<PAGE> 1
________________________________________________________________________________
________________________________________________________________________________
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 QUARTER ENDED APRIL 30, 1994
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-6959
MITCHELL ENERGY & DEVELOPMENT CORP.
(Exact name of registrant as specified in charter)
TEXAS 74-1032912
(State of incorporation) (I.R.S. Employer Identification No.)
2001 TIMBERLOCH PLACE
THE WOODLANDS, TEXAS 77380
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 377-5500
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, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Shares of common stock outstanding at May 31, 1994:
Class A . . . . . . . . 23,563,834
Class B . . . . . . . . 29,189,183
________________________________________________________________________________
________________________________________________________________________________
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
Page
Part I - Financial Information Number
------
<S> <C>
Item 1. Financial Statements
Representation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Unaudited Consolidated Statements of Earnings . . . . . . . . . . . . . . . . . . . . . 4
Unaudited Condensed Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . 5
Unaudited Consolidated Statement of Stockholders' Equity . . . . . . . . . . . . . . . . 6
Notes to Unaudited Consolidated Financial Statements . . . . . . . . . . . . . . . . . . 7
Item 2. Management's Discussion and Analysis of
Financial Position and Results of Operations . . . . . . . . . . . . . . . . . . . . . . 11
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . 18
</TABLE>
DEFINITIONS. As used herein, "Btu" means British Thermal Units, "MMBtu" means
million Btu, "Mcf" means thousand cubic feet, "MMcf" means million cubic feet,
"Bcf" means billion cubic feet, "Bbl" means barrel, "MMBbls" means million
barrels, "NGL" or "NGLs" means natural gas liquids and "DD&A" means
depreciation, depletion and amortization. Pipeline volumes are based on
average energy content of 1,000 Btu per cubic foot. Oil, gas and NGL volume,
price and reserve information includes applicable equity partnership interests.
-1-
<PAGE> 3
Part I - Financial Information
ITEM 1. FINANCIAL STATEMENTS
The consolidated financial statements of Mitchell Energy & Development
Corp. and subsidiaries (the "Company") and related notes included herein have
been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to those rules and regulations, although the Company believes
that the disclosures included herein are adequate to make the information
presented not misleading. In the opinion of the Company's management, all
adjustments--which include only normal and recurring adjustments--necessary for
a fair presentation of the financial position and results of operations for the
periods presented have been made. These financial statements should be read in
conjunction with the financial statements and the notes thereto included in the
Company's Annual Report for the year ended January 31, 1994 and with the
Management Discussion and Analysis sections of that and this report.
-2-
<PAGE> 4
MITCHELL ENERGY & DEVELOPMENT CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollar amounts in thousands)
<TABLE>
<CAPTION>
APRIL 30, January 31,
1994 1994
------------- ------------
ASSETS (unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . $ 18,256 $ 21,832
Trade receivables, net of allowance for
doubtful accounts of $2,765 and $2,720 . . . . . . . . . . . . . . . . . 129,936 134,570
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,440 21,400
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,914 11,123
------------ ------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . 185,546 188,925
------------ ------------
PROPERTY, PLANT AND EQUIPMENT, at cost
Oil and gas properties, full cost method of accounting
Costs being amortized . . . . . . . . . . . . . . . . . . . . . . . . . . 1,926,355 1,907,799
Costs not being amortized . . . . . . . . . . . . . . . . . . . . . . . . 53,157 50,389
Transmission and processing facilities . . . . . . . . . . . . . . . . . . 564,765 561,605
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137,875 175,825
------------ ------------
2,682,152 2,695,618
Less - accumulated depreciation, depletion and amortization . . . . . . . . 1,384,026 1,390,729
------------ ------------
1,298,126 1,304,889
------------ ------------
REAL ESTATE
The Woodlands . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 629,618 627,762
Land held for investment, development or sale . . . . . . . . . . . . . . . 160,158 159,949
Resort and other operating properties . . . . . . . . . . . . . . . . . . . 65,250 65,956
Notes and contracts receivable, at cost, net of
allowance for doubtful accounts of $501 and $507 . . . . . . . . . . . . 45,791 42,985
------------ ------------
900,817 896,652
------------ ------------
OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,358 25,010
------------ ------------
$ 2,408,847 $ 2,415,476
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,831 $ 9,955
Oil and gas proceeds payable . . . . . . . . . . . . . . . . . . . . . . . 63,317 64,110
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73,415 92,895
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51,351 50,156
------------ ------------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . 202,914 217,116
------------ ------------
LONG-TERM DEBT
Energy operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 496,787 486,066
Real estate operations . . . . . . . . . . . . . . . . . . . . . . . . . . 511,153 502,252
------------ ------------
1,007,940 988,318
------------ ------------
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 340,350 339,456
Natural gas contract restructuring proceeds . . . . . . . . . . . . . . . . 47,401 51,527
Deferred income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,073 30,731
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,579 36,374
------------ ------------
455,403 458,088
------------ ------------
COMMITMENTS AND CONTINGENCIES (Notes 3 and 5)
STOCKHOLDERS' EQUITY
Preferred stock, $.10 par value (authorized 10,000,000 shares; none issued)
Common stock, $.10 par value
(authorized 100,000,000 shares each of Class A and Class B) . . . . . . . 5,386 5,386
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . 143,502 143,440
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 607,708 617,214
Treasury stock, at cost . . . . . . . . . . . . . . . . . . . . . . . . . . (14,006) (14,086)
------------ ------------
742,590 751,954
------------ ------------
$ 2,408,847 $ 2,415,476
------------ ------------
------------ ------------
</TABLE>
_____________________________________
The accompanying notes are an integral part of these financial statements.
-3-
<PAGE> 5
MITCHELL ENERGY & DEVELOPMENT CORP. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands except per share data)
<TABLE>
<CAPTION>
Three Months Ended
April 30
------------------------
1994 1993
---------- ---------
<S> <C> <C>
REVENUES
Exploration and production . . . . . . . . . . . . . . . . . . . . . . . . . $ 74,409 $ 57,582
Transmission and processing . . . . . . . . . . . . . . . . . . . . . . . . . 116,975 145,120
Real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,784 28,144
---------- ----------
225,168 230,846
---------- ----------
OPERATING COSTS AND EXPENSES (including DD&A) (Note 8)
Exploration and production . . . . . . . . . . . . . . . . . . . . . . . . . 56,533 42,354
Transmission and processing . . . . . . . . . . . . . . . . . . . . . . . . . 114,774 128,200
Real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,710 23,903
---------- ----------
198,017 194,457
---------- ----------
SEGMENT OPERATING EARNINGS (Note 8) . . . . . . . . . . . . . . . . . . . . . 27,151 36,389
General and administrative expense . . . . . . . . . . . . . . . . . . . . . 10,255 11,202
---------- ----------
TOTAL OPERATING EARNINGS . . . . . . . . . . . . . . . . . . . . . . . . . . 16,896 25,187
---------- ----------
OTHER EXPENSE
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,284 18,284
Capitalized interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8,217) (8,673)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,042 1,092
---------- ----------
11,109 10,703
---------- ----------
EARNINGS BEFORE INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . . 5,787 14,484
INCOME TAXES (Note 4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,903 4,195
---------- ----------
NET EARNINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,884 $ 10,289
---------- ----------
---------- ----------
EARNINGS PER SHARE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .07 $ .22
----- -----
----- -----
AVERAGE COMMON SHARES OUTSTANDING . . . . . . . . . . . . . . . . . . . . . 52,753 46,685
---------- ----------
---------- ----------
</TABLE>
_____________________________________
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE> 6
MITCHELL ENERGY & DEVELOPMENT CORP. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
April 30
-----------------------
1994 1993
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,884 $ 10,289
Adjustments to reconcile net earnings to cash provided by operating activities
Depreciation, depletion and amortization . . . . . . . . . . . . . . . . . 45,026 32,313
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 830 2,232
Cost of land sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,853 6,462
Residential land development costs, net of reimbursements . . . . . . . . (4,229) (2,953)
Partnership distributions in excess of (less than) earnings . . . . . . . 2,088 (1,941)
Amortization of deferred natural gas contract restructuring proceeds . . . (4,126) (4,769)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,813) (1,316)
---------- ----------
50,513 40,317
Changes in operating assets and liabilities . . . . . . . . . . . . . . . (11,375) (34,483)
---------- ----------
Cash provided by operating activities . . . . . . . . . . . . . . . . . . 39,138 5,834
---------- ----------
INVESTING ACTIVITIES
Capital additions
Total on accrual basis . . . . . . . . . . . . . . . . . . . . . . . . . . (57,501) (49,808)
Residential land development costs deducted above . . . . . . . . . . . . 4,229 2,953
Adjustment to cash basis . . . . . . . . . . . . . . . . . . . . . . . . . (10,122) 777
---------- ----------
(63,394) (46,078)
Proceeds from dispositions of property, plant and equipment . . . . . . . . . 9,639 -
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 726
---------- ----------
Cash used for investing activities . . . . . . . . . . . . . . . . . . . (53,697) (45,352)
---------- ----------
FINANCING ACTIVITIES
Proceeds from issuance of debt . . . . . . . . . . . . . . . . . . . . . . . 224,763 31,400
Debt repayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (200,265) (1,855)
Cash dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,695) (5,892)
Debt prepayment premium . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,420) -
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (400) 91
---------- ----------
Cash provided by financing activities . . . . . . . . . . . . . . . . . 10,983 23,744
---------- ----------
DECREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . . . (3,576) (15,774)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD . . . . . . . . . . . . . . . 21,832 28,097
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD . . . . . . . . . . . . . . . . . . $ 18,256 $ 12,323
---------- ----------
---------- ----------
</TABLE>
_____________________________________
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE> 7
MITCHELL ENERGY & DEVELOPMENT CORP. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the Three Months Ended April 30, 1994
(dollar amounts in thousands)
<TABLE>
<CAPTION>
Additional
Common Paid-In Retained Treasury
Stock Capital Earnings Stock Total
--------- ----------- -------- --------- ---------
DOLLAR AMOUNTS
- - --------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 31, 1994 . . . . . . . . . . . . . . $5,386 $143,440 $617,214 $(14,086) $751,954
Net earnings . . . . . . . . . . . . . . . . . . . . - - 3,884 - 3,884
Cash dividends declared (24 cents per share on
Class A and 26.50 cents per share on Class B) . . - - (13,390) - (13,390)
Exercises of stock options . . . . . . . . . . . . . - 62 - 80 142
------ -------- -------- -------- --------
BALANCE, APRIL 30, 1994 . . . . . . . . . . . . . . . $5,386 $143,502 $607,708 $(14,006) $742,590
------ -------- -------- -------- --------
------ -------- -------- -------- --------
</TABLE>
_____________________________________________________________________
_____________________________________________________________________
<TABLE>
<CAPTION>
Shares Issued Treasury Shares Held
----------------------------- -------------------------
Class A Class B Class A Class B
------------ ----------- --------- ---------
SHARE AMOUNTS
- - -------------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 31, 1994 . . . . . . . . . . . 23,978,117 29,878,117 417,477 692,128
Exercises of stock options . . . . . . . . . . - - (3,200) (3,200)
Other . . . . . . . . . . . . . . . . . . . . . (5) (5) - -
---------- ---------- ------- -------
BALANCE, APRIL 30, 1994 . . . . . . . . . . . . 23,978,112 29,878,112 414,277 688,928
---------- ---------- ------- -------
---------- ---------- ------- -------
</TABLE>
_____________________________________
The accompanying notes are an integral part of these financial statements.
-6-
<PAGE> 8
MITCHELL ENERGY & DEVELOPMENT CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1994
(1) ACCOUNTING POLICIES
The consolidated financial statements include the accounts of Mitchell
Energy & Development Corp. (MEDC) and its majority- owned subsidiaries (the
"Company"). All significant intercompany accounts and transactions are
eliminated in consolidation. The Company follows the equity method of
accounting for investments in 20% to 50% owned entities. The Company's net
investment in each of these entities is included in the applicable segment's
asset caption of the consolidated balance sheets, and its equity in the pretax
earnings or losses of each entity is included in the applicable caption of
revenues or operating costs and expenses of the consolidated statements of
earnings.
(2) REAL ESTATE OPERATIONS
In accordance with industry accounting practice, real estate assets are
reported as long-term assets in the consolidated balance sheets. Because they
represent the primary revenues and costs for these activities, interest income
and interest expense of the Company's finance operations are reported,
respectively, as revenues and costs and expenses in the consolidated statements
of earnings.
(3) EQUITY INVESTMENTS
Entities accounted for on the equity method include approximately 30
partnerships engaged in either energy or real estate activities. The principal
partnership interests included the following at April 30, 1994:
<TABLE>
<CAPTION>
Ownership
Name Percentage Nature of Operations
- - ---------------------------------------------- ---------- ----------------------------------
<S> <C> <C>
ENERGY
Austin Chalk Natural Gas Marketing Services 45 Natural gas marketing
Belvieu Environmental Fuels 33.33 Production of MTBE
C&L Processors Partnership 50 Natural gas processing
Ferguson-Burleson County Gas Gathering System 45 Gas gathering and transmission
Gulf Coast Fractionators 38.75 Fractionation of NGLs
U. P. Bryan 45 Natural gas processing
REAL ESTATE
The Fort Crockett Hotel Limited 50 Galveston, Texas resort hotel
Lake Catamount Joint Venture 50 Land held for development
The Woodlands Mall Associates 50 Regional mall
</TABLE>
Other real estate partnerships own various commercial and apartment properties
located principally in The Woodlands and a cable television system.
-7-
<PAGE> 9
Summarized financial information for equity investees for the
three-month periods ended April 30, 1994 and 1993 follows (in thousands):
<TABLE>
<CAPTION>
1994 1993
--------- ---------
<S> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . . . $101,630 $130,626
Operating earnings . . . . . . . . . . . . . . . . . . . 4,121 27,225
Pretax earnings* . . . . . . . . . . . . . . . . . . . . 556 23,547
Proportionate share of pretax earnings included
in the Company's reported operating earnings . . . . . (366) 11,184
</TABLE>
___________________________________
*Before interest expense for those entities whose activities
are funded by capital contributions of the owners.
Using a portion of the proceeds of a common stock offering, the Company
purchased, effective May 1, 1993, the limited partner's interest in MEC
Development, Ltd. for $52,585,000, from which the partner repaid its
proportionate share of partnership debt. The Company also repaid its share of
the partnership's debt of $25,666,000, and the partnership was liquidated. All
reserves and other assets previously owned by the partnership are now held by
the Company. Since this partnership was a significant contributor to the
earnings reported in the above table, its removal from these results effective
May 1, 1993 is a major cause of the significant earnings decline from these
entities. Also contributing to this decline were reduced earnings for Austin
Chalk Natural Gas Marketing Services, a substantial portion of which was
attributable to a seasonal lowering of deliveries under its contracts with a
utility purchaser which were revised in January 1994.
The operations of many of these partnerships have been funded using term
loans secured by their assets and in some cases by contractual commitments or
guaranties of the partners. Excluding notes payable to the Company aggregating
$8,972,000 at April 30, 1994, outstanding indebtedness of these entities
at April 30, 1994 and January 31, 1994 is summarized as follows (in thousands):
<TABLE>
<CAPTION>
The Company's Pro-
portionate Share at
April 30, 1994 Entity Total
-------------------- -------------------------
Nonre- April 30, January 31,
Recourse course 1994 1994
-------- --------- ---------- -----------
<S> <C> <C> <C> <C>
ENERGY OPERATIONS
Belvieu Environmental Fuels . . . . . . . . . . . . $ 56,667 $ - $ 170,000 $ 136,000
C&L Processors Partnership . . . . . . . . . . . . 30,364 25,865 112,459 116,719
Gulf Coast Fractionators . . . . . . . . . . . . . 13,032 13,986 69,725 64,250
-------- --------- ---------- ----------
100,063 39,851 352,184 316,969
-------- --------- ---------- ----------
REAL ESTATE OPERATIONS
The Fort Crockett Hotel Limited . . . . . . . . . . 4,136 1,960 12,193 12,397
The Woodlands Mall Associates . . . . . . . . . . . 11,878 - 23,756 18,689
Apartment partnerships . . . . . . . . . . . . . . 1,177 17,064 42,551 37,728
Others . . . . . . . . . . . . . . . . . . . . . . 2,270 15,448 37,574 37,729
-------- --------- ---------- ----------
19,461 34,472 116,074 106,543
-------- --------- ---------- ----------
$119,524 $ 74,323 $ 468,258 $ 423,512
-------- --------- ---------- ----------
-------- --------- ---------- ----------
</TABLE>
See Note 3 of Notes to Consolidated Financial Statements included on pages 51
and 52 of the Company's Fiscal 1994 Annual Report for additional information
concerning the indebtedness of the partnerships and the status of their
operations.
-8-
<PAGE> 10
(4) INCOME TAXES
Income tax expense for the three-month periods ended April 30, 1994 and
1993 consists of the following (in thousands):
<TABLE>
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
CURRENT
Federal . . . . . . . . . . . . . . . . . . . . . . . . . $ 912 $ 1,408
State . . . . . . . . . . . . . . . . . . . . . . . . . . 161 555
------- -------
1,073 1,963
------- -------
DEFERRED
Federal . . . . . . . . . . . . . . . . . . . . . . . . . 521 2,344
State . . . . . . . . . . . . . . . . . . . . . . . . . . 309 (112)
------- -------
830 2,232
------- -------
$ 1,903 $ 4,195
------- -------
------- -------
</TABLE>
The Company's estimated annual tax rates for the three-month periods
ended April 30, 1994 and 1993 of 32.9% and 29.0% were lower than the applicable
statutory Federal income tax rates of 35% and 34%, respectively, primarily
because Federal tax credits available under Section 29 of the Internal Revenue
Code were somewhat larger than the state income tax expense for these periods.
(5) COMMITMENTS AND CONTINGENCIES
LITIGATION AND OTHER. The Company is party to various claims and other
legal actions arising in the ordinary course of business and to recurring
examinations performed by the Internal Revenue Service and other regulatory
agencies. Management expects that none of these matters, when ultimately
resolved, will have a material adverse effect upon the Company's financial
position or results of operations.
MORTGAGE ACTIVITIES. Mitchell Mortgage Company (MMC) administers
approximately $192,000,000 of securities backed by Federal Housing
Administration (FHA) and Department of Veterans Affairs (VA) mortgages, on
which it has guaranteed payments of principal and interest to the security
holders. These mortgages are supported by government-sponsored insurance and
are collateralized by real estate. In the event of default by a mortgagor, MMC
may incur a loss if uncollected principal and interest, together with
foreclosure and other costs, exceed established FHA or VA reimbursement
limitations. Management does not expect that losses, if any, incurred in
connection with defaults by borrowers under FHA and VA mortgages serviced by
MMC will have a significant adverse effect on the Company's financial position
or results of operations.
(6) PREPAYMENT OF SENIOR NOTES
On February 25, 1994, the parent company redeemed its $200,000,000 of
11 1/4% Senior Notes Due 1999. This early redemption was completed at a price
of 103.21% of principal. This premium and related unamortized debt issuance
costs were expensed as an extraordinary charge during the fourth quarter of
fiscal 1994 when the debt was called.
(7) SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid (excluding amounts capitalized, but including amounts for
finance operations that are reported as cost of sales) totaled $6,452,000 and
$7,805,000 during the three-month periods ended April 30, 1994 and 1993.
Income taxes paid during these same periods totaled $4,000 and $3,416,000.
There were no significant non-cash investing or financing activities during
these periods.
-9-
<PAGE> 11
(8) SEGMENT INFORMATION
Selected industry segment data for the three-month periods ended
April 30, 1994 and 1993 follows (in thousands):
<TABLE>
<CAPTION>
Segment
Operating Capital
Revenues Earnings DD&A Additions
------------------- ------------------- ------------------ -------------------
1994 1993 1994 1993 1994 1993 1994 1993
-------- --------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EXPLORATION AND PRODUCTION
Oil and gas . . . . . . . . . $ 69,725 $ 57,558 $ 14,169 $ 15,518 $ 35,786 $ 24,291 $ 35,042 $ 23,052
Other . . . . . . . . . . . . 4,684 24 3,707 (290) 786 125 75 37
-------- --------- -------- -------- -------- -------- -------- --------
74,409 57,582 17,876 15,228 36,572 24,416 35,117 23,089
-------- --------- -------- -------- -------- -------- -------- --------
TRANSMISSION AND PROCESSING
Gas processing . . . . . . . 49,309 74,005 1,552 11,352 2,287 2,532 341 1,350
Gas gathering and transmission 65,611 68,870 281 4,733 2,636 2,226 4,438 9,587
Other . . . . . . . . . . . . 2,055 2,245 368 835 664 677 1,339 2,909
-------- --------- -------- -------- -------- -------- -------- --------
116,975 145,120 2,201 16,920 5,587 5,435 6,118 13,846
-------- --------- -------- -------- -------- -------- -------- --------
REAL ESTATE . . . . . . . . . 33,784 28,144 7,074 4,241 2,018 1,822 15,478 12,499
-------- --------- -------- -------- -------- -------- -------- --------
CORPORATE . . . . . . . . . . - - - - 849 640 788 374
-------- --------- -------- -------- -------- -------- -------- --------
$225,168 $230,846 $ 27,151 $ 36,389 $ 45,026 $ 32,313 $ 57,501 $ 49,808
-------- --------- -------- -------- -------- -------- -------- --------
-------- --------- -------- -------- -------- -------- -------- --------
</TABLE>
On April 7, 1994, the Company sold 16 land drilling rigs for $9,000,000
in cash and warrants to acquire common stock of the purchaser under which an
additional $1,000,000 may be realized during the two-year period following the
sale. This sale effectively completed the Company's withdrawal from the
contract drilling business. Segment operating earnings for "Other Exploration
and Production" activities for fiscal 1995's first quarter included a
$3,791,000 gain on this sale, including no value for the warrants.
(9) SUBSEQUENT EVENT
On June 1, 1994, the first part of the Company's previously reported
$120 million agreement to sell certain Transmission and Processing Division
assets was closed. The assets sold included the Winnie Pipeline system and
Spindletop gas storage facility. This closing was completed to enable the
purchaser to assume full operational control over the transferred assets before
final details are implemented to allow the transfer of the remaining assets.
The Company used the cash proceeds of this sale to pay down outstanding
indebtedness under its revolving credit and commercial paper facilities.
-10-
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
POSITION AND RESULTS OF OPERATIONS
The discussion which follows summarizes the Company's financial position
at April 30, 1994 and the results of its operations for the three-month period
then ended, and should be read in conjunction with the summarized financial
statements and notes thereto included elsewhere in this Form 10-Q and the
financial statements, notes thereto and other financial data included in the
Company's Annual Report for the fiscal year ended January 31, 1994.
LIQUIDITY AND CAPITAL RESOURCES
A principal strategy of the Company has been to acquire well-positioned
energy and real estate assets and to enhance their value through long-term
development programs. This strategy requires major front-end capital
investments, which are recovered over extended periods of time as energy
reserves are produced and real estate investments are developed and operated or
sold. The Company generally has funded its investment activities using cash
provided by operating activities and sales of varying interests in mature real
estate assets supplemented to the extent necessary with proceeds from long-term
borrowings. In recent years, the primary sources of such borrowed funds have
been bank credit agreements of the energy and real estate subsidiaries and
senior notes of the parent company. Needed funds initially have been borrowed
under the bank credit agreements, and the credit availability under these
facilities periodically has been restored by paying down outstanding borrowings
using proceeds from public offerings of parent company senior notes.
Additionally, during May 1993, the Company sold 5.9 million shares of its Class
B common stock. The $123.4 million proceeds of this offering were used to fund
the Company's buy-out of the MEC Development, Ltd. partnership and drilling
costs that otherwise would have been expenditures of that partnership.
During January 1994, the Company issued $250 million of 6 3/4% Senior
Notes Due 2004 and $100 million of 5.10% Senior Notes Due 1997. The proceeds
of these borrowings were used to prepay $200 million of 11 1/4% Senior Notes
Due 1999 and to pay down outstanding borrowings under the Company's bank credit
agreements as discussed above. The 11 1/4% senior notes were redeemed on
February 25, 1994 at a price of 103.21% of principal. The $6.4 million debt
prepayment premium paid in connection with this redemption was expensed in
January 1994 when the Company gave notice that the notes would be redeemed. In
addition to lowering the Company's interest costs, these transactions increased
the Company's credit availability, extended the maturities of its indebtedness,
reduced its exposure to floating interest rates and increased the percentage of
the Company's indebtedness that is unsecured, parent company debt.
The Company's bank revolving credit and commercial paper facilities
provide for aggregate borrowings of approximately $558 million. The Company
had unused capacity of $288 million under these committed credit facilities at
April 30, 1994. Exclusive of maturities under its bank credit facilities and
commercial paper program which are periodically extended, the Company's
aggregate five-year debt maturities totaled approximately $136 million at
April 30, 1994.
On June 1, 1994, the first part of the Company's previously reported
$120 million agreement to sell certain Transmission and Processing Division
assets was closed. The assets sold included the Winnie Pipeline system and
Spindletop gas storage facility. This closing was completed to enable the
purchaser to assume full operational control over the transferred assets before
final details are implemented to allow the transfer of the remaining assets.
The Company used the cash proceeds of this sale to pay down outstanding
indebtedness under its revolving credit and commercial paper facilities.
Because of its ongoing development activities and overall economic
factors, the Company expects the values of its energy and real estate assets to
increase over time. Such value increases should enable the Company to raise
capital to fund a portion of its ongoing development costs. Additionally, the
Company's business plan includes the use of energy and real estate partnerships
and sales of mature real estate properties to provide for some of its funding
needs. Because of the cyclical nature of energy prices and the real estate
business, value increases will not occur evenly, and it is possible that value
declines periodically will occur. However, the Company expects that its
activities will continue to increase shareholder value over the longer term.
-11-
<PAGE> 13
The Company believes its asset values and cash flows will be sufficient
to allow it to provide for both its short-term and long-term liquidity needs.
Such short-term needs can be met by supplementing operating cash flows with
borrowings under committed bank credit facilities. Public debt and equity
markets will be accessed periodically to meet the Company's longer-term
liquidity needs.
At April 30, 1994, the Company's long-term debt totaled $1,007.9
million, up $19.6 million from the balance at the beginning of the year. Its
debt/equity ratio was 1.36, which compares to the beginning of the year's 1.31.
As a result of the June 1, 1994 debt paydown mentioned above, the Company's
debt/equity ratio is expected to decline during the second quarter.
Largely because of low crude oil prices and their adverse impact on NGL
prices and margins, the Company chose to scale back its fiscal 1995 capital
spending plans to better balance its cash inflows and outflows. The planned
level of spending is believed adequate to allow the Company to replace the oil
and gas reserves that will be produced in fiscal 1995, to fund ongoing
Transmission and Processing projects and to provide for continued residential
and commercial development within The Woodlands. As the year progresses, the
fiscal 1995 capital budget may be adjusted--either upward or downward--in
response to changed circumstances and opportunities.
OTHER MATTERS
SIGNIFICANT PROJECTS NEARING COMPLETION
In addition to its fiscal 1995 consolidated capital budget, the Company
is participating through partnerships in several significant construction
projects. These projects, which are funded principally using proceeds of loan
agreements of the partnerships, include an MTBE plant, expansion of Gulf Coast
Fractionators' (GCF's) fractionation facility and construction of a regional
mall in The Woodlands. Once completed later in fiscal 1995, these projects are
expected to make contributions to the Company's operating earnings.
A partnership in which the Company has a one-third interest has
constructed an MTBE plant at Mont Belvieu, Texas, with a design capacity of
12,500 barrels per day. MTBE (methyl tertiary butyl ether) is an oxygenate
used in the production of environmentally cleaner gasoline. This plant, with
an estimated construction cost of $220 million, commenced production during
June 1994. Each of the three partners in this venture is to provide one-third
of the plant's isobutane feedstock, and one of the partners, Sun Company, Inc.,
is contractually obligated to purchase all of the MTBE production for a period
of ten years. Plant construction costs are funded through the partnership's
$176 million loan agreement and capital contributions from the partners.
Through its 38.75% ownership in GCF, the Company is participating in a
40,000-barrel-per-day expansion of an NGL fractionation plant at Mont Belvieu,
Texas. In spite of an April 1994 fire which has idled the fractionator (see
page 17 for additional information), the expanded facility is expected to
commence operations by September 1994. In connection with the $40 million
expansion project and the entrance of Conoco, Inc. into the partnership, GCF
arranged an $85 million term loan in June 1993. Of the loan proceeds, $40
million was distributed to the partners in fiscal 1994, the Company's share of
which was $15.5 million, and the remainder is being used to fund the expansion.
Each of the partners has executed long-term contracts with GCF for the
fractionation of production from certain of their gas processing plants.
The Woodlands Mall, a one million-square-foot regional mall, scheduled
to open in October 1994, is being developed by a partnership equally owned by
the Company and Homart Development Co., a subsidiary of Sears, Roebuck and Co.
Costs of the 345,000- square-foot gross leasable area being constructed by the
partnership, together with site development and other general costs, are being
funded using proceeds of the partnership's $65 million loan agreement.
-12-
<PAGE> 14
TRANSMISSION AND PROCESSING DIVISION RESTRUCTURING
In response to the adverse economic conditions discussed elsewhere
herein affecting its gas processing and gas gathering and transmission
activities and the sale of its Winnie Pipeline and Spindletop storage facility
assets, the Company has embarked upon an extensive restructuring of its
Transmission and Processing Division activities. Resultant operational changes
will begin to be implemented during fiscal 1995's second quarter beginning with
a voluntary incentive retirement program which has been offered to
approximately 75 qualifying employees of the division who may choose to retire
effective June 30, 1994. Other measures are being considered, including
possible dispositions of certain of the Company's smaller gas processing
plants--many of which are currently idle--and its Brazos Gas Compressing
Company subsidiary.
OPERATING STATISTICS
Certain operating statistics for the three-month periods ended April
30, 1994 and 1993 follow:
<TABLE>
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
AVERAGE DAILY VOLUMES
Natural gas sales (Mcf) . . . . . . . . . . . . . . . . . . . . . . . . . 218,700 168,700
Crude oil and condensate sales (Bbls) . . . . . . . . . . . . . . . . . . 6,700 5,800
Natural gas liquids produced (Bbls) . . . . . . . . . . . . . . . . . . . 43,200 54,300
Pipeline throughput (Mcf) . . . . . . . . . . . . . . . . . . . . . . . . 511,000 559,000
AVERAGE SALES PRICES
Natural gas (per Mcf) . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2.82 $ 2.85
Crude oil and condensate (per Bbl) . . . . . . . . . . . . . . . . . . . 13.36 18.71
Natural gas liquids produced (per Bbl) . . . . . . . . . . . . . . . . . 10.99 13.62
RESIDENTIAL LOTS SOLD - THE WOODLANDS . . . . . . . . . . . . . . . . . . 228 219
Average sales price . . . . . . . . . . . . . . . . . . . . . . . . . . . $37,807 $40,000
</TABLE>
-13-
<PAGE> 15
RESULTS OF OPERATIONS - THREE MONTHS ENDED APRIL 30, 1994
COMPARED WITH THREE MONTHS ENDED APRIL 30, 1993
The following table and discussion identify and explain the major
increases (decreases) in earnings (in millions):
<TABLE>
<CAPTION>
Segment Operating Earnings
------------------------------------
Exploration Transmission
and and Real Pretax Net
Production Processing Estate Other* Earnings Earnings
----------- ------------ ------ ------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
THREE MONTHS ENDED APRIL 30, 1993 . . . $15.2 $16.9 $ 4.3 $(21.9) $14.5 $10.3
----- ----- ----- ------ ----- -----
MAJOR INCREASES (DECREASES)
Natural gas
Market-sensitive sales . . . . . . . 4.0 - - - 4.0 2.6
Sales under fixed-price contracts . . 1.0 - - - 1.0 .7
Oil and condensate sales . . . . . . . (2.2) - - - (2.2) (1.4)
Oil and gas DD&A rate increase
MEC Development, Ltd. buy-out . . . (2.1) - - - (2.1) (1.4)
Other . . . . . . . . . . . . . . . (1.2) - - - (1.2) (.8)
Gas processing
NGL price . . . . . . . . . . . . . - (10.2) - - (10.2) (6.7)
Production volumes . . . . . . . . . - (3.0) - - (3.0) (2.0)
Decreased cost of sales . . . . . . - 2.1 - - 2.1 1.3
Gas gathering and transmission . . . . - (4.7) - - (4.7) (3.1)
Real estate . . . . . . . . . . . . . . - - 2.2 - 2.2 1.4
Other
Gain on sale of drilling rigs . . . 3.8 - - - 3.8 2.5
Expensing of insurance deductibles
related to an April 1994 fire . . - (1.0) - - (1.0) (.7)
SAR/Bonus unit expense accruals . . . 1.1 .4 .6 1.1 3.2 2.0
Reversal in prior year of
contingent liability . . . . . . . (1.9) - - - (1.9) (1.2)
Miscellaneous . . . . . . . . . . . .2 1.7 - (.6) 1.3 .9
Higher effective income tax rate . . . - - - - - (.5)
----- ------ ----- ------ ------ ------
2.7 (14.7) 2.8 .5 (8.7) (6.4)
----- ------ ----- ------ ------ ------
THREE MONTHS ENDED APRIL 30, 1994 . . . $17.9 $ 2.2 $ 7.1 $(21.4) $ 5.8 $ 3.9
----- ------ ----- ------ ------ ------
----- ------ ----- ------ ------ ------
</TABLE>
___________________________________
*Includes general and administrative expense and other expense.
EXPLORATION AND PRODUCTION OVERVIEW
Exploration and Production Division operating earnings rose by
$2.7 million in fiscal 1995's first quarter, to $17.9 million. This resulted
from increased production of natural gas and oil and the sale of 16 drilling
rigs, which more than offset the negative impact of sharply lower prices for
oil and leasehold NGLs and the reversal during the prior-year period of a
contingent liability. As a result of the Company's increased fiscal 1994
drilling program, improved natural gas market conditions and the buy-out of
MEC Development, Ltd. effective May 1, 1993, average daily natural gas sales
volumes rose to 218,700 Mcf, up from 168,700 in the comparable period of the
prior year. The Company's weighted average natural gas sales price declined to
$2.82 per Mcf from $2.85 last year. This occurred because of a change in the
"mix" of the Company's production (more lower-priced, market-sensitive gas was
sold this year) and because of lower realization for fixed-price contract gas
for the reasons discussed of the following page and reduced North Texas
revenues for leasehold NGLs and amortization of price-related deferred contract
restructuring proceeds.
NATURAL GAS - MARKET-SENSITIVE SALES ($4.0 MILLION INCREASE). This favorable
variance was principally the result of improved demand for natural gas.
Market-sensitive production volumes averaged 114,100 Mcf per day at a price of
$2.17 per Mcf, up from 76,400 and $1.91 in the corresponding period of the
prior year. The production rise was primarily attributable to wells drilled in
fiscal 1994; production from the Calhoun Unit, where the Company ceased
reinjecting gas and began selling it in August 1993; and the previously
mentioned buy-out of MEC Development, Ltd., which added approximately 5,900 Mcf
per day to the first-quarter volumes.
-14-
<PAGE> 16
NATURAL GAS - SALES UNDER FIXED-PRICE CONTRACTS ($1.0 MILLION INCREASE).
Production under fixed-price contracts averaged 104,600 Mcf per day at a price
of $3.52 per Mcf; such amounts were 92,300 and $3.64, respectively, during the
comparable prior-year period. The volume increase resulted principally from
the limited partnership buy-out, which added approximately 10,200 Mcf per day
to the fiscal 1995 volumes. The positive impact of the $.25 per MMBtu annual
increase under the sales contract with Natural Gas Pipeline Company of America
(NGPL) covering most of the Company's North Texas production was more than
offset by lower realizations for leasehold NGLs and the lack in fiscal 1995 of
any amortization of price-related deferred contract restructuring proceeds.
Although amortization continues for certain deferred contract restructuring
proceeds, amortization of such price-related proceeds, which added $.16 per Mcf
to the prior-period's average price for fixed-price sales, ceased during fiscal
1994 when such amounts were fully amortized.
OIL AND CONDENSATE SALES PRICE ($2.2 MILLION DECREASE). The average price for
oil and condensate for fiscal 1995's first quarter of $13.36 per barrel was 29%
below the $18.71 realized during the comparable period of the prior year,
reducing operating earnings by $3.0 million. This downturn in prices, most of
which has now been reversed, occurred principally because of perceived
overproduction of crude oil on a worldwide basis. Partially offsetting the
effect of the lower prices was an increase of 900 barrels per day in
production volumes (to 6,700 barrels per day), which added $.8 million in
operating earnings. The production increase resulted both from fiscal 1994's
successful drilling program and the buy-out of MEC Development, Ltd.
OIL AND GAS DD&A RATE INCREASE ($3.3 MILLION DECREASE). The Company's DD&A
rate was higher during fiscal 1995's first quarter both because of the
previously reported impact of the buy-out of MEC Development, Ltd. ($2.1
million) and because of an increase in the ratio of unamortized costs to future
gross revenues ($1.2 million).
TRANSMISSION AND PROCESSING OVERVIEW
Transmission and Processing Division operating earnings declined
$14.7 million in fiscal 1995's first quarter largely because of the impact of
sharply lower NGL sales prices and a substantial decline in earnings from gas
gathering and transmission activities. NGL production volumes averaged
43,200 Bbls per day in the current period--down from 54,300 during the
corresponding period of the prior year--as facilities were idled in response
to inadequate margins for most plants operating principally under keep-whole
processing arrangements. Prices and margins have now improved, and certain of
the larger keep-whole plants have resumed operations.
GAS PROCESSING - NGL PRICE ($10.2 MILLION DECREASE). The average price for
NGLs produced of $10.99 per barrel was 19% lower than the $13.62 average of
last year's first quarter, reducing operating earnings by $10.2 million. The
lower prices were largely the result of lower world prices for crude oil--which
affect NGL prices--and a soft world economy, which reduced the demand for
chemical feedstocks.
GAS PROCESSING - PRODUCTION VOLUMES ($3.0 MILLION DECREASE). NGL production
volumes averaged 43,200 barrels per day, down 20% from the level during the
prior-year's first quarter. As a result of the relatively high
market-sensitive feedstock costs during a period when NGL prices were severely
depressed, most plants with keep-whole processing agreements were uneconomical
to operate during much of fiscal 1995's first quarter. Accordingly, many of
these plants were shut down during that period.
GAS PROCESSING - DECREASED COST OF SALES ($2.1 MILLION INCREASE). Gas
processing cost of sales consists primarily of amounts paid to owners of
processed natural gas. Such amounts are based either on the value of natural
gas consumed in processing under keep- whole agreements or on a percentage of
the value of NGLs produced under percent-of-proceeds agreements. Principally
because of the effect of sharply lower NGL prices on costs under
percentage-of-proceeds processing arrangements, cost of sales were reduced by
$2.1 million during the first three months of fiscal 1995.
-15-
<PAGE> 17
GAS GATHERING AND TRANSMISSION ($4.7 MILLION DECREASE). Excluding the impact
of lower SAR/Bonus unit expense accruals, operating earnings from gas gathering
and transmission activities were $4.7 million below those of the comparable
prior-year period. This decline was primarily the result of lower margins on
the buy/resale activities of two 45%-owned equity partnerships. A major
portion of this decline was related to previously reported revisions effective
late in the prior fiscal year of natural gas sales contracts with Texas
Utilities Fuel Company (TUFCO). Under these contracts, TUFCO's purchases,
which must average 50,000 MMBtu per day at $2.99 per MMBtu for a full year, can
be lowered for certain portions of the year and made up during others. TUFCO's
purchases averaged 30,000 MMBtu per day during fiscal 1995's first quarter
(13,500 for the Company's 45% interest), contrasted with 61,600 (27,700) during
the comparable prior-year period. System volumes increased somewhat this year,
and quantities not sold to TUFCO were sold to other purchasers at
significantly lower prices. Average sales volumes to TUFCO during the
remainder of the year should exceed 50,000 MMBtu per day in order for the
full-year contract provisions to be met. This should particularly be true
during the second and third quarters since TUFCO is required to take 70,000
MMBtu per day during the months of June, July, August and September.
REAL ESTATE AND OTHER
REAL ESTATE ($2.2 MILLION INCREASE). Excluding the impact of lower SAR/Bonus
unit expense accruals, Real Estate Division operating earnings rose by $2.2
million during the fiscal 1995 period principally due to increased profits from
commercial land sales and improved earnings from other commercial activities.
Operating earnings from commercial and institutional land sales in The
Woodlands increased by $1.2 million during the first three months of fiscal
1995 as gains were recorded on sales of 16.3 acres for the Cochran's Crossing
Retail Center and 11.3 acres for the Forest View Apartments. Higher earnings
from other commercial activities in The Woodlands accounted for $.7 million of
the increased real estate earnings. Several factors contributed to this
increase, including greater corporate conference activity at The Woodlands
Executive Conference Center and Resort and higher occupancy rates for office
and research/technology buildings.
Although residential activity was strong and the number of residential
lots sold in The Woodlands increased slightly (228 versus 219 in the prior-year
period), operating earnings from such sales were essentially flat due to a
decline in the average lot price. This decline was due to a change in the
sales mix for estate, custom and production lots. The number of production
lots sold rose by 21% both because of the sales impetus provided by rising
interest rates and because such sales had been adversely affected early last
year by inventory shortages related to delays in the opening of the Village of
Alden Bridge. Conversely, the number of higher-priced estate and custom lots
sold declined sharply in the fiscal 1995 period. This decline corresponded
with a national downward trend in larger home sales as concerns about corporate
right-sizing and other economic factors apparently caused upper-income buyers
to be more conservative in their home purchases.
-16-
<PAGE> 18
OTHER.
GAIN ON SALE OF DRILLING RIGS ($3.8 MILLION). On April 7, 1994, the
Company sold 16 land drilling rigs for $9 million in cash and warrants to
acquire common stock of the purchaser under which an additional $1 million may
be realized during the two-year period following the sale. The $3.8 million
pretax gain on this sale did not include any value for the warrants.
EXPENSING OF INSURANCE DEDUCTIBLES RELATED TO AN APRIL 1994 FIRE ($1.0
MILLION). The Company's fiscal 1995 results were reduced by a $1.0 million
accrual for insurance deductibles related to an April 1994 fire at Gulf Coast
Fractionators' plant, which is operated by a third party. Damages incurred by
the Company in excess of this amount, including losses attributable to business
interruption, are covered by insurance.
REVERSAL IN PRIOR YEAR OF CONTINGENT LIABILITY ($1.9 MILLION). During
the first quarter of fiscal 1994, a contingent liability related to contractual
matters--which had been recorded several years earlier--was reversed when it
was determined that it was no longer needed.
SAR/BONUS UNIT EXPENSE ACCRUALS ($3.2 MILLION). During the first three
months of fiscal 1995, the average market price of the Company's Class A and
Class B common shares declined by $1.94 per share, whereas it rose by $4.19 per
share in the prior-year period. Primarily because of these price changes,
reversals of previous SAR/Bonus unit expense accruals of $.7 million were
recorded in fiscal 1995 whereas charges of $2.5 million were accrued in the
prior-year period. This resulted in an aggregate favorable year-to-year
variance of $3.2 million.
-17-
<PAGE> 19
Part II - Other Information
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
12 Computation of ratio of earnings to fixed charges.
(b) No reports were filed on Form 8-K during the three-month period
ended April 30, 1994.
-18-
<PAGE> 20
SIGNATURES
Pursuant to the requirements 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.
MITCHELL ENERGY & DEVELOPMENT CORP.
(Registrant)
Dated: June 13, 1994 By /s/ PHILIP S. SMITH
Philip S. Smith
Senior Vice President - Administration
and Chief Financial Officer
-19-
<PAGE> 21
<TABLE>
<CAPTION>
Index to Exhibits
-----------------
<S> <C>
12 Computation of ratio of earnings to fixed charges.
</TABLE>
<PAGE> 1
Exhibit 12
Mitchell Energy & Development Corp.
Computation of Ratio of Earnings to Fixed Charges
(dollar amounts in thousands)
<TABLE>
<CAPTION>
3 Months
Fiscal Year Ended January 31 Ended
------------------------------------------------------ April 30,
1990 1991 1992 1993 1994 1994
--------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
EARNINGS
Pretax earnings . . . . . . . . . . . . . . $ 46,135 $ 71,598 $ 68,300 $ 47,324 $ 47,538 $ 5,787
Add (Deduct):
Previously capitalized interest
charged against pretax earnings . . . 12,401 14,694 21,937 14,346 17,098 5,146
Losses of less-than-50%-owned persons . 44 23 26 99 32 1,923
Fixed charges (see below) . . . . . . . 103,166 98,633 90,107 85,169 84,788 21,016
Reverse effect of inclusion of interest
capitalized in fixed charges . . . . . (46,993) (45,427) (39,426) (36,205) (35,721) (8,217)
Undistributed earnings of
less-than-50%-owned persons . . . . . (6,201) (11,690) (10,521) (10,305) (3,594) (167)
-------- -------- -------- -------- -------- -------
$108,552 $127,831 $130,423 $100,428 $110,141 $25,488
-------- -------- -------- -------- -------- -------
-------- -------- -------- -------- -------- -------
FIXED CHARGES
Interest expense incurred
Consolidated (a) (b) . . . . . . . . . . $ 95,792 $ 92,874 $ 84,025 $ 77,451 $ 75,252 $18,609
50%-owned persons . . . . . . . . . . . 4,974 3,670 3,284 4,609 6,236 1,624
-------- -------- -------- -------- -------- -------
100,766 96,544 87,309 82,060 81,488 20,233
Portion of rental expense
representing interest (c) . . . . . . . 2,400 2,089 2,798 3,109 3,300 783
-------- -------- -------- -------- -------- -------
$103,166 $ 98,633 $ 90,107 $ 85,169 $ 84,788 $21,016
-------- -------- -------- -------- -------- -------
-------- -------- -------- -------- -------- -------
RATIO OF EARNINGS TO FIXED CHARGES . . . . 1.05 1.30 1.45 1.18 1.30 1.21
-------- -------- -------- -------- -------- -------
-------- -------- -------- -------- -------- -------
</TABLE>
_____________________________________
(a) Consists of interest expense as reported in consolidated statements of
earnings and interest expense related to finance operations which is
reported as costs and expenses in the consolidated statements of earnings.
(b) At April 30, 1994, the Company had outstanding guaranties of approximately
$70,600,000 of indebtedness of less-than-fifty percent owned partnerships
and approximately $5,100,000 of indebtedness of unaffiliated, nonprofit
institutions under which it has not been, nor is it expected that it will
be, required to perform. Fixed charges related to these outstanding
borrowings, estimated at approximately $600,000 for the three months ended
April 30, 1994, have been excluded from the reported fixed charges.
(c) Represents one-third of rental expense under operating lease agreements.
