
REVENUES:
Oil and gas production revenues............... $ 251,296 $ -- $ -- $ --
Equity in net income of affiliates............ 99,285 5,760 8,738 23,454
Other revenues (losses)....................... (1,424) -- -- --
----------- ----------- ----------- -----------
349,157 5,760 8,738 23,454
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Depreciation, depletion and amortization...... 68,481 -- -- --
Lease operating costs......................... 49,845 -- -- --
Gathering and transportation costs............ 2,508 -- -- --
Severance and other taxes..................... 10,392 -- -- --
Administrative, selling and other............. 21,207 -- -- --
Financing costs, net.......................... 16,706 -- 4,513 10,302
----------- ----------- ----------- -----------
169,139 -- 4,513 10,302
----------- ----------- ----------- -----------
PREFERRED INTERESTS OF SUBSIDIARIES.............. -- -- -- --
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES................ 180,018 5,760 4,225 13,152
Provision (benefit) for income taxes.......... 23,185 -- (1,535) (4,492)
----------- ----------- ----------- -----------
NET INCOME....................................... 156,833 5,760 5,760 17,644
Preferred stock dividends..................... 4,908 -- -- --
----------- ----------- ----------- -----------
INCOME ATTRIBUTABLE TO COMMON STOCK.............. $ 151,925 $ 5,760 $ 5,760 $ 17,644
=========== =========== =========== ===========
ALL OTHER
SUBSIDIARIES
OF APACHE RECLASSIFICATIONS
CORPORATION & ELIMINATIONS CONSOLIDATED
------------ ----------------- ------------
REVENUES:
Oil and gas production revenues............... $ 519,781 $ (104,589) $ 666,488
Equity in net income of affiliates............ (8,787) (128,450) --
Other revenues (losses)....................... (5,147) -- (6,571)
----------- ------------ -----------
505,847 (233,039) 659,917
----------- ------------ -----------
OPERATING EXPENSES:
Depreciation, depletion and amortization...... 148,540 -- 217,021
Lease operating costs......................... 157,464 (104,589) 102,720
Gathering and transportation costs............ 5,566 -- 8,074
Severance and other taxes..................... 6,264 -- 16,656
Administrative, selling and other............. 1,587 -- 22,794
Financing costs, net.......................... (3,800) -- 27,721
----------- ------------ -----------
315,621 (104,589) 394,986
----------- ------------ -----------
PREFERRED INTERESTS OF SUBSIDIARIES.............. 3,189 -- 3,189
----------- ------------ -----------
INCOME (LOSS) BEFORE INCOME TAXES................ 187,037 (128,450) 261,742
Provision (benefit) for income taxes.......... 87,751 -- 104,909
----------- ------------ -----------
NET INCOME....................................... 99,286 (128,450) 156,833
Preferred stock dividends..................... -- -- 4,908
----------- ------------ -----------
INCOME ATTRIBUTABLE TO COMMON STOCK.............. $ 99,286 $ (128,450) $ 151,925
=========== ============ ===========
12
APACHE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
(IN THOUSANDS)
APACHE APACHE
APACHE APACHE FINANCE FINANCE
CORPORATION NORTH AMERICA AUSTRALIA CANADA
----------- ------------- ----------- -----------
REVENUES:
Oil and gas production revenues............... $ 582,789 $ -- $ -- $ --
Equity in net income (loss) of affiliates..... 277,729 15,618 24,552 52,817
Other revenues (losses)....................... (402) -- -- --
----------- ----------- ----------- -----------
860,116 15,618 24,552 52,817
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Depreciation, depletion and amortization...... 161,698 -- -- --
International impairments..................... -- -- -- --
Lease operating costs......................... 152,615 -- -- --
Gathering and transportation costs............ 12,259 -- -- --
Severance and other taxes..................... 23,828 -- -- 116
Administrative, selling and other............. 66,882 -- -- --
Financing costs, net.......................... 54,512 -- 13,537 30,715
----------- ----------- ----------- -----------
471,794 -- 13,537 30,831
----------- ----------- ----------- -----------
PREFERRED INTERESTS OF SUBSIDIARIES.............. -- -- -- --
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES................ 388,322 15,618 11,015 21,986
Provision (benefit) for income taxes.......... 14,812 -- (4,603) (13,874)
----------- ----------- ----------- -----------
NET INCOME....................................... 373,510 15,618 15,618 35,860
Preferred stock dividends..................... 9,395 -- -- --
----------- ----------- ----------- -----------
INCOME ATTRIBUTABLE TO COMMON STOCK.............. $ 364,115 $ 15,618 $ 15,618 $ 35,860
=========== =========== =========== ===========
ALL OTHER
SUBSIDIARIES
OF APACHE RECLASSIFICATIONS
CORPORATION & ELIMINATIONS CONSOLIDATED
------------ ----------------- ------------
REVENUES:
Oil and gas production revenues............... $ 1,378,151 $ (123,370) $ 1,837,570
Equity in net income (loss) of affiliates..... (25,891) (344,825) --
Other revenues (losses)....................... (7,668) -- (8,070)
----------- ------------ -----------
1,344,592 (468,195) 1,829,500
----------- ------------ -----------
OPERATING EXPENSES:
Depreciation, depletion and amortization...... 468,919 -- 630,617
International impairments..................... 4,600 -- 4,600
Lease operating costs......................... 313,676 (123,370) 342,921
Gathering and transportation costs............ 16,955 -- 29,214
Severance and other taxes..................... 21,448 -- 45,392
Administrative, selling and other............. 11,948 -- 78,830
Financing costs, net.......................... (14,234) -- 84,530
----------- ------------ -----------
823,312 (123,370) 1,216,104
----------- ------------ -----------
PREFERRED INTERESTS OF SUBSIDIARIES.............. 12,584 -- 12,584
----------- ------------ -----------
INCOME (LOSS) BEFORE INCOME TAXES................ 508,696 (344,825) 600,812
Provision (benefit) for income taxes.......... 230,967 -- 227,302
----------- ------------ -----------
NET INCOME....................................... 277,729 (344,825) 373,510
Preferred stock dividends..................... -- -- 9,395
----------- ------------ -----------
INCOME ATTRIBUTABLE TO COMMON STOCK.............. $ 277,729 $ (344,825) $ 364,115
=========== ============ ===========
13
APACHE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
(IN THOUSANDS)
APACHE APACHE
APACHE APACHE FINANCE FINANCE
CORPORATION NORTH AMERICA AUSTRALIA CANADA
----------- ------------- ----------- -----------
REVENUES:
Oil and gas production revenues................ $ 1,205,348 $ -- $ -- $ --
Equity in net income of affiliates............. 250,656 13,407 20,356 70,851
Other revenues (losses)........................ (1,926) -- 3,078 --
----------- ----------- ----------- -----------
1,454,078 13,407 23,434 70,851
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Depreciation, depletion and amortization....... 274,309 -- -- --
International impairments...................... -- -- -- --
Lease operating costs.......................... 160,808 -- -- --
Gathering and transportation costs............. 12,575 -- -- --
Severance and other taxes...................... 43,252 -- -- --
Administrative, selling and other.............. 60,100 -- -- --
Financing costs, net........................... 53,664 -- 13,607 27,117
----------- ----------- ----------- -----------
604,708 -- 13,607 27,117
----------- ----------- ----------- -----------
PREFERRED INTERESTS OF SUBSIDIARIES............... -- -- -- --
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES................. 849,370 13,407 9,827 43,734
Provision (benefit) for income taxes........... 204,591 -- (3,580) (11,823)
----------- ----------- ----------- -----------
NET INCOME........................................ 644,779 13,407 13,407 55,557
Preferred stock dividends...................... 14,693 -- -- --
----------- ----------- ----------- -----------
INCOME ATTRIBUTABLE TO COMMON STOCK............... $ 630,086 $ 13,407 $ 13,407 $ 55,557
=========== =========== =========== ===========
ALL OTHER
SUBSIDIARIES
OF APACHE RECLASSIFICATIONS
CORPORATION & ELIMINATIONS CONSOLIDATED
----------- ----------------- ------------
REVENUES:
Oil and gas production revenues................ $ 1,476,926 $ (401,533) $ 2,280,741
Equity in net income of affiliates............. (22,243) (333,027) --
Other revenues (losses)........................ (9,780) -- (8,628)
----------- ------------ -----------
1,444,903 (734,560) 2,272,113
----------- ------------ -----------
OPERATING EXPENSES:
Depreciation, depletion and amortization....... 323,894 -- 598,203
International impairments...................... 65,000 -- 65,000
Lease operating costs.......................... 533,811 (401,533) 293,086
Gathering and transportation costs............. 13,270 -- 25,845
Severance and other taxes...................... 14,945 -- 58,197
Administrative, selling and other.............. 6,263 -- 66,363
Financing costs, net........................... (2,787) -- 91,601
----------- ------------ -----------
954,396 (401,533) 1,198,295
----------- ------------ -----------
PREFERRED INTERESTS OF SUBSIDIARIES............... 3,189 -- 3,189
----------- ------------ -----------
INCOME (LOSS) BEFORE INCOME TAXES................. 487,318 (333,027) 1,070,629
Provision (benefit) for income taxes........... 236,662 -- 425,850
----------- ------------ -----------
NET INCOME........................................ 250,656 (333,027) 644,779
Preferred stock dividends...................... -- -- 14,693
----------- ------------ -----------
INCOME ATTRIBUTABLE TO COMMON STOCK............... $ 250,656 $ (333,027) $ 630,086
=========== ============ ===========
14
APACHE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
(IN THOUSANDS)
APACHE APACHE
APACHE APACHE FINANCE FINANCE
CORPORATION NORTH AMERICA AUSTRALIA CANADA
----------- ------------- ----------- -----------
CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES....................................... $ (55,781) $ -- $ (12,525) $ (28,581)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment.............. (182,908) -- -- --
Acquisitions..................................... (11,000) -- -- --
Proceeds from sales of oil and gas properties.... -- -- -- --
Proceeds from sale of U.S. Government Agency
Notes ........................................ -- -- -- --
Investment in subsidiaries, net.................. (270,250) (12,525) -- --
Other, net....................................... (10,757) -- -- --
----------- ----------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES.............. (474,915) (12,525) -- --
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt activity, net..................... 557,693 -- -- 3,449
Dividends paid................................... (53,059) -- -- --
Common stock activity, net....................... 27,407 12,525 12,525 25,132
Treasury stock activity, net..................... 1,861 -- -- --
Cost of debt and equity transactions............. (6,741) -- -- --
----------- ----------- ----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES.......... 527,161 12,525 12,525 28,581
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................................. (3,535) -- -- --
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR................................ 6,383 -- 2 --
----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD.................................... $ 2,848 $ -- $ 2 $ --
=========== =========== =========== ===========
ALL OTHER
SUBSIDIARIES
OF APACHE RECLASSIFICATIONS
CORPORATION & ELIMINATIONS CONSOLIDATED
------------ ----------------- ------------
CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES....................................... $ 1,106,156 $ -- $ 1,009,269
----------- ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment.............. (564,308) -- (747,216)
Acquisitions..................................... -- -- (11,000)
Proceeds from sales of oil and gas properties.... -- -- --
Proceeds from sale of U.S. Government Agency
Notes.......................................... 17,006 -- 17,006
Investment in subsidiaries, net.................. (673,507) 956,282 --
Other, net....................................... (13,749) -- (24,506)
----------- ------------ -----------
NET CASH USED IN INVESTING ACTIVITIES.............. (1,234,558) 956,282 (765,716)
----------- ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt activity, net..................... 167,851 (810,168) (81,175)
Dividends paid................................... -- -- (53,059)
Common stock activity, net....................... 95,932 (146,114) 27,407
Treasury stock activity, net..................... -- -- 1,861
Cost of debt and equity transactions............. -- -- (6,741)
----------- ------------ -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES.......... 263,783 (956,282) (111,707)
----------- ------------ -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................................. 135,381 -- 131,846
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR................................ 29,240 -- 35,625
----------- ------------ -----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD.................................... $ 164,621 $ -- $ 167,471
=========== ============ ===========
15
APACHE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
(IN THOUSANDS)
APACHE
APACHE APACHE FINANCE APACHE
CORPORATION NORTH AMERICA AUSTRALIA FINANCE CANADA
----------- ------------- ----------- --------------
CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES....................................... $ 1,243,360 $ -- $ (1,550) $ (221,900)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment.............. (609,428) -- -- --
Acquisitions..................................... (11,000) -- -- --
Proceeds from sales of oil and gas properties.... 102,118 -- -- --
Purchase of U.S. Government Agency Notes......... -- -- -- --
Investment in subsidiaries....................... (894,422) (5,568) (5,568) (250,819)
Other, net....................................... (16,324) -- -- --
----------- ----------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES.............. (1,429,056) (5,568) (5,568) (250,819)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt activity, net..................... 261,511 -- 1,552 250,841
Dividends paid................................... (14,686) -- -- --
Common stock activity, net....................... 7,404 5,568 5,568 221,878
Treasury stock activity, net..................... (43,003) -- -- --
Cost of debt and equity transactions............. (1,648) -- -- --
Proceeds from preferred interests of
subsidiaries, net of issuance costs........... -- -- -- --
----------- ----------- ----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES.......... 209,578 5,568 7,120 472,719
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................................. 23,882 -- 2 --
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR................................ 5,257 -- -- --
----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD.................................... $ 29,139 $ -- $ 2 $ --
=========== =========== =========== ===========
ALL OTHER
SUBSIDIARIES
OF APACHE RECLASSIFICATIONS
CORPORATION & ELIMINATIONS CONSOLIDATED
------------- ----------------- ------------
CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES....................................... $ 508,054 $ -- $ 1,527,964
----------- ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment.............. (504,896) -- (1,114,324)
Acquisitions..................................... (911,951) -- (922,951)
Proceeds from sales of oil and gas properties.... 131,163 -- 233,281
Purchase of U.S. Government Agency Notes......... (116,737) -- (116,737)
Investment in subsidiaries....................... (857,962) 2,014,339 --
Other, net....................................... (42,206) -- (58,530)
----------- ------------ -----------
NET CASH USED IN INVESTING ACTIVITIES.............. (2,302,589) 2,014,339 (1,979,261)
----------- ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt activity, net..................... 850,235 (1,270,885) 93,254
Dividends paid................................... -- -- (14,686)
Common stock activity, net....................... 510,440 (743,454) 7,404
Treasury stock activity, net..................... -- -- (43,003)
Cost of debt and equity transactions............. -- -- (1,648)
Proceeds from preferred interests of
subsidiaries, net of issuance costs........... 440,654 -- 440,654
----------- ------------ -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES.......... 1,801,329 (2,014,339) 481,975
----------- ------------ -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................................. 6,794 -- 30,678
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR................................ 31,916 -- 37,173
----------- ------------ -----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD.................................... $ 38,710 $ -- $ 67,851
=========== ============ ===========
16
APACHE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF SEPTEMBER 30, 2002
(IN THOUSANDS)
APACHE APACHE
APACHE APACHE FINANCE FINANCE
CORPORATION NORTH AMERICA AUSTRALIA CANADA
----------- ------------- ----------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents...................... $ 2,848 $ -- $ 2 $ --
Receivables.................................... 92,938 -- -- --
Inventories.................................... 17,442 -- -- --
Advances to oil and gas ventures and others.... 27,610 -- -- --
Short-term investments......................... -- -- -- --
----------- ----------- ----------- -----------
140,838 -- 2 --
----------- ----------- ----------- -----------
PROPERTY AND EQUIPMENT, NET...................... 3,118,505 -- -- --
----------- ----------- ----------- -----------
OTHER ASSETS:
Intercompany receivable, net................... 1,428,003 -- (25) (254,474)
Goodwill, net.................................. -- -- -- --
Equity in affiliates........................... 2,843,979 216,933 479,592 1,152,193
Deferred charges and other..................... 31,983 -- -- 2,495
----------- ----------- ----------- -----------
$ 7,563,308 $ 216,933 $ 479,569 $ 900,214
=========== =========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................... $ 141,745 $ -- $ -- $ --
Other accrued expenses......................... 123,055 -- 2 5,497
----------- ----------- ----------- -----------
264,800 -- 2 5,497
----------- ----------- ----------- -----------
LONG-TERM DEBT................................... 1,555,066 -- 268,749 297,011
----------- ----------- ----------- -----------
DEFERRED CREDITS AND OTHER
NONCURRENT LIABILITIES:
Income taxes................................... 715,474 -- (6,115) (1,419)
Advances from gas purchasers................... 129,590 -- -- --
Other.......................................... 137,218 -- -- --
----------- ----------- ----------- -----------
982,282 -- (6,115) (1,419)
----------- ----------- ----------- -----------
PREFERRED INTERESTS OF SUBSIDIARIES.............. -- -- -- --
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY............................. 4,761,160 216,933 216,933 599,125
----------- ----------- ----------- -----------
$ 7,563,308 $ 216,933 $ 479,569 $ 900,214
=========== =========== =========== ===========
ALL OTHER
SUBSIDIARIES
OF APACHE RECLASSIFICATIONS
CORPORATION & ELIMINATIONS CONSOLIDATED
----------- ----------------- ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents...................... $ 164,621 $ -- $ 167,471
Receivables.................................... 384,858 -- 477,796
Inventories.................................... 88,618 -- 106,060
Advances to oil and gas ventures and others.... 42,661 -- 70,271
Short-term investments......................... 84,810 84,810
----------- ------------ -----------
765,568 -- 906,408
----------- ------------ -----------
PROPERTY AND EQUIPMENT, NET...................... 4,996,234 -- 8,114,739
----------- ------------ -----------
OTHER ASSETS:
Intercompany receivable, net................... (1,173,504) -- --
Goodwill, net.................................. 189,252 -- 189,252
Equity in affiliates........................... (815,727) (3,876,970) --
Deferred charges and other..................... 3,832 -- 38,310
----------- ------------ -----------
$ 3,965,655 $ (3,876,970) $ 9,248,709
=========== ============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................... $ 99,734 $ -- $ 241,479
Other accrued expenses......................... 167,167 -- 295,721
----------- ------------ -----------
266,901 -- 537,200
----------- ------------ -----------
LONG-TERM DEBT................................... 42,356 -- 2,163,182
----------- ------------ -----------
DEFERRED CREDITS AND OTHER
NONCURRENT LIABILITIES:
Income taxes................................... 361,008 -- 1,068,948
Advances from gas purchasers................... -- -- 129,590
Other.......................................... 14,996 -- 152,214
----------- ------------ -----------
376,004 -- 1,350,752
----------- ------------ -----------
PREFERRED INTERESTS OF SUBSIDIARIES.............. 436,415 -- 436,415
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY............................. 2,843,979 (3,876,970) 4,761,160
----------- ------------ -----------
$ 3,965,655 $ (3,876,970) $ 9,248,709
=========== ============ ===========
17
APACHE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 2001
(IN THOUSANDS)
APACHE APACHE
APACHE APACHE FINANCE FINANCE
CORPORATION NORTH AMERICA AUSTRALIA CANADA
----------- ------------- ----------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents...................... $ 6,383 $ -- $ 2 $ --
Receivables.................................... 94,881 -- -- --
Inventories.................................... 17,024 -- -- --
Advances to oil and gas ventures and others.... 24,644 -- -- --
Short-term investments......................... -- -- -- --
----------- ----------- ----------- -----------
142,932 -- 2 --
----------- ----------- ----------- -----------
PROPERTY AND EQUIPMENT, NET...................... 3,098,485 -- -- --
----------- ----------- ----------- -----------
OTHER ASSETS:
Intercompany receivable, net................... 1,426,455 -- (25) (251,025)
Goodwill, net.................................. -- -- -- --
Equity in affiliates........................... 2,566,969 188,925 455,039 1,082,328
Deferred charges and other..................... 27,688 -- -- 2,564
----------- ----------- ----------- -----------
$ 7,262,529 $ 188,925 $ 455,016 $ 833,867
=========== =========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................... $ 75,164 $ -- $ -- $ --
Other accrued expenses......................... 165,858 -- 2,599 1,246
----------- ----------- ----------- -----------
241,022 -- 2,599 1,246
----------- ----------- ----------- -----------
LONG-TERM DEBT................................... 1,605,201 -- 268,615 296,988
----------- ----------- ----------- -----------
DEFERRED CREDITS AND OTHER
NONCURRENT LIABILITIES:
Income taxes................................... 696,441 -- (5,123) 18
Advances from gas purchasers................... 140,027 -- -- --
Other.......................................... 161,355 -- -- --
----------- ----------- ----------- -----------
997,823 -- (5,123) 18
----------- ----------- ----------- -----------
PREFERRED INTERESTS OF SUBSIDIARIES.............. -- -- -- --
----------- ----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY............................. 4,418,483 188,925 188,925 535,615
----------- ----------- ----------- -----------
$ 7,262,529 $ 188,925 $ 455,016 $ 833,867
=========== =========== =========== ===========
ALL OTHER
SUBSIDIARIES
OF APACHE RECLASSIFICATIONS
CORPORATION & ELIMINATIONS CONSOLIDATED
----------- ----------------- ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents...................... $ 29,240 $ -- $ 35,625
Receivables.................................... 309,912 -- 404,793
Inventories.................................... 85,512 -- 102,536
Advances to oil and gas ventures and others.... 27,201 -- 51,845
Short-term investments......................... 102,950 -- 102,950
----------- ------------ -----------
554,815 -- 697,749
----------- ------------ -----------
PROPERTY AND EQUIPMENT, NET...................... 4,914,587 -- 8,013,072
----------- ------------ -----------
OTHER ASSETS:
Intercompany receivable, net................... (1,175,405) -- --
Goodwill, net.................................. 188,812 -- 188,812
Equity in affiliates........................... (812,827) (3,480,434) --
Deferred charges and other..................... 3,771 -- 34,023
----------- ------------ -----------
$ 3,673,753 $ (3,480,434) $ 8,933,656
=========== ============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................... $ 104,614 $ -- $ 179,778
Other accrued expenses......................... 172,977 -- 342,680
----------- ------------ -----------
277,591 -- 522,458
----------- ------------ -----------
LONG-TERM DEBT................................... 73,553 -- 2,244,357
----------- ------------ -----------
DEFERRED CREDITS AND OTHER
NONCURRENT LIABILITIES:
Income taxes................................... 300,387 -- 991,723
Advances from gas purchasers................... -- -- 140,027
Other.......................................... 14,570 -- 175,925
----------- ------------ -----------
314,957 -- 1,307,675
----------- ------------ -----------
PREFERRED INTERESTS OF SUBSIDIARIES.............. 440,683 -- 440,683
----------- ------------ -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY............................. 2,566,969 (3,480,434) 4,418,483
----------- ------------ -----------
$ 3,673,753 $ (3,480,434) $ 8,933,656
=========== ============ ===========
18
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
For the third quarter Apache recorded income attributable to common stock
of $145 million ($1.00 per diluted common share) which was slightly higher than
second-quarter and four percent lower than the prior-year quarter. Cash from
operating activities of $385 million decreased eight percent from the same
quarter last year due to lower gas production and prices as well as higher
foreign currency losses, partially offset by higher oil prices.
For the first nine months of 2002, our income attributable to common stock
of $364 million ($2.55 per diluted share) and cash from operating activities of
$1.0 billion were 42 percent and 35 percent, respectively, below the 2001
period, a period which saw higher oil and gas price realizations.
Our goal at the outset of 2002 was to increase financial flexibility and
preserve our "A-credit ratings" by curtailing capital spending from prior year
levels in favor of reducing debt. This decision was predicated on volatile
natural gas prices, high drilling costs, inflated acquisition prices and the
impact of the September 11th attacks on an already faltering economy. As the
year progressed, improving prices and declining drilling costs allowed us to
continue to build financial flexibility and ramp-up capital spending.
Accordingly, we have increased drilling activity in all of our regions and
currently project to spend approximately $1 billion on exploration, development
and acquisition activities this year, up from our initial projection of
approximately $600 million. Even with increased capital spending this quarter,
we reduced debt by $42 million and debt (including preferred interest of
subsidiaries, net of cash and marketable securities) as a percentage of
capitalization fell to 33.5 percent, well ahead of our initial goal for the year
and our lowest quarter-end level in nearly 20 years.
Third quarter production was down slightly from the second quarter as the
impact from increased drilling activity in the third-quarter was hampered by the
impact of Hurricane Isidore. Hurricane Isidore forced us to shut-in all of our
Gulf of Mexico production for five days in September and reduced third quarter
average daily production by 4,000 barrels of oil equivalent (boe) per day.
Year-to-date oil and gas production, on a boe basis, was slightly higher
this year than last year. The increase was driven by the Repsol and Fletcher
Challenge acquisitions in late March 2001, in Egypt and Canada respectively,
coupled with successful drilling results at Ladyfern field in Canada. These
increases more than offset the impact of decreased capital spending in 2002.
Daily oil and gas production, on a boe basis, was seven percent lower this
quarter from the same quarter last year as a result of the impact of restricted
capital spending in 2002, Isidore and property sales in late 2001, which were
partially offset by successful results at Ladyfern and new discoveries in Egypt
and Australia.
Early in the fourth quarter, we were forced again to shut-in all of our
Gulf of Mexico production when Hurricane Lili, a Category 4 storm, blew through
the central Gulf. Our current production continues to be hampered by the damage
wrought by Hurricane Lili and we are estimating a fourth-quarter impact of
approximately 10,000 boe/d. We carry insurance, subject to normal deductibles,
that covers both the physical damage and loss of production income, which will
partially mitigate the financial impact of this hurricane.
We are continuing our successful exploration program in the deepwater
segment of our West Mediterranean Concession in Egypt. During the quarter, we
announced our third consecutive deepwater natural gas discovery and are drilling
a fourth well and planning a fifth before year-end. We also announced a new
fault-block discovery on our Khalda Concession in Egypt.
In early October 2002, we reported our fourteenth international discovery
for the year, the South Simpson-1 in Australia. In China, our Zhao Dong project
is proceeding on schedule. The newly constructed drilling platform was set in
October in Bohai Bay. We expect to commence drilling by year-end, with initial
production expected by mid-2003.
19
RESULTS OF OPERATIONS
Revenues
The table below presents oil and gas production revenues, production and
average prices received from sales of natural gas, oil and natural gas liquids.
FOR THE QUARTER ENDED SEPTEMBER 30, FOR THE NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------------- --------------------------------------
INCREASE INCREASE
2002 2001 (DECREASE) 2002 2001 (DECREASE)
----------- ----------- ---------- ----------- ----------- ----------
Revenues (in thousands):
Natural gas...................... $ 267,768 $ 312,321 (14%) $ 791,906 $ 1,255,852 (37%)
Oil.............................. 377,437 341,537 11% 1,013,717 980,722 3%
Natural gas liquids.............. 10,712 12,630 (15%) 31,947 44,167 (28%)
----------- ----------- ----------- -----------
Total........................ $ 655,917 $ 666,488 (2%) $ 1,837,570 $ 2,280,741 (19%)
=========== =========== =========== ===========
Natural Gas Volume - Mcf per day:
United S