<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 OCTOBER 31, 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 November 30, 1994:
Class A . . . . . . . . 23,567,327
Class B . . . . . . . . 29,192,676
================================================================================
<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 Consolidated Statement of Stockholders' Equity . . . . . . . . . . . . . . . . 5
Unaudited Condensed Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . 6
Notes to Unaudited Consolidated Financial Statements . . . . . . . . . . . . . . . . . . 7
Item 2. Management's Discussion and Analysis of
Financial Position and Results of Operations . . . . . . . . . . . . . . . . . . . . . . 13
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . 23
</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, "fiscal 1994" and "fiscal
1995" refer, respectively, to the twelve- month periods ended January 31, 1994
and 1995 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>
October 31, January 31,
1994 1994
----------- -----------
ASSETS (unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,669 $ 21,832
Trade receivables, net of allowance for
doubtful accounts of $2,847 and $2,720 . . . . . . . . . . . . . . . . . 137,758 134,570
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,612 21,400
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,849 11,123
---------- ----------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . 201,888 188,925
---------- ----------
PROPERTY, PLANT AND EQUIPMENT, at cost
Oil and gas properties, full cost method of accounting
Costs being amortized . . . . . . . . . . . . . . . . . . . . . . . . . . 1,972,144 1,907,799
Costs not being amortized . . . . . . . . . . . . . . . . . . . . . . . . 42,728 50,389
Transmission and processing facilities . . . . . . . . . . . . . . . . . . 422,251 561,605
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122,715 175,825
---------- ----------
2,559,838 2,695,618
Less - accumulated depreciation, depletion and amortization . . . . . . . . 1,399,487 1,390,729
---------- ----------
1,160,351 1,304,889
---------- ----------
REAL ESTATE
The Woodlands . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 640,708 627,762
Land held for investment, development or sale . . . . . . . . . . . . . . . 156,901 159,949
Resort and other operating properties . . . . . . . . . . . . . . . . . . . 64,428 65,956
Notes and contracts receivable, at cost, net of
allowance for doubtful accounts of $534 and $507 . . . . . . . . . . . . 53,081 42,985
---------- ----------
915,118 896,652
---------- ----------
OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,638 25,010
---------- ----------
$2,298,995 $2,415,476
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,655 $ 9,955
Oil and gas proceeds payable . . . . . . . . . . . . . . . . . . . . . . . 54,259 64,110
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53,665 92,895
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52,614 50,156
---------- ----------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . 173,193 217,116
---------- ----------
LONG-TERM DEBT
Energy operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 389,847 486,066
Real estate operations . . . . . . . . . . . . . . . . . . . . . . . . . . 524,065 502,252
---------- ----------
913,912 988,318
---------- ----------
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 341,658 339,456
Natural gas contract restructuring proceeds . . . . . . . . . . . . . . . . 39,145 51,527
Deferred income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,309 30,731
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,382 36,374
---------- ----------
459,494 458,088
---------- ----------
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 . . . . . . . . . . . . . . . . . . . . . . . . 143,475 143,440
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 617,453 617,214
Treasury stock, at cost . . . . . . . . . . . . . . . . . . . . . . . . . . (13,918) (14,086)
---------- ----------
752,396 751,954
---------- ----------
$2,298,995 $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 Nine Months Ended
October 31 October 31
----------------------- ----------------------
1994 1993 1994 1993
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES
Exploration and production . . . . . . . . . . . . . . . . . . $ 64,831 $ 65,771 $208,893 $194,359
Transmission and processing (including gains on asset sales
of $18,993 and $48,821 in the 1994 periods) (Note 6) . . . . 111,184 149,114 360,649 437,396
Real estate . . . . . . . . . . . . . . . . . . . . . . . . . . 31,639 32,533 101,055 90,161
--------- -------- -------- --------
207,654 247,418 670,597 721,916
--------- -------- -------- --------
OPERATING COSTS AND EXPENSES (including DD&A) (Note 6)
Exploration and production . . . . . . . . . . . . . . . . . . 55,224 50,174 167,897 144,231
Transmission and processing (including restructuring charges and
asset write-downs of $5,602 and $31,252 in the 1994 periods) 86,627 140,267 322,181 398,487
Real estate (including asset write-downs
of $5,661 in the 1994 periods) . . . . . . . . . . . . . . . 30,993 26,510 85,081 74,663
--------- -------- -------- --------
172,844 216,951 575,159 617,381
--------- -------- -------- --------
SEGMENT OPERATING EARNINGS (Note 6) . . . . . . . . . . . . . . 34,810 30,467 95,438 104,535
General and administrative expense . . . . . . . . . . . . . . 10,022 9,764 30,937 31,974
--------- -------- -------- --------
TOTAL OPERATING EARNINGS . . . . . . . . . . . . . . . . . . . 24,788 20,703 64,501 72,561
--------- -------- -------- --------
OTHER EXPENSE
Interest expense . . . . . . . . . . . . . . . . . . . . . . . 17,263 18,490 52,598 54,999
Capitalized interest . . . . . . . . . . . . . . . . . . . . . (7,477) (9,036) (23,500) (26,355)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . 1,658 275 4,608 2,843
--------- -------- -------- --------
11,444 9,729 33,706 31,487
--------- -------- -------- --------
EARNINGS BEFORE INCOME TAXES . . . . . . . . . . . . . . . . . 13,344 10,974 30,795 41,074
INCOME TAXES (including $11 million deferred tax impact of
increase in corporate tax rate in the 1993 periods) (Note 4) 4,711 12,938 10,470 21,998
--------- -------- -------- --------
NET EARNINGS (LOSS) . . . . . . . . . . . . . . . . . . . . . . $ 8,633 $ (1,964) $ 20,325 $ 19,076
========= ======== ======== ========
EARNINGS (LOSS) PER SHARE . . . . . . . . . . . . . . . . . . . $ .16 $ (.04) $ .38 $ .38
========= ======== ======== ========
AVERAGE COMMON SHARES OUTSTANDING . . . . . . . . . . . . . . 52,758 52,660 52,755 50,438
========= ======== ======== ========
</TABLE>
_______________
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE> 6
MITCHELL ENERGY & DEVELOPMENT CORP. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the Nine Months Ended October 31, 1994
(dollar amounts in thousands)
<TABLE>
<CAPTION>
Additional
Common Paid-In Retained Treasury
DOLLAR AMOUNTS Stock Capital Earnings Stock Total
- -------------- --------- ----------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 31, 1994 . . . . . . . . . . . . . $ 5,386 $143,440 $617,214 $(14,086) $751,954
Net earnings . . . . . . . . . . . . . . . . . . . - - 20,325 - 20,325
Cash dividends (36 cents per share on Class A
and 39 3/4 cents per share on Class B) . . . . - - (20,086) - (20,086)
Exercises of stock options . . . . . . . . . . . . - 35 - 168 203
------- -------- -------- -------- --------
BALANCE, OCTOBER 31, 1994 . . . . . . . . . . . . . $ 5,386 $143,475 $617,453 $(13,918) $752,396
======= ======== ======== ======== ========
</TABLE>
==============================
<TABLE>
<CAPTION>
Shares Issued Treasury Shares Held
--------------------------- ----------------------
SHARE AMOUNTS Class A Class B Class A Class B
- ------------- ---------- ---------- ------- -------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 31, 1994 . . . . . . . . . . . . 23,978,117 29,878,117 417,477 692,128
Exercises of stock options . . . . . . . . . . . - - (6,700) (6,700)
Other . . . . . . . . . . . . . . . . . . . . . . (12) (12) - -
---------- ---------- ------- -------
BALANCE, OCTOBER 31, 1994 . . . . . . . . . . . . 23,978,105 29,878,105 410,777 685,428
========== ========== ======= =======
</TABLE>
_______________
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE> 7
MITCHELL ENERGY & DEVELOPMENT CORP. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
October 31
-----------------------
1994 1993
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20,325 $ 19,076
Adjustments to reconcile net earnings to cash provided by operating activities
Depreciation, depletion and amortization (Note 6) . . . . . . . . . . . . 146,968 110,551
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 1,356 13,429
Cost of land sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,768 21,171
Residential land development costs, net of reimbursements . . . . . . . . (12,599) (15,173)
Distributions in excess of earnings of equity investees . . . . . . . . . 12,027 11,629
Amortization of deferred natural gas contract restructuring proceeds . . . (12,382) (14,190)
Gains on major energy asset sales (Note 6) . . . . . . . . . . . . . . . . (52,612) -
Accrued restructuring costs . . . . . . . . . . . . . . . . . . . . . . . 9,830 -
Real estate asset write-downs . . . . . . . . . . . . . . . . . . . . . . 5,661 -
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,911 (2,957)
--------- ---------
150,253 143,536
Changes in operating assets and liabilities . . . . . . . . . . . . . . . (50,713) (44,958)
--------- ---------
Cash provided by operating activities . . . . . . . . . . . . . . . . . . 99,540 98,578
--------- ---------
INVESTING ACTIVITIES
Capital additions
Total on accrual basis (including $78,251 in 1993
related to MEC Development, Ltd. buy-out) . . . . . . . . . . . . . . . (165,711) (283,819)
Residential land development costs deducted above . . . . . . . . . . . . 12,599 15,173
Adjustment to cash basis . . . . . . . . . . . . . . . . . . . . . . . . . (11,561) 19,258
--------- ---------
(164,673) (249,388)
Proceeds from major energy asset sales . . . . . . . . . . . . . . . . . . . 152,000 -
Proceeds from other dispositions of property, plant and equipment . . . . . . 3,354 7,229
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 610 (191)
--------- ---------
Cash used for investing activities . . . . . . . . . . . . . . . . . . (8,709) (242,350)
--------- ---------
FINANCING ACTIVITIES
Proceeds from issuance of debt . . . . . . . . . . . . . . . . . . . . . . . 129,266 32,589
Debt repayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (200,972) (3,136)
Net proceeds from issuance of Class B common stock . . . . . . . . . . . . . - 123,400
Cash dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (20,086) (19,255)
Debt prepayment premium . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,420) -
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (782) 167
--------- ---------
Cash provided by (used for) financing activities . . . . . . . . . . . (98,994) 133,765
--------- ---------
DECREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . . . (8,163) (10,007)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD . . . . . . . . . . . . . . . 21,832 28,097
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD . . . . . . . . . . . . . . . . . . $ 13,669 $ 18,090
========= =========
</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
October 31, 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 October 31, 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--almost all of which hold properties located in
The Woodlands--own a cable television system and various commercial and
apartment properties.
-7-
<PAGE> 9
Summarized financial information on an aggregate basis for equity
investees (which is generally reported on a one-month lag) and the Company's
net proportionate share of the earnings or losses of these entities for the
three- and nine-month periods ended October 31, 1994 and 1993 follow (in
thousands):
<TABLE>
<CAPTION>
Three Months Nine Months
--------------------- ---------------------
1994 1993 1994 1993
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Information for equity investees
Revenues . . . . . . . . . . . . . . . . . . . . $146,842 $142,025 $366,555 $390,564
Operating earnings . . . . . . . . . . . . . . . 27,349 17,777 38,160 63,667
Pretax earnings* . . . . . . . . . . . . . . . . 17,033 13,891 23,248 52,869
Proportionate share of pretax earnings included
in the Company's reported operating earnings . . 6,464 5,546 9,462 22,408
</TABLE>
_______________
*Before interest expense for entities funded
by capital contributions of the owners.
Using a portion of the $123,429,000 net proceeds of an offering of
5,900,000 Class B shares, 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 hydrocarbon reserves and other assets
previously owned by the partnership are now held by the Company.
The earnings of the energy partnerships were sharply lower for the
three- and nine-month periods ended October 31, 1994 for a number of reasons.
These included: the previously reported January 1994 changes to certain
natural gas sales contracts; reduced NGL margins; and the buy-out of MEC
Development, Ltd. effective May 1, 1993; and a six-month shutdown of Gulf
Coast Fractionators' (GCF's) facility following an April 1994 fire. Since
the property damage insurance policies covering the GCF fire are held by
the partners, not the partnership, the partnership's financial statements
include substantial property damage losses which are reimbursed via
contributions from the partners (which in turn are covered by insurance
proceeds). Such losses have been excluded from the information reported above.
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 (which
totaled $10,598,000 at October 31, 1994), outstanding indebtedness (which is
generally reported on a one-month lag) of these entities at October 31, 1994
and January 31, 1994 is summarized as follows (in thousands):
<TABLE>
<CAPTION>
The Company's Pro-
portionate Share at
October 31, 1994 Entity Total
--------------------- -------------------------
Nonre- October 31, January 31,
Recourse course 1994 1994
-------- ------- ----------- -----------
<S> <C> <C> <C> <C>
ENERGY OPERATIONS
Belvieu Environmental Fuels . . . . . . . . . . . . $ 58,667 $ - $176,000 $136,000
C&L Processors Partnership . . . . . . . . . . . . 28,339 24,140 104,959 116,719
Gulf Coast Fractionators . . . . . . . . . . . . . 15,493 13,986 76,075 64,250
-------- ------- -------- --------
102,499 38,126 357,034 316,969
-------- ------- -------- --------
REAL ESTATE OPERATIONS
The Fort Crockett Hotel Limited . . . . . . . . . . 4,069 1,825 11,788 12,397
The Woodlands Mall Associates . . . . . . . . . . . 20,054 - 40,109 18,689
Apartment partnerships . . . . . . . . . . . . . . 790 15,242 38,476 37,728
Others . . . . . . . . . . . . . . . . . . . . . . 2,270 15,278 37,200 37,729
-------- ------- -------- --------
27,183 32,345 127,573 106,543
-------- ------- -------- --------
$129,682 $70,471 $484,607 $423,512
======== ======= ======== ========
</TABLE>
See Note 3 of Notes to Consolidated Financial Statements on pages 51 and 52 of
the Company's Fiscal 1994 Annual Report for additional information concerning
the indebtedness of these partnerships.
-8-
<PAGE> 10
(4) INCOME TAXES
Income tax expense for the nine-month periods ended October 31, 1994 and
1993 consists of the following (in thousands):
<TABLE>
<CAPTION>
1994 1993
------ ------
<S> <C> <C>
CURRENT
Federal . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,860 $ 6,443
State . . . . . . . . . . . . . . . . . . . . . . . . . . 3,254 2,126
------- -------
9,114 8,569
------- -------
DEFERRED
Federal (including charge of $11,000 in
1993 due to increase in corporate tax rate) . . . . . . 1,273 14,343
State . . . . . . . . . . . . . . . . . . . . . . . . . . 83 (914)
------- -------
1,356 13,429
------- -------
$10,470 $21,998
======= =======
</TABLE>
The Omnibus Budget Reconciliation Act of 1993 was signed into law during
August 1993, increasing the corporate statutory income tax rate from 34% to
35%. The principal impact of this rate change on the Company's financial
statements was a deferred tax provision of $11,000,000, recorded during the
three-month period ended October 31, 1993, to increase the liability for
deferred Federal income taxes by an amount equal to 1% of the aggregate
cumulative difference between the book and tax bases of its assets and
liabilities.
A reconciliation from the statutory Federal income tax rate to the
Company's effective income tax rate for the nine-month periods ended October
31, 1994 and 1993 follows:
<TABLE>
<CAPTION>
1994 1993
------ ------
<S> <C> <C>
Statutory Federal income tax rate . . . . . . . . . . . . 35.0% 35.0%
Increase in statutory Federal income tax rate . . . . . . - 26.8
Energy tax credits . . . . . . . . . . . . . . . . . . . (7.3) (7.8)
State income taxes, net of Federal tax benefit . . . . . 5.6 1.9
Utilization of tax carryforwards . . . . . . . . . . . . - (1.9)
Other, net . . . . . . . . . . . . . . . . . . . . . . . .7 (.4)
---- ----
34.0% 53.6%
==== ====
</TABLE>
(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 governmental
agencies. Management expects that adjustments, if any, resulting from the
ultimate resolution of these matters will not be material to the Company's
consolidated financial statements.
MORTGAGE ACTIVITIES. Mitchell Mortgage Company (MMC) administers
approximately $217,000,000 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 expects that losses, if any, incurred in connection
with defaults by borrowers under FHA and VA mortgages serviced by MMC will not
be material to the Company's consolidated financial statements.
-9-
<PAGE> 11
(6) SEGMENT INFORMATION
Selected industry segment data for the three- and nine-month periods
ended October 31, 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>
Nine Months Ended October 31
- ----------------------------
EXPLORATION AND PRODUCTION
Oil and gas . . . . . . . . . $204,090 $194,234 $37,176 $ 50,468 $108,078 $ 86,582 $ 90,625 $193,034
Other . . . . . . . . . . . . 333 125 29 (340) 215 320 101 218
Gain on sale of drilling rigs 4,470 - 3,791 - 679 - - -
-------- -------- ------- -------- -------- -------- -------- --------
208,893 194,359 40,996 50,128 108,972 86,902 90,726 193,252
-------- -------- ------- -------- -------- -------- -------- --------
TRANSMISSION AND PROCESSING
Gas processing . . . . . . . 162,480 201,148 12,581 21,786 6,196 7,344 6,130 4,673
Gas gathering and transmission 141,587 229,475 6,813 15,347 6,359 6,912 10,436 25,373
Other . . . . . . . . . . . . 7,761 6,773 1,505 1,776 1,866 1,987 4,062 8,249
Gains on asset sales . . . . 48,821 - 48,821 - - - - -
Restructuring charges
and asset write-downs . . . - - (31,252) - 14,832 - - -
-------- -------- ------- -------- -------- -------- -------- --------
360,649 437,396 38,468 38,909 29,253 16,243 20,628 38,295
-------- -------- ------- -------- -------- -------- -------- --------
REAL ESTATE
Operations . . . . . . . . . 101,055 90,161 21,635 15,498 6,126 5,441 51,712 49,577
Asset write-downs . . . . . . - - (5,661) - - - - -
-------- -------- ------- -------- -------- -------- -------- --------
101,055 90,161 15,974 15,498 6,126 5,441 51,712 49,577
-------- -------- ------- -------- -------- -------- -------- --------
CORPORATE . . . . . . . . . . - - - - 2,617 1,965 2,645 2,695
-------- -------- ------- -------- -------- -------- -------- --------
$670,597 $721,916 $95,438 $104,535 $146,968 $110,551 $165,711 $283,819
======== ======== ======= ======== ======== ======== ======== ========
Three Months Ended October 31
- -----------------------------
EXPLORATION AND PRODUCTION
Oil and gas . . . . . . . . . $ 64,784 $ 65,737 $ 9,486 $ 15,709 $ 36,660 $ 31,203 $ 28,086 $ 47,015
Other . . . . . . . . . . . . 47 34 121 (112) 62 95 3 93
-------- -------- ------- -------- -------- -------- -------- --------
64,831 65,771 9,607 15,597 36,722 31,298 28,089 47,108
-------- -------- ------- -------- -------- -------- -------- --------
TRANSMISSION AND PROCESSING
Gas processing . . . . . . . 64,436 61,877 7,007 2,591 1,648 2,234 3,861 1,678
Gas gathering and transmission 24,619 84,922 3,216 5,827 1,666 2,497 2,094 8,440
Other . . . . . . . . . . . . 3,136 2,315 943 429 553 628 2,168 3,552
Gains on asset sales . . . . 18,993 - 18,993 - - - - -
Asset write-downs . . . . . . - - (5,602) - 1,649 - - -
-------- -------- ------- -------- -------- -------- -------- --------
111,184 149,114 24,557 8,847 5,516 5,359 8,123 13,670
-------- -------- ------- -------- -------- -------- -------- --------
REAL ESTATE
Operations . . . . . . . . . 31,639 32,533 6,307 6,023 2,020 1,827 18,923 20,863
Asset write-downs . . . . . . - - (5,661) - - - - -
-------- -------- ------- -------- -------- -------- -------- --------
31,639 32,533 646 6,023 2,020 1,827 18,923 20,863
-------- -------- ------- -------- -------- -------- -------- --------
CORPORATE . . . . . . . . . . - - - - 871 701 1,057 1,022
-------- -------- ------- -------- -------- -------- -------- --------
$207,654 $247,418 $34,810 $ 30,467 $ 45,129 $ 39,185 $ 56,192 $ 82,663
======== ======== ======= ======== ======== ======== ======== ========
</TABLE>
-10-
<PAGE> 12
Fiscal 1995 segment operating earnings include $52,612,000 in gains from
three major energy asset sales-- $48,821,000 in the Transmission and Processing
Division from sales of Winnie/Spindletop and the assets of Brazos Gas
Compressing Company and $3,791,000 in the Exploration and Production Division
from the sale of drilling rigs.
During the three-month period ended July 31, 1994, the Company sold its
Spindletop gas storage facility, its Winnie Pipeline system and a 50% interest
in a related gas processing plant for $120,000,000. In the second quarter, a
gain of $29,828,000 was recorded, which was reduced by $632,000 in the third
quarter because of an increase in the estimated costs necessary to meet
certain conditions of the sales agreement. On June 1, 1994, the Company
received cash proceeds of $108,000,000, which were used to pay down
outstanding borrowings under its revolving credit and commercial paper
facilities. The remaining sales proceeds--which, together with interest from
June 1, are to be received subsequently--are included in other current assets
in the accompanying October 31, 1994 balance sheet.
During fiscal 1995's third quarter, a gain of $19,625,000 was recorded
in connection with the sale of the Company's compression operations, including
370 compressors and associated facilities and parts inventory. The $35,000,000
cash proceeds from this sale were used to pay down outstanding borrowings under
revolving credit and commercial paper facilities.
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 as
much as 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 nine months
included a $3,791,000 gain on this sale, which did not include any value for
the warrants.
During fiscal 1995's second and third quarters, Transmission and
Processing Division restructuring charges and asset write-downs totaling
$31,252,000 were recorded. This restructuring program was undertaken because
of the adverse economic environment, particularly prices and margins,
experienced by the Company's transmission and processing business during the
last half of fiscal 1994 and early in the current year. The restructuring
program calls for the sale or disposition of many idle gas processing plants,
including leased equipment associated with certain of them. In this regard,
writedowns of asset carrying values and accruals of future lease rentals
totaling $18,286,000 were recorded. In addition, a voluntary incentive
retirement program was undertaken to bring the division's employment level in
line with the expected future needs. The costs associated with this program
aggregated $7,364,000, most of which will be paid over future years as
additional retirement and retiree medical benefits. During the third quarter,
the Company completed a review of its pipeline systems and determined that
certain of these systems would be disposed of. Asset write-downs of
$5,602,000 were recorded to reduce the carrying values of these systems to
their estimated realizable values.
Also during fiscal 1995's third quarter, certain real estate assets
which had been held for long-term development were written down to net
realizable values. The write-downs, which totaled $5,661,000, related to
largely undeveloped tracts outside The Woodlands that the Company now plans to
sell.
-11-
<PAGE> 13
(7) 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.
(8) SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid (excluding amounts capitalized, but including amounts for
finance operations that are reported as cost of sales) totaled $27,079,000 and
$27,267,000 during the nine-month periods ended October 31, 1994 and 1993.
Income taxes paid during these same periods totaled $9,732,000 and $10,953,000.
There were no significant non-cash investing or financing activities during
these periods.
-12-
<PAGE> 14
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 October 31, 1994 and the results of its operations for the nine-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 $389 million under these committed credit facilities at
October 31, 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
October 31, 1994.
Cash proceeds received in connection with the fiscal 1995 asset sales
mentioned in the following paragraph were used to pay down outstanding
borrowings under the Company's revolving credit and commercial paper
facilities. At October 31, 1994, long-term debt totaled $913.9 million, $74.4
million below the balance at the beginning of the year, and the Company's
debt/equity ratio was 1.21, down from 1.31 at the beginning of the year. This
debt reduction would have been larger had it not been for an April 1994 fire at
Gulf Coast Fractionators' (GCF's) facility in Mont Belvieu, Texas. Because of
the resultant shutdown of this facility, approximately 4 million barrels of
the Company's NGL production had not been fractionated at October 31, 1994.
The GCF plant resumed operations late in October, and it is expected that a
four-to six-month period will be required for the unfractionated quantities to
be reduced to normal levels. Largely because of this situation, the Company's
working capital increased substantially in fiscal 1995. At October 31, 1994,
the book value of the Company's saleable inventories totaled approximately
$42.2 million, most of which consists of the unfractionated NGLs. The
estimated net sales values of these inventories (based on November 30, 1994
prices) totaled approximately $49 million.
-13-
<PAGE> 15
During fiscal 1995, management has undertaken a company-wide asset
review to identify and sell underutilized assets or non-core holdings that have
greater value to others. To date, three major energy assets have been sold at
a cumulative pretax gain of $52.6 million for a total consideration of $164
million--$120 million for Winnie/Spindletop, $35 million for the assets of
Brazos Gas Compressing Company and $9 million for drilling rigs. In addition
through October 31, 1994 as part of the ongoing asset study, the Company has
identified certain other assets that it plans to dispose of. These include
selected oil and gas properties; certain idle gas processing plants, pipeline
systems and other transmission and processing assets; and limited non-core real
estate assets located outside The Woodlands. In this regard, asset write-downs
and restructuring charges totaling $36.9 million were recorded in the second
and third quarters to, among other things, reduce the carrying values of these
assets to their estimated sales values (see Note 6 of Notes to Unaudited
Consolidated Financial Statements on page 11 for additional information). As
the asset study is completed, the Company may identify additional assets for
disposal.
The Financial Accounting Standards Board (FASB) is reportedly nearing
the issuance of a statement that would establish more consistent accounting
standards for measuring the recoverability of long-lived assets, including real
estate (it would not apply to the Company's oil and gas assets which are
already subject to a more stringent full cost ceiling test). As presently
indicated, the Company would be required to adopt the proposed statement no
later than for its fiscal 1997. The Company has not completed its review of
any potential impact that might result from the application of this statement
on the carrying values of its assets which could also be affected to some
extent by finalization of the results of the previously mentioned asset
management study. Accordingly, the Company is unable to make any estimates in
this regard.
The Company's business plan includes the use of energy and real estate
partnerships and sales in the normal course of business of mature real estate
properties to provide for some of its funding needs. The Company believes that
these resources, together with cash flows and additional borrowings supported
by asset values, will be sufficient to allow it to provide for both its
short-term and long-term liquidity needs. Short-term needs can be met by
supplementing operating cash flows with borrowings under committed bank credit
and commercial paper facilities. Public debt and equity markets will be
accessed periodically to meet the Company's longer-term liquidity needs.
Largely because of low crude oil prices and their adverse impact on NGL
prices and margins, the Company scaled back its fiscal 1995 capital spending
plans. Nonetheless, the Company expects to exceed fiscal 1994's 160% natural
gas reserves replacement record, and the budget is adequate to fund ongoing
transmission and processing projects and to provide for continued residential
and commercial development within The Woodlands. After an $11.8 million
second- quarter increase, the fiscal 1995 consolidated capital budget stands at
$242.6 million. Capital additions totaled $165.7 million during fiscal 1995's
first nine months, and it now appears that capital spending for the full year
will be somewhat below the revised budget level.
In December 1994, the Board of Directors authorized the Company to
purchase from time-to-time on the open market up to an aggregate of 1,000,000
shares of its outstanding Class A and Class B common stock. Shares so
purchased will be held as treasury stock to be used for general corporate
purposes.
OTHER MATTERS
PARTNERSHIP PROJECTS
In addition to its consolidated capital budget, the Company participated
through partnerships in several significant construction projects during fiscal
1995. These projects, which were funded principally with proceeds of loan
agreements of the partnerships, included an MTBE plant, expansion of GCF's
fractionation facility and construction of a regional mall in The Woodlands.
These projects are expected to make contributions to the Company's fourth
quarter operating earnings.
-14-
<PAGE> 16
A partnership in which the Company has a one-third interest 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. Each of the three partners in
this venture provides 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, which
totaled $225 million, were funded through the partnership's $176 million loan
agreement and capital contributions from the partners. The plant commenced
operations in June 1994 and primarily because of start-up problems has operated
at volumes below its design capacity (such volumes averaged 10,384 barrels per
day in the third quarter). The partnership is currently in the process of
adding equipment costing $4 million, which is designed to boost the plant's
production rate above its design level. After fourth quarter plant shut-downs
to correct some remaining start up problems and to install the added equipment,
production is expected to rise to the plant's capacity level during fiscal
1996's first or second quarter.
Through its 38.75% ownership interest in GCF, the Company
participated in a 40,000-barrel-per-day expansion of an NGL fractionation
plant at Mont Belvieu, Texas. As previously noted, the plant resumed
operations in October after an April 1994 fire. The expansion portion of the
plant began operations late in October and is expected to reach full production
during the fourth quarter. 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 was used to fund the expansion expenditures
and to provide needed working capital. 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 that opened
in October 1994, was 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, were
funded using proceeds of the partnership's $65 million loan agreement. Sales
for the mall tenants have been reported to be strong, and this partnership is
expected to contribute to the Company's fourth quarter operating earnings.
TRANSMISSION AND PROCESSING DIVISION RESTRUCTURING
In response to today's business environment, the Transmission and
Processing Division undertook a re-engineering program involving an extensive
restructuring of its activities. Operational changes began to be implemented
late in fiscal 1994 with the consolidation of certain gas processing operations
at larger, more efficient plants and the idling of several smaller plants.
These activities continued in fiscal 1995 with a voluntary incentive retirement
program, which reduced the division's full-time employment level by
approximately 10%, and sales of the Winnie/Spindletop operations in the second
quarter and the compression operations in the third quarter. In addition, the
Company is pursuing the disposition or relocation of certain of its idle gas
processing plants. These actions are not expected to negatively impact the
Company's NGL production volumes.
-15-
<PAGE> 17
During the second quarter of fiscal 1995, Transmission and Processing
Division restructuring charges and asset write-downs totaling $25.7 million
were recorded. These consisted of non-cash charges of $18.3 million related to
idle gas processing plants and $7.4 million in early retirement and other
miscellaneous costs which were discharged during the second quarter either as
cash payments related to the approximately 70 employees electing early
retirement or additions to liabilities for the present values of incremental
retirement benefits payable to these individuals. It is expected that the $7.4
million will be recouped in less than two years through salary and benefits
expense savings. The plant write-downs are expected to allow the Company to
dispose of or redeploy these plants without incurring additional losses and to
concentrate its longer term efforts on larger plants with better economies of
scale.
Additionally, third-quarter asset write-downs of $5.6 million were
recorded. The charges were principally related to miscellaneous pipeline
systems and other division holdings that the Company has decided to dispose of
in the near future.
OPERATING STATISTICS
Certain operating statistics for the three- and nine-month periods
ended October 31, 1994 and 1993 follow:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
October 31 October 31
----------------------- -----------------------
1994 1993 1994 1993
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
AVERAGE DAILY VOLUMES
Natural gas sales (Mcf) . . . . . . . . . . . . 203,900 195,700 211,200 185,900
Crude oil and condensate sales (Bbls) . . . . . 6,200 5,900 6,500 5,900
Natural gas liquids produced (Bbls) . . . . . . 48,900 49,200 47,200 52,500
Pipeline throughput (Mcf) . . . . . . . . . . . 355,200 557,000 439,100 554,000
AVERAGE SALES PRICES
Natural gas (per Mcf) . . . . . . . . . . . . . $ 2.65 $ 2.87 $ 2.74 $ 2.88
Crude oil and condensate (per Bbl) . . . . . . 16.26 16.03 15.58 17.23
Natural gas liquids produced (per Bbl) . . . . 11.67 11.55 11.32 12.61
RESIDENTIAL LOTS SOLD - THE WOODLANDS . . . . . 237 271 725 676
Average sales price . . . . . . . . . . . . . . $40,262 $35,557 $37,989 $37,693
</TABLE>
-16-
<PAGE> 18
RESULTS OF OPERATIONS - NINE MONTHS ENDED OCTOBER 31, 1994
COMPARED WITH NINE MONTHS ENDED OCTOBER 31, 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>
NINE MONTHS ENDED OCTOBER 31, 1993 . . . . $50.1 $38.9 $15.5 $(63.4) $41.1 $19.1
ELIMINATE EFFECT OF FISCAL 1994 UNUSUAL
ITEM--Deferred tax charge caused by
increase in Federal income tax rate . . . - - - - - 11.0
----- ----- ----- ------ ----- -----
50.1 38.9 15.5 (63.4) 41.1 30.1
----- ----- ----- ------ ----- -----
MAJOR INCREASES (DECREASES)
Natural gas
Market-sensitive sales price . . . . . . (3.9) - - - (3.9) (2.5)
Market-sensitive sales volumes . . . . . 4.5 - - - 4.5 2.9
Sales under fixed-price contracts . . . . 2.6 - - - 2.6 1.7
Oil and condensate sales . . . . . . . . . (1.1) - - - (1.1) (.7)
Oil and gas DD&A rate increase
MEC Development, Ltd. buy-out . . . . . (2.1) - - - (2.1) (1.4)
Other . . . . . . . . . . . . . . . . . (8.4) - - - (8.4) (5.5)
Gas processing
NGL price . . . . . . . . . . . . . . . - (16.5) - - (16.5) (10.7)
Production volumes . . . . . . . . . . . - (3.0) - - (3.0) (1.9)
Reduced NGL feedstock costs due to
Lower NGL prices . . . . . . . . . . - 4.5 - - 4.5 2.9
Lower market-sensitive gas prices . . - 4.2 - - 4.2 2.7
Gas gathering and transmission . . . . . . - (8.9) - - (8.9) (5.8)
Real estate . . . . . . . . . . . . . . . . - - 5.1 - 5.1 3.3
Interest expense incurred . . . . . . . . . - - - 2.4 2.4 1.6
Capitalized interest . . . . . . . . . . . - - - (2.9) (2.9) (1.9)
Other
SAR/Bonus unit expense accruals . . . . 2.0 .9 1.1 2.0 6.0 3.9
One-time earnings items
recorded in prior-year period . . . . (6.9) - - - (6.9) (4.5)
Venture capital investments . . . . . . - - - (2.8) (2.8) (1.8)
Miscellaneous . . . . . . . . . . . . . .4 .8 - - 1.2 .8
Higher effective income tax rate . . . . . - - - - - (1.6)
----- ------ ----- ------ ------ ------
(12.9) (18.0) 6.2 (1.3) (26.0) (18.5)
----- ------ ----- ------ ------ ------
NINE MONTHS ENDED OCTOBER 31, 1994
BEFORE UNUSUAL ITEMS . . . . . . . . . . 37.2 20.9 21.7 (64.7) 15.1 11.6
----- ------ ----- ------ ------ ------
FISCAL 1995 UNUSUAL ITEMS (see page 11)
Gains on major energy asset sales . . . . . 3.8 48.8 - - 52.6 32.7
Restructuring charges/asset write-downs . . - (31.2) - - (31.2) (20.3)
Real estate asset write-downs . . . . . . . - - (5.7) - (5.7) (3.7)
----- ------ ----- ------ ------ ------
3.8 17.6 (5.7) - 15.7 8.7
----- ------ ----- ------ ------ ------
NINE MONTHS ENDED OCTOBER 31, 1994
AFTER UNUSUAL ITEMS . . . . . . . . . . $41.0 $ 38.5 $16.0 $(64.7) $ 30.8 $ 20.3
===== ====== ===== ====== ====== ======
</TABLE>
_______________
*Includes general and administrative expense and other expense.
-17-
<PAGE> 19
EXPLORATION AND PRODUCTION OVERVIEW
Exploration and Production Division operating earnings before unusual items
declined $12.9 million during the nine months ended October 31, 1994, to $37.2
million. This occurred partly because of the nonrecurrence of one-time
earnings items which added $6.9 million to the prior period's oil and gas
operating earnings. Another major factor in the decline was lower prices for
market-sensitive natural gas, particularly in the third quarter, and their
adverse impact on the Company's DD&A rate. Despite price-related production
curtailments of approximately 30,000 Mcf per day in the third quarter, average
daily natural gas sales volumes rose to 211,200 Mcf from 185,900 in the
comparable period of the prior year. This occurred primarily as a result of
the Company's increased fiscal 1994 drilling program and to a lesser extent
the buy-out of MEC Development, Ltd. effective May 1, 1993.
NATURAL GAS - MARKET-SENSITIVE SALES PRICE ($3.9 MILLION DECREASE). The
Company's market-sensitive realizations averaged $1.96 per Mcf during the first
nine months of fiscal 1995, down from $2.09 in the corresponding period of the
prior year, reducing oil and gas operating earnings by $3.9 million.
Market-sensitive natural gas prices declined sharply during fiscal 1995's third
quarter due to reduced demand largely related to mild weather conditions and
full storage caverns.
MARKET-SENSITIVE SALES VOLUME ($4.5 MILLION INCREASE). Sales volumes increased
23% to 104,800 Mcf per day from the prior-period's 85,100, which after related
operating costs and DD&A increased operating earnings by $4.5 million. This
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 MEC Development,
Ltd. buy-out, which added 2,000 Mcf per day to the average volume. This
increase was partially offset by the Company's decision to curtail
market-sensitive production beginning in September 1994 (particularly in
Limestone County) because of low prices.
NATURAL GAS - SALES UNDER FIXED-PRICE CONTRACTS ($2.6 MILLION INCREASE).
Production under fixed-price contracts averaged 106,400 Mcf per day at a price
of $3.51 per Mcf; such amounts were 100,800 Mcf and $3.55, respectively, during
the comparable prior-year period. Almost 90% of these volumes consist of sales
under a long-term contract with Natural Gas Pipeline Company of America (NGPL),
which covers most of the Company's North Texas production and provides for
annual increases of $.25 per MMBtu in the fixed sales price on January 1 of
each year. After expiration of this contract in December 1997, it is expected
that this production will be sold at the then-current prices for
market-sensitive gas. The fiscal 1995 volume increase resulted largely from
the partnership buy-out, which added approximately 3,800 Mcf per day to the
period's volumes. The positive impact of fiscal 1995's higher production
volumes and the annual price increase under the NGPL contract was largely
offset by lower realizations for leasehold NGLs and the lack in fiscal 1995 of
any amortization of price-related deferred contract restructuring proceeds
since this amortization was completed during the prior year (such amortization
added $.14 per Mcf to the prior-period's average price for sales under
fixed-price contracts).
OIL AND CONDENSATE SALES ($1.1 MILLION DECREASE). The average price for oil
and condensate for fiscal 1995's first nine months of $15.58 per barrel was 10%
below the $17.23 realized during the comparable period of the prior year,
reducing operating earnings by $2.1 million. The lower prices occurred
principally during the first quarter. Partially offsetting the effect of the
lower prices was an increase of 600 barrels per day in production volumes (to
6,500 barrels per day), which added $1 million to operating earnings. The
production increase resulted from fiscal 1994's successful drilling program and
the buy-out of MEC Development, Ltd.
OIL AND GAS DD&A RATE INCREASE ($10.5 MILLION DECREASE). The Company's DD&A
rate was higher during fiscal 1995's first nine months because of the
previously reported impact of the buy-out of MEC Development, Ltd. ($2.1
million) and for other reasons ($8.4 million) principally involving low third
quarter market-sensitive natural gas prices and changes in the mix of the
Company's reserves. Oil and gas DD&A is determined by multiplying the
Company's net investment in its oil and gas properties by the percentage of
aggregate future net revenues from proved reserves that were produced during
the period. The Company's aggregate future net revenues were negatively
impacted by the low third quarter market- sensitive gas prices and by the
replacement of high-priced reserves produced under fixed-priced contracts with
reserves valued at market-sensitive prices. As a result, the percentage of the
remaining future net revenues produced in the fiscal 1995 period exceeded that
of the prior-year period.
-18-
<PAGE> 20
TRANSMISSION AND PROCESSING OVERVIEW
Transmission and Processing Division operating earnings before unusual items
declined $18 million in fiscal 1995's first nine months largely because of the
impact of lower NGL sales prices and a decline in earnings from gas gathering
and transmission activities. NGL production volumes averaged 47,200 Bbls per
day--down from 52,500 during the corresponding period of the prior year--as
facilities were idled early in the year in response to inadequate margins for
most plants operating principally under keep-whole processing arrangements.
NGL margins improved during the second and third quarters, and certain of the
larger keep-whole plants that were idle in the first quarter resumed
operations.
GAS PROCESSING - NGL PRICE ($16.5 MILLION DECREASE). The average price for
NGLs produced of $11.32 per barrel was $1.29 per barrel below the average for
last year's first nine months, reducing operating earnings by $16.5 million.
The lower prices were largely the result of lower prices for crude oil--which
adversely affected NGL prices--and a soft world economy, which reduced the
demand for chemical feedstocks. NGL prices improved during the third quarter,
and the Company's average price for that period was above the average for the
comparable prior-year period.
GAS PROCESSING - PRODUCTION VOLUMES ($3 MILLION DECREASE). NGL production
volumes averaged 47,200 barrels per day, down 10% from the level of the
prior-year's first nine months. As a result of the relatively high
market-sensitive feedstock costs during fiscal 1995's first quarter, when NGL
prices were severely depressed, most plants with keep-whole processing
agreements were uneconomical to operate and accordingly were shut down during
that period. Certain of these plants resumed operations in the second quarter
and production volumes averaged 49,100 barrels per day during the subsequent
six months, up from the first quarter's 43,200.
GAS PROCESSING - REDUCED NGL FEEDSTOCK COSTS ($8.7 MILLION INCREASE). NGL
feedstock costs consist primarily of amounts paid to the natural gas producers.
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. Feedstock costs under the
latter agreements vary directly with NGL prices. Accordingly, fiscal 1995's
previously mentioned lower NGL realizations caused feedstock costs under
percent-of-proceeds agreements to decline, increasing operating earnings by
$4.5 million.
Similarly, feedstock costs under keep-whole agreements vary directly
with market-sensitive natural gas prices. Consequently, the lower
market-sensitive gas prices during the fiscal 1995 period caused feedstock
costs under keep-whole processing agreements to decline, increasing operating
earnings by $4.2 million.
GAS GATHERING AND TRANSMISSION ($8.9 MILLION DECREASE). Excluding the impact
of lower SAR/Bonus unit expense accruals, operating earnings (exclusive of
unusual items) from gas gathering and transmission activities were $8.9 million
below those of the comparable prior-year period. This decline was primarily
the result of lower margins on the buy/resale activities of a 45%-owned equity
partnership, much of which was related to previously reported revisions
effective late in the prior fiscal year of natural gas sales contracts with
Texas Utilities Fuel Company (TUFCO). TUFCO's purchases under these contracts
averaged 52,400 MMBtu per day during fiscal 1995's first nine months (23,600
for the Company's 45% interest), contrasted with 62,000 (27,900) during the
comparable prior-year period. System volumes not sold to TUFCO were sold to
other purchasers at significantly lower margins. Also contributing to this
segment's operating earnings decline were reduced volumes and margins from
buy/resale activities of the North Texas system. For the last several years,
throughput on this system has declined because drilling activity in its service
area has been too low to offset normal production declines on existing wells.
This system's lower fiscal 1995 margins occurred primarily as a result of the
expiration late last year of certain favorable contracts.
-19-
<PAGE> 21
REAL ESTATE AND OTHER
REAL ESTATE ($5.1 MILLION INCREASE). Excluding the impact of lower SAR/Bonus
unit expense accruals, Real Estate Division operating earnings before unusual
items rose by $5.1 million during the fiscal 1995 period. The improvement,
which was concentrated in The Woodlands, was largely due to increased profits
from land and residential lot sales and improved earnings from other commercial
activities.
Operating earnings from commercial and institutional land sales in The
Woodlands rose by $2 million during the first nine months of fiscal 1995
principally because of increased sales of retail sites. During that period,
$2.2 million was earned from sales of five retail sites totaling 25.5 acres
(including 50% of the profit on the sale to a 50%-owned partnership of a
16.3-acre site for the Cochran's Crossing Retail Center).
Although residential activity was strong and the number of residential
lots sold in The Woodlands increased by 7% (725 versus 676 in the prior-year
period), operating earnings from such sales rose by only $.8 million because of
a change in the sales mix. The number of lower-priced production lots sold
increased by 28% both because of the sales impetus provided by fiscal 1995's
rising interest rates and because such sales had been adversely affected early
in the prior year by inventory shortages related to delays in the opening of
the Village of Alden Bridge. Conversely, higher- priced estate and custom lot
sales declined sharply in the fiscal 1995 period. This decline corresponded
with a national downward trend in larger home sales as concerns about corporate
restructuring and other economic factors apparently caused upper-income buyers
to be more conservative in their home purchases.
Higher earnings from other commercial activities in The Woodlands
accounted for $1.3 million of the increase in real estate operating earnings.
Several factors contributed to this increase, including greater corporate
conference activity at The Woodlands Executive Conference Center and Resort and
larger earnings from office and research/technology buildings.
INTEREST EXPENSE INCURRED. Interest expense incurred during the nine months
ended October 31, 1994 was $2.4 million below that of the prior-year period
principally due to a decline in the Company's effective interest rate (to 7.38%
from 7.75%). This was caused by a decline of 2% in the average cost of
fixed-rate debt, which occurred because of the refunding in February 1994 of
$200 million of 11 1/4% Senior Notes with proceeds from January 1994 sales of
$250 million of 6 3/4% Senior Notes and $100 million of 5.10% Senior Notes.
Excess proceeds were used to pay down outstanding borrowings under the
Company's bank credit agreements. The beneficial impact of the senior note
refunding was partially offset by a decline (from 37% to 19%) in the percentage
of the Company's debt that is lower-cost floating-rate debt, a rise in
short-term (variable) interest rates and a $10.7 million increase in the
Company's average debt balance. Principally as a result of the receipt of
proceeds from major energy asset sales, the current year's average debt balance
for the full year is expected to be below the prior-year's average.
CAPITALIZED INTEREST. This unfavorable earnings variance was the result of a
decline in the average energy and real estate asset balances subject to
capitalization and, to a lesser extent, a lower effective interest rate.
SAR/BONUS UNIT EXPENSE ACCRUALS ($6.0 MILLION INCREASE). During the first nine
months of fiscal 1995, $1.3 million in SAR/Bonus unit accrual reversals were
recorded as the average market price of the Company's common stock declined
$3.56 per share. Conversely, in the prior-year period, expense accruals of
$4.7 million were recorded as the average stock price rose by $6.50 per share.
The impact of stock price changes was less in fiscal 1995 because substantially
fewer units were outstanding.
ONE-TIME EARNINGS ITEMS RECORDED IN PRIOR-YEAR PERIOD ($6.9 MILLION DECREASE).
One-time items added $6.9 million to the oil and gas operating earnings of the
prior-year's first and second quarters. During last year's second quarter, the
Company recognized certain natural gas revenues ($3.9 million) which previously
had been deferred because of future obligations for which the Company was no
longer liable and recorded a gain of $1.1 million on the sale of certain
Exploration and Production Division assets. During the first quarter of fiscal
1994, a $1.9 million 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.
-20-
<PAGE> 22
VENTURE CAPITAL INVESTMENTS ($2.8 MILLION DECREASE). The Company has venture
capital investments in certain companies (many of which are located in The
Woodlands' Research Forest), several of which have gone public during the last
two years. In accordance with industry practice, these investments are carried
at estimated fair values. Because of sharp declines in the stock market prices
for start-up biotechnology companies, the estimated values of these investments
declined substantially in fiscal 1995, and charges of $.8 million and $1
million, respectively, were recorded during fiscal 1995's second and third
quarters. Conversely, unrealized appreciation of $1 million was recognized
during the third quarter of fiscal 1994 because of increases in the estimated
values of these investments.
RESULTS OF OPERATIONS - THREE MONTHS ENDED OCTOBER 31, 1994
COMPARED WITH THREE MONTHS ENDED OCTOBER 31, 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 OCTOBER 31, 1993 . . . . $15.6 $ 8.9 $ 6.0 $(19.5) $11.0 $(2.0)
ELIMINATE EFFECT OF FISCAL 1994 UNUSUAL
ITEM--Deferred tax charge caused by
increase in Federal income tax rate . . . - - - - - 11.0
----- ----- ---- ------ ----- -----
15.6 8.9 6.0 (19.5) 11.0 9.0
----- ----- ---- ------ ----- -----
MAJOR INCREASES (DECREASES)
Natural gas
Market-sensitive natural gas sales price. (4.4) - - - (4.4) (2.9)
Sales under fixed-price contracts . . . . 1.6 - - - 1.6 1.0
Oil and gas DD&A rate
increase (see page 18) . . . . . . . . . (4.0) - - - (4.0) (2.6)
Gas processing
NGL price . . . . . . . . . . . . . . . - .5 - - .5 .3
Reduced feedstock costs due to
lower market-sensitive gas prices . . - 4.0 - - 4.0 2.6
Gas gathering and transmission . . . . . . - (2.6) - - (2.6) (1.7)
Venture capital investments (see above) . . - - - (2.0) (2.0) (1.3)
Other . . . . . . . . . . . . . . . . . . . .8 .3 .3 - 1.4 .9
Higher effective income tax rate . . . . . - - - - - (1.1)
----- ----- ---- ------ ----- -----
(6.0) 2.2 .3 (2.0) (5.5) (4.8)
----- ----- ---- ------ ----- -----
THREE MONTHS ENDED OCTOBER 31, 1994
BEFORE UNUSUAL ITEMS . . . . . . . . . . 9.6 11.1 6.3 (21.5) 5.5 4.2
----- ----- ---- ------ ----- -----
FISCAL 1995 UNUSUAL ITEMS (see page 11)
Gains on major energy asset sales . . . . . - 19.0 - - 19.0 11.7
T&P asset write-downs . . . . . . . . . . . - (5.6) - - (5.6) (3.6)
Real estate asset write-downs . . . . . . . - - (5.6) - (5.6) (3.7)
----- ----- ---- ------ ----- -----
- 13.4 (5.6) - 7.8 4.4
----- ----- ---- ------ ----- -----
THREE MONTHS ENDED OCTOBER 31, 1994
AFTER UNUSUAL ITEMS . . . . . . . . . . $ 9.6 $24.5 $ .7 $(21.5) $13.3 $ 8.6
===== ===== ==== ====== ===== =====
</TABLE>
_______________
*Includes general and administrative expense and other expense.
-21-
<PAGE> 23
EXPLORATION AND PRODUCTION OVERVIEW
Exploration and Production operating earnings for fiscal 1995's third quarter
were $6 million below those of the comparable prior-year period due to lower
market-sensitive natural gas prices. Overall, the Company's average sales
price declined 8% to $2.65 per Mcf from the prior-year period's $2.87. Despite
price-related curtailments, daily natural gas sales volumes averaged 203,900,
up 4% from the 195,700 of the comparable period of the prior year.
NATURAL GAS - MARKET-SENSITIVE SALES PRICE ($4.4 MILLION DECREASE). This
earnings decline was due to a decline in the Company's average realizations for
market-sensitive natural gas to $1.70 per Mcf from $2.20 per MCF in the
prior-year period. Market-sensitive natural gas prices have been depressed in
recent months because of reduced demand largely attributable to mild weather
conditions and full storage caverns. Because of the low prices, the Company
curtailed certain production beginning in September. Even with the
curtailments, however, year-to-year production volumes rose slightly because of
last year's successful drilling program.
NATURAL GAS - SALES UNDER FIXED-PRICE CONTRACTS ($1.6 MILLION INCREASE).
Production under fixed-price contracts during the current quarter averaged
106,900 Mcf per day at a price of $3.50 per Mcf; such amounts during the fiscal
1994's third quarter were 102,200 and $3.49, respectively. The Company's North
Texas production during the prior-year period was adversely affected by a
13-day shut-down for scheduled pipeline maintenance in August 1993, the effect
of which was partially offset by higher-than-normal deliveries after the
shut-down.
TRANSMISSION AND PROCESSING OVERVIEW
Transmission and Processing operating earnings before unusual items rose $2.2
million during the third quarter of fiscal 1995 largely because of improved
operating earnings from gas processing operations. Lower NGL feedstock costs
and slightly higher NGL sales prices were the primary causes of this increase.
GAS PROCESSING - NGL PRICE ($.5 MILLION INCREASE). The average price for NGLs
produced of $11.67 per barrel was $.12 per barrel above the average for the
same period of the prior year, increasing operating earnings by $.5 million.
GAS PROCESSING - REDUCED FEEDSTOCK COSTS DUE TO LOWER MARKET-SENSITIVE GAS
PRICES ($4.0 MILLION INCREASE). Feedstock costs under most of the Company's
keep-whole processing agreements are directly affected by market-sensitive
natural gas prices. Accordingly, the previously mentioned sharply lower prices
for market-sensitive natural gas in fiscal 1995's third quarter caused these
costs to decline, thereby increasing operating earnings by $4 million.
GAS GATHERING AND TRANSMISSION ($2.6 MILLION DECREASE). This unfavorable
earnings comparison was primarily due to lower fiscal 1995 volumes and margins
for the Company's North Texas system (see page 19) and lower transportation
revenues during this period as producers curtailed their production in response
to low gas prices.
-22-
<PAGE> 24
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 October 31, 1994.
-23-
<PAGE> 25
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: December 14, 1994 By /s/ Philip S. Smith
Philip S. Smith
Senior Vice President - Administration
and Chief Financial Officer
-24-
<PAGE> 26
Index to Exhibits
Exhibit 12 Computation of ratio of earnings to fixed charges
Exhibit 27 Financial Data Schedule
<PAGE> 1
Exhibit 12
Mitchell Energy & Development Corp.
Computation of Ratio of Earnings to Fixed Charges
(dollar amounts in thousands)
<TABLE>
<CAPTION>
9 Months
Fiscal Year Ended January 31 Ended
----------------------------------------------------- October 31,
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 $ 30,795
Add (Deduct):
Previously capitalized interest
charged against pretax earnings . . . 12,401 14,694 21,937 14,346 17,098 23,030
Losses of less-than-50%-owned persons . 44 23 26 99 32 17
Fixed charges (see below) . . . . . . . 103,166 98,633 90,107 85,169 84,788 61,615
Reverse effect of inclusion of interest
capitalized in fixed charges . . . . . (46,993) (45,427) (39,426) (36,205) (35,721) (23,500)
Undistributed earnings of
less-than-50%-owned persons . . . . . (6,201) (11,690) (10,521) (10,305) (3,594) (816)
-------- -------- -------- -------- -------- --------
$108,552 $127,831 $130,423 $100,428 $110,141 $ 91,141
======== ======== ======== ======== ======== ========
FIXED CHARGES
Interest expense incurred
Consolidated (a) (b) . . . . . . . . . . $ 95,792 $ 92,874 $ 84,025 $ 77,451 $ 75,252 $ 53,740
50%-owned persons . . . . . . . . . . . 4,974 3,670 3,284 4,609 6,236 5,525
-------- -------- -------- -------- -------- --------
100,766 96,544 87,309 82,060 81,488 59,265
Portion of rental expense
representing interest (c) . . . . . . . 2,400 2,089 2,798 3,109 3,300 2,350
-------- -------- -------- -------- -------- --------
$103,166 $ 98,633 $ 90,107 $ 85,169 $ 84,788 $ 61,615
======== ======== ======== ======== ======== ========
RATIO OF EARNINGS TO FIXED CHARGES . . . . 1.05 1.30 1.45 1.18 1.30 1.48
======== ======== ======== ======== ======== ========
</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 October 31, 1994, the Company had outstanding guaranties of
approximately $75,000,000 of indebtedness of less- than-fifty percent owned
partnerships and approximately $4,900,000 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 $2,800,000 for the nine
months ended October 31, 1994, have been excluded from the reported fixed
charges.
(c) Represents one-third of rental expense under operating lease agreements.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements and related notes of Mitchell Energy &
Development Corp. and subsidiaries at October 31, 1994 and for the nine-month
period then ended and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-END> OCT-31-1994
<CASH> 13,669
<SECURITIES> 0
<RECEIVABLES> 140,605
<ALLOWANCES> 2,847
<INVENTORY> 24,612
<CURRENT-ASSETS> 201,888
<PP&E> 2,559,838
<DEPRECIATION> 1,399,487
<TOTAL-ASSETS> 2,298,995
<CURRENT-LIABILITIES> 173,193
<BONDS> 913,912
<COMMON> 5,386
0
0
<OTHER-SE> 747,010
<TOTAL-LIABILITY-AND-EQUITY> 2,298,995
<SALES> 670,597
<TOTAL-REVENUES> 670,597
<CGS> 575,159
<TOTAL-COSTS> 575,159
<OTHER-EXPENSES> 35,545
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 52,598
<INCOME-PRETAX> 30,795
<INCOME-TAX> 10,470
<INCOME-CONTINUING> 20,325
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,325
<EPS-PRIMARY> .38
<EPS-DILUTED> .38
</TABLE>
