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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 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 its 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
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
Name of each exchange
Title of each class on which registered
------------------- ---------------------
<S> <C>
Class A Common Stock, $.10 Par Value New York and Pacific
Class B Common Stock, $.10 Par Value New York and Pacific
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or Section 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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
The aggregate market value of voting stock held by nonaffiliates of the
registrant at March 31, 1994 was approximately $157,965,000.
Shares of common stock outstanding at March 31, 1994:
Class A - 23,563,836
Class B - 29,189,185
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference into the
indicated parts of this report: Annual Report to Stockholders
for the fiscal year ended January 31, 1994 -
Parts I and II. Definitive Proxy Statement to be filed
within 120 days after January 31, 1994 - Part III.
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<PAGE> 2
PART I
ITEM 1 - BUSINESS
Except for a discussion of competition, information required by this
item is incorporated by reference from portions of Mitchell Energy &
Development Corp.'s Annual Report to Stockholders for the fiscal year ended
January 31, 1994 furnished to the Commission pursuant to Rule 14a-3(b) under
the Securities Exchange Act of 1934 (Annual Report to Stockholders).
<TABLE>
<CAPTION>
CROSS REFERENCE TO APPLICABLE SECTIONS
OF ANNUAL REPORT TO STOCKHOLDERS PAGE
-------------------------------------- ------------
<S> <C>
Inside
The Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Front Cover
Exploration and Production Division . . . . . . . . . . . . . . . . . . . . . . . . . 6, 9 - 13
Transmission and Processing Division . . . . . . . . . . . . . . . . . . . . . . . . 14, 17 - 21
Real Estate Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22, 25 - 28
Notes to Consolidated Financial Statements
Note 9: Segment Information . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 - 58
</TABLE>
Competition
The Registrant is a holding company which conducts all of its operations
through its subsidiaries, collectively referred to as "the Company." The
Company is one of the nation's largest independent oil and gas producers and is
a leading real estate developer in the Houston-Galveston area. Its
energy-related operations include the exploration for and production of natural
gas and crude oil, production of natural gas liquids (NGLs) and the operation
of intrastate pipelines. The Company has substantial real estate holdings,
mostly within a 50-mile radius of Houston, Texas.
Within its energy businesses, the Company competes with many companies
that have substantially larger financial and other resources or whose
operations are more fully integrated than the Company's. The oil and gas
industry is highly competitive. There is competition within the industry and
also with other industries in supplying the fuel and energy needs of commerce,
industry and individuals. Due to relatively higher domestic finding costs and
continued unfavorable price levels for oil and gas, many energy companies have
chosen in recent years to focus on international activities and to reduce or
eliminate their U.S. operations. However, the Company intends to retain its
domestic focus and hopes to benefit from lessened competition for prospects and
the availability of opportunities for producing property acquisitions. From a
competitive standpoint, those focusing on international activities have chosen
to seek potentially more prolific opportunities in areas where operations
generally are subject to much greater political risk and other uncertainties.
Alternatively, the Company has chosen to limit these risks by continuing to
operate only in the U.S. Also, the Company's operations and cash flows benefit
from the fact that almost one-half of its natural gas production is sold under
a long-term contract at prices well above those that are available currently
for market-sensitive production.
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<PAGE> 3
The Company owns or has interests in over 60 natural gas processing
plants located in Texas, Oklahoma and New Mexico, and it ranked 13th in daily
domestic NGL production in calendar 1992. The Company also has fractionating
equipment at several of its processing plants and owns a 38.75% interest in a
large fractionating plant near Mont Belvieu on the upper Texas Gulf Coast.
After being fractionated into ethane, propane, butanes and natural gasoline,
the NGLs are used by others in the production of plastics, paints, solvents,
synthetic rubber, gasoline and a wide variety of other products. Propane also
is widely used as a fuel in rural areas for cooking, home heating and crop
drying. The Company has entered the downstream business through its one-third
interest in a partnership which is constructing a plant at Mont Belvieu, Texas,
to produce MTBE, an oxygenate used in the production of environmentally cleaner
gasoline. The plant, which has a design capacity of 12,500 barrels per day, is
expected to begin production during the summer of 1994.
The Company owns or has interests in intrastate natural gas pipeline
systems located in Texas with an aggregate length of over 4,000 miles. The
Company's pipeline systems tend to be regional gathering systems which operate
in highly competitive local markets. These pipelines intersect with numerous
other pipelines, enabling the Company to buy, sell, transport and exchange gas
with other pipeline operators. In the fall of 1992, the Company commenced
limited operations of its Spindletop Gas Storage Facility, which is expected to
improve the Company's competitive position in the petrochemical and industrial
markets of Southeast Texas.
The Company's largest real estate development project--The Woodlands--is
a 25,000-acre master-planned community with a population approaching 39,000.
During each of the last four years, The Woodlands ranked first among Houston's
residential communities in lot sales, new home sales and housing starts. The
Woodlands Mall is under construction and is projected to open in October 1994
with four major anchor department stores. The Company believes the new mall
will be a catalyst for additional commercial land sales and will enhance
residential and commercial land values in The Woodlands. The number of
residential communities competing for new home buyers in the Houston area is
expected to increase, resulting in a reduced market share (based on the
percentage of new homes sold) for the master-planned communities. However,
with the related expansion in the size of the overall market, the Company
anticipates that it will be able to maintain its residential unit sales volume
near the level achieved in recent years. Several of the Houston area
master-planned communities are owned by companies having substantially greater
financial resources than the Company.
The Company's operations have been and may be in the future affected
from time to time in varying degree by general economic conditions and by laws
and regulations, including restrictions on production, price controls, tax
increases and environmental regulations. The Company's energy price
realizations are often volatile and generally are affected by world supply and
demand conditions. Real estate sales, on the other hand, may be affected by
available disposable income, interest rates, availability of financing and
numerous other factors.
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ITEM 2 - PROPERTIES
Information required by this item is incorporated by reference from
portions of the Annual Report to Stockholders.
<TABLE>
<CAPTION>
CROSS REFERENCE TO APPLICABLE SECTIONS
OF ANNUAL REPORT TO STOCKHOLDERS PAGE
-------------------------------------- ------------
<S> <C>
Exploration and Production Division . . . . . . . . . . . . . . . . . . . . . . . . . 6, 9 - 13
Transmission and Processing Division . . . . . . . . . . . . . . . . . . . . . . . . . 14, 17 - 21
Real Estate Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22, 25 - 28
Operating Statistics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Supplemental Oil and Gas Information (unaudited) . . . . . . . . . . . . . . . . . . . 63 - 66
</TABLE>
OTHER OIL AND GAS RELATED DATA
The following information is required by Sections 3, 5 and 6 of the
Securities Act Industry Guide 2, Disclosure of Oil and Gas Operations.
AVERAGE PRODUCTION COST IN EQUIVALENT UNITS(a)
<TABLE>
<CAPTION>
Year Ended January 31
----------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Combined natural gas, crude oil
and condensate production
(thousand cubic feet per day)(B) . . . . . . . . . . . . . . 228,000 186,000 195,000
Average production cost per
equivalent thousand cubic feet . . . . . . . . . . . . . . . $ .75 $ .88 $ .80
- ---------------------------
</TABLE>
(a) Includes equity partnership interests.
(b) Expressed in equivalent units of production with barrels of oil
converted to cubic feet of gas based on relative sales value.
UNDEVELOPED ACREAGE
At January 31, 1994
<TABLE>
<CAPTION>
Earliest Material
Expiration(a)
-----------------
Gross Net Concentration % Net Calendar
Location Acres Acres (County or Area) (b) Acres Year
-------- ------- ------- ------------------ --- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Colorado . . . . . . . . . 26,200 22,400 Garfield, Rio Blanco 70 4,400 1995
New Mexico . . . . . . . . 66,800 59,600 Eddy, Lea 91 15,100 1996
Ohio . . . . . . . . . . . 110,500 110,000 Lawrence, Seneca 64 28,700 1995
South Dakota . . . . . . . 40,600 13,200 Butte 100 10,000 2003
Texas . . . . . . . . . . 200,600 141,100 North Texas 50 71,100 1994
Utah . . . . . . . . . . . 58,300 54,100 Uintah 92 13,400 1995
Wyoming . . . . . . . . . 21,400 11,300 Sweetwater, Fremont 81 3,100 1995
Other (c) . . . . . . . . 102,800 85,800
--------- ---------
Total undeveloped acreage 627,200 497,500
Producing acreage . . . . 843,000 625,900
--------- ---------
Total acreage . . . . . . 1,470,200 1,123,400
========= =========
</TABLE>
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(a) Expiring leases may be renewed if conditions warrant.
(b) Percentage of the state's net acres located in the indicated areas of
concentration.
(c) Includes Alabama, Arkansas, California, Kansas, Louisiana, Mississippi,
Montana, Nebraska, New York, Oklahoma, Pennsylvania and West Virginia.
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DRILLING ACTIVITY (a)
For the year ended January 31
<TABLE>
<CAPTION>
Exploratory Development Total
------------------ ------------------ ------------------
Well Completions Total Oil Gas Dry Oil Gas Dry Oil Gas Dry
- -------------------------- ----- --- --- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Gross Wells--1994
Texas
North Texas . . . . . . 69 - - - 12 53 4 12 53 4
East Central Texas . . . 12 - - - - 12 - - 12 -
Gulf Coast . . . . . . . 36 - 3 12 1 18 2 1 21 14
New Mexico . . . . . . . . 24 3 5 3 11 1 1 14 6 4
Colorado . . . . . . . . . 5 - - 1 - 4 - - 4 1
Other (b) . . . . . . . . 8 2 - 4 - 2 - 2 2 4
----- --- --- ---- ---- ---- --- ---- ---- ----
Total (c) . . . . . . . . 154 5 8 20 24 90 7 29 98 27
===== === === ==== ==== ==== === ==== ==== ====
Net Wells
1994 . . . . . . . . . . . 121.4 4.5 5.8 12.0 17.1 77.1 4.9 21.6 82.9 16.9
===== === === ==== ==== ==== === ==== ==== ====
1993 . . . . . . . . . . . 77.6 2.0 3.1 7.8 18.4 39.2 7.1 20.4 42.3 14.9
===== === === ==== ==== ==== === ==== ==== ====
1992 . . . . . . . . . . . 83.1 2.7 4.3 11.8 13.5 46.6 4.2 16.2 50.9 16.0
===== === === ==== ==== ==== === ==== ==== ====
</TABLE>
___________________________
(a) Excludes service wells; includes equity partnership interests.
(b) Mississippi, New York, Ohio and Pennsylvania.
(c) An additional 50 wells (41.7 net wells) were in the process
of being drilled or completed on January 31, 1994.
ITEM 3 - LEGAL PROCEEDINGS
A settlement was reached in January 1994 for the previously reported
litigation brought against two 45%-owned partnerships by a pipeline purchaser
related to three contracts covering natural gas sales in Burleson County,
Texas. The settlement agreement provided for new contracts and for no payment
of damages by the partnership. While near-term revenues under the new
contracts will likely be lower, the Company estimates that total revenues over
the terms of these contracts will at least equal those which would have been
received under the previous agreements.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of fiscal 1994, no matter was submitted to a
vote of security holders, either through the solicitation of proxies or
otherwise.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The following is a list of the executive officers of the Company as of
April 1, 1994.
<TABLE>
<CAPTION>
Held a
Position
Continu-
ously
Name Position Age Since
---- -------- --- ---------
<S> <C> <C> <C>
George P. Mitchell Chairman and Chief Executive Officer 74 1946
Bernard F. Clark Vice Chairman 72 1956
W. D. Stevens President and Chief Operating Officer 59 1994
Roger L. Galatas Senior Vice President, Real Estate Division 58 1979
Philip S. Smith Senior Vice President and Chief Financial Officer 57 1980
Allen J. Tarbutton, Jr. Senior Vice President, 55 1974
Transmission and Processing Division
Thomas P. Battle Senior Vice President, 51 1982
General Counsel and Secretary
</TABLE>
All of the executive officers, except Mr. Stevens, were elected at a
Board of Directors meeting held on June 30, 1993 for a term of one year, or
until their respective successors are qualified. Mr. Stevens was elected to
the new position of President and Chief Operating Officer at the Board of
Directors meeting held on December 10, 1993. His term of office began January
3, 1994 and will extend until the meeting of the Board following the next
annual meeting of stockholders or until his successor is duly qualified.
There are no significant family relationships among the officers of the
Company, either by blood, marriage or adoption.
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PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Except for the approximate number of holders of record of common stock
securities, information required by this item is incorporated by reference from
portions of the Annual Report to Stockholders.
<TABLE>
<CAPTION>
CROSS REFERENCE TO APPLICABLE SECTIONS
OF ANNUAL REPORT TO STOCKHOLDERS PAGE
-------------------------------------- --------
<S> <C>
Quarterly Stock Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Corporate Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
</TABLE>
The numbers of holders of Class A Common Stock and of Class B Common Stock at
March 31, 1994 were 2,668 and 2,644, respectively. Including those whose
shares are carried in street names, the Registrant estimates that there are
approximately 9,000 holders of each class of its common stock.
ITEM 6 - SELECTED FINANCIAL DATA
Information required by this item is incorporated by reference from
pages 67 and 68 of the Annual Report to Stockholders under the caption
"Historical Summary." Incorporation by reference from these pages is
restricted to the information provided under the captions: Revenues, net
earnings, net earnings per common share, cash dividends per common share, ratio
of earnings to fixed charges, total assets and long-term debt for the fiscal
years 1990 through 1994.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Information required by this item is incorporated by reference from
pages 29 through 42 of the Annual Report to Stockholders.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information required by this item is incorporated by reference from
portions of the Annual Report to Stockholders.
<TABLE>
<CAPTION>
CROSS REFERENCE TO APPLICABLE SECTIONS
OF ANNUAL REPORT TO STOCKHOLDERS PAGE
-------------------------------------- --------
<S> <C>
Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . 44 - 47
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . 48 - 61
Report of Independent Public Accountants . . . . . . . . . . . . . . . . . . . . . . . 62
Supplemental Oil and Gas Information (unaudited) . . . . . . . . . . . . . . . . . . . 63 - 66
Quarterly Financial Data (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . 38
</TABLE>
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<PAGE> 8
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
No Form 8-K's were filed by the Registrant during its fiscal years ended
January 31, 1993 and 1994 or any subsequent period reporting a change of
accountants or any disagreement on any matter of accounting principles,
practices or financial statement disclosure.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this item is incorporated by reference from
portions of the Registrant's definitive Proxy Statement to be filed with the
Securities and Exchange Commission within 120 days after January 31, 1994
pursuant to Regulation 14A under the Securities Exchange Act of 1934 (Proxy
Statement), under the caption "Election of Directors." See page 6 of this Form
10-K for information regarding Executive Officers of the Registrant.
ITEM 11 - EXECUTIVE COMPENSATION
Information required by this item is incorporated by reference from
portions of the Proxy Statement to be filed with the Securities and Exchange
Commission within 120 days after January 31, 1994, under the captions
"Executive Compensation" and "Compensation Committee Interlocks and Insider
Participation."
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this item is incorporated by reference from
portions of the Proxy Statement to be filed with the Securities and Exchange
Commission within 120 days after January 31, 1994, under the caption "Voting
Securities and Principal Holders Thereof."
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item is incorporated by reference from
portions of the Proxy Statement to be filed with the Securities and Exchange
Commission within 120 days after January 31, 1994, under the caption "Certain
Transactions."
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PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
<TABLE>
<CAPTION>
CROSS REFERENCE TO APPLICABLE SECTIONS
OF ANNUAL REPORT TO STOCKHOLDERS PAGE
-------------------------------------- --------
<S> <C>
Quarterly Financial Data (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . 38
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Consolidated Statements of Earnings . . . . . . . . . . . . . . . . . . . . . . . . . 45
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . 46
Consolidated Statements of Stockholders' Equity . . . . . . . . . . . . . . . . . . . 47
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . 48 - 61
Report of Independent Public Accountants . . . . . . . . . . . . . . . . . . . . . . . 62
Supplemental Oil and Gas Information (unaudited) . . . . . . . . . . . . . . . . . . . 63 - 66
</TABLE>
FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants . . . . . . . . . . . . . . . . . . . . . . . S-1
Schedule II. Amounts receivable from related parties and
underwriters, promoters, and employees other
than related parties for the years ended
January 31, 1994, 1993 and 1992 . . . . . . . . . . . . . . . . . . S-2
Schedule III. Condensed financial information of the Registrant . . . . . . . . . S-3
at January 31, 1994 and 1993 and for the years . . . . . . . . . . thru
ended January 31, 1994, 1993 and 1992 . . . . . . . . . . . . . . . S-6
Schedule V. Property, plant and equipment for the years
ended January 31, 1994, 1993 and 1992 . . . . . . . . . . . . . . . S-7
Schedule VI. Accumulated depreciation, depletion and amorti-
zation of property, plant and equipment for the
years ended January 31, 1994, 1993 and 1992 . . . . . . . . . . . . S-8
Schedule X. Supplementary income statement information for
the years ended January 31, 1994, 1993 and 1992 . . . . . . . . . . S-9
</TABLE>
Schedules not listed above are omitted as the information required to be set
forth therein is included in the consolidated financial statements or the
footnotes thereto, or the schedules are not applicable.
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EXHIBITS
<TABLE>
<S> <C>
3(a) Restated Articles of Incorporation of Mitchell Energy & Development Corp., as amended through July 2, 1990 are
incorporated as an exhibit to this report by reference to exhibit 3(a) of the annual report on Form 10-K dated January
31, 1992. The Certificate of Amendment dated June 24, 1992 is incorporated as an exhibit to this report by reference
to exhibit 3 of the quarterly report on Form 10-Q for the quarter ended July 31, 1992.
3(b) The Restated Bylaws of Mitchell Energy & Development Corp. as most recently amended February 8, 1989 are incorporated
as an exhibit to this report by reference to exhibit 3(b) of the Registrant's annual report on Form 10-K dated January
31, 1989.
4(a) The Restated Credit Agreement dated October 24, 1989 among MND Energy Corporation, Mitchell Energy Corporation and
Southwestern Gas Pipeline, Inc., as Borrowers, the several banks which are parties thereto, and Chemical Bank, as
agent for the banks is incorporated as an exhibit to this report by reference to exhibit 4(a) of the Registrant's
annual report on Form 10-K dated January 31, 1990. The first amendment to this Restated Credit Agreement dated
October 23, 1991 is incorporated as an exhibit to this report by reference to exhibit 4(a) of the annual report on
Form 10-K dated January 31, 1992. The second amendment dated October 7, 1992 is incorporated as an exhibit to this
report by reference to exhibit 4(a) of the annual report on Form 10-K dated January 31, 1993. The third amendment
dated October 12, 1993 is attached hereto as exhibit 4(a).
4(b) The indenture dated February 15, 1989 by and between Mitchell Energy & Development Corp., as Borrower, and First City
National Bank of Houston (succeeded by Texas Commerce Bank), as Trustee, is incorporated as an exhibit to this report
by reference to exhibit 4.1 of File No. 33-26471.
4(c) The senior and subordinated indentures dated August 1, 1991 by and between Mitchell Energy & Development Corp., as
Borrower, and First City, Texas - Houston, National Association (succeeded by Texas Commerce Bank), as Trustee, are
incorporated as exhibits to this report by reference to exhibits 4(b) and 4(c) of File No. 33-42340.
4(d) The senior and subordinated indentures dated January 1, 1993 by and between Mitchell Energy & Development Corp., as
Borrower, and NationsBank of Texas, National Association, as Trustee, are incorporated as exhibits to this report by
reference to exhibits 4(b) and 4(c) of File No. 33-61070. The first supplement to the senior indenture dated January
15, 1994 is incorporated as an exhibit to this report by reference to exhibit 4(a) of the current report on Form 8-K
dated January 18, 1994. The second supplement to the senior indenture dated January 20, 1994 is incorporated as an
exhibit to this report by reference to exhibit 4(a) of the current report on Form 8-K dated January 20, 1994.
Upon request, the Registrant will provide to the Securities and Exchange Commission copies of all other instruments
defining the rights of holders of long-term debt of Mitchell Energy & Development Corp. and its consolidated
subsidiaries.
10(a) Gas Purchase Contract dated March 29, 1989 between Natural Gas Pipeline Company of America, Buyer, and Mitchell Energy
Corporation, Seller is incorporated as an exhibit to this report by reference to exhibit 10(c) of the annual report on
Form 10-K dated January 31, 1989.
</TABLE>
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<PAGE> 11
The following exhibits 10(b) through 10(n) filed under paragraph 10 of Item 601
of Regulation S-K are the Company's management contracts and compensation plans
or arrangements.
<TABLE>
<S> <C>
10(b) Long Term Incentive and 1979 Nonqualified Stock Option Plan, as amended through the Seventh Amendment is incorporated
as an exhibit to this report by reference to exhibit 10(c) of the annual report on Form 10-K dated January 31, 1992.
The Eighth Amendment to such Plan is incorporated as an exhibit to this report by reference to exhibit 10(b) of the
annual report on Form 10-K dated January 31,1993.
10(c) 1989 Stock Option Plan is incorporated as an exhibit to this report by reference to exhibit 10(d) of the annual report
on Form 10-K dated January 31, 1992. The first amendment to such Plan is incorporated as an exhibit to this report by
reference to exhibit 10(c) of the annual report on Form 10-K dated January 31, 1993.
10(d) Amended and Restated 1989 Bonus Unit Plan is incorporated as an exhibit to this report by reference to exhibit 10(e)
of the annual report on Form 10-K dated Janu-ary 31, 1992. An amendment to such Plan effective as of June 24, 1992 is
incorporated as an exhibit to this report by reference to exhibit 10(d) of the annual report on Form 10-K dated
January 31, 1993.
10(e) 1991 Bonus Unit Plan is incorporated as an exhibit to this report by reference to exhibit 10(f) of the annual report
on Form 10-K dated January 31, 1992. An amendment to such Plan effective as of June 24, 1992 is incorporated as an
exhibit to this report by reference to exhibit 10(e) of the annual report on Form 10-K dated January 31, 1993.
10(f) Mitchell Energy & Development Corp. Restoration Benefit Plan effective January 1, 1992.
10(g) Mitchell Energy & Development Corp. Excess Benefit Plan (formerly the Supplemental Retirement Plan) amended and
restated effective as of January 1, 1992.
10(h) Deferred compensation/supplementary life insurance arrangement between the Registrant and certain of its executive
officers is incorporated as an exhibit to this report by reference to exhibit 10(h) of the annual report on Form 10-K
dated January 31, 1992.
10(i) The Supplemental Benefit Agreement dated August 17, 1990 between the Registrant and George P. Mitchell is incorporated
as an exhibit to this report by reference to exhibit 10(h) of the annual report on Form 10-K dated January 31, 1991.
10(j) Employment agreement between the Registrant and W. D. Stevens dated January 3, 1994.
10(k) Severance compensation contract dated April 16, 1992 between the Registrant and Roger L. Galatas is incorporated as an
exhibit to this report by reference to exhibit 10(j) of the annual report on Form 10-K dated January 31, 1993.
10(l) Severance compensation contract dated October 31, 1991 between the Registrant and Philip S. Smith is incorporated as
an exhibit to this report by reference to exhibit 10(k) of the annual report on Form 10-K dated January 31, 1993.
10(m) Severance compensation contract dated April 16, 1992 between the Registrant and Allen J. Tarbutton, Jr. is
incorporated as an exhibit to this report by reference to exhibit 10(l) of the annual report on Form 10-K dated
January 31, 1993.
10(n) A written description (in lieu of a formal document) describing the Registrant's commitment to underwrite a life
insurance policy for the benefit of George P. Mitchell is incorporated as an exhibit to this report by reference to
exhibit 10(m) of the annual report on Form 10-K dated January 31, 1993.
</TABLE>
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<PAGE> 12
<TABLE>
<S> <C>
12 Computation of Ratio of Earnings to Fixed Charges.
13 Annual Report to Stockholders for the fiscal year ended January 31, 1994.
21 List of Subsidiaries as of January 31, 1994.
23 Consent of Independent Public Accountants.
99(a) Annual Report on Form 11-K for the fiscal year ended January 31, 1994
of Mitchell Energy & Development Corp. Thrift and Savings Plan.
99(b) Annual Report on Form 11-K for the fiscal year ended January 31, 1994
of MND Hospitality, Inc. Thrift and Savings Plan.
</TABLE>
REPORTS FILED ON FORM 8-K
On January 18, 1994, Mitchell Energy & Development
Corp. filed a Form 8-K reporting its intention to (1) issue $250 million of 6
3/4% Senior Notes Due 2004 pursuant to the terms of a Senior Debt Indenture
dated January 1, 1993, as supplemented by a First Supplemental Indenture dated
January 15, 1994, between Mitchell Energy & Development Corp. and NationsBank
of Texas, National Association, as trustee and (2) redeem, with the proceeds
from such issuance, its $200 million 11 1/4% Senior Notes Due 1999 at 103.21%
of their principal amount.
On January 20, 1994, Mitchell Energy & Development
Corp. filed a Form 8-K reporting its intention to (1) issue $100 million of
5.10% Senior Notes Due 2004 pursuant to the terms of the Senior Debt Indenture
identified in the preceding paragraph and (2) repay floating-rate borrowings
under revolving credit agreements of its primary energy and real estate
subsidiaries.
-12-
<PAGE> 13
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Mitchell Energy & Development Corp.
/s/ GEORGE P. MITCHELL April 18, 1994
_________________________________________
George P. Mitchell, Chairman
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
/s/ GEORGE P. MITCHELL April 18, 1994
_________________________________________
George P. Mitchell, Chairman
and Chief Executive Officer
/s/ BERNARD F. CLARK April 18, 1994
_________________________________________
Bernard F. Clark, Vice Chairman
/s/ W. D. STEVENS April 18, 1994
_________________________________________
W. D. Stevens, Director, President
and Chief Operating Officer
/s/ PHILIP S. SMITH April 18, 1994
_________________________________________
Philip S. Smith, Senior Vice President -
Administration, Chief Financial Officer
and Principal Accounting Officer
/s/ ROBERT W. BALDWIN April 18, 1994
_________________________________________
Robert W. Baldwin, Director
/s/ WILLIAM D. EBERLE April 18, 1994
_________________________________________
William D. Eberle, Director
-13-
<PAGE> 14
SIGNATURES (continued)
/s/ SHAKER A. KHAYATT April 18, 1994
_________________________________________
Shaker A. Khayatt, Director
/s/ BEN F. LOVE April 18, 1994
_________________________________________
Ben F. Love, Director
/s/ WALTER A. LUBANKO April 18, 1994
_________________________________________
Walter A. Lubanko, Director
/s/ J. TODD MITCHELL April 18, 1994
_________________________________________
J. Todd Mitchell, Director
/s/ M. KENT MITCHELL April 18, 1994
_________________________________________
M. Kent Mitchell, Director
/s/ MICHAEL B. MORRIS April 18, 1994
_________________________________________
Michael B. Morris, Director
_________________________________________
Raymond L. Watson, Director
/s/ BENJAMIN N. WOODSON April 18, 1994
_________________________________________
Benjamin N. Woodson, Director
-14-
<PAGE> 15
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Mitchell Energy & Development Corp.:
We have audited, in accordance with generally accepted auditing
standards, the consolidated financial statements included in Mitchell Energy &
Development Corp.'s Annual Report to Stockholders incorporated by reference in
this Form 10-K, and have issued our report thereon dated April 18, 1994. Our
audits were made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The financial statement schedules listed in Item
14 on page 9 are the responsibility of the Company's management and are
presented for purposes of complying with rules of the Securities and Exchange
Commission, and are not part of the basic financial statements. These
financial statement schedules have been subjected to the auditing procedures
applied in the audits of the basic financial statements and, in our opinion,
fairly state in all material respects the financial data required to be set
forth therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN & CO.
Houston, Texas
April 18, 1994
S-1
<PAGE> 16
Mitchell Energy & Development Corp. and Subsidiaries
SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDER-
WRITERS, PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
FOR THE YEARS ENDED JANUARY 31, 1994, 1993 AND 1992
(in thousands)
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING END
OF PERIOD OF PERIOD
------------------ -------------------
NOT AMOUNTS NOT
CURRENT CURRENT ADDITIONS COLLECTED CURRENT CURRENT
------- ------- --------- --------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED JANUARY 31, 1994
George P. Mitchell . . . . . . . . . . . . . $ 153 $ - $ 668 $ 652 $ 169 $ -
John H. Wilshusen (see below) . . . . . . . . 1,117 - 46 - 1,163 -
------ ----- ------ ------ ----- -----
$1,270 $ - $ 714 $ 652 $1,332 $ -
====== ===== ====== ====== ====== =====
YEAR ENDED JANUARY 31, 1993
George P. Mitchell . . . . . . . . . . . . . $ 384 $ - $1,175 $1,406 $ 153 $ -
John H. Wilshusen . . . . . . . . . . . . . . 1,094 - 48 25 1,117 -
------ ----- ------ ----- ------ -----
$1,478 $ - $1,223 $1,431 $1,270 $ -
====== ===== ====== ====== ====== =====
YEAR ENDED JANUARY 31, 1992
George P. Mitchell . . . . . . . . . . . . . $ 438 $ - $1,600 $1,654 $ 384 $ -
John H. Wilshusen . . . . . . . . . . . . . . 1,028 - 66 - 1,094 -
------ ------ ------ ------ ----- -----
$1,466 $ - $1,666 $1,654 $1,478 $ -
====== ===== ====== ====== ====== =====
</TABLE>
___________________________
This receivable, which arose in conjunction with the acquisition of a pipeline
company of which Mr. Wilshusen was formerly an owner, bears interest at prime
and is secured by a second lien on certain real estate. This loan has been
fully reserved.
S-2
<PAGE> 17
Mitchell Energy & Development Corp. and Subsidiaries
SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT -- PAGE 1 OF 4
================================================================================
Mitchell Energy & Development Corp.
CONDENSED BALANCE SHEETS
January 31, 1994 and 1993
(in thousands)
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
ASSETS
Current assets . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,128 $ 1,350
Investment in consolidated subsidiaries,
at cost plus equity in undistributed earnings . . . . . . . . 739,470 623,545
Advances to subsidiaries . . . . . . . . . . . . . . . . . . . . 927,238 569,651
Deferred income taxes (Note B) . . . . . . . . . . . . . . . . . 2,946 2,503
Deferred financing costs . . . . . . . . . . . . . . . . . . . . 5,247 5,594
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . 81 56
---------- ----------
$1,677,110 $1,202,699
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities . . . . . . . . . . . . . . . . . . . . . . $ 21,365 $ 17,398
Long-term debt (Note C) . . . . . . . . . . . . . . . . . . . . 900,000 550,000
Deferred credits and other liabilities . . . . . . . . . . . . . 3,791 3,249
Stockholders' equity . . . . . . . . . . . . . . . . . . . . . . 751,954 632,052
---------- ----------
$1,677,110 $1,202,699
========== ==========
</TABLE>
===============================================================================
Mitchell Energy & Development Corp.
CONDENSED STATEMENTS OF EARNINGS
For the Years Ended January 31, 1994, 1993 and 1992
(in thousands except per share amounts)
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
EQUITY IN NET EARNINGS OF SUBSIDIARIES . . . . . . . . . $19,725 $19,736 $41,956
------- ------- -------
OTHER (INCOME) EXPENSE
Interest expense--third parties . . . . . . . . . . . . 55,060 53,930 53,135
Interest income on subsidiary advances . . . . . . . . . (55,816) (54,735) (54,275)
General and administrative expense (Note E) . . . . . . - - -
Other, net . . . . . . . . . . . . . . . . . . . . . . . 895 2,127 877
Income tax benefit (Note B) . . . . . . . . . . . . . . (101) (73) (2,127)
------- ------- -------
38 1,249 (2,390)
------- ------- -------
NET EARNINGS . . . . . . . . . . . . . . . . . . . . . . $19,687 $18,487 $44,346
======= ======= =======
EARNINGS PER SHARE . . . . . . . . . . . . . . . . . . . $ .39 $ .39 $ .95
======= ======= =======
</TABLE>
___________________________
The accompanying notes are an integral part of these condensed financial
statements.
S-3
<PAGE> 18
Mitchell Energy & Development Corp. and Subsidiaries
SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT -- PAGE 2 OF 4
================================================================================
Mitchell Energy & Development Corp.
CONDENSED STATEMENTS OF CASH FLOWS
For the Years Ended January 31, 1994, 1993 and 1992
(in thousands)
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 19,687 $ 18,487 $ 44,346
Adjustments to reconcile net earnings
to cash provided by operating activities
Equity in net earnings of subsidiaries . . . . . . . . . . . (19,725) (19,736) (41,956)
Dividends from consolidated subsidiaries . . . . . . . . . . 57,500 30,000 50,000
Deferred income taxes . . . . . . . . . . . . . . . . . . . . (13) 1,404 (2,393)
Changes in operating assets and liabilities . . . . . . . . . (2,932) 4,762 (2,926)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,692 1,440 884
--------- --------- ---------
Cash provided by operating activities . . . . . . . . . . . . . 56,209 36,357 47,955
--------- --------- ---------
INVESTING ACTIVITIES
Investments in subsidiaries . . . . . . . . . . . . . . . . . . . . (153,700) (951) (31,000)
Advances (to) from subsidiaries, net . . . . . . . . . . . . . . . (349,240) (107,233) 26,155
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - - 110
--------- --------- ---------
Cash used for investing activities . . . . . . . . . . . . . . . (502,940) (108,184) (4,735)
--------- --------- ---------
FINANCING ACTIVITIES
Proceeds from issuance of debt . . . . . . . . . . . . . . . . . . 350,000 350,000 -
Debt repayments . . . . . . . . . . . . . . . . . . . . . . . . . . - (250,000) (25,000)
Stock issuance proceeds . . . . . . . . . . . . . . . . . . . . . . 123,429 - -
Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . (25,942) (20,097) (18,739)
Senior note issuance costs . . . . . . . . . . . . . . . . . . . . (2,431) (4,249) -
Treasury stock purchases . . . . . . . . . . . . . . . . . . . . . - (4,347) -
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,960 520 519
--------- --------- ---------
Cash provided by (used for) financing activities . . . . . . . . 447,016 71,827 (43,220)
--------- --------- ---------
CHANGE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . 285 - -
CASH AND CASH EQUIVALENTS, beginning of year . . . . . . . . . . . 1 1 1
--------- --------- ---------
CASH AND CASH EQUIVALENTS, end of year . . . . . . . . . . . . . . $ 286 $ 1 $ 1
========= ========= =========
</TABLE>
___________________________
The accompanying notes are an integral part of these condensed financial
statements.
S-4
<PAGE> 19
Mitchell Energy & Development Corp. and Subsidiaries
SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT -- PAGE 3 OF 4
================================================================================
Mitchell Energy & Development Corp.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JANUARY 31, 1994, 1993 AND 1992
(A) General. The accompanying condensed financial statements of Mitchell
Energy & Development Corp. (MEDC) should be read in conjunction with the
consolidated financial statements and notes thereto included in the Annual
Report to Stockholders of Mitchell Energy & Development Corp. and subsidiaries
(the Company) for fiscal 1994, which is filed as an exhibit to this annual
report on Form 10-K. For information regarding the components of and an
analysis of the activity in stockholders' equity, refer to the Consolidated
Statements of Stockholders' Equity included in the Company's Annual Report to
Stockholders. For information regarding the issuance of Class B shares in
fiscal 1994, the reclassification of MEDC's common stock in fiscal 1993 and
the Company's stock option and bonus unit plans, see Notes 7 and 10 of Notes to
Consolidated Financial Statements included in the Company's Annual Report to
Stockholders. Also, see Note 4 for information regarding extraordinary losses
from early debt retirements recorded in fiscal 1994 and fiscal 1993 and Note 11
for the cumulative effect of a change in accounting methods for postretirement
benefits recorded in fiscal 1993. These charges reduced the reported equity in
net earnings of subsidiaries for fiscal 1994 by $5,426,000 and for fiscal 1993
by $7,251,000 and $10,551,000, respectively.
(B) Income Taxes. MEDC is included in the consolidated tax return of the
Company. As the parent company, MEDC allocates to its subsidiaries amounts
equal to the income taxes that the subsidiaries would pay or receive as a
refund if separate returns were filed. MEDC's income tax benefit in fiscal
1992 arose when certain tax carryforwards were estimated to be utilizable that
previously had been expected to expire.
(C) Long-term Debt. A summary of outstanding long-term debt at January 31,
1994 and 1993 follows (in thousands):
<TABLE>
<CAPTION>
UNSECURED SENIOR NOTES 1994 1993
-------- --------
<S> <C> <C>
11 1/4% (called for redemption--see below) . . . . . . . . . . . . . . $200,000 $200,000
5.10% Due February 1997 . . . . . . . . . . . . . . . . . . . . . . . . 100,000 -
8% Due July 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000 100,000
9 1/4% Due January 2002 . . . . . . . . . . . . . . . . . . . . . . . . 250,000 250,000
6 3/4% Due February 2004 . . . . . . . . . . . . . . . . . . . . . . . 250,000 -
-------- --------
$900,000 $550,000
======== ========
</TABLE>
During January 1994, MEDC called for redemption on February 25, 1994 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, and the expensing of this premium
and related unamortized debt issuance costs resulted in an extraordinary charge
of $5,426,000 (after tax benefit of $2,921,000). This charge was recorded in
fiscal 1994 since the loss was incurred when the debt was called in January
1994. Because all proceeds of senior note borrowings are advanced to the
operating subsidiaries and all the costs of such indebtedness are rebilled to
the subsidiaries, the extraordinary charge was allocated to MEDC's
subsidiaries.
During January 1994, MEDC issued $250,000,000 of 6 3/4% Senior Notes Due
2004 and $100,000,000 of 5.10% Senior Notes Due 1997. Initially, the loan
proceeds were advanced to MEDC's subsidiaries, which used them to pay down
borrowings under their commercial paper and bank revolving credit agreements.
In February 1994, the subsidiaries reborrowed a portion of the amounts
temporarily paid down and advanced such funds to MEDC to fund the debt
redemption mentioned in the preceding paragraph.
S-5
<PAGE> 20
Mitchell Energy & Development Corp. and Subsidiaries
SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT -- PAGE 4 OF 4
================================================================================
On April 13, 1992, MEDC redeemed its $250,000,000 of 11 1/4% Senior
Notes Due 1997 using the proceeds of a March 1992 offering of $250,000,000 of
9 1/4% Senior Notes Due 2002. This early redemption was completed at a price of
103.21% of principal, and the expensing of this premium and related unamortized
debt issuance costs resulted in an extraordinary charge of $7,251,000 (after
tax benefit of $3,736,000), which was allocated to MEDC's subsidiaries as
previously discussed.
During July 1992, MEDC issued $100,000,000 of 8% Senior Notes Due 1999.
The proceeds of this financing were advanced to MEDC's subsidiaries, which used
them to pay down borrowings under their bank revolving credit agreements.
Except for the notes which were redeemed in February 1994, the Company's
senior notes have no sinking fund requirements and are not redeemable prior to
their respective maturity dates. The senior note indentures contain certain
restrictions which, among other things, limit cash dividend payments and
additional borrowings, restrict the sale or lease of certain assets and limit
MEDC's right to consolidate or merge with other companies. Retained earnings
available for the payment of cash dividends totaled $351,954,000 at January 31,
1994.
Certain loan agreements of MEDC's subsidiaries limit the amount of cash
advances and dividends that can be paid to MEDC. At January 31, 1994,
transfers to MEDC of approximately $1,240,000,000 were available under these
agreements.
(D) Debt Guarantees. At January 31, 1994, MEDC was contingently
liable for the repayment of approximately $80,000,000 in outstanding debt of
subsidiaries and certain of their equity investees. Also, MEDC had contingent
liabilities at that date totaling approximately $6,000,000, consisting
principally of debt guarantees for nonprofit institutions located in The
Woodlands.
(E) General and Administrative Expense Allocation. General
and administrative expense in the Condensed Statements of Earnings is net of
amounts charged to subsidiaries of $43,222,000; $41,398,000 and $38,184,000 in
fiscal 1994, 1993 and 1992. Such costs are allocated based on estimates of
time spent and benefits derived by the subsidiaries from the services provided.
(F) Statements of Cash Flows. Short-term investments with a maturity of
three months or less are considered to be cash equivalents. Bank revolving
credit agreement borrowings with terms of three months or less are excluded
from the amounts reported as debt proceeds and repayments. Interest paid
totaled $53,625,000; $52,754,000 and $52,032,000 during the years ended January
31, 1994, 1993 and 1992. Income taxes of $12,240,000; $5,935,000 and
$11,233,000 were paid during these same periods. There were no significant
non-cash investing or financing activities during the three-year period
ended January 31, 1994.
(G) Fair Value of Financial Instruments. The following table
summarizes the carrying amounts and estimated fair values of MEDC's financial
instruments for which it is practicable to estimate that value at January 31,
1994 (in thousands):
<TABLE>
<CAPTION>
Carrying Estimated
Amounts Fair Values
------- -----------
<S> <C> <C>
BALANCE SHEET FINANCIAL INSTRUMENTS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . $ 286 $ 286
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 900,000 958,835
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS
Financial guarantees and commitments . . . . . . . . . . . . . . . . . . . - 1,100
</TABLE>
The estimated fair values for cash and cash equivalents are assumed to
equal their carrying values because of the short maturities of these
instruments. Estimated fair values of long-term debt are based on quoted
market prices for these instruments. Estimated fair values of financial
guarantees and commitments are based on the estimated costs of obtaining
letters of credit to relieve MEDC of its obligations under such agreements.
S-6
<PAGE> 21
Mitchell Energy & Development Corp. and Subsidiaries
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
FOR THE YEARS ENDED JANUARY 31, 1994, 1993 AND 1992
(in thousands)
<TABLE>
<CAPTION>
OTHER
BALANCE AT CHANGES* BALANCE
BEGINNING ADDITIONS RETIRE- ADD AT END
OF PERIOD AT COST MENTS (DEDUCT) OF PERIOD
---------- ----------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
YEAR ENDED JANUARY 31, 1994
Oil and gas properties . . . . . . . . $1,777,883 $234,026 $ 56,707 $ 2,986 $1,958,188
---------- -------- -------- -------- ----------
Transmission and processing facilities
Gas processing . . . . . . . . . . . 242,857 4,815 3,499 (14,177) 229,996
Gas gathering and transmission . . . 250,742 29,211 126 (6,999) 272,828
Other . . . . . . . . . . . . . . . . 47,385 12,122 691 (35) 58,781
---------- -------- -------- -------- ----------
540,984 46,148 4,316 (21,211) 561,605
---------- -------- -------- -------- ----------
Other . . . . . . . . . . . . . . . . . 180,713 10,539 13,897 (1,530) 175,825
---------- -------- -------- -------- ----------
$2,499,580 $290,713 $ 74,920 $(19,755) $2,695,618
========== ======== ======== ======== ==========
YEAR ENDED JANUARY 31, 1993
Oil and gas properties . . . . . . . . $1,733,243 $ 74,776 $ 46,318 $ 16,182 $1,777,883
---------- -------- -------- -------- ----------
Transmission and processing facilities
Gas processing . . . . . . . . . . . 228,732 7,875 160 6,410 242,857
Gas gathering and transmission . . . 213,033 55,203 10,469 (7,025) 250,742
Other . . . . . . . . . . . . . . . . 42,883 4,597 101 6 47,385
---------- -------- -------- -------- ----------
484,648 67,675 10,730 (609) 540,984
---------- -------- -------- -------- ----------
Other . . . . . . . . . . . . . . . . . 172,987 10,263 2,650 113 180,713
---------- -------- -------- -------- ----------
$2,390,878 $152,714 $ 59,698 $ 15,686 $2,499,580
========== ======== ======== ======== ==========
YEAR ENDED JANUARY 31, 1992
Oil and gas properties . . . . . . . . $1,649,975 $ 80,632 $ 7,113 $ 9,749 $1,733,243
---------- -------- -------- -------- ----------
Transmission and processing facilities
Gas processing . . . . . . . . . . . 219,397 14,688 5,753 400 228,732
Gas gathering and transmission . . . 191,943 29,037 619 (7,328) 213,033
Other . . . . . . . . . . . . . . . . 40,100 3,368 1,099 514 42,883
---------- -------- -------- -------- ----------
451,440 47,093 7,471 (6,414) 484,648
---------- -------- -------- -------- ----------
Other . . . . . . . . . . . . . . . . . 165,716 13,006 2,686 (3,049) 172,987
---------- -------- -------- -------- ----------
$2,267,131 $140,731 $ 17,270 $ 286 $2,390,878
========== ======== ======== ======== ==========
</TABLE>
___________________________
* "Other changes" include transfers between asset categories and differences
between the Company's equity in earnings (losses) of and distributions
from equity investees, the investments in which are included in property,
plant and equipment.
S-7
<PAGE> 22
Mitchell Energy & Development Corp. and Subsidiaries
SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION AND
AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
FOR THE YEARS ENDED JANUARY 31, 1994, 1993 AND 1992
(in thousands)
<TABLE>
<CAPTION>
OTHER
BALANCE AT CHANGES* BALANCE
BEGINNING RETIRE- ADD AT END
OF PERIOD ADDITIONS MENTS (DEDUCT) OF PERIOD
---------- ---------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
YEAR ENDED JANUARY 31, 1994
Oil and gas properties . . . . . . . . $ 959,483 $118,810 $ 53,524 $ 17 $1,024,786
---------- -------- -------- -------- ----------
Transmission and processing facilities
Gas processing . . . . . . . . . . . 107,326 9,173 3,060 36 113,475
Gas gathering and transmission . . . 91,542 8,233 71 (365) 99,339
Other . . . . . . . . . . . . . . . . 28,938 2,348 601 (35) 30,650
---------- -------- -------- -------- ----------
227,806 19,754 3,732 (364) 243,464
---------- -------- -------- -------- ----------
Other . . . . . . . . . . . . . . . . . 128,511 7,399 13,387 (44) 122,479
---------- -------- -------- -------- ----------
$1,315,800 145,963 $ 70,643 $ (391) $1,390,729
========== ======== ======== ==========
Depreciation and depletion
of real estate assets . . . . . . . . . . . . . . . . 7,282
--------
$153,245
========
YEAR ENDED JANUARY 31, 1993
Oil and gas properties . . . . . . . . $ 915,266 $ 87,245 $ 44,287 $ 1,259 $ 959,483
---------- -------- -------- -------- ----------
Transmission and processing facilities
Gas processing . . . . . . . . . . . 97,444 10,026 142 (2) 107,326
Gas gathering and transmission . . . 90,308 9,075 6,914 (927) 91,542
Other . . . . . . . . . . . . . . . 26,245 2,779 82 (4) 28,938
---------- -------- -------- -------- ----------
213,997 21,880 7,138 (933) 227,806
---------- -------- -------- -------- ----------
Other (including restructuring
charges of $8,713) . . . . . . . . . 113,971 16,761 2,205 (16) 128,511
---------- -------- -------- -------- ----------
$1,243,234 125,886 $ 53,630 $ 310 $1,315,800
========== ======== ======== ==========
Depreciation and depletion
of real estate assets . . . . . . . . . . . . . . . . 7,143
--------
$133,029
========
YEAR ENDED JANUARY 31, 1992
Oil and gas properties . . . . . . . . $ 830,988 $ 91,110 $ 6,832 $ - $ 915,266
---------- -------- -------- -------- ----------
Transmission and processing facilities
Gas processing . . . . . . . . . . . 95,366 9,249 5,593 (1,578) 97,444
Gas gathering and transmission . . . 88,120 10,283 67 (8,028) 90,308
Other . . . . . . . . . . . . . . . 24,430 1,897 82 - 26,245
---------- -------- -------- -------- ----------
207,916 21,429 5,742 (9,606) 213,997
---------- -------- -------- -------- ----------
Other . . . . . . . . . . . . . . . . . 108,044 8,495 2,513 (55) 113,971
---------- -------- -------- -------- ----------
$1,146,948 121,034 $ 15,087 $ (9,661) $1,243,234
========== ======== ======== ==========
Depreciation and depletion
of real estate assets . . . . . . . . . . . . . . . . . 7,050
--------
$128,084
========
</TABLE>
- -------------------------
* "Other changes" for gas gathering and transmission for fiscal 1992 consist
primarily of reductions related to assets that were contributed to a 45%
owned partnership.
S-8
<PAGE> 23
MITCHELL ENERGY & DEVELOPMENT CORP. AND SUBSIDIARIES
SCHEDULE X -- SUPPLEMENTARY INCOME STATEMENT INFORMATION
FOR THE YEARS ENDED JANUARY 31, 1994, 1993 AND 1992
(IN THOUSANDS)
<TABLE>
<CAPTION>
AMOUNTS CHARGED TO
COSTS AND EXPENSES
---------------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
MAINTENANCE AND REPAIRS..................................... $20,260 $17,923 $18,756
TAXES, OTHER THAN PAYROLL AND INCOME TAXES
Severance................................................... 10,665 9,738 10,134
Ad valorem.................................................. 17,822 13,823 14,205
Other....................................................... 310 252 475
</TABLE>
S-9
<PAGE> 24
MITCHELL ENERGY & DEVELOPMENT CORP. AND SUBSIDIARIES
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------------------
<S> <C>
3(a) Restated Articles of Incorporation of Mitchell Energy & Development Corp., as amended through July 2, 1990 are
incorporated as an exhibit to this report by reference to exhibit 3(a) of the annual report on Form 10-K dated
January 31, 1992. The Certificate of Amendment dated June 24, 1992 is incorporated as an exhibit to this report
by reference to exhibit 3 of the quarterly report on Form 10-Q for the
quarter ended July 31, 1992.
3(b) The Restated Bylaws of Mitchell Energy & Development Corp. as most recently amended February 8, 1989 are
incorporated as an exhibit to this report by reference to exhibit 3(b) of the Registrant's annual report on Form
10-K dated January 31, 1989.
4(a) The Restated Credit Agreement dated October 24, 1989 among MND Energy Corporation, Mitchell Energy Corporation
and Southwestern Gas Pipeline, Inc., as Borrowers, the several banks which are parties thereto, and Chemical
Bank, as agent for the banks is incorporated as an exhibit to this report by reference to exhibit 4(a) of the
Registrant's annual report on Form 10-K dated January 31, 1990. The first amendment to this Restated Credit
Agreement dated October 23, 1991 is incorporated as an exhibit to this report by reference to exhibit 4(a) of
the annual report on Form 10-K dated January 31, 1992. The second amendment dated October 7, 1992 is
incorporated as an exhibit to this report by reference to exhibit 4(a) of the annual report on Form 10-K dated
January 31, 1993. The third amendment dated October 12, 1993 is attached hereto as exhibit 4(a).
4(b) The indenture dated February 15, 1989 by and between Mitchell Energy & Development Corp., as Borrower, and First
City National Bank of Houston (succeeded by Texas Commerce Bank), as Trustee, is incorporated as an exhibit to
this report by reference to exhibit 4.1 of File No. 33-26471.
4(c) The senior and subordinated indentures dated August 1, 1991 by and between Mitchell Energy & Development Corp.,
as Borrower, and First City, Texas-Houston, National Association (succeeded by Texas Commerce Bank), as Trustee,
are incorporated as exhibits to this report by reference to exhibits 4(b) and 4(c) of File No. 33-42340.
4(d) The senior and subordinated indentures dated January 1, 1993 by and between Mitchell Energy & Development Corp.,
as Borrower, and NationsBank of Texas, National Association, as Trustee, are incorporated as exhibits to this
report by reference to exhibits 4(b) and 4(c) of File No. 33-61070. The first supplement to the senior
indenture dated January 15, 1994 is incorporated as an exhibit to this report by reference to exhibit 4(a) of
the current report on Form 8-K dated January 18, 1994. The second supplement to the senior indenture dated
January 20, 1994 is incorporated as an exhibit to this report by reference to exhibit 4(a) of the current report
on Form 8-K dated January 20, 1994.
</TABLE>
<PAGE> 25
INDEX TO EXHIBITS (Continued)
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------------------
<S> <C>
10(a) Gas Purchase Contract dated March 29, 1989, between Natural Gas Pipeline Company of America, Buyer, and Mitchell
Energy Corporation, Seller is incorporated as an exhibit to this report by reference to exhibit 10(c) of the
annual report on Form 10-K dated January 31, 1989.
10(b) Long Term Incentive and 1979 Nonqualified Stock Option Plan, as amended through the Seventh Amendment is
incorporated as an exhibit to this report by reference to exhibit 10(c) of the annual report on Form 10-K dated
January 31, 1992. The Eighth Amendment to such Plan is incorporated as an exhibit to this report by reference
to exhibit 10(b) of the annual report on Form 10-K dated January 31, 1993.
10(c) 1989 Stock Option Plan is incorporated as an exhibit to this report by reference to exhibit 10(d) of the annual
report on Form 10-K dated January 31, 1992. The first amendment to such Plan is incorporated as an exhibit to
this report by reference to exhibit 10(c) of the annual report on Form 10-K dated January 31, 1993.
10(d) Amended and Restated 1989 Bonus Unit Plan is incorporated as an exhibit to this report by reference to exhibit
10(e) of the annual report on Form 10-K dated January 31, 1992. An amendment to such Plan effective as of June
24, 1992 is incorporated as an exhibit to this report by reference to exhibit 10(d) of the annual report on Form
10-K dated January 31, 1993.
10(e) 1991 Bonus Unit Plan is incorporated as an exhibit to this report by reference to exhibit 10(f) of the annual
report on Form 10-K dated January 31, 1992. An amendment to such Plan effective as of June 24, 1992 is
incorporated as an exhibit to this report by reference to exhibit 10(e) of the annual report on Form 10-K dated
January 31, 1993.
10(f) Mitchell Energy & Development Corp. Restoration Benefit Plan effective January 1, 1992.
10(g) Mitchell Energy & Development Corp. Excess Benefit Plan (formerly the Supplemental Retirement Plan) amended and
restated effective as of January 1, 1992.
10(h) Deferred compensation/supplementary life insurance arrangement between the Registrant and certain of its
executive officers is incorporated as an exhibit to this report by reference to exhibit 10(h) of the annual
report on Form 10-K dated January 31, 1992.
</TABLE>
<PAGE> 26
INDEX TO EXHIBITS (Continued)
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------------------
<S> <C>
10(i) The Supplemental Benefit Agreement dated August 17, 1990 between the Registrant and George P. Mitchell is
incorporated as an exhibit to this report by reference to exhibit 10(h) of the annual report on Form 10-K dated
January 31, 1991.
10(j) Employment agreement between the Registrant and W. D. Stevens dated January 3, 1994.
10(k) Severance compensation contract dated April 16, 1992 between the Registrant and Roger L. Galatas is
incorporated as an exhibit to this report by reference to exhibit 10(j) of the annual report on Form 10-K dated
January 31, 1993.
10(l) Severance compensation contract dated October 31, 1991 between the Registrant and Philip S. Smith is
incorporated as an exhibit to this report by reference to exhibit 10(k) of the Registrant's annual report on
Form 10-K dated January 31, 1993.
10(m) Severance compensation contract dated April 16, 1992 between the Registrant and Allen J. Tarbutton, Jr. is
incorporated as an exhibit to this report by reference to exhibit 10(l) of the annual report on Form 10-K dated
January 31, 1993.
10(n) A written description (in lieu of a formal document) describing the Registrant's commitment to underwrite a life
insurance policy for the benefit of George P. Mitchell is incorporated as an exhibit to this report by reference
to exhibit 10(m) of the annual report on Form 10-K dated January 31, 1993.
12 Computation of Ratio of Earnings to Fixed Charges
13 Annual Report to Stockholders for the fiscal year ended January 31, 1994
21 List of Subsidiaries as of January 31, 1994
23 Consent of Independent Public Accountants
99(a) Annual Report on Form 11-K for the fiscal year ended January 31, 1994 of Mitchell Energy & Development Corp.
Thrift and Savings Plan
99(b) Annual Report on Form 11-K for the fiscal year ended January 31, 1994 of MND Hospitality, Inc. Thrift and
Savings Plan
</TABLE>
<PAGE> 1
Exhibit 4(a)
THIRD AMENDMENT
THIRD AMENDMENT, dated as of October 12, 1993 (this "Third Amendment"),
to the Restated Credit Agreement, dated as of October 24, 1989, as amended by
the letter dated September 25, 1990, by the First Amendment thereto dated as of
October 23, 1991 and by the Second Amendment thereto dated as of October 7,
1992 (the "Credit Agreement"), among MND Energy Corporation ("MND"), Mitchell
Energy Corporation ("MEC"), Southwestern Gas Pipeline, Inc. ("SGP"; MND and SGP
collectively, the "Borrowers"), the several banks parties thereto (the
"Existing Banks") and Chemical Bank (successor by merger to Manufacturers
Hanover Trust Company) as agent for the Existing Banks (in such capacity, the
"Agent").
W I T N E S S E T H :
WHEREAS, the Borrowers, MEC, the Existing Banks and the Agent are
parties to the Credit Agreement;
WHEREAS, the Borrowers have requested that the Existing Banks amend the
Credit Agreement in the manner set forth below and that Bank of America NT & SA
("Bank of America") become a party to the Credit Agreement;
WHEREAS, the Existing Banks and Bank of America are willing to accede
to the requests of the Borrowers, upon the terms and subject to the conditions
set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the Borrowers, the Existing Banks, the Agent and
Bank of America hereby agree as follows:
SECTION I. DEFINED TERMS
Unless otherwise defined herein, terms defined in the Credit Agreement
and used herein are so used as so defined.
SECTION II. AMENDMENTS
The Credit Agreement is hereby amended as follows:
<PAGE> 2
2
1. Defined Terms. Subsection 1.1 of the Credit Agreement is hereby
amended by
(a) deleting clause (d) of the definition of "CD Interest
Period";
(b) deleting the definition of "Certain Other MEC Debt" in its
entirety and substituting, in lieu thereof, the following:
"'Certain Other MEC Debt' means (i) as of January 31,
1989, the obligations listed on Schedule 4 in an
aggregate amount equal to $9,225,000, (ii) $58,666,667, which
represents all Guarantee Obligations of MND in respect of
borrowings made by Belvieu Environmental Fuels, a Texas General
Partnership, pursuant to that certain term sheet delivered to
the Banks on June 24, 1992; provided that such $58,666,667
shall be reduced to zero on the date on which and for so long
as such Guarantee Obligations are reduced to zero, as certified
by MND to the Agent, (iii) all Guarantee Obligations of MND
under the Partners' Undertaking dated as of August 14, 1992
among Conoco, Inc., Liquid Energy Corp., MND, C&L Processors
Partnership and The Chase Manhattan Bank (National
Association), as agent, (iv) $19,000,000, which represents all
Guarantee Obligations of MND under the Mitchell Guarantee dated
as of June 1, 1993 made by MND in favor of Chemical Bank, as
agent, relating to that certain Term Loan Agreement dated as of
June 1, 1993 among Gulf Coast Fractionators, certain lenders
and Chemical Bank, as agent; provided that such $19,000,000
shall be reduced to $3,875,000 on the date on which and for so
long as the Completion Amount (as defined in such Mitchell
Guarantee) is reduced to zero, as certified by MND to the Agent
and provided, further, that such $3,875,000 shall be reduced to
zero on the date on which and for so long as the Clawback
Amount (as defined in such Mitchell Guarantee) is reduced to
zero, as certified by MND to the Agent and (v) such other
obligations as are mutually agreed to by the Determining Banks
on each Determination Date commencing on January 31, 1990.".
(c) deleting clause (d) of the definition of "Eurodollar
Interest Period";
(d) deleting the definition of "Installment Payment Date" in
its entirety;
(e) deleting the definition of "Scheduled Termination Date" in
its entirety and substituting, in lieu thereof, the following:
<PAGE> 3
3
"'Scheduled Termination Date' means July 31, 1998.";
and
(f) adding to said subsection 1.1, in alphabetical order, the
following terms:
"'Third Amendment' means the Third Amendment, dated as
of October 12, 1993, to this Agreement.
'Third Amendment Effective Date' means the date on
which all conditions precedent specified in Section III of the
Third Amendment shall have been satisfied in accordance with
their respective terms.".
2. Revolving Credit Commitments. The chart forming a part of
subsection 2.1 of the Credit Agreement is hereby amended by deleting such chart
in its entirety and substituting, in lieu thereof, the following:
<TABLE>
<CAPTION>
Amount of SGP Per-
"Bank Commitment Portion centage
---- ---------- ------- -------
<S> <C> <C> <C>
Chemical Bank $40,000,000 $10,400,000 16%
NationsBank of 33,000,000 8,580,000 13.2
Texas, N.A.
Citibank, N.A. 30,000,000 7,800,000 12
The Bank of Nova Scotia 27,000,000 7,020,000 10.8
PNC Bank, National 21,000,000 5,460,000 8.4
Association
The First National 18,000,000 4,680,000 7.2
Bank of Boston
Bank One, Texas, N.A. 15,000,000 3,900,000 6
First Interstate 12,000,000 3,120,000 4.8
Bank of Texas, N.A.
Christiania Bank 9,000,000 2,340,000 3.6
New York Branch
Morgan Guaranty Trust 9,000,000 2,340,000 3.6
Company of New York
National Westminster 9,000,000 2,340,000 3.6
Bank Plc
NBD Bank, N.A. 9,000,000 2,340,000 3.6
</TABLE>
<PAGE> 4
4
<TABLE>
<CAPTION>
Amount of SGP Per-
"Bank Commitment Portion centage
---- ---------- ------- -------
<S> <C> <C> <C>
The Bank of Tokyo, Ltd. 9,000,000 2,340,000 3.6
Bank of America National
Trust and Savings
Association 9,000,000 2,340,000 3.6
------------ ----------- ----
Total $250,000,000 $65,000,000 100%".
============ =========== =====
</TABLE>
3. The Notes. Subsection 2.2 of the Credit Agreement is hereby amended
by deleting clause (b) of the second sentence thereof in its entirety and
substituting, in lieu thereof, the following: "(b) be stated to mature on the
Scheduled Termination Date, and".
4. Conversion to Term Loans. Subsection 2.3 of the Credit Agreement is
hereby amended by deleting such subsection in its entirety and substituting, in
lieu thereof, the following: "[INTENTIONALLY OMITTED]".
5. Reduction of Commitment. Subsection 2.6 of the Credit Agreement is
hereby amended by adding the designation "(a)" at the beginning of the first
sentence thereof and by adding the following new paragraph (b) at the end
thereof:
"(b) On July 31, 1997, the Commitments shall automatically and
permanently be reduced to an amount equal to the lesser of (i)
seventy-five percent (75%) of the Commitments in effect on the Third
Amendment Effective Date and (ii) the amount of the Commitments in
effect on July 31, 1997 before giving effect to this subsection
2.6(b).".
6. Prepayments. Subsection 2.7 of the Credit Agreement is hereby
amended by deleting the penultimate sentence thereof (i.e. the sentence
beginning "Partial prepayments after conversion to term") in its entirety.
7. Interest Rates and Options. Subsection 2.8(a) of the Credit
Agreement is hereby amended by deleting clauses (i), (ii) and (iii) thereof in
their entireties and substituting, in lieu thereof, the following:
"(i) subject to the first proviso clause set forth below,
Reference Rated Loans shall bear interest at a rate per annum (x) prior
to July 31, 1996, equal to the Reference Rate and (y) 1/2 of 1% per
annum above the Reference Rate thereafter;
(ii) subject to the proviso clauses set forth below, Eurodollar
Loans shall bear interest at a rate per annum equal to the Eurodollar
Rate determined by the Agent for the relevant Eurodollar Interest
Period, plus (x) 3/4 of 1% per annum prior to July 31, 1996 and (y) 7/8
of 1% per annum thereafter;
<PAGE> 5
5
(iii) subject to the proviso clauses set forth below, CD Rated
Loans shall bear interest at a rate per annum equal to the Adjusted CD
Rate determined by the Agent for the relevant CD Interest Period, plus
(x) 7/8 of 1% per annum prior to July 31, 1996 and (y) 1% per annum
thereafter;".
8. 1993 Adjustments. Section 2 of the Credit Agreement is hereby
amended by adding a new subsection 2.21 thereto, which new subsection shall be
and read as follows:
"2.21 1993 Adjustments. (a) On and as of the Third Amendment
Effective Date, (i) Bank of America shall become a "Bank" hereunder for
all purposes hereof and shall have the rights and obligations of a Bank
hereunder with a Commitment as set forth herein and (ii) each Bank's
Commitment shall be as set forth in subsection 2.1 as revised by the
Third Amendment.
(b) On the Third Amendment Effective Date, the Borrowers (i)
shall repay the then outstanding Reference Rated Loans in full, together
with accrued interest thereon, (ii) may reborrow such repaid amount (or
such other amount as may then be permitted under the Credit Agreement)
of Reference Rated Loans from the Banks according to each Bank's
Commitment in effect on the Third Amendment Effective Date and (iii)
shall pay all commitment fees accruing through the Third Amendment
Effective Date.
(c) The Borrowers (i) shall, with respect to each Eurodollar
Loan and each CD Rated Loan which is outstanding on the Third Amendment
Effective Date, repay such Loans together with accrued interest thereon
on the last day of the then current Interest Period for each such Loan
and (ii) may reborrow such repaid amount (or such other amount as may
then be permitted under the Credit Agreement) of Loans from the Banks in
accordance with each Bank's Commitment in effect on the Third Amendment
Effective Date.
(d) On the date on which the last Eurodollar Loan or CD Rated
Loan outstanding on the Third Amendment Effective Date shall have been
repaid in full, Texas Commerce Bank, National Association (successor to
the interests of First City, Texas-Houston, N.A.) shall cease to be a
"Bank" hereunder for any purpose and shall surrender its Notes (which
Notes are stated to be payable to the order of First City,
Texas-Houston, N.A.) to the Borrowers for cancellation.".
9. Conditions to Loans. Section 3 of the Credit Agreement is hereby
amended by deleting the parenthetical "(including the term loans)" from the
lead-in thereto.
<PAGE> 6
6
10. Conditions to Loans to SGP. Section 4 of the Credit Agreement is
hereby amended by deleting the parenthetical "(including the term loans)" from
the lead-in thereto.
11. Schedule 1. Schedule 1 to the Credit Agreement is hereby amended
by (a) deleting therefrom the entries for Texas Commerce Bank, National
Association, Provident National Bank and First City, Texas-Houston, N.A. and (b)
adding the following entry thereto:
"BANK OF AMERICA NT & SA
333 Clay Street Suite 4550
Houston, Texas 77002
Attention: Darryl Neider
Vice President".
SECTION III. CONDITIONS PRECEDENT
This Third Amendment shall become effective on and as of the date that
the following conditions precedent are satisfied:
1. Amendment. The Agent shall have received counterparts of
this Third Amendment duly executed by each of the Borrowers and the
Banks.
2. Consent of Guarantors. Each of MEC, SGP and Liquid Energy
Corp. shall have executed this Third Amendment in the appropriate space
below the caption "Consent of Guarantors" on the signature pages hereto.
3. New Notes. The Agent shall have received from each of the
Borrowers (i) Notes payable to the order of Bank of America in amounts
equal to those portions of such Bank's total Commitment then in effect
applicable to such Borrower and (ii) Notes payable to the order of The
First National Bank of Boston in amounts reflecting its increased
Commitment then in effect, in exchange for the Notes previously issued
to such Bank.
4. Legal Opinion. The Agent shall have received the executed
legal opinion of the general counsel of the Borrowers, MEC and Liquid
Energy Corp., in form and substance reasonably satisfactory to the
Agent.
5. Payment of Fees and Loans. All Reference Rated Loans
outstanding in the Third Amendment Effective Date, together with accrued
interest thereon, shall have been paid in full, and the Agent shall have
received payment of all commitment fees accruing through the Third
Amendment Effective Date.
<PAGE> 7
7
6. Other Documents; Additional Matters. The Agent shall have
received such other corporate documents and other instruments and
evidence of corporate proceedings as it may reasonably request.
SECTION IV. REPRESENTATIONS AND WARRANTIES
Each of the Borrowers as of the date hereof and after giving effect to
the amendments contained herein, hereby confirms, reaffirms and restates the
representations and warranties made by it in Sections 5 and 6 of the Assignment
Agreement and in Section 9 of the Subsidiary Guarantee; provided that for the
purposes hereof, the term "Credit Agreement" when used in such Sections 5 and 6
shall be deemed to refer both to this Third Amendment and the Credit Agreement
as modified by this Third Amendment.
SECTION V. MISCELLANEOUS
1. Limited Effect. This Third Amendment is limited precisely as
written and shall not be deemed (a) to be a consent to any modification or
amendment of any other term or condition of the Credit Agreement or of any other
term or condition of the instruments or agreements referred to therein or (b) to
prejudice any other right or rights that the Agent or any Bank may now have or
may have in the future under or in connection with the Credit Agreement or the
agreements referred to therein. Except as expressly amended and modified by
this Third Amendment, all of the provisions and covenants of the Credit
Agreement are and shall continue to remain in full force and effect in
accordance with the terms thereof.
2. Counterparts. This Third Amendment may be executed by one or more
of the parties hereto in any number of separate counterparts and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument.
3. GOVERNING LAW. THIS THIRD AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
4. Expenses. The Borrowers jointly and severally agree to pay or
reimburse the Agent for all its reasonable out-of-pocket costs and expenses
incurred in connection with the preparation and execution of this Third
Amendment, including, without limitation, the reasonable fees and disbursements
of counsel to the Agent. The Borrowers expressly acknowledge and further agree
that nothing in the preceding sentence shall be construed to limit in any way
the provisions of subsection 9.7 of the Credit Agreement.
5. New Bank. Bank of America hereby acknowledges that upon the
occurrence of the Third Amendment Effective Date it is a
<PAGE> 8
8
party to the Credit Agreement, as amended by this Third Amendment, as if an
original party thereto and has the rights and obligations of a Bank thereunder.
<PAGE> 9
9
IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment
to be executed and delivered by their proper and duly authorized officers as of
the day and year first above written.
MND ENERGY CORPORATION
By /s/ W. BROOKE HAMILTON
__________________________________________________________
Title: Vice President - Finance and Treasurer
SOUTHWESTERN GAS PIPELINE, INC.
By /s/ W. BROOKE HAMILTON
__________________________________________________________
Title: Vice President - Finance and Treasurer
CHEMICAL BANK, as Agent and as a Bank
By /s/ W. DOUG PETNO
__________________________________________________________
Title: Vice President
NATIONSBANK OF TEXAS, N.A.
By /s/ KRISTIN B. PALMER
__________________________________________________________
Title: Vice President
CITIBANK, N.A.
By /s/ BARBARA A. COHEN
__________________________________________________________
Title: Vice President
THE BANK OF NOVA SCOTIA
By /s/ F. C. H. ASHBY
__________________________________________________________
Title: Senior Assistant Agent
<PAGE> 10
10
PNC BANK, NATIONAL ASSOCIATION
By /s/ PHILIP R. CONTI
__________________________________________________________
Title: Assistant Vice President
THE FIRST NATIONAL BANK OF BOSTON
By /s/ L. M. KANE
__________________________________________________________
Title: Managing Director
BANK ONE, TEXAS, N.A.
By /s/ RICHARD SYLVAN
__________________________________________________________
Title: Senior Vice President
FIRST INTERSTATE BANK OF TEXAS,
N.A.
By /s/ COLLIE C. MICHAELS
__________________________________________________________
Title: Vice President
CHRISTIANIA BANK
NEW YORK BRANCH
By /s/ DEBRA DICKEHUSTH
__________________________________________________________
Title: Vice President
By /s/ JAHN O. ROISING
__________________________________________________________
Title: First Vice President
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK
By /s/ PHILIP W. McNEAL
__________________________________________________________
Title: Vice President
NATIONAL WESTMINSTER BANK PLC
By /s/ DAVID L. SMITH
__________________________________________________________
Title: Vice President
<PAGE> 11
11
NBD BANK, N.A.
By /s/ JAMES L. CALDWELL IV
__________________________________________________________
Title: First Vice President
THE BANK OF TOKYO, LTD.
By /s/ JOHN McINTYRE
__________________________________________________________
Title: Vice President
BANK OF AMERICA NT & SA
By /s/ DARRYL NEIDER
__________________________________________________________
Title: Vice President
By /s/ C. PAIGE DiMAGGIO
__________________________________________________________
Title: Assistant Vice President
TEXAS COMMERCE BANK, NATIONAL ASSOCIATION (as successor
to the interests of First City, Texas-Houston, N.A.)
By /s/ SCOTT RICHARDSON
__________________________________________________________
Title: Vice President
<PAGE> 12
12
CONSENT OF GUARANTORS
Each of the undersigned, pursuant to the Subsidiary Guarantee, dated as
of October 24, 1989, made by the undersigned in favor of Chemical Bank
(successor by merger to Manufacturers Hanover Trust Company) as Agent for the
Banks, hereby consents as of the Third Amendment Effective Date to the
provisions of the above Third Amendment and agrees that the Subsidiary Guarantee
remains in full force and effect after giving effect to the above Third
Amendment.
MITCHELL ENERGY CORPORATION
By /s/ W. BROOKE HAMILTON
__________________________________________________________
Title: Vice President - Finance and Treasurer
SOUTHWESTERN GAS PIPELINE, INC.
By /s/ W. BROOKE HAMILTON
__________________________________________________________
Title: Vice President - Finance and Treasurer
LIQUID ENERGY CORPORATION
By /s/ W. BROOKE HAMILTON
__________________________________________________________
Title: Vice President - Finance and Treasurer
<PAGE> 1
Exhibit 10(f)
MITCHELL ENERGY & DEVELOPMENT CORP.
RESTORATION BENEFIT PLAN
(Effective as of January 1, 1992)
<PAGE> 2
MITCHELL ENERGY & DEVELOPMENT CORP.
RESTORATION BENEFIT PLAN
(Effective as of January 1, 1992)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Article Section Page
- ------- ------- ----
<S> <C> <C> <C>
I Establishment and Purpose
-------------------------
1.1 Establishment of Plan 1
1.2 Purpose 1
1.3 Application of the Plan 1
II Definitions and Construction
----------------------------
2.1 Definitions 3
2.2 Gender and Number; Headings 4
2.3 Incorporation of the Retirement Plan 4
III Participation
-------------
3.1 Eligibility 5
3.2 Participation 5
IV Benefits
--------
4.1 Amount of Benefits 6
4.2 Form of Payment and Commencement Date 7
4.3 Vesting 7
4.4 Death Benefits 8
V Administration
--------------
5.1 Administration 9
5.2 Finality of Determination 9
5.3 Expenses 9
5.4 Indemnification and Exculpation 9
VI Funding of the Plan
-------------------
6.1 Funding 11
VII Merger, Amendment, and Termination
----------------------------------
7.1 Merger, Consolidation, or Acquisition 12
7.2 Amendment and Termination 12
VIII Adoption Procedure
------------------
8.1 Adoption Procedure 13
8.2 Withdrawal of Participating Employer 13
</TABLE>
-i-
<PAGE> 3
MITCHELL ENERGY & DEVELOPMENT CORP.
RESTORATION BENEFIT PLAN
(Effective as of January 1, 1992)
TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
Article Section Page
- ------- ------- ----
<S> <C> <C> <C>
IX General Provisions
------------------
9.1 Nonalienation 14
9.2 Effect on Other Benefit Plans 14
9.3 Severability 14
9.4 Applicable Law 14
9.5 Employer-Employee Relationship 15
9.6 Incompetence 15
9.7 Binding on Employer, Eligible
Participants and Their Successors 15
9.8 Tax Liability 16
Participating Employers under the
Mitchell Energy & Development
Corp. Restoration Benefit Plan 17
Appendix I 18
</TABLE>
-ii-
<PAGE> 4
MITCHELL ENERGY & DEVELOPMENT CORP.
RESTORATION BENEFIT PLAN
(Effective as of January 1, 1992)
Article I. Establishment and Purpose
1.1. Establishment of Plan. MITCHELL ENERGY & DEVELOPMENT CORP., a
Texas corporation ("Company") hereby establishes, effective as of January 1,
1992, an unfunded restoration benefit plan to be known as the "Mitchell Energy
& Development Corp. Restoration Benefit Plan" ("Plan").
1.2 Purpose. The Plan is hereby established and is maintained for
the purpose of providing Eligible Participants who are eligible to receive
benefit payments under the "Mitchell Energy & Development Corp. Retirement
Plan," as amended and restated effective as of February 1, 1989 and as amended
thereafter ("Retirement Plan"), such portion of such benefit payments as would
have been payable to such Eligible Participants under the Retirement Plan if
the maximum annual compensation limitations under Code section 401(a)(17) had
not been applied to such benefit payments. Additionally, the Plan is
established and is intended as an unfunded plan to be maintained primarily for
the purpose of providing deferred compensation for a select group of management
or highly compensated employees within the meaning of section 201(2) of the
Employee Income Retirement Security Act of 1974, as amended ("ERISA"), and as
such it is intended that the Plan be exempt from the relevant requirements of
Title I of ERISA. The Plan is not intended to satisfy the qualification
requirements of Code section 401.
1.3 Application of the Plan. The terms of this Plan are applicable
only to or with respect to those Participants who are eligible to receive a
Pension benefit under the Retirement Plan
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on or after January 1, 1992, and who become Eligible Participants under this
Plan on or after such date.
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Article II. Definitions and Construction
2.1 Definitions. All terms used in this Plan shall have the same
meanings assigned to them under the provisions of the Retirement Plan, unless
otherwise qualified by the context hereof. Notwithstanding the prior sentence,
the following terms shall have the meanings set forth below, unless their
context clearly indicates to the contrary:
(a) "Eligible Employee" means an executive Employee of the Company,
or other Employer, who is designated as an "Eligible Employee"
by the Board of Directors of the Company who is eligible to
receive the benefits provided by this Plan. The Board of
Directors may designate such individuals by name or by
employment position. All individuals who are designated as
"Eligible Employees" shall be listed on Appendix I attached to
the end of the basic Plan document.
(b) "Eligible Participant" means an individual who is a Participant
under the Retirement Plan and who satisfies the conditions of
Section 3.1 and 3.2.
(c) "Employer" means the Company and each other Employer who is a
participating Employer under the Retirement Plan and who has
elected to become a participating Employer under this Plan as
provided in Article VIII.
(d) "Mitchell Excess Benefit Plan" means the "Mitchell Energy &
Development Corp. Excess Benefit Plan," as amended and restated
effective as of January 1, 1992, and as the same may thereafter
be amended from time to time.
(e) "Participant" means an individual who has qualified as a
"Participant" under the Retirement Plan and who maintains such
status at any relevant date.
(f) "Plan" means the "Mitchell Energy & Development Corp.
Restoration Benefit Plan" as set forth in this document and as
the same may be amended from time to time.
(g) "Retirement Plan" means the "Mitchell Energy & Develop-
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ment Corp. Retirement Plan," as amended and restated effective
as of February 1, 1989, and as the same may thereafter be
amended from time to time.
2.2 Gender and Number; Headings. Except when otherwise indicated by
the context, any masculine terminology when used in this Plan shall also
include the feminine gender, and the definition of any term in the singular
shall also include the plural. Headings of Articles and Sections herein are
included solely for convenience, and if there is any conflict between such
headings and the text of the Plan, the text shall control.
2.3 Incorporation of the Retirement Plan. The Retirement Plan is
hereby incorporated by reference into and shall form a part of this Plan as
fully as if set forth herein verbatim. Any amendment made to the Retirement
Plan shall also be incorporated by reference into and form a part of this Plan,
effective as of the effective date of such amendment. The Retirement Plan,
whenever referred to in this Plan, shall mean the Retirement Plan as amended,
as it exists as of the date any determination is made of benefits payable under
this Plan.
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Article III. Participation
3.1 Eligibility. An Eligible Employee who is a Participant who is
entitled to retirement benefits, or a person entitled to survivor benefits with
respect to such Participant, pursuant to the Retirement Plan will be eligible
for payments under this Plan provided payments that would otherwise have been
made under the Retirement Plan to or with respect to such Participant have been
reduced by the maximum annual compensation limitations on such payments set
forth in the Retirement Plan, as required by Code section 401(a)(17).
3.2 Participation. A person who is eligible for retirement or
survivor benefits as described in Section 3.1 shall become an Eligible
Participant in the Plan as of the first day of the calendar month in which such
person meets the eligibility conditions in Section 3.1.
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Article IV. Benefits
4.1 Amount of Benefits.
(a) In General. If benefits under the Retirement Plan become
payable at or after age 65 in the form of a single life annuity
to a Participant who is an Eligible Participant, the monthly
restoration retirement benefit payable under this Plan to such
Eligible Participant shall be equal to the difference between
the amount in (1) and the sum of the amounts in (2) and (3)
where--
(1) is the amount of the monthly normal retirement benefit
that would have been payable under the Retirement Plan
to such Eligible Participant if the provisions of the
Retirement Plan were administered without regard to the
benefit limitations of sections 401(a)(17) and 415 of
the Code;
(2) is the amount of the monthly normal retirement benefit
payable to such Eligible Participant under the
Retirement Plan; and
(3) is the amount of the monthly excess retirement benefit
payable to such Eligible Participant under the Mitchell
Excess Benefit Plan (if applicable) with respect to a
reduction in the monthly normal retirement benefit
under the Retirement Plan due to the benefit
limitations of section 415 of the Code.
(b) Payments at Other Times and Other Forms. If benefits under the
Retirement Plan become payable at a time other than as provided
in Section 4.1(a) or in a form of payment other than single life
annuity, the amount of the monthly excess retirement benefit
payable under this Plan shall be the actuarial equivalent of the
amount specified in Section 4.1(a), computed using the same
actuarial factors and assumptions used to compute the benefit
payable under the Retirement Plan.
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4.2 Form of Payment and Commencement Date.
(a) Form of Payment. The benefits payable under this Plan shall be
paid to the same recipients and in the same form and at the same
time or times as the limited benefits are payable to the
recipients under the Retirement Plan and shall cease to any
recipient at the same time as benefits payable to such recipient
under the Retirement Plan shall cease.
(b) Lump Sum Option. If the lump sum actuarial equivalent of any
benefits payable under this Plan is $10,000 or less, the
Committee, in its sole discretion, may pay such benefits due the
recipient under this Plan in the form of such lump sum amount.
The actuarial assumptions for computing the lump sum amount
shall be determined by the Committee. The payment of the lump
sum shall be in full discharge of the Employer's obligations
under the Plan to the eligible recipient of such benefits.
(c) Commencement Date. Excess retirement benefits payable under
Section 4.1 shall commence as of the same date that benefits
commence under the Retirement Plan. However, upon application
by an Eligible Participant prior to benefit commencement under
the Retirement Plan, the Committee may, in its sole discretion,
determine that benefit payments under this Plan to such Eligible
Participant shall commence on a later benefit commencement date,
as agreed to by the Committee.
4.3 Vesting. An Eligible Participant shall become vested in the
benefits payable under Section 4.1 at the same time that he becomes vested
under the Retirement Plan. However, an Eligible Participant (or any benefit
recipient) shall have no right to a benefit under this Plan if the Committee or
the Company determines that the Eligible Participant engaged in a willful,
deliberate, or gross act of commission or omission which is injurious to the
finances or reputation of the Company or any of its affiliates.
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4.4 Death Benefits. In the event any death benefit payable under
the Retirement Plan prior to commencement of the Pension payable thereunder is
limited by Code section 415, the amount by which such death benefit is so
limited shall be payable hereunder at the same time, to the same person, and in
the same manner as the death benefit payable under the Retirement Plan.
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Article V. Administration
5.1 Administration. This Plan shall be administered by the
Committee appointed pursuant to the terms of the Retirement Plan. The
Committee shall administer this Plan in a manner consistent with the
administration of the Retirement Plan, except that this Plan shall be
administered as an unfunded plan which is not intended to meet the
qualification requirements of Code section 401. The Committee shall have the
same rights and authority granted to it under the Retirement Plan, which shall
include the full power and authority to interpret, construe and administer this
Plan. The Committee shall establish and maintain such accounts or records as
the Committee may from time to time consider necessary. Members of the
Committee shall not participate in any action or determination regarding their
own benefits under the Plan.
5.2 Finality of Determination. The determination of the Committee
as to any disputed questions arising under this Plan, including questions of
construction and interpretation shall be final, binding, and conclusive upon
all persons.
5.3 Expenses. The expenses of administering this Plan shall be
borne by the Employers in the proportions determined by the Committee.
5.4 Indemnification and Exculpation. The members of the Committee,
its agents, and officers, directors, and employees of the Company or any other
Employer shall be indemnified and held harmless by the Employer against and
from any and all loss, cost, liability, or expense that may be imposed upon or
reasonably incurred by them in connection with or resulting from any claim,
action, suit, or proceeding to which they may be a party or in which they may
be involved by reason of any action taken or failure to act under this Plan and
against and from any and all amounts paid by them in settlement (with the
Company's written
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approval) or paid by them in satisfaction of a judgment in any such action,
suit, or proceeding. The foregoing provision shall not be applicable to any
person if the loss, cost, liability, or expense is due to such person's gross
negligence or willful misconduct.
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Article VI. Funding of the Plan
6.1 Funding. All amounts paid under this Plan shall be paid from
the general assets of the participating Employers. Benefits shall be reflected
on the accounting records of the Employers, but neither this Plan nor the
maintenance of such accounting records shall be construed to create, or require
the creation of a trust, custodial account, or escrow account with respect to
any Eligible Participant. No Eligible Participant shall have any right, title,
or interest whatsoever in or to any investment reserves, accounts, or funds,
that the Employers may purchase, establish, or accumulate to aid in providing
the unfunded benefit payments described in the Plan. Nothing contained in this
Plan, and no action taken pursuant to its provisions, shall create, or be
construed to create, a trust or fiduciary relationship of any kind between an
Employer or the Committee and an Eligible Participant or any other person.
Eligible Participants shall not acquire any interest under the Plan greater
than that of an unsecured general creditor of an Employer. The Trust Fund of
the Retirement Plan shall not be liable for any benefits accrued under this
Plan.
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Article VII. Merger, Amendment, and Termination
7.1 Merger, Consolidation, or Acquisition. In the event of a
merger, consolidation, or acquisition where an Employer is not the surviving
organization, unless the successor or acquiring organization shall elect to
continue and carry on the Plan, this Plan shall terminate with respect to such
Employer, and no additional benefits shall accrue for the Eligible Participants
of such organization. Unpaid benefits shall continue to be paid as scheduled
unless the successor or acquiring organization elects to accelerate payment.
7.2 Amendment and Termination. The Board of Directors of the
Company may amend, modify, or terminate this Plan at any time and in any
manner. Such actions by the Board of Directors of the Company shall be binding
upon all other Employers. In addition, this Plan shall automatically terminate
at the time of the termination of the Retirement Plan, and any benefit payment
obligation under this Plan shall be measured with respect to the benefits which
are payable from the Retirement Plan irrespective of whether such benefits are
actually paid due to an insufficiency of assets to pay such benefits. In the
event of a termination of the Plan pursuant to this Section 7.2, no further
benefits shall accrue under this Plan, and amounts which are then payable shall
continue to be an obligation of the Employer and shall be paid as scheduled;
provided, however, that the Company reserves the right, in its sole discretion,
to accelerate payments to the affected Eligible Participants in the event of a
complete or partial termination of the Plan.
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Article VIII. Adoption Procedure
8.1 Adoption Procedure. With the consent of the Company, any other
organization which satisfies the definition of Employer under the Retirement
Plan and this Plan and which is eligible by the law to do so may adopt this
Plan for the benefit of its Employees who are or who become Participants under
the Retirement Plan, on express condition that the Company assumes no liability
as a result of any such adoption of this Plan by any other organization. Such
other organization may adopt this Plan by--
(a) executing an adoption instrument adopting the Plan, and agreeing
to be bound as a participating Employer by all the terms,
provisions, conditions, and limitations of the Plan; and
(b) compiling and submitting all information required by the Company
with reference to persons in its employment eligible for
membership in the Plan. The participating Employers under the
Plan shall be listed at the end of the Plan.
The adoption instrument shall specify the effective date of such adoption of
the Plan and shall become, as to such organization and persons in its
employment, a part of this Plan. The participating Employers under the Plan
shall be listed at the end of the Plan.
8.2 Withdrawal of Participating Employer. Any participating
Employer may withdraw from the Plan by giving 60 days' notice in writing of its
intention to withdraw to the Company, unless a shorter notice shall be agreed
to by the Company.
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Article IX. General Provisions
9.1 Nonalienation. No benefit payable at any time under the Plan
shall be subject in any manner to alienation, sale, transfer, assignment,
pledge, attachment, garnishment, or encumbrance of any kind, and shall not be
subject to or reached by any legal or equitable process (including execution,
garnishment, attachment, pledge, or bankruptcy) in satisfaction of any debt,
liability, or obligation, prior to receipt. Any attempt to alienate, sell,
transfer, assign, pledge, or otherwise encumber any such benefit, whether
presently or thereafter payable, shall be void. Notwithstanding the foregoing
provisions of this Section 9.1, no benefit amount payable under the Plan shall
be payable until and unless any and all amounts representing debts or other
obligations owed to the Company or other Employer by the Eligible Participant
with respect to whom such amount would otherwise be payable shall have been
fully paid.
9.2 Effect on Other Benefit Plans. Amounts credited or paid under
this Plan shall not be considered to be compensation for the purposes of the
Retirement Plan or any other plans maintained by an Employer. The treatment of
such amounts under other employee benefit plans shall be determined pursuant to
the provisions of such plans.
9.3 Severability. In the event any provision of this Plan shall be
held invalid or illegal for any reason, any illegality or invalidity shall not
affect the remaining parts of this Plan, but this Plan shall be construed and
enforced as if the illegal or invalid provision had never been inserted, and
the Company shall have the privilege and opportunity to correct and remedy such
questions of illegality or invalidity by amendment as provided in this Plan.
9.4 Applicable Law. This Plan shall be governed and construed in
accordance with the laws of the State of Texas.
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9.5 Employer-Employee Relationship. The establishment of this Plan
shall not be construed as conferring any legal or other rights upon any
Employee or any person for a continuation of employment, nor shall it interfere
with the rights of an Employer to discharge any Employee or otherwise act with
relation to the Employee. An Employer may take any action (including
discharge) with respect to any Employee or other person and may treat such
person without regard to the effect which such action or treatment might have
upon such person as an Eligible Participant under this Plan.
9.6 Incompetence. Every person receiving or claiming benefits under
the Plan shall be conclusively presumed to be mentally competent until the date
on which the Committee receives a written notice, in a form and manner
acceptable to the Committee, that such person is incompetent, and that a
guardian, conservator, or other person legally vested with the care of such
person's person or estate has been appointed; provided, however, that if the
Committee shall find that any person to whom a benefit is payable under the
Plan is unable to care for such person's affairs because of incompetency, any
payment due (unless a prior claim therefor shall have been made by a duly
appointed legal representative) may be paid as provided in the Retirement Plan.
Any such payment so made shall be a complete discharge of liability therefor
under the Plan.
9.7 Binding on Employer, Eligible Participants and Their Successors.
This Plan shall be binding upon and inure to the benefit of the Employers,
their successors and assigns and the Eligible Participants, their heirs,
executors, administrators and legal representatives. The provisions of this
Plan shall be applicable with respect to each Employer separately, and amounts
payable hereunder shall be paid by the Employer of the particular Eligible
Participant. In the event any Eligible Participant becomes entitled to a
benefit under the Retirement Plan based on service with more than one Employer,
the benefit obligations
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under this Plan shall be apportioned among such Employers as determined by the
Committee.
9.8 Tax Liability. An Employer may withhold from any payment of
benefits hereunder any taxes required to be withheld and such sum as the
Employer may reasonably estimate to be necessary to cover any taxes for which
the Employer may be liable and which may be assessed with regard to such
payment.
IN WITNESS WHEREOF, the Company has caused this instrument to be
executed by its duly authorized officers effective as of January 1, 1992.
MITCHELL ENERGY &
DEVELOPMENT CORP.
By: /s/ Clyde N. Black
-----------------------------
ATTEST: Its: Vice President --
Human Resources and
By: /s/ Ralph Smith Corporate Services
--------------------------------
Its:
----------------------------
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PARTICIPATING EMPLOYERS UNDER
THE MITCHELL ENERGY & DEVELOPMENT
CORP. RESTORATION BENEFIT PLAN
The following employers are participating Employers under the Mitchell Energy &
Development Corp. Restoration Benefit Plan as of January 1, 1992, unless a
later participation date is designated:
Mitchell Energy & Development Corp.
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APPENDIX I
TO THE
MITCHELL ENERGY & DEVELOPMENT
CORP. RESTORATION BENEFIT PLAN
The following individuals are designated as "Eligible Employees" in accordance
with and under the Mitchell Energy & Development Corp. Restoration Benefit
Plan:
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Exhibit 10(g)
MITCHELL ENERGY & DEVELOPMENT CORP.
EXCESS BENEFIT PLAN
(Amended and Restated Effective as of January 1, 1992)
<PAGE> 2
MITCHELL ENERGY & DEVELOPMENT CORP.
EXCESS BENEFIT PLAN
(Amended and Restated Effective as of January 1, 1992)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Article Section Page
- ------- ------- ----
<S> <C> <C> <C>
I Establishment and Purpose
-------------------------
1.1 Establishment and Amendment of Plan 1
1.2 Purpose 1
1.3 Application of the Plan 2
II Definitions and Construction
----------------------------
2.1 Definitions 3
2.2 Gender and Number; Headings 3
2.3 Incorporation of the Retirement Plan 3
III Participation
-------------
3.1 Eligibility 5
3.2 Participation 5
IV Benefits
--------
4.1 Amount of Benefits 6
4.2 Form of Payment and Commencement Date 6
4.3 Vesting 7
4.4 Death Benefits 7
V Administration
--------------
5.1 Administration 8
5.2 Finality of Determination 8
5.3 Expenses 8
5.4 Indemnification and Exculpation 8
VI Funding of the Plan
-------------------
6.1 Funding 10
VII Merger, Amendment, and Termination
----------------------------------
7.1 Merger, Consolidation, or Acquisition 11
7.2 Amendment and Termination 11
VIII Adoption Procedure
------------------
8.1 Adoption Procedure 12
8.2 Withdrawal of Participating Employer 12
</TABLE>
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MITCHELL ENERGY & DEVELOPMENT CORP.
EXCESS BENEFIT PLAN
(Amended and Restated Effective as of January 1, 1992)
TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
Article Section Page
- ------- ------- ----
<S> <C> <C> <C>
IX General Provisions
------------------
9.1 Nonalienation 13
9.2 Effect on Other Benefit Plans 13
9.3 Severability 13
9.4 Applicable Law 13
9.5 Employer-Employee Relationship 14
9.6 Incompetence 14
9.7 Binding on Employer, Eligible
Participants and Their Successors 14
9.8 Tax Liability 15
Participating Employers Under The
Mitchell Energy & Development
Corp. Excess Benefit Plan 16
</TABLE>
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MITCHELL ENERGY & DEVELOPMENT CORP.
EXCESS BENEFIT PLAN
(Amended and Restated Effective as of January 1, 1992)
Article I. Establishment and Purpose
1.1. Establishment and Amendment of Plan. MITCHELL ENERGY &
DEVELOPMENT CORP., a Texas corporation ("Company") presently maintains an
unfunded excess benefit plan as described in two separate documents designated
as the "Mitchell Energy & Development Corp. Excess Supplemental Retirement
Plan" and the "Mitchell Energy & Development Corp. Supplemental Retirement
Plan," both effective as of February 1, 1984. Said plan is hereby amended and
restated as set forth herein effective as of January 1, 1992, and is renamed
and shall be known as the "Mitchell Energy & Development Corp. Excess Benefit
Plan" ("Plan").
1.2 Purpose. The Plan was established and is maintained for the
purpose of providing Eligible Participants who are eligible to receive benefit
payments under the "Mitchell Energy & Development Corp. Retirement Plan," as
amended and restated effective as of February 1, 1989 and as amended thereafter
("Retirement Plan"), such portion of such benefit payments as would have been
payable to such Eligible Participants under the Retirement Plan if the maximum
annual benefit limitations under Code section 415 had not been applied to such
benefit payments. In this regard, it is the intent that the Plan meets the
requirements and be classified as an "excess benefit plan" as described in
section 3(36) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and as such that the Plan be exempt from the requirements of
Title I of ERISA. The Plan is not intended to satisfy the qualification
requirements of Code section 401.
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1.3 Application of the Plan. The terms of this Plan are applicable
only to or with respect to those Participants who are eligible to receive a
Pension benefit under the Retirement Plan on or after January 1, 1992, and who
become Eligible Participants under this Plan on or after such date.
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Article II. Definitions and Construction
2.1 Definitions. All terms used in this Plan shall have the same
meanings assigned to them under the provisions of the Retirement Plan, unless
otherwise qualified by the context hereof. Notwithstanding the prior sentence,
the following terms shall have the meanings set forth below, unless their
context clearly indicates to the contrary:
(a) "Eligible Participant" means an individual who satisfies the
conditions of Sections 3.1 and 3.2.
(b) "Employer" means the Company and each other Employer who is a
participating Employer under the Retirement Plan and who has
elected to become a participating Employer under this Plan as
provided in Article VIII.
(c) "Participant" means an individual who has qualified as a
"Participant" under the Retirement Plan and who maintains such
status at any relevant date.
(d) "Plan" means the "Mitchell Energy & Development Corp. Excess
Benefit Plan" as set forth in this document and as the same may
be amended from time to time.
(e) "Retirement Plan" means the "Mitchell Energy & Development Corp.
Retirement Plan," as amended and restated effective as of
February 1, 1989, and as the same may thereafter be amended from
time to time.
2.2 Gender and Number; Headings. Except when otherwise indicated by
the context, any masculine terminology when used in this Plan shall also
include the feminine gender, and the definition of any term in the singular
shall also include the plural. Headings of Articles and Sections herein are
included solely for convenience, and if there is any conflict between such
headings and the text of the Plan, the text shall control.
2.3 Incorporation of the Retirement Plan. The Retirement Plan is
hereby incorporated by reference into and shall form a part of this Plan as
fully as if set forth herein verbatim. Any
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<PAGE> 7
amendment made to the Retirement Plan shall also be incorporated by reference
into and form a part of this Plan, effective as of the effective date of such
amendment. The Retirement Plan, whenever referred to in this Plan, shall mean
the Retirement Plan as amended, as it exists as of the date any determination
is made of benefits payable under this Plan.
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Article III. Participation
3.1 Eligibility. A Participant who is entitled to retirement
benefits, or a person entitled to survivor benefits with respect to such
Participant, pursuant to the Retirement Plan will be eligible for payments
under this Plan provided payments that would otherwise have been made under the
Retirement Plan to or with respect to such Participant have been reduced by the
limitations on such payments set forth in the Retirement Plan, as required by
Code section 415.
3.2 Participation. A person who is eligible for retirement or
survivor benefits as described in Section 3.1 shall become an Eligible
Participant in the Plan as of the first day of the calendar month in which such
person meets the eligibility conditions in Section 3.1.
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Article IV. Benefits
4.1 Amount of Benefits.
(a) In General. If benefits under the Retirement Plan become
payable at or after age 65 in the form of a single life annuity
to a Participant who is an Eligible Participant, the monthly
excess retirement benefit payable under this Plan to such
Eligible Participant shall be equal to the difference between
the amount in (1) and the amount in (2) where--
(1) is the amount of the monthly normal retirement benefit
that would have been payable under the Retirement Plan
to such Eligible Participant if the provisions of the
Retirement Plan were administered without regard to the
benefit limitations of Code section 415; and
(2) is the amount of the monthly normal retirement benefit
payable to such Eligible Participant under the
Retirement Plan.
(b) Payments at Other Times and Other Forms. If benefits under the
Retirement Plan become payable at a time other than as provided
in Section 4.1(a) or in a form of payment other than single life
annuity, the amount of the monthly excess retirement benefit
payable under this Plan shall be the actuarial equivalent of the
amount specified in Section 4.1(a), computed using the same
actuarial factors and assumptions used to compute the benefit
payable under the Retirement Plan.
4.2 Form of Payment and Commencement Date.
(a) Form of Payment. The benefits payable under this Plan shall be
paid to the same recipients and in the same form and at the same
time or times as the limited benefits are payable to the
recipients under the Retirement Plan and shall cease to any
recipient at the same time
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<PAGE> 10
as benefits payable to such recipient under the Retirement Plan
shall cease.
(b) Lump Sum Option. If the lump sum actuarial equivalent of any
benefits payable under this Plan is $10,000 or less, the
Committee, in its sole discretion, may pay such benefits due the
recipient under this Plan in the form of such lump sum amount.
The actuarial assumptions for computing the lump sum amount
shall be determined by the Committee. The payment of the lump
sum shall be in full discharge of the Employer's obligations
under the Plan to the eligible recipient of such benefits.
(c) Commencement Date. Excess retirement benefits payable under
Section 4.1 shall commence as of the same date that benefits
commence under the Retirement Plan. However, upon application
by an Eligible Participant prior to benefit commencement under
the Retirement Plan, the Committee may, in its sole discretion,
determine that benefit payments under this Plan to such Eligible
Participant shall commence on a later benefit commencement date,
as agreed to by the Committee.
4.3 Vesting. An Eligible Participant shall become vested in the
benefits payable under Section 4.1 at the same time that he becomes vested
under the Retirement Plan. However, an Eligible Participant (or any benefit
recipient) shall have no right to a benefit under this Plan if the Committee or
the Company determines that the Eligible Participant engaged in a willful,
deliberate, or gross act of commission or omission which is injurious to the
finances or reputation of the Company or any of its affiliates.
4.4 Death Benefits. In the event any death benefit payable under
the Retirement Plan prior to commencement of the Pension payable thereunder is
limited by Code section 415, the amount by which such death benefit is so
limited shall be payable hereunder at the same time, to the same person, and in
the same manner as the death benefit payable under the Retirement Plan.
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Article V. Administration
5.1 Administration. This Plan shall be administered by the
Committee appointed pursuant to the terms of the Retirement Plan. The
Committee shall administer this Plan in a manner consistent with the
administration of the Retirement Plan, except that this Plan shall be
administered as an unfunded plan which is not intended to meet the
qualification requirements of Code section 401. The Committee shall have the
same rights and authority granted to it under the Retirement Plan, which shall
include the full power and authority to interpret, construe and administer this
Plan. The Committee shall establish and maintain such accounts or records as
the Committee may from time to time consider necessary. Members of the
Committee shall not participate in any action or determination regarding their
own benefits under the Plan.
5.2 Finality of Determination. The determination of the Committee
as to any disputed questions arising under this Plan, including questions of
construction and interpretation shall be final, binding, and conclusive upon
all persons.
5.3 Expenses. The expenses of administering this Plan shall be
borne by the Employers in the proportions determined by the Committee.
5.4 Indemnification and Exculpation. The members of the Committee,
its agents, and officers, directors, and employees of the Company or any other
Employer shall be indemnified and held harmless by the Employer against and
from any and all loss, cost, liability, or expense that may be imposed upon or
reasonably incurred by them in connection with or resulting from any claim,
action, suit, or proceeding to which they may be a party or in which they may
be involved by reason of any action taken or failure to act under this Plan and
against and from any and all amounts paid by them in settlement (with the
Company's written
-8-
<PAGE> 12
approval) or paid by them in satisfaction of a judgment in any such action,
suit, or proceeding. The foregoing provision shall not be applicable to any
person if the loss, cost, liability, or expense is due to such person's gross
negligence or willful misconduct.
-9-
<PAGE> 13
Article VI. Funding of the Plan
6.1 Funding. All amounts paid under this Plan shall be paid from
the general assets of the participating Employers. Benefits shall be reflected
on the accounting records of the Employers, but neither this Plan nor the
maintenance of such accounting records shall be construed to create, or require
the creation of a trust, custodial account, or escrow account with respect to
any Eligible Participant. No Eligible Participant shall have any right, title,
or interest whatsoever in or to any investment reserves, accounts, or funds,
that the Employers may purchase, establish, or accumulate to aid in providing
the unfunded benefit payments described in the Plan. Nothing contained in this
Plan, and no action taken pursuant to its provisions, shall create, or be
construed to create, a trust or fiduciary relationship of any kind between an
Employer or the Committee and an Eligible Participant or any other person.
Eligible Participants shall not acquire any interest under the Plan greater
than that of an unsecured general creditor of an Employer. The Trust Fund of
the Retirement Plan shall not be liable for any benefits accrued under this
Plan.
-10-
<PAGE> 14
Article VII. Merger, Amendment, and Termination
7.1 Merger, Consolidation, or Acquisition. In the event of a
merger, consolidation, or acquisition where an Employer is not the surviving
organization, unless the successor or acquiring organization shall elect to
continue and carry on the Plan, this Plan shall terminate with respect to such
Employer, and no additional benefits shall accrue for the Eligible Participants
of such organization. Unpaid benefits shall continue to be paid as scheduled
unless the successor or acquiring organization elects to accelerate payment.
7.2 Amendment and Termination. The Board of Directors of the
Company may amend, modify, or terminate this Plan at any time and in any
manner. Such actions by the Board of Directors of the Company shall be binding
upon all other Employers. In addition, this Plan shall automatically terminate
at the time of the termination of the Retirement Plan, and any benefit payment
obligation under this Plan shall be measured with respect to the benefits which
are payable from the Retirement Plan irrespective of whether such benefits are
actually paid due to an insufficiency of assets to pay such benefits. In the
event of a termination of the Plan pursuant to this Section 7.2, no further
benefits shall accrue under this Plan, and amounts which are then payable shall
continue to be an obligation of the Employer and shall be paid as scheduled;
provided, however, that the Company reserves the right, in its sole discretion,
to accelerate payments to the affected Eligible Participants in the event of a
complete or partial termination of the Plan.
-11-
<PAGE> 15
Article VIII. Adoption Procedure
8.1 Adoption Procedure. With the consent of the Company, any other
organization which satisfies the definition of Employer under the Retirement
Plan and this Plan and which is eligible by the law to do so may adopt this
Plan for the benefit of its Employees who are or who become Participants under
the Retirement Plan, on express condition that the Company assumes no liability
as a result of any such adoption of this Plan by any other organization. Such
other organization may adopt this Plan by--
(a) executing an adoption instrument adopting the Plan, and agreeing
to be bound as a participating Employer by all the terms,
provisions, conditions, and limitations of the Plan; and
(b) compiling and submitting all information required by the Company
with reference to persons in its employment eligible for
membership in the Plan. The participating Employers under the
Plan shall be listed at the end of the Plan.
The adoption instrument shall specify the effective date of such adoption of
the Plan and shall become, as to such organization and persons in its
employment, a part of this Plan. The participating Employers under the Plan
shall be listed at the end of the Plan.
8.2 Withdrawal of Participating Employer. Any participating
Employer may withdraw from the Plan by giving 60 days' notice in writing of its
intention to withdraw to the Company, unless a shorter notice shall be agreed
to by the Company.
-12-
<PAGE> 16
Article IX. General Provisions
9.1 Nonalienation. No benefit payable at any time under the Plan
shall be subject in any manner to alienation, sale, transfer, assignment,
pledge, attachment, garnishment, or encumbrance of any kind, and shall not be
subject to or reached by any legal or equitable process (including execution,
garnishment, attachment, pledge, or bankruptcy) in satisfaction of any debt,
liability, or obligation, prior to receipt. Any attempt to alienate, sell,
transfer, assign, pledge, or otherwise encumber any such benefit, whether
presently or thereafter payable, shall be void. Notwithstanding the foregoing
provisions of this Section 9.1, no benefit amount payable under the Plan shall
be payable until and unless any and all amounts representing debts or other
obligations owed to the Company or other Employer by the Eligible Participant
with respect to whom such amount would otherwise be payable shall have been
fully paid.
9.2 Effect on Other Benefit Plans. Amounts credited or paid under
this Plan shall not be considered to be compensation for the purposes of the
Retirement Plan or any other plans maintained by an Employer. The treatment of
such amounts under other employee benefit plans shall be determined pursuant to
the provisions of such plans.
9.3 Severability. In the event any provision of this Plan shall be
held invalid or illegal for any reason, any illegality or invalidity shall not
affect the remaining parts of this Plan, but this Plan shall be construed and
enforced as if the illegal or invalid provision had never been inserted, and
the Company shall have the privilege and opportunity to correct and remedy such
questions of illegality or invalidity by amendment as provided in this Plan.
9.4 Applicable Law. This Plan shall be governed and construed in
accordance with the laws of the State of Texas.
-13-
<PAGE> 17
9.5 Employer-Employee Relationship. The establishment of this Plan
shall not be construed as conferring any legal or other rights upon any
Employee or any person for a continuation of employment, nor shall it interfere
with the rights of an Employer to discharge any Employee or otherwise act with
relation to the Employee. An Employer may take any action (including
discharge) with respect to any Employee or other person and may treat such
person without regard to the effect which such action or treatment might have
upon such person as an Eligible Participant under this Plan.
9.6 Incompetence. Every person receiving or claiming benefits under
the Plan shall be conclusively presumed to be mentally competent until the date
on which the Committee receives a written notice, in a form and manner
acceptable to the Committee, that such person is incompetent, and that a
guardian, conservator, or other person legally vested with the care of such
person's person or estate has been appointed; provided, however, that if the
Committee shall find that any person to whom a benefit is payable under the
Plan is unable to care for such person's affairs because of incompetency, any
payment due (unless a prior claim therefor shall have been made by a duly
appointed legal representative) may be paid as provided in the Retirement Plan.
Any such payment so made shall be a complete discharge of liability therefor
under the Plan.
9.7 Binding on Employer, Eligible Participants and Their Successors.
This Plan shall be binding upon and inure to the benefit of the Employers,
their successors and assigns and the Eligible Participants, their heirs,
executors, administrators and legal representatives. The provisions of this
Plan shall be applicable with respect to each Employer separately, and amounts
payable hereunder shall be paid by the Employer of the particular Eligible
Participant. In the event any Eligible Participant becomes entitled to a
benefit under the Retirement Plan based on service with more than one Employer,
the benefit obligations
-14-
<PAGE> 18
under this Plan shall be apportioned among such Employers as determined by the
Committee.
9.8 Tax Liability. An Employer may withhold from any payment of
benefits hereunder any taxes required to be withheld and such sum as the
Employer may reasonably estimate to be necessary to cover any taxes for which
the Employer may be liable and which may be assessed with regard to such
payment.
IN WITNESS WHEREOF, the Company has caused this instrument to be
executed by its duly authorized officers effective as of January 1, 1992.
MITCHELL ENERGY &
DEVELOPMENT CORP.
By: /s/ CLYDE N. BLACK
--------------------------
ATTEST:
Its: Vice President--
By: /s/ RALPH SMITH Human Resources and
------------------------- Corporate Services
Its:______________________
-15-
<PAGE> 19
PARTICIPATING EMPLOYERS UNDER
THE MITCHELL ENERGY & DEVELOPMENT
CORP. EXCESS BENEFIT PLAN
The following employers are participating Employers under the Mitchell Energy &
Development Corp. Excess Benefit Plan as of January 1, 1992, unless a later
participation date is designated:
Mitchell Energy & Development Corp.
-16-
<PAGE> 1
Exhibit 10(j)
January 3, 1994
Mr. W. D. Stevens
5715 Indian Trail
Houston, Texas 77057
Dear Bill:
The purpose of this letter is to document the offer by Mitchell Energy
& Development Corp. (the "Company") for you to become President and Chief
Operating Officer of the Company effective January 3, 1994 (your "Employment
Date") and your acceptance of that offer.
In your new position, you will report directly to me, as I will
continue as Chairman of the Board of Directors and Chief Executive Officer of
the Company. You will remain a Director of the Company (subject, of course, to
your re-election annually by the stockholders); but as an "inside" Director,
you will have to resign from the Audit Committee of the Board of Directors (the
"Board"), effective your Employment Date. (You will, of course, no longer
receive compensation as an "outside" Director.)
Your starting annual salary, as a regular employee of the Company, will
be FOUR HUNDRED THOUSAND AND NO/100 DOLLARS ($400,000.00). Subsequent salary
increases will be based upon your performance, Company financial results and
Board action. Additionally, your compensation package includes the following
provisions:
- - You will have full rights and be eligible to participate in all of the
benefit plans of the Company, as described in the Employee Handbook and
related documents; and
- - Beginning January 1, 1995, you will be eligible for four (4) weeks paid
annual vacation.
On your Employment Date, you will receive stock option grants for SIXTY
THOUSAND (60,000) shares of the Company's Class A Common Stock and SIXTY
THOUSAND (60,000) shares of the Company's Class B Common Stock. The mix of the
options between incentive options and non-incentive options will need to be
determined at the time of grant, for as you are aware to the extent that the
aggregate fair market value at the time of grant of stock to which incentive
options are exercisable for the first time by an individual during any
calendar-year exceeds $100,000, such stock options do not qualify as incentive
stock options. Such grants will be made pursuant to the terms of the Company's
1989 Stock Option Plan (as amended, the "1989 Plan") and Stock Option
Agreements between you and
<PAGE> 2
Mr. W. D. Stevens
Page 2
the Company, copies of which are attached hereto as Exhibits "A", "B", "C" and
"D". and made a part of this offer. Vesting of such options will be as
provided in the 1989 Plan and these Exhibits. You will also be eligible to
participate in any bonus or bonus unit awards made to Company employees, all as
awarded and determined at the sole discretion of the Compensation Committee of
the Board.
It is understood that, as a result of your recent relationship with
Exxon Corporation, it may be necessary for you to recuse yourself from matters
where you have prior proprietary knowledge resulting from such previous
employment and in which the Company is in direct competition with Exxon
Corporation (or any of its affiliates, together "Exxon"). The Company agrees to
this restriction. I understand, and the Company also agrees, that you are not
to participate in any direct business dealings, without Exxon's prior consent,
between the Company and Exxon or otherwise conduct business for the Company,
which could reasonably be interpreted as a conflict of interest as a
consequence of your prior Exxon employment. I also recognize that, from time
to time, you may have to make yourself available to Exxon for legal or other
proceedings related to events or actions which occurred during your previous
Exxon employment.
Again, Bill, I am most pleased to have you become a very important part
of the Company. If the terms contained herein are as we have agreed, please
execute this letter and the enclosed copy and return the fully-executed copy to
me.
Sincerely,
George P. Mitchell
AGREED to this 3rd day
of January, 1994.
By: /s/ W. D. STEVENS
_____________________________
W. D. Stevens
Attachments: Exhibits "A", "B", "C" and "D"
<PAGE> 3
[ISO/Class A]
INCENTIVE STOCK OPTION AGREEMENT
AGREEMENT made this 3rd day of January, 1994, between MITCHELL ENERGY &
DEVELOPMENT CORP., a Texas corporation (the "Company"), and W. D. STEVENS
("Employee").
To carry out the purposes of the MITCHELL ENERGY & DEVELOPMENT CORP.
1989 STOCK OPTION PLAN (the "Plan"), by affording Employee the opportunity to
purchase shares of the Class A Common Stock of the Company ("Stock"), and in
consideration of the mutual agreements and other matters set forth herein and
in the Plan, the Company and Employee hereby agree as follows:
1. GRANT OF OPTION. The Company hereby irrevocably grants to Employee
the right and option ("Option") to purchase all or any part of an aggregate of
12,230 shares of Stock, on the terms and conditions set forth herein and in the
Plan, which Plan is incorporated herein by reference as a part of this
Agreement. This Option is intended to constitute an incentive stock option,
within the meaning of section 422(b) of the Internal Revenue Code of l986, as
amended (the "Code").
2. PURCHASE PRICE. The purchase price of Stock purchased pursuant to
the exercise of this Option shall be $20.625 per share, which has been
determined to be not less than the fair market value of the Stock at the date
of grant of this Option. For all purposes of this Agreement, fair market value
of Stock shall be determined in accordance with the provisions of the Plan.
3. EXERCISE OF OPTION. Subject to the earlier expiration of this
Option as herein provided, this Option may be exercised, by written notice to
the Company at its principal executive office addressed to the attention of its
Option Plan Administrator, at any time and from time to time after the date of
grant hereof, but, except as otherwise provided below, this Option shall not be
exercisable for more than a portion of the aggregate number of shares offered
by this Option determined by the number of full years from the date of grant
hereof to the date of such exercise, in accordance with the following schedule:
<PAGE> 4
<TABLE>
<CAPTION>
Number of Full Years Number of Shares that May be Purchased
-------------------- --------------------------------------
<S> <C>
Less than 1 year 0
1 year 2,446
2 years 4,892
3 years 7,338
4 years 9,784
5 years 12,230
</TABLE>
This Option is not transferable by Employee otherwise than by will or
the laws of descent and distribution, and may be exercised only by Employee (or
his guardian or legal representative) during Employee's lifetime and while
Employee remains an employee of the Company, except that:
(a) If Employee dies while in the employ of the Company,
Employee's estate, or the person who acquires this Option by will
or the laws of descent and distribution or otherwise by reason of
the death of Employee, may exercise this Option at any time during
the period of one year following the date of Employee's death, but
only as to the number of shares Employee was entitled to purchase
hereunder as of the date of Employee's death.
(b) If Employee's employment with the Company is terminated for
cause, this option may be exercised by Employee at any time during
the period of three months following such termination, or by
Employee's estate (or the person who acquires this Option by will
or the laws of descent and distribution or otherwise by reason of
the death of Employee) during a period of one year following
Employee's death if Employee dies during such three-month period,
but in each case only as to the number of shares Employee was
entitled to purchase hereunder as of the date Employee's employment
so terminates. For purposes of this paragraph, "cause" shall mean
Employee's actions significantly and adversely affecting (except
for disability) the performance of, or his ability to perform,
Employee's job, including but not limited to failure or refusal to
perform his duties to the Company, major violation of the Company's
conflict of interest or other policies, or Employee's final
conviction of a felony or of a misdemeanor involving moral
turpitude.
(c) If Employee's employment with the Company terminates for
any reason other than as described in (a) or (b) above, this Option
may be exercised by Employee at any time during the period of one
year following such
-2-
<PAGE> 5
termination, or by Employee's estate (or the person who acquires
this Option by will or the laws of descent and distribution or
otherwise by reason of the death of Employee) during a period of
one year following Employee's death if Employee dies during such
one-year period, but in each case only as to the number of shares
Employee was entitled to purchase hereunder as of the date
Employee's employment so terminates.
This Option shall not be exercisable in any event after the expiration
of ten years from the date of grant hereof. The purchase price of shares as to
which this Option is exercised shall be paid in full at the time of exercise (a)
in cash (including check, bank draft or money order payable to the order of the
Company), or (b) by delivering to the Company shares of Stock having a fair
market value equal to the purchase price, or (c) any combination of cash and
Stock. No fraction of a share of Stock shall be issued by the Company upon
exercise of an Option or accepted by the Company in payment of the exercise
price thereof; rather, Employee shall provide a cash payment for such amount as
is necessary to effect the issuance and acceptance of only whole shares of
Stock. Unless and until a certificate or certificates representing such shares
shall have been issued by the Company to Employee, Employee (or the person
permitted to exercise this Option in the event of Employee's death or
incapacity) shall not be or have any of the rights or privileges of a
shareholder of the Company with respect to shares acquirable upon an exercise of
this Option.
Notwithstanding the foregoing, upon an exercise of this Option, if
Employee is not then subject to the restrictions on insider trading pursuant to
section 16(b) of the Securities Exchange Act of 1934, Employee may elect to
follow such exercise by immediate sale of any treasury Stock acquired pursuant
to such exercise in accordance with the following:
(i) Upon receipt of notice of exercise and immediate sale
pursuant to this provision, the Company will extend credit, on an
interest-free basis, to Employee for the aggregate exercise price; and
(ii) The Company's transfer agent will be instructed to issue
certificates for such Stock; and
(iii) A brokerage company or companies selected by the Company
will sell the Stock for the account of Employee; and
(iv) The portion of the proceeds of such sale totaling the
Option exercise price plus the amount of applicable withheld taxes will
be paid on settlement date to the Company; and
-3-
<PAGE> 6
(v) The proceeds of such sale less the Option exercise price,
the amount of applicable withheld taxes, and applicable brokerage fees
will be paid on settlement date to the Employee.
4. WITHHOLDING OF TAX. To the extent that the exercise of this Option
or the disposition of shares of Stock acquired by exercise of this Option
results in compensation income to Employee for federal or state income tax
purposes, Employee shall pay to the Company at the time of such exercise or
disposition such amount of money as the Company may require to meet its
obligation under applicable tax laws or regulations, and, if Employee fails to
do so, the Company is authorized to withhold from any cash remuneration then or
thereafter payable to Employee any tax required to be withheld by reason of such
resulting compensation income.
5. STATUS OF STOCK. The Company intends to register for sale under the
Securities Act of l933, as amended (the "Act") the shares of Stock acquirable
upon exercise of this Option, and to keep such registration effective throughout
the period this Option is exercisable. In the absence of such effective
registration or an available exemption from registration under the Act,
issuance of shares of Stock acquirable upon exercise of this Option
will be delayed until registration of such shares is effective or
an exemption from registration under the Act is available. The
Company intends to use its best efforts to ensure that no
such delay will occur. In the event exemption from registration under
the Act is available upon an exercise of this Option, Employee (or the person
permitted to exercise this Option in the event of Employee's death or
incapacity), if requested by the Company to do so, will execute and deliver to
the Company in writing an agreement containing such provisions as the Company
may require to assure compliance with applicable securities laws.
Employee agrees that the shares of Stock which Employee may
acquire by exercising this Option will not be sold or otherwise disposed of in
any manner which would constitute a violation of any applicable securities laws,
whether federal or state. Employee also agrees (i) that the certificates
representing the shares of Stock purchased under this Option may bear such
legend or legends as the Committee deems appropriate in order to assure
compliance with applicable securities laws, and (ii) that the Company may refuse
to register the transfer of the shares of Stock purchased under this Option on
the stock transfer records of the Company if such proposed transfer would in the
opinion of counsel satisfactory to the Company constitute a violation of any
applicable securities laws and (iii) that the Company may give related
instructions to its transfer agent, if any, to stop registration of the transfer
of the shares of Stock purchased under this Option.
6. EMPLOYMENT RELATIONSHIP. For purposes of this Agreement, Employee
shall be considered to be in the employment of the Company as long as Employee
remains an employee of either the Company, a parent or subsidiary corporation
(as defined in section 424 of the Code) of the Company, or a corporation or a
parent or subsidiary of such corporation assuming or
-4-
<PAGE> 7
substituting a new option for this Option. Any question as to whether and when
there has been a termination of such employment, and the cause of such
termination, shall be determined by the Committee and its determination shall
be final.
7. CHANGE OF CONTROL. In addition to the conditions for vesting
contained hereinabove in this Agreement and in the Plan, Employee shall have the
right to exercise any or all of the remaining unexercised shares offered by this
Option upon the occurrence of the following described event, so long as such
event occurs more than one year from the date of grant of this Option.
o If the ownership of the Company changes from the majority voting
control of the Company being held by George P. Mitchell ("Mr.
Mitchell") himself only ("Change of Control"); and
o If Employee is employed in a position at least equivalent to President
and Chief Operating Officer of the Company immediately prior to the
Change of Control; and
o If Employee is no longer employed in a position at least substantially
equivalent to President and Chief Operating Officer of the Company and
no longer paid a salary at least equivalent to the salary being paid to
Employee immediately prior to the Change of Control ("Loss of
Position") for at least one year following the Change of Control.
o For the purposes hereof, the "Company" includes the largest surviving
energy company if Mitchell Energy & Development Corp. is ever merged or
consolidated or is divided or otherwise reorganized into two or more
companies.
o If Employee voluntarily severs employment with the Company for any
reason except Loss of Position or if the Company discharges him for
cause, this right to accelerate remaining unexercised shares offered
by this Option shall terminate immediately. For the purposes hereof,
"for cause" shall mean Employee's actions significantly and adversely
affecting (except for disability or death) the performance of, or his
ability to perform, Employee's job, including but not limited to
failure or refusal to perform his duties to the Company, major
violation of the Company's conflict of interest or other policies,
or Employee's final conviction of a felony or of a misdemeanor
involving moral turpitude.
8. BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of any successors to the Company and all persons lawfully claiming
under Employee.
9. GOVERNING LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Texas.
-5-
<PAGE> 8
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed by its officer thereunto duly authorized, and Employee has executed
this Agreement, all as of the day and year first above written.
MITCHELL ENERGY & DEVELOPMENT
CORP.
By: /s/ George P. Mitchell
_________________________________________
W. D. STEVENS
/s/ W. D. Stevens
_________________________________________
-6-
<PAGE> 9
[ISO/Class B]
INCENTIVE STOCK OPTION AGREEMENT
AGREEMENT made this 3rd day of January, 1994, between MITCHELL ENERGY &
DEVELOPMENT CORP., a Texas corporation (the "Company"), and W. D. STEVENS
("Employee").
To carry out the purposes of the MITCHELL ENERGY & DEVELOPMENT CORP.
1989 STOCK OPTION PLAN (the "Plan"), by affording Employee the opportunity to
purchase shares of the Class B Common Stock of the Company ("Stock"), and in
consideration of the mutual agreements and other matters set forth herein and
in the Plan, the Company and Employee hereby agree as follows:
1. GRANT OF OPTION. The Company hereby irrevocably grants to Employee
the right and option ("Option") to purchase all or any part of an aggregate of
12,230 shares of Stock, on the terms and conditions set forth herein and in the
Plan, which Plan is incorporated herein by reference as a part of this
Agreement. This Option is intended to constitute an incentive stock option,
within the meaning of section 422(b) of the Internal Revenue Code of l986, as
amended (the "Code").
2. PURCHASE PRICE. The purchase price of Stock purchased pursuant to
the exercise of this Option shall be $20.25 per share, which has been
determined to be not less than the fair market value of the Stock at the date
of grant of this Option. For all purposes of this Agreement, fair market value
of Stock shall be determined in accordance with the provisions of the Plan.
3. EXERCISE OF OPTION. Subject to the earlier expiration of this
Option as herein provided, this Option may be exercised, by written notice to
the Company at its principal executive office addressed to the attention of its
Option Plan Administrator, at any time and from time to time after the date of
grant hereof, but, except as otherwise provided below, this Option shall not be
exercisable for more than a portion of the aggregate number of shares offered
by this Option determined by the number of full years from the date of grant
hereof to the date of such exercise, in accordance with the following schedule:
<PAGE> 10
<TABLE>
<CAPTION>
Number of Full Years Number of Shares that May be Purchased
-------------------- --------------------------------------
<S> <C>
Less than 1 year 0
1 year 2,446
2 years 4,892
3 years 7,338
4 years 9,784
5 years 12,230
</TABLE>
This Option is not transferable by Employee otherwise than by will or
the laws of descent and distribution, and may be exercised only by Employee (or
his guardian or legal representative) during Employee's lifetime and while
Employee remains an employee of the Company, except that:
(a) If Employee dies while in the employ of the Company,
Employee's estate, or the person who acquires this Option by
will or the laws of descent and distribution or otherwise by
reason of the death of Employee, may exercise this Option at
any time during the period of one year following the date of
Employee's death, but only as to the number of shares Employee
was entitled to purchase hereunder as of the date of Employee's
death.
(b) If Employee's employment with the Company is terminated for
cause, this option may be exercised by Employee at any time
during the period of three months following such termination,
or by Employee's estate (or the person who acquires this Option
by will or the laws of descent and distribution or otherwise by
reason of the death of Employee) during a period of one year
following Employee's death if Employee dies during such
three-month period, but in each case only as to the number of
shares Employee was entitled to purchase hereunder as of the
date Employee's employment so terminates. For purposes of this
paragraph, "cause" shall mean Employee's actions significantly
and adversely affecting (except for disability) the performance
of, or his ability to perform, Employee's job, including but
not limited to failure or refusal to perform his duties to the
Company, major violation of the Company's conflict of interest
or other policies, or Employee's final conviction of a felony
or of a misdemeanor involving moral turpitude.
(c) If Employee's employment with the Company terminates for any
reason other than as described in (a) or (b) above, this
Option may be exercised by Employee at any time during the
period of one year following such termination, or by
Employee's estate (or the person who acquires this Option by
will or the laws of descent and distribution or otherwise by
reason of the death of Employee) during a period of one year
following
-2-
<PAGE> 11
Employee's death if Employee dies during such one year
period, but in each case only as to the number of shares
Employee was entitled to purchase hereunder as of the date
Employee's employment so terminates.
This Option shall not be exercisable in any event after the expiration
of ten years from the date of grant hereof. The purchase price of shares as to
which this Option is exercised shall be paid in full at the time of exercise
(a) in cash (including check, bank draft or money order payable to the order of
the Company), or (b) by delivering to the Company shares of Stock having a fair
market value equal to the purchase price, or (c) any combination of cash and
Stock. No fraction of a share of Stock shall be issued by the Company upon
exercise of an Option or accepted by the Company in payment of the exercise
price thereof; rather, Employee shall provide a cash payment for such amount as
is necessary to effect the issuance and acceptance of only whole shares of
Stock. Unless and until a certificate or certificates representing such shares
shall have been issued by the Company to Employee, Employee (or the person
permitted to exercise this Option in the event of Employee's death or
incapacity) shall not be or have any of the rights or privileges of a
shareholder of the Company with respect to shares acquirable upon an exercise
of this Option.
Notwithstanding the foregoing, upon an exercise of this Option, if
Employee is not then subject to the restrictions on insider trading pursuant to
section 16(b) of the Securities Exchange Act of 1934, Employee may elect to
follow such exercise by immediate sale of any treasury Stock acquired pursuant
to such exercise in accordance with the following:
(i) Upon receipt of notice of exercise and immediate sale
pursuant to this provision, the Company will extend credit, on an
interest-free basis, to Employee for the aggregate exercise price; and
(ii) The Company's transfer agent will be instructed to issue
certificates for such Stock; and
(iii) A brokerage company or companies selected by the Company
will sell the Stock for the account of Employee; and
(iv) The portion of the proceeds of such sale totaling the
Option exercise price plus the amount of applicable withheld taxes will
be paid on settlement date to the Company; and
(v) The proceeds of such sale less the Option exercise price,
the amount of applicable withheld taxes, and applicable brokerage fees
will be paid on settlement date to the Employee.
4. WITHHOLDING OF TAX. To the extent that the exercise of this Option
or the disposition of shares of Stock acquired by exercise of this Option
results in compensation income
-3-
<PAGE> 12
to Employee for federal or state income tax purposes, Employee shall pay to the
Company at the time of such exercise or disposition such amount of money as the
Company may require to meet its obligation under applicable tax laws or
regulations, and, if Employee fails to do so, the Company is authorized to
withhold from any cash remuneration then or thereafter payable to Employee any
tax required to be withheld by reason of such resulting compensation income.
5. STATUS OF STOCK. The Company intends to register for sale under the
Securities Act of l933, as amended (the "Act") the shares of Stock acquirable
upon exercise of this Option, and to keep such registration effective
throughout the period this Option is exercisable. In the absence of such
effective registration or an available exemption from registration under the
Act, issuance of shares of Stock acquirable upon exercise of this Option will
be delayed until registration of such shares is effective or an exemption from
registration under the Act is available. The Company intends to use its best
efforts to ensure that no such delay will occur. In the event exemption from
registration under the Act is available upon an exercise of this Option,
Employee (or the person permitted to exercise this Option in the event of
Employee's death or incapacity), if requested by the Company to do so, will
execute and deliver to the Company in writing an agreement containing such
provisions as the Company may require to assure compliance with applicable
securities laws.
Employee agrees that the shares of Stock which Employee may acquire by
exercising this Option will not be sold or otherwise disposed of in any manner
which would constitute a violation of any applicable securities laws, whether
federal or state. Employee also agrees (i) that the certificates representing
the shares of Stock purchased under this Option may bear such legend or legends
as the Committee deems appropriate in order to assure compliance with
applicable securities laws, and (ii) that the Company may refuse to register
the transfer of the shares of Stock purchased under this Option on the stock
transfer records of the Company if such proposed transfer would in the opinion
of counsel satisfactory to the Company constitute a violation of any applicable
securities laws and (iii) that the Company may give related instructions to its
transfer agent, if any, to stop registration of the transfer of the shares of
Stock purchased under this Option.
6. EMPLOYMENT RELATIONSHIP. For purposes of this Agreement, Employee
shall be considered to be in the employment of the Company as long as Employee
remains an employee of either the Company, a parent or subsidiary corporation
(as defined in section 424 of the Code) of the Company, or a corporation or a
parent or subsidiary of such corporation assuming or substituting a new option
for this Option. Any question as to whether and when there has been a
termination of such employment, and the cause of such termination, shall be
determined by the Committee and its determination shall be final.
7. CHANGE OF CONTROL. In addition to the conditions for vesting
contained hereinabove in this Agreement and in the Plan, Employee shall have
the right to exercise any or all of the remaining unexercised shares offered by
this Option upon the occurrence of the
-4-
<PAGE> 13
following described event, so long as such event occurs more than one year from
the date of grant of this Option.
o If the ownership of the Company changes from the majority voting
control of the Company being held by George P. Mitchell ("Mr.
Mitchell") himself only ("Change of Control"); and
o If Employee is employed in a position at least equivalent to President
and Chief Operating Officer of the Company immediately prior to the
Change of Control; and
o If Employee is no longer employed in a position at least substantially
equivalent to President and Chief Operating Officer of the Company and
no longer paid a salary at least equivalent to the salary being paid to
Employee immediately prior to the Change of Control ("Loss of
Position") for at least one year following the Change of Control.
o For the purposes hereof, the "Company" includes the largest surviving
energy company if Mitchell Energy & Development Corp. is ever merged or
consolidated or is divided or otherwise reorganized into two or more
companies.
o If Employee voluntarily severs employment with the Company for any
reason except Loss of Position or if the Company discharges him for
cause, this right to accelerate remaining unexercised shares offered
by this Option shall terminate immediately. For the purposes hereof,
"for cause" shall mean Employee's actions significantly and adversely
affecting (except for disability or death) the performance of, or his
ability to perform Employee's job, including but not limited to
failure or refusal to perform his duties to the Company, major
violation of the Company's conflict of interest or other policies, or
Employee's final conviction of a felony or of a misdemeanor involving
moral turpitude.
8. BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of any successors to the Company and all persons lawfully claiming
under Employee.
9. GOVERNING LAW. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of Texas.
-5-
<PAGE> 14
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed by its officer thereunto duly authorized, and Employee has executed
this Agreement, all as of the day and year first above written.
MITCHELL ENERGY & DEVELOPMENT
CORP.
By: /s/ GEORGE P. MITCHELL
_____________________________________
W. D. STEVENS
/s/ W. D. STEVENS
______________________________________
-6-
<PAGE> 15
[NQ/Class A]
NONSTATUTORY STOCK OPTION AGREEMENT
AGREEMENT made as of the 3rd day of January, 1994, between MITCHELL
ENERGY & DEVELOPMENT CORP., a Texas corporation (the "Company"), and W. D.
STEVENS ("Employee").
To carry out the purposes of the MITCHELL ENERGY & DEVELOPMENT CORP.
1989 STOCK OPTION PLAN (the "Plan"), by affording Employee the opportunity to
purchase shares of the Class A Common Stock of the Company ("Stock"), and in
consideration of the mutual agreements and other matters set forth herein and
in the Plan, the Company and Employee hereby agree as follows:
1. GRANT OF OPTION. The Company hereby irrevocably grants to Employee
the right and option ("Option") to purchase all or any part of an aggregate of
47,770 shares of Stock, on the terms and conditions set forth herein and in the
Plan, which Plan is incorporated herein by reference as a part of this
Agreement. This Option shall not be treated as an incentive stock option
within the meaning of Section 422(b) of the Internal Revenue Code of 1986, as
amended (the "Code").
2. PURCHASE PRICE. The purchase price of Stock purchased pursuant to
the exercise of this Option shall be $20.625 per share, which has been
determined to be not less than the fair market value of the Stock at the date
of grant of this Option. For all purposes of this Agreement, fair market value
of Stock shall be determined in accordance with the provisions of the Plan.
3. EXERCISE OF OPTION. Subject to the earlier expiration of this
Option as herein provided, this Option may be exercised, by written notice to
the Company at its principal executive office addressed to the attention of its
Option Plan Administrator, at any time and from time to time after the date of
grant hereof, but, except as otherwise provided below, this Option shall not be
exercisable for more than a portion of the aggregate number of shares offered
by this Option determined by the number of full years from the date of grant
hereof to the date of such exercise, in accordance with the following schedule:
<PAGE> 16
<TABLE>
<CAPTION>
Number of Full Years Number of Shares That May Be Purchased
-------------------- --------------------------------------
<S> <C>
Less than 1 year 0
1 year 7,554
2 years 15,108
3 years 22,662
4 years 30,216
5 years 47,770
</TABLE>
This Option is not transferable by Employee otherwise than by will or
the laws of descent and distribution, and may be exercised only by Employee (or
his guardian or legal representative) during Employee's lifetime and while
Employee remains an employee of the Company, except that:
(a) If Employee dies while in the employ of the Company, Employee's
estate, or the person who acquires this Option by will or the
laws of descent and distribution or otherwise by reason of the
death of Employee, may exercise this Option at any time during
the period of one year following the date of Employee's death
but only as to the number of shares Employee was entitled to
purchase hereunder as of the date of Employee's death.
(b) If Employee's employment with the Company is terminated for
cause, this option may be exercised by Employee at any time
during the period of three months following such termination,
or by Employee's estate (or the person who acquires this Option
by will or the laws of descent and distribution or otherwise by
reason of the death of Employee) during a period of one year
following Employee's death if Employee dies during such
three-month period, but in each case only as to the number of
shares Employee was entitled to purchase hereunder as of the
date Employee's employment so terminates. For purposes of this
paragraph, "cause" shall mean Employee's actions significantly
and adversely affecting (except for disability) the performance
of, or his ability to perform, Employee's job, including but
not limited to failure or refusal to perform his duties to the
Company, major violation of the Company's conflict of interest
or other policies, or Employee's final conviction of a felony
or of a misdemeanor involving moral turpitude.
(c) If Employee's employment with the Company terminates for any
reason other than as described in (a) or (b) above, this Option
may be exercised by Employee at any time during the period of
one year following such termination, or by Employee's estate
(or the person who acquires this
-2-
<PAGE> 17
Option by will or the laws of descent and distribution or
otherwise by reason of the death of Employee) during a period
of one year following Employee's death if Employee dies during
such one year period, but in each case only as to the number of
shares Employee was entitled to purchase hereunder as of the
date Employee's employment so terminates.
This Option shall not be exercisable in any event after the expiration
of ten years from the date of grant hereof. The purchase price of shares as to
which this Option is exercised shall be paid in full at the time of exercise
(a) in cash (including check, bank draft or money order payable to the order of
the Company), (b) by delivering to the Company shares of Stock having a fair
market value equal to the purchase price, or (c) any combination of cash and
Stock. No fraction of a share of Stock shall be issued by the Company upon
exercise of an Option or accepted by the Company in payment of the purchase
price thereof; rather, Employee shall provide a cash payment for such amount as
is necessary to effect the issuance and acceptance of only whole shares of
Stock. Unless and until a certificate or certificates representing such shares
shall have been issued by the Company to Employee, Employee (or the person
permitted to exercise this Option in the event of Employee's death or
incapacity) shall not be or have any of the rights or privileges of a
shareholder of the Company with respect to shares acquirable upon an exercise
of this Option.
Notwithstanding the foregoing, upon an exercise of this Option, if
Employee is not then subject to the restrictions on insider trading pursuant to
section 16(b) of the Securities Exchange Act of 1934, Employee may elect to
follow such exercise by immediate sale of any treasury Stock acquired pursuant
to such exercise in accordance with the following:
(i) Upon receipt of notice of exercise and immediate sale
pursuant to this provision, the Company will extend credit, on an
interest-free basis, to Employee for the aggregate exercise price; and
(ii) The Company's transfer agent will be instructed to issue
certificates for such Stock; and
(iii) A brokerage company or companies selected by the Company
will sell the Stock for the account of Employee; and
(iv) The portion of the proceeds of such sale totaling the
Option exercise price plus the amount of applicable withheld taxes will
be paid on settlement date to the Company; and
-3-
<PAGE> 18
(v) The proceeds of such sale less the Option exercise price,
the amount of applicable withheld taxes, and applicable brokerage fees
will be paid on settlement date to the Employee.
4. WITHHOLDING OF TAX. To the extent that the exercise of this Option
or the disposition of shares of Stock acquired by exercise of this Option
results in compensation income to Employee for federal or state income tax
purposes, Employee shall pay to the Company at the time of such exercise or
disposition such amount of money as the Company may require to meet its
obligation under applicable tax laws or regulations, and, if Employee fails to
do so, the Company is authorized to withhold from any cash remuneration then or
thereafter payable to Employee any tax required to be withheld by reason of
such resulting compensation income.
5. STATUS OF STOCK. The Company intends to register for sale under
the Securities Act of l933, as amended (the "Act") the shares of Stock
acquirable upon exercise of this Option, and to keep such registration
effective throughout the period this Option is exercisable. In the absence of
such effective registration or an available exemption from registration under
the Act, issuance of shares of Stock acquirable upon exercise of this Option
will be delayed until registration of such shares is effective or an exemption
from registration under the Act is available. The Company intends to use its
best efforts to ensure that no such delay will occur. In the event exemption
from registration under the Act is available upon an exercise of this Option,
Employee (or the person permitted to exercise this Option in the event of
Employee's death or incapacity), if requested by the Company to do so, will
execute and deliver to the Company in writing an agreement containing such
provisions as the Company may require to assure compliance with applicable
securities laws.
Employee agrees that the shares of Stock which Employee may acquire by
exercising this Option will not be sold or otherwise disposed of in any manner
which would constitute a violation of any applicable securities laws, whether
federal or state. Employee also agrees (i) that the certificates representing
the shares of Stock purchased under this Option may bear such legend or legends
as the Committee deems appropriate in order to assure compliance with
applicable securities laws, (ii) that the Company may refuse to register the
transfer of the shares of Stock purchased under this Option on the stock
transfer records of the Company if such proposed transfer would in the opinion
of counsel satisfactory to the Company constitute a violation of any applicable
securities law and (iii) that the Company may give related instructions to its
transfer agent, if any, to stop registration of the transfer of the shares of
Stock purchased under this Option.
6. EMPLOYMENT RELATIONSHIP. For purposes of this Agreement, Employee
shall be considered to be in the employment of the Company as long as Employee
remains an employee of either the Company, a parent or subsidiary corporation
(as defined in Section 424 of the Code) of the Company, or a corporation or a
parent or subsidiary of such corporation assuming
-4-
<PAGE> 19
or substituting a new option for this Option. Any question as to whether and
when there has been a termination of such employment, and the cause of such
termination, shall be determined by the Committee, and its determination shall
be final.
7. CHANGE OF CONTROL. In addition to the conditions for vesting
contained hereinabove in this Agreement and in the Plan, Employee shall have
the right to exercise any or all of the remaining unexercised shares offered by
this Option upon the occurrence of the following described event, so long as
such event occurs more than one year from the date of grant of this Option.
o If the ownership of the Company changes from the majority
voting control of the Company being held by George P. Mitchell ("Mr.
Mitchell") himself only ("Change of Control"); and
o If Employee is employed in a position at least equivalent to
President and Chief Operating Officer of the Company immediately prior
to the Change of Control; and
o If Employee is no longer employed in a position at least
substantially equivalent to President and Chief Operating Officer of
the Company and no longer paid a salary at least equivalent to the
salary being paid to Employee immediately prior to the Change of
Control ("Loss of Position") for at least one year following the Change
of Control.
o For the purposes hereof, the "Company" includes the largest
surviving energy company if Mitchell Energy & Development Corp. is ever
merged or consolidated or is divided or otherwise reorganized into two
or more companies.
o If Employee voluntarily severs employment with the Company
for any reason except Loss of Position or if the Company discharges him
for cause, this right to accelerate remaining unexercised shares
offered by this Option shall terminate immediately. For the purposes
hereof, "for cause" shall mean Employee's actions significantly and
adversely affecting (except for disability or death) the performance
of, or his ability to perform, Employee's job, including but not
limited to failure or refusal to perform his duties to the Company,
major violation of the Company's conflict of interest or other
policies, or Employee's final conviction of a felony or of a
misdemeanor involving moral turpitude.
8. BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of any successors to the Company and all persons lawfully claiming
under Employee.
-5-
<PAGE> 20
9. GOVERNING LAW. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of Texas.
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed by its officer thereunto duly authorized, and Employee has executed
this Agreement, all as of the day and year first above written.
MITCHELL ENERGY & DEVELOPMENT
CORP.
By: /s/ GEORGE P. MITCHELL
___________________________________
W. D. STEVENS
/s/ W. D. STEVENS
___________________________________
-6-
<PAGE> 21
[NQ/CLASS B]
NONSTATUTORY STOCK OPTION AGREEMENT
AGREEMENT made as of the 3rd day of January, 1994, between MITCHELL
ENERGY & DEVELOPMENT CORP., a Texas corporation (the "Company"), and W. D.
STEVENS ("Employee").
To carry out the purposes of the MITCHELL ENERGY & DEVELOPMENT CORP.
1989 STOCK OPTION PLAN (the "Plan"), by affording Employee the opportunity to
purchase shares of the Class B Common Stock of the Company ("Stock"), and in
consideration of the mutual agreements and other matters set forth herein and
in the Plan, the Company and Employee hereby agree as follows:
1. GRANT OF OPTION. The Company hereby irrevocably grants to Employee
the right and option ("Option") to purchase all or any part of an aggregate of
47,770 shares of Stock, on the terms and conditions set forth herein and in the
Plan, which Plan is incorporated herein by reference as a part of this
Agreement. This Option shall not be treated as an incentive stock option
within the meaning of Section 422(b) of the Internal Revenue Code of 1986, as
amended (the "Code").
2. PURCHASE PRICE. The purchase price of Stock purchased pursuant to
the exercise of this Option shall be $20.25 per share, which has been
determined to be not less than the fair market value of the Stock at the date
of grant of this Option. For all purposes of this Agreement, fair market value
of Stock shall be determined in accordance with the provisions of the Plan.
3. EXERCISE OF OPTION. Subject to the earlier expiration of this
Option as herein provided, this Option may be exercised, by written notice to
the Company at its principal executive office addressed to the attention of its
Option Plan Administrator, at any time and from time to time after the date of
grant hereof, but, except as otherwise provided below, this Option shall not be
exercisable for more than a portion of the aggregate number of shares offered
by this Option determined by the number of full years from the date of grant
hereof to the date of such exercise, in accordance with the following schedule:
<PAGE> 22
<TABLE>
<CAPTION>
Number of Full Years Number of Shares That May Be Purchased
-------------------- --------------------------------------
<S> <C>
Less than 1 year 0
1 year 7,554
2 years 15,108
3 years 22,662
4 years 30,216
5 years 47,770
</TABLE>
This Option is not transferable by Employee otherwise than by will or
the laws of descent and distribution, and may be exercised only by Employee (or
his guardian or legal representative) during Employee's lifetime and while
Employee remains an employee of the Company, except that:
(a) If Employee dies while in the employ of the Company, Employee's
estate, or the person who acquires this Option by will or the
laws of descent and distribution or otherwise by reason of the
death of Employee, may exercise this Option at any time during
the period of one year following the date of Employee's death
but only as to the number of shares Employee was entitled to
purchase hereunder as of the date of Employee's death.
(b) If Employee's employment with the Company is terminated for
cause, this option may be exercised by Employee at any time
during the period of three months following such termination,
or by Employee's estate (or the person who acquires this Option
by will or the laws of descent and distribution or otherwise by
reason of the death of Employee) during a period of one year
following Employee's death if Employee dies during such
three-month period, but in each case only as to the number of
shares Employee was entitled to purchase hereunder as of the
date Employee's employment so terminates. For purposes of this
paragraph, "cause" shall mean Employee's actions significantly
and adversely affecting (except for disability) the performance
of, or his ability to perform, Employee's job, including but
not limited to failure or refusal to perform his duties to the
Company, major violation of the Company's conflict of interest
or other policies, or Employee's final conviction of a felony
or of a misdemeanor involving moral turpitude.
(c) If Employee's employment with the Company terminates for any
reason other than as described in (a) or (b) above, this Option
may be exercised by Employee at any time during the period of
one year following such termination, or by Employee's estate
(or the person who acquires this
-2-
<PAGE> 23
Option by will or the laws of descent and distribution or
otherwise by reason of the death of Employee) during a period
of one year following Employee's death if Employee dies during
such one year period, but in each case only as to the number of
shares Employee was entitled to purchase hereunder as of the
date Employee's employment so terminates.
This Option shall not be exercisable in any event after the expiration
of ten years from the date of grant hereof. The purchase price of shares as to
which this Option is exercised shall be paid in full at the time of exercise
(a) in cash (including check, bank draft or money order payable to the order of
the Company), (b) by delivering to the Company shares of Stock having a fair
market value equal to the purchase price, or (c) any combination of cash and
Stock. No fraction of a share of Stock shall be issued by the Company upon
exercise of an Option or accepted by the Company in payment of the purchase
price thereof; rather, Employee shall provide a cash payment for such amount as
is necessary to effect the issuance and acceptance of only whole shares of
Stock. Unless and until a certificate or certificates representing such shares
shall have been issued by the Company to Employee, Employee (or the person
permitted to exercise this Option in the event of Employee's death or
incapacity) shall not be or have any of the rights or privileges of a
shareholder of the Company with respect to shares acquirable upon an exercise
of this Option.
Notwithstanding the foregoing, upon an exercise of this Option, if
Employee is not then subject to the restrictions on insider trading pursuant to
section 16(b) of the Securities Exchange Act of 1934, Employee may elect to
follow such exercise by immediate sale of any treasury Stock acquired pursuant
to such exercise in accordance with the following:
(i) Upon receipt of notice of exercise and immediate sale
pursuant to this provision, the Company will extend credit, on an
interest-free basis, to Employee for the aggregate exercise price; and
(ii) The Company's transfer agent will be instructed to issue
certificates for such Stock; and
(iii) A brokerage company or companies selected by the Company
will sell the Stock for the account of Employee; and
(iv) The portion of the proceeds of such sale totaling the
Option exercise price plus the amount of applicable withheld taxes will
be paid on settlement date to the Company; and
-3-
<PAGE> 24
(v) The proceeds of such sale less the Option exercise price,
the amount of applicable withheld taxes, and applicable brokerage fees
will be paid on settlement date to the Employee.
4. WITHHOLDING OF TAX. To the extent that the exercise of this Option
or the disposition of shares of Stock acquired by exercise of this Option
results in compensation income to Employee for federal or state income tax
purposes, Employee shall pay to the Company at the time of such exercise or
disposition such amount of money as the Company may require to meet its
obligation under applicable tax laws or regulations, and, if Employee fails to
do so, the Company is authorized to withhold from any cash remuneration then or
thereafter payable to Employee any tax required to be withheld by reason of
such resulting compensation income.
5. STATUS OF STOCK. The Company intends to register for sale under
the Securities Act of l933, as amended (the "Act") the shares of Stock
acquirable upon exercise of this Option, and to keep such registration
effective throughout the period this Option is exercisable. In the absence of
such effective registration or an available exemption from registration under
the Act, issuance of shares of Stock acquirable upon exercise of this Option
will be delayed until registration of such shares is effective or an exemption
from registration under the Act is available. The Company intends to use its
best efforts to ensure that no such delay will occur. In the event exemption
from registration under the Act is available upon an exercise of this Option,
Employee (or the person permitted to exercise this Option in the event of
Employee's death or incapacity), if requested by the Company to do so, will
execute and deliver to the Company in writing an agreement containing such
provisions as the Company may require to assure compliance with applicable
securities laws.
Employee agrees that the shares of Stock which Employee may acquire by
exercising this Option will not be sold or otherwise disposed of in any manner
which would constitute a violation of any applicable securities laws, whether
federal or state. Employee also agrees (i) that the certificates representing
the shares of Stock purchased under this Option may bear such legend or legends
as the Committee deems appropriate in order to assure compliance with
applicable securities laws, (ii) that the Company may refuse to register the
transfer of the shares of Stock purchased under this Option on the stock
transfer records of the Company if such proposed transfer would in the opinion
of counsel satisfactory to the Company constitute a violation of any applicable
securities law and (iii) that the Company may give related instructions to its
transfer agent, if any, to stop registration of the transfer of the shares of
Stock purchased under this Option.
6. EMPLOYMENT RELATIONSHIP. For purposes of this Agreement, Employee
shall be considered to be in the employment of the Company as long as Employee
remains an employee of either the Company, a parent or subsidiary corporation
(as defined in Section 424 of the Code) of the Company, or a corporation or a
parent or subsidiary of such corporation assuming
-4-
<PAGE> 25
or substituting a new option for this Option. Any question as to whether and
when there has been a termination of such employment, and the cause of such
termination, shall be determined by the Committee, and its determination shall
be final.
7. CHANGE OF CONTROL. In addition to the conditions for vesting
contained hereinabove in this Agreement and in the Plan, Employee shall have
the right to exercise any or all of the remaining unexercised shares offered by
this Option upon the occurrence of the following described event, so long as
such event occurs more than one year from the date of grant of this Option.
o If the ownership of the Company changes from the majority
voting control of the Company being held by George P. Mitchell ("Mr.
Mitchell") himself only ("Change of Control"); and
o If Employee is employed in a position at least equivalent to
President and Chief Operating Officer of the Company immediately prior
to the Change of Control; and
o If Employee is no longer employed in a position at least
substantially equivalent to President and Chief Operating Officer of
the Company and no longer paid a salary at least equivalent to the
salary being paid to Employee immediately prior to the Change of
Control ("Loss of Position") for at least one year following the Change
of Control.
o For the purposes hereof, the "Company" includes the largest
surviving energy company if Mitchell Energy & Development Corp. is ever
merged or consolidated or is divided or otherwise reorganized into two
or more companies.
o If Employee voluntarily severs employment with the Company
for any reason except Loss of Position or if the Company discharges him
for cause, this right to accelerate remaining unexercised shares
offered by this Option shall terminate immediately. For the purposes
hereof, "for cause" shall mean Employee's actions significantly and
adversely affecting (except for disability or death) the performance
of, or his ability to perform, Employee's job, including but not
limited to failure or refusal to perform his duties to the Company,
major violation of the Company's conflict of interest or other
policies, or Employee's final conviction of a felony or of a
misdemeanor involving moral turpitude.
8. BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of any successors to the Company and all persons lawfully claiming
under Employee.
9. GOVERNING LAW. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of Texas.
-5-
<PAGE> 26
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed by its officer thereunto duly authorized, and Employee has executed
this Agreement, all as of the day and year first above written.
MITCHELL ENERGY & DEVELOPMENT
CORP.
By: /s/ GEORGE P. MITCHELL
_______________________________________
W. D. STEVENS
/s/ W. D. STEVENS
_______________________________________
-6-
<PAGE> 1
Exhibit 12
Mitchell Energy & Development Corp. and Subsidiaries
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
FOR THE YEARS ENDED JANUARY 31, 1994, 1993, 1992, 1991 AND 1990
(dollar amounts in thousands)
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
EARNINGS
Pretax earnings . . . . . . . . . . . . . . . . . $ 47,538 $ 47,324 $ 68,300 $ 71,598 $ 46,135
Add (Deduct)
Previously capitalized interest
charged against pretax earnings . . . . . . . 17,098 14,346 21,937 14,694 12,401
Losses of less-than-50%-owned persons . . . . . 32 99 26 23 44
Fixed charges (see below) . . . . . . . . . . . 84,788 85,169 90,107 98,633 103,166
Reverse effect of inclusion of interest
capitalized in fixed charges above . . . . . (35,721) (36,205) (39,426) (45,427) (46,993)
Undistributed earnings of
less-than-50%-owned persons . . . . . . . . . (3,594) (10,305) (10,521) (11,690) (6,201)
-------- -------- -------- -------- --------
$110,141 $100,428 $130,423 $127,831 $108,552
======== ======== ======== ======== ========
FIXED CHARGES
Interest expense incurred
Consolidated (a) (b) . . . . . . . . . . . . . $ 75,252 $ 77,451 $ 84,025 $ 92,874 $ 95,792
50%-owned persons . . . . . . . . . . . . . . . 6,236 4,609 3,284 3,670 4,974
-------- -------- -------- -------- --------
81,488 82,060 87,309 96,544 100,766
Portion of rental expense
representing interest (c) . . . . . . . . . . . 3,300 3,109 2,798 2,089 2,400
-------- -------- -------- -------- --------
$ 84,788 $ 85,169 $ 90,107 $ 98,633 $103,166
======== ======== ======== ======== ========
RATIO OF EARNINGS TO FIXED CHARGES . . . . . . . 1.30 1.18 1.45 1.30 1.05
======== ======== ======== ======== ========
</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 January 31, 1994, the Company had outstanding guaranties of
approximately $72,000,000 of indebtedness of less-than-fifty percent owned
partnerships and approximately $5,400,000 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 $1,950,000 for fiscal
1994, have been excluded from the reported fixed charges.
(c) Represents one-third of rental expense under operating lease agreements.
<PAGE> 1
EXHIBIT 13
MITCHELL ENERGY & DEVELOPMENT CORP.
FISCAL 1994 ANNUAL REPORT
YEAR ENDED JANUARY 31, 1994
<PAGE> 2
THE COMPANY
Mitchell Energy & Development Corp. traces its origins to a small wildcatting
firm formed in 1946. Today, the Company is a large independent energy producer.
It also is a major real estate developer, primarily in the Houston-Galveston
region. At the end of fiscal 1994, the Company had approximately 2,900
full-time employees.
Principal energy operations include the exploration for and production
of natural gas and oil, production of natural gas liquids and operation of
intrastate pipelines. In its most recent fiscal year, the Company produced more
than 74 billion cubic feet of natural gas and 20.3 million barrels of liquid
hydrocarbons (gas liquids, oil and condensate). At year end, it owned or had
interests in more than 3,400 wells, 1.5 million acres of leases, nearly 5,000
miles of pipeline and processing plants capable of producing natural gas
liquids at a rate of more than 55,000 barrels per day.
The Company's largest land development project is The Woodlands, a
25,000-acre community located 27 miles north of downtown Houston. Overall, its
real estate holdings comprise about 55,500 acres, plus a variety of office,
retail, industrial and other buildings.
[Inside Front Cover]
<PAGE> 3
CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Exploration and Production Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Mitchell Adds High-Tech Tools to E&P Arsenal . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Transmission and Processing Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Capitalizing on One of Texas' Hottest Plays . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Real Estate Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
The Woodlands Celebrates Its 20th Anniversary . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Management's Discussion and Analysis of Financial Position and Results of Operations . . . . . . . . 29
Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Report of Independent Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Supplemental Oil and Gas Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Historical Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Principal Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Corporate Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
</TABLE>
GLOSSARY
<TABLE>
<S> <C>
Btu . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . British thermal units
MMBtu . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . million Btu
Mcf . . . . . . . . . . . . . . . . . . . . . . . . . . . thousand cubic feet (measure of natural gas volume)
MMcf . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . million cubic feet
Bcf . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . billion cubic feet
Bbl . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . barrel (measure of liquid hydrocarbon volume)
MMBbls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . million barrels
NGL or NGLs . . . . . . . . . . . . . . . natural gas liquids (ethane, propane, butanes and natural gasoline)
DD&A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . depreciation, depletion and amortization
</TABLE>
Note: All natural gas volumes in this annual report are stated at the legal
pressure base of the area in which the reserves are located and at 60 degrees
Fahrenheit. Oil, gas and NGL volume, price and reserve information includes
applicable equity partnership interests.
1
<PAGE> 4
HIGHLIGHTS
MITCHELL ENERGY & DEVELOPMENT CORP. AND SUBSIDIARIES
YEAR ENDED JANUARY 31 (dollars in thousands except per-share data)
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
NET EARNINGS . . . . . . . . . . . . . . . . . . . . . $ 19,687(1) $ 18,487(2)
---------- ----------
EARNINGS PER SHARE . . . . . . . . . . . . . . . . . . $ .39(1) $ .39(2)
---------- ----------
REVENUES
Exploration and Production . . . . . . . . . . . . . . $ 266,166 $ 214,681
Transmission and Processing . . . . . . . . . . . . . . 560,537 566,700
Real Estate . . . . . . . . . . . . . . . . . . . . . . 126,106 121,453
---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . $ 952,809 $ 902,834
========== ==========
SEGMENT OPERATING EARNINGS
Exploration and Production . . . . . . . . . . . . . . $ 66,583 $ 43,318
Restructuring charges . . . . . . . . . . . . . . . . . -- (20,726)
---------- ----------
66,583 22,592
Transmission and Processing . . . . . . . . . . . . . . 42,659 88,504
Real Estate . . . . . . . . . . . . . . . . . . . . . . 21,078 22,801
---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . $ 130,320 $ 133,897
========== ==========
CAPITAL ADDITIONS . . . . . . . . . . . . . . . . . . . $ 355,845 $ 237,668
========== ==========
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . $2,415,476 $2,271,799
========== ==========
ESTIMATED PRESENT VALUE OF FUTURE PRE-TAX
NET REVENUES FROM PROVED NATURAL GAS,
OIL AND NGL RESERVES (2) . . . . . . . . . . . . . . $1,038,000 $1,220,000
OPERATING STATISTICS (AVERAGE DAILY AMOUNTS)
Natural gas sales (Mcf) . . . . . . . . . . . . . . . . 193,800 149,000
Crude oil, condensate sales (Bbls) . . . . . . . . . . 6,000 5,600
Natural gas liquids production (Bbls) . . . . . . . . . 49,800 47,200
Pipeline throughput (Mcf) . . . . . . . . . . . . . . . 549,000 566,000
</TABLE>
- -------------------
(1) Net of an $11 million (22-cent-per-share) deferred tax charge related
to the August 1993 increase in the federal corporate tax rate and an
extraordinary debt retirement charge of $5.4 million (10 cents per
share).
(2) Net of Exploration and Production Division after-tax restructuring
charges of $13.7 million (30 cents per share); extraordinary debt
retirement charge of $7.3 million (15 cents per share); and a change
in accounting methods to implement Statement of Financial Accounting
Standards No. 106, which had a cumulative prior-year effect of $10.6
million (23 cents per share).
ESTIMATED PROVED RESERVES
(GRAPHS)
2
<PAGE> 5
LETTER TO SHAREHOLDERS
It's been a roller-coaster year. Natural gas prices have been up,
while oil and natural gas liquids prices were up and down during the past 12
months. No doubt there will be more twists and turns ahead for the industry,
but I believe that the Company is well-positioned for whatever the future may
hold, having taken a number of steps to strengthen its organization and
financial capability.
We started fiscal 1994 with an excellent first quarter - double the
prior-year period's earnings before unusual and extraordinary charges. The
strong results were mainly attributable to a 27 percent increase in natural gas
sales volumes and to higher gas prices. Both prices and volumes were up for
natural gas liquids as well, but the effects of those gains were largely offset
by increased fuel and shrinkage costs due to higher gas prices.
By the second quarter, world oil prices had begun to fall as a result
of OPEC's failure to hold the line on production and in anticipation of Iraq's
eventual return to the market. Natural gas liquids, which compete with
petroleum products, also declined in price at a time when margins already were
being squeezed by the high cost of gas. Still, we posted a 16 percent earnings
gain, thanks largely to those very same high gas prices, which were a boon to
Exploration and Production Division operating earnings.
In addition, we had further natural gas sales volume increases as a
result of the Company's buy-out of its development drilling partnership in May
1993. Funds for that $78.3 million acquisition came from the highly successful
public offering of 5.9 million shares of Class B common stock, which netted the
Company $123.4 million. We used the remainder of the proceeds to reduce debt
and to drill wells that otherwise would have been undertaken by the
partnership.
Another important benefit of the offering is that it raised the
Company's profile throughout the investment community and increased the
liquidity of our Class B stock, which in recent months has traded at parity
with - or higher than - the Class A stock. Also, Moody's Investors Service
upgraded its debt rating for the Company's senior notes in January 1994, so all
three of our debt ratings are now investment grade. We took advantage of the
improved rating with two new senior note issues that same month: $250 million
of 6 3/4 percent, 10-year notes; and $100 million of three-year, 5.1 percent
notes. The new issues locked in attractive rates on a sizable portion of our
existing debt.
3
<PAGE> 6
They are the latest in a series of initiatives undertaken over the last two
years to enhance the Company's financial capability.
Weak natural gas liquids prices and tight margins were more evident in
the second half of last year. In the third quarter, our average NGL sales price
was down 21 percent from a year earlier. Earnings for the period would have
been lower than those of the prior-year quarter, but still in the black, had it
not been for a one-time, $11 million non-cash charge related to an increase in
deferred taxes resulting from a higher federal corporate tax rate. That caused
us to post a $2 million, 4-cent-per-share loss for the quarter.
Continued NGL price weakness and a $5.4 million charge for early debt
retirement reduced fourth-quarter earnings to $611,000, or 1 cent per share,
versus $19.5 million, or 41 cents per share, in the prior-year period. The $5.4
million was money well spent, however, because we will realize $9 million in
annual savings as a result of refinancing that debt at a substantially lower
interest rate.
For all of fiscal 1994, we reported net earnings of $19.7 million, up
$1.2 million from the year-earlier amount. Because more shares were outstanding
after the Class B stock offering, per-share earnings were flat at 39 cents.
Excluding extraordinary and unusual charges in both years, the Company would
have earned $36.1 million, or 71 cents per share, in fiscal 1994, versus $50
million, or $1.07 per share, in fiscal 1993.
Thus far in the current year, low oil prices continue to depress the
price of natural gas liquids. Some relief may be on the horizon in the form of
three ethylene plants due to come on line within a year, creating more than
100,000 barrels per day of new NGL demand in the United States and Canada.
Conversely, the natural gas side of our business continues to be a bright spot,
with prices up and volumes at record levels. Harsh winter weather kept gas
prices strong through the fourth quarter and into fiscal 1995.
Because of the uncertain price outlook, we are reducing our capital
expenditures this year by 21 percent. We typically rethink the budget at
various times, so spending could be adjusted upward or downward, depending on
what happens to oil, gas and natural gas liquids prices.
The record cold tested our new Spindletop natural gas storage facility
for the first time, and everything worked extremely well. The first partially
completed cavern is being utilized to its full 1.7 Bcf working gas capacity,
and we plan to make additional cavern space available to our customers later
this year.
Two major energy projects are nearing completion. The Company and
partners Sun Company and Enterprise Products have nearly completed a
world-class MTBE gasoline additive plant at Mont Belvieu, Texas, and the
facility is expected to be in production by
4
<PAGE> 7
summer. Nearby, with partners Trident NGL and Conoco, we are expanding the
capacity of our natural gas liquids fractionator by 40,000 barrels per day. The
new capacity should be in operation by September.
Real estate operating earnings were down slightly from those of the
prior year, mainly as a result of slower residential sales in The Woodlands.
But prospects for the community are excellent, particularly in the commercial
area.
The biggest news in our Real Estate Division is the
million-square-foot regional mall rapidly taking form in The Woodlands. We own
50 percent of that project and virtually all of the surrounding acreage, where
commercial activity is flourishing in anticipation of the mall's grand opening
this October.
Last November, all of us at the Company were shocked and saddened by
the untimely death of Exploration and Production Division President Don Covey.
Don joined us in 1976 after 21 years with Shell Oil. He was a talented
executive, a gifted leader and a wonderful human being, as anyone who knew Don
will attest.
In early January, W. D. (Bill) Stevens was named to the new post of
president and chief operating officer of the corporation. He also succeeded Don
as president of our Exploration and Production Division. Bill has been on our
board of directors since his 1992 retirement as president of Exxon Company,
U.S.A., after 35 years with that organization. He brings a wealth of experience
and a fresh perspective that I expect will have positive effects on the way we
do business. I retain the positions of chairman and chief executive officer.
With our existing backlog of proven drilling locations, our
diversification and synergy of operations, and the major new energy and real
estate projects we have on the verge of completion - not to mention our
dedicated and talented employees - the Company is in excellent shape to weather
the current price environment and profit when the inevitable turnaround comes.
George P. Mitchell
Chairman and Chief Executive Officer
March 31, 1994
5
<PAGE> 8
EXPLORATION & PRODUCTION DIVISION
GAS AND OIL SALES
Record natural gas production, combined with improved prices, led to a sharp
increase in Exploration and Production Division operating earnings. As compared
with prior-year results before restructuring charges, the division's fiscal
1994 operating earnings rose 54 percent and accounted for more than half of the
Company's total.
At a record-high 193,800 Mcf per day, our marketed production of
natural gas in fiscal 1994 was 30 percent more than the 149,000 Mcf per day
sold in the preceding year. A major contributor to the increase was production
related to the May 1993 buy-out of MEC Development, Ltd., a development
drilling partnership in which we had owned an interest since the early 1980s.
Greater utilization of our production capacity also contributed to the
fiscal 1994 gains. For the past several years, we have curtailed output when
the so-called gas "bubble" of excess deliverability drove market-sensitive
prices to unacceptably low levels. One important indication of the improved
supply-demand balance is
FINANCIAL HIGHLIGHTS YEAR ENDED JANUARY 31 (in thousands)
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
REVENUES
Oil and gas . . . . . . . . . . . . . . . . $265,798 $202,692
Other . . . . . . . . . . . . . . . . . . . 368 11,989
-------- --------
$266,166 $214,681
======== ========
SEGMENT OPERATING EARNINGS
Oil and gas . . . . . . . . . . . . . . . . $ 66,948 $ 44,722
Other . . . . . . . . . . . . . . . . . . . (365) (1,404)
-------- --------
66,583 43,318
Restructuring charges . . . . . . . . . . . -- (20,726)
-------- --------
$ 66,583 $ 22,592
======== ========
CAPITAL ADDITIONS
Consolidated . . . . . . . . . . . . . . . $238,219 (1) $ 77,703
MEC Development, Ltd. . . . . . . . . . . . 13,154 (2) 51,392 (2)
-------- --------
$251,373 $129,095
======== ========
</TABLE>
- ------------------
(1) Includes $78,251 for buy-out of MEC Development, Ltd.
(2) Total additions of MEC Development, Ltd.
6
<PAGE> 9
that we made no significant price-related production curtailments last year.
Natural gas prices, including the leasehold value of natural gas
liquids, averaged $2.86 per Mcf in fiscal 1994, compared with $2.84 in the
preceding year. These prices are a blend of realizations from sales under
fixed-price contracts and sales at market-sensitive prices. During the most
recent year, approximately 52 percent of our production was sold under
fixed-price contracts at an average price of $3.52 per Mcf; the remainder was
sold on the spot market at an average of $2.14. The price of natural gas sold
under our largest gas contract rose to $3.75 per MMBtu on January 1, 1994. This
contract extends through December 1997 and provides for annual increases of 25
cents per MMBtu.
Crude oil and condensate production averaged 6,000 barrels per day in
fiscal 1994, up from 5,600 barrels per day in the prior year. World oil prices
slumped in the second half, driving our average realization per barrel down to
$13.82 for the fourth quarter and $16.31 for the year. In fiscal 1993, the
average was $18.49.
EXPLORATION AND DEVELOPMENT
In fiscal 1994, we replaced 160 percent of the natural gas reserves we
produced.
NATURAL GAS SALES
(GRAPHS)
On January 31, 1994, our proved gas reserves were at an all-time high of 627.5
Bcf, up from 583.7 Bcf a year earlier. It was the sixth consecutive year - and
the 17th out of the last 19 years - in which our exploration and development
programs more than replaced the natural gas reserves we produced.
We did not quite replace our production of crude oil and condensate
reserves. At year end, the total was 15.3 MMBbls, down from 15.8 MMBbls at the
end of fiscal 1993. Property sales accounted for the difference in these
year-end amounts.
9
<PAGE> 10
Most of the fiscal 1994 reserve additions were achieved by drilling,
but we also added reserves through acquisitions, the largest of which was the
previously noted buy-out of MEC Development, Ltd.
Exploration and Production Division capital additions totaled $173.1
million in fiscal 1994, up from comparable expenditures of $129.1 million in
the preceding year. Excluded from this comparison is the $78.3 million MEC
Development buy-out. Included is $13.2 million of MEC Development capital
expenditures made prior to the acquisi-
WELL COMPLETIONS (1) YEAR ENDED JANUARY 31, 1994
<TABLE>
<CAPTION>
Exploratory Development Total
-------------------- --------------------- ---------------------
Total Oil Gas Dry Oil Gas Dry Oil Gas Dry
----- --- --- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Texas
North Texas . . . . . . . 69 -- -- -- 12 53 4 12 53 4
East Central Texas . . . 12 -- -- -- -- 12 -- -- 12 --
Gulf Coast . . . . . . . 36 -- 3 12 1 18 2 1 21 14
New Mexico . . . . . . . . 24 3 5 3 11 1 1 14 6 4
Colorado . . . . . . . . . 5 -- -- 1 -- 4 -- -- 4 1
Other(2) . . . . . . . . . 8 2 -- 4 -- 2 -- 2 2 4
----- --- --- ---- ---- ---- --- ---- ---- ----
Gross Wells(3) . . . . . . 154 5 8 20 24 90 7 29 98 27
===== === === ==== ==== ==== === ==== ==== ====
Net Wells . . . . . . . . . 121.4 4.5 5.8 12.0 17.1 77.1 4.9 21.6 82.9 16.9
===== === === ==== ==== ==== === ==== ==== ====
</TABLE>
- ------------------
(1) Excludes service wells.
(2) Mississippi, New York, Ohio and Pennsylvania.
(3) An additional 50 wells (41.7 net wells) were in the process of
drilling or completion on January 31, 1994.
LEASEHOLDINGS AT JANUARY 31, 1994
<TABLE>
<CAPTION>
Gross Net
Acres Acres
--------- ---------
<S> <C> <C>
Colorado . . . . . . . . . . . . . 26,200 22,400
New Mexico . . . . . . . . . . . . 66,800 59,600
Ohio . . . . . . . . . . . . . . . 110,500 110,000
South Dakota . . . . . . . . . . . 40,600 13,200
Texas . . . . . . . . . . . . . . 200,600 141,100
Utah . . . . . . . . . . . . . . . 58,300 54,100
Wyoming . . . . . . . . . . . . . 21,400 11,300
Other* . . . . . . . . . . . . . . 102,800 85,800
--------- ---------
Total undeveloped acreage . . . . 627,200 497,500
Producing acreage . . . . . . . . . 843,000 625,900
--------- ---------
Total acreage . . . . . . . . . . 1,470,200 1,123,400
========= =========
</TABLE>
- ------------------
* Alabama, Arkansas, California, Kansas, Louisiana, Mississippi,
Montana, Nebraska, New York, Oklahoma, Pennsylvania and West Virginia.
10
<PAGE> 11
tion. In light of current economic conditions in the industry, the fiscal 1995
budget for the division has been set at $129.7 million - a level that is
expected to enable the Company to replace this year's gas production.
Our finding costs were adversely affected last year by participation
in a five-well offshore Texas exploratory drilling program operated by a third
party that, after an initial commercial discovery at Brazos Block 552, produced
only dry holes. Costs also were driven up by expensive mechanical failures in
two deep wells in bay waters of the lower Texas Gulf Coast that subsequently
were junked and abandoned. These projects accounted for about 57 cents of our
fiscal 1994 finding costs of $7.54 per barrel of oil equivalent, which was up
from the prior year's $5.93. These amounts are based on the costs and reserve
additions associated with each year's drilling program. Included in the
additions are reserves of natural gas (net of gas lost in processing), natural
gas liquids (lease and plant share), and oil and condensate.
During fiscal 1994, we participated in 154 wells, of which 82 percent
were successfully completed. In the prior year, we participated in 152 wells,
85 percent of which were completed as producers. While the totals were about
the same for
CRUDE OIL AND CONDENSATE
(GRAPHS)
both years, our working interests were equivalent to 121.4 net wells in fiscal
1994, up substantially from 77.6 net wells in fiscal 1993.
As in the past, the Fort Worth Basin of North Texas was a principal
focus of fiscal 1994 drilling. Sixty-five well completions were made there out
of 69 wells drilled. Historically, our primary targets in the basin have been
relatively shallow gas-bearing conglomerate and sand formations. In recent
years, however, we have become active in the deeper Barnett shale. This is an
extremely
11
<PAGE> 12
"tight" formation, but we have made it commercially productive in naturally
fractured areas with wells that are stimulated by a completion technique known
as massive hydraulic fracturing. The value of our Barnett shale properties has
steadily improved, both as a result of drilling success and reserve increases
based on well performance.
The North Personville Field, located in the Limestone County area of
East Central Texas, is the Company's second-largest natural gas property, and
our fiscal 1994 drilling there resulted in several successful outsteps which
extended the limits of the field's known productive area. In addition, we
continued infill drilling on 160-acre spacing of units we previously drilled
with 320-acre well spacing. The outstep program yielded some of the best wells
in the history of our drilling there, while the infill program should improve
recovery of gas trapped in the area's tight rock formations.
We also had continued success in the Delaware Basin of southeastern
New Mexico, an area that, like North Texas, has multiple producing horizons.
Our main strategy there has been to drill to the gas-prospective Morrow sand,
at a depth of about 12,000 to 14,000 feet, while we look for shallower
oil-bearing formations in the same well.
PRINCIPAL PRODUCING AREAS YEAR ENDED JANUARY 31
<TABLE>
<CAPTION>
Average Daily Sales
--------------------------
1994 1993*
------- -------
<S> <C> <C>
NATURAL GAS (NET MCF)
North Texas . . . . . . . . . . . . . . . . . 98,600 86,900
Limestone County area (East Central Texas) . . 32,900 21,300
Gulf Coast, onshore . . . . . . . . . . . . . 23,400 16,200
Gulf Coast, offshore . . . . . . . . . . . . . 7,800 5,900
Rocky Mountain area . . . . . . . . . . . . . 11,000 5,700
Southeastern New Mexico . . . . . . . . . . . 8,200 6,300
Other . . . . . . . . . . . . . . . . . . . . 11,900 6,700
------- -------
Total . . . . . . . . . . . . . . . . . . . . 193,800 149,000
======= =======
CRUDE OIL AND CONDENSATE (NET BBLS)
North Texas . . . . . . . . . . . . . . . . . 1,800 2,000
Gulf Coast . . . . . . . . . . . . . . . . . . 1,300 900
Southeastern New Mexico . . . . . . . . . . . 900 700
Other . . . . . . . . . . . . . . . . . . . . 2,000 2,000
------- -------
Total . . . . . . . . . . . . . . . . . . . . 6,000 5,600
======= =======
</TABLE>
- ------------------
* Certain amounts have been reclassified to conform to the fiscal 1994
presentation.
12
<PAGE> 13
In the Gulf Coast area, we were particularly successful in increasing
gas reserves in the Pinehurst Field area of Montgomery County, Texas. We have
numerous other prospects along the Gulf Coast, in New Mexico and elsewhere but
will not pursue all of them as aggressively as in the past year until energy
prices improve. We will, however, continue to drill at a level sufficient to
maintain deliverability for our natural gas contract sales in North and East
Texas and in the Hell's Hole Field in western Colorado.
RESERVE REPLACEMENT TRACK RECORD
(GRAPH)
At the end of fiscal 1994, the Company had interests in 2,257 gas pro-
ducers and 1,156 oil producers - a total of 3,413 wells, of which 86 were
productive in two or more zones. The interests were equivalent to 2,662 net
wells - 1,960 gas and 702 oil - of which 76 were productive in two or more
zones.
(MAP)
13
<PAGE> 14
TRANSMISSION & PROCESSING DIVISION
GAS PROCESSING
A drop in the price of U.S. natural gas liquids starting last summer, coupled
with higher gas costs, cut gas processing operating earnings by nearly
two-thirds in fiscal 1994. NGL prices were depressed by lower crude prices
worldwide and by excess inventories across the nation. By year end, NGL prices
had declined by more than 25 percent, from an average of $13.68 per barrel in
March to $10.16 per barrel in December.
Our processing business was caught in an unusual profit-margin squeeze
last year. At the same time revenues were slipping because of falling NGL
prices, our costs were rising because of higher gas prices. While the gas price
gains produced excellent earnings growth for the Exploration and Production
Division, they had the opposite effect on the Transmission and Processing
Division, because roughly one-half of our gas processing contracts require the
Company to replace gas consumed in the plant as fuel and through shrinkage when
the liquids are extracted. Make-up gas volumes had to be purchased at
relatively high spot-market prices.
Poor profit margins in the second half forced the Company to shut down
some processing plants temporarily and to reduce output at others, cutting
total NGL production from a record 54,900 barrels per day in February 1993 to a
fiscal-year low of 40,400 barrels in
FINANCIAL HIGHLIGHTS YEAR ENDED JANUARY 31 (in thousands)
<TABLE>
<CAPTION>
1994 1993
--------- ----------
<S> <C> <C>
REVENUES
Gas processing . . . . . . . . . . . . . $ 255,537 $ 309,917
Gas gathering and transmission . . . . . 296,373 248,605
Other . . . . . . . . . . . . . . . . . . 8,627 8,178
--------- ---------
$ 560,537 $ 566,700
========= =========
SEGMENT OPERATING EARNINGS
Gas processing . . . . . . . . . . . . . $ 21,932 $ 60,370
Gas gathering and transmission . . . . . 18,742 25,517
Other . . . . . . . . . . . . . . . . . . 1,985 2,617
--------- ---------
$ 42,659 $ 88,504
========= =========
CAPITAL ADDITIONS . . . . . . . . . . . . $ 48,628 $ 70,473
========= =========
</TABLE>
14
<PAGE> 15
December. Volumes also were reduced for a period last summer when our largest
processing plant, located at Bridgeport in North Texas, was shut down for 13
days while our biggest gas customer performed scheduled pipeline maintenance.
Still, overall NGL production was up for the full year, averaging
49,800 barrels per day, compared with 47,200 barrels per day in fiscal 1993.
The increase was due to an acquisition we made in August 1992 of Oryx Energy's
interests in a dozen processing plants in Texas and Oklahoma. Conoco is our 50
percent partner in that venture, known as C&L Processors.
That partnership processes gas primarily under "percent of proceeds"
contracts, which do not require the purchase of make-up gas, and C&L was
profitable despite the second-half downturn. Mitchell's share of the liquids
produced by the partnership averaged 8,100 barrels per day last year.
Another partnership in which the Company holds a 45 percent interest,
UP Bryan Plant Joint Venture, increased its NGL production from the previous
year by almost 20 percent, to more than 20,000 barrels a day in fiscal 1994.
The partnership's processing plants, located along the Austin Chalk trend of
East Central Texas, returned to full service in May 1993 after being partially
off line for nearly a year due to an explosion at an unaffiliated NGL storage
site that serves UP Bryan.
NATURAL GAS LIQUIDS
(GRAPHS)
Nationwide, inventory surpluses have been trimmed to more normal
levels due to production cutbacks and periods of brisk winter demand, but
prices for ethane, propane and other natural gas liquids are likely to remain
under downward pressure as long as oil prices are depressed. About
three-quarters of the gas liquids we sell compete against crude-based products,
primarily naphtha and gas oil, as feedstocks for petrochemi-
17
<PAGE> 16
cal plants. The other 25 percent competes in the fuel market.
Although crude-based products remain plentiful, we are optimistic that
NGL prices will begin firming later this year as a result of increased demand
from the petrochemical industry. NGL producers saw a 120,000-barrel-per-day
increase in liquids demand on the Gulf Coast and a robust price rebound in
1991, when petrochemical manufacturers opened three new plants in Texas and
Louisiana to produce ethylene, a building block for a variety of plastics.
Three more large ethylene plants now under construction should create a similar
increase in NGL demand during the next 12 months. Formosa Plastics is expected
to start its new ethylene plant at Point Comfort, Texas, this spring, and Dow
Chemical plans to open ethylene facilities at Freeport, Texas, and in Alberta,
Canada.
Another component of the Company's liquids business, Gulf Coast
Fractionators, is being expanded, and the new capacity should be in operation
by September. Gulf Coast Fractionators separates mixed gas liquids from the
field into pure products at its plant at Mont Belvieu, Texas. The plant, which
Mitchell owns in partnership with Trident NGL and Conoco, is expanding its
production capacity from 65,000 barrels per day to 105,000 barrels per day.
Unlike gas processing, NGL fractionation is a volume-based service business
that is much less sensitive to swings in commodity prices. Last year, Conoco
bought a 22.5 percent stake in the plant, reducing our previous half interest
to 38.75 percent. Through a refinancing of the plant, our Company netted $15.5
million in cash.
The Transmission and Processing Division will enter a new business
line with the opening of an MTBE gasoline additive plant. The plant is being
built in partnership with Sun Company and Enterprise Products. Our Company has
a one-third interest in the facility, which has a design capacity of 12,500
barrels per day but is expected to produce at a higher rate. MTBE (methyl
tertiary butyl ether) is a key ingredient in "reformulated" gasoline. The plant
will open ahead of the final round of clean air regulations requiring use of
cleaner-burning gasoline in pollution-prone areas of the country. Start-up is
scheduled for this summer - several months ahead of the original schedule.
The MTBE facility, also located at Mont Belvieu, is expected to
contribute significantly to operating earnings in the second half of the
current year. Sun has agreed to buy 100 percent of the plant's
18
<PAGE> 17
production for the first 10 years. We will supply one-third of the feedstock,
providing us with a firm market for more than half of our butane production.
Largely as a result of prices that are too low to warrant operation of
some of our gas processing plants, natural gas liquids reserves declined to
107.4 MMBbls at the end of fiscal 1994 from 127.4 MMBbls at the same time a
year earlier. However, a substantial part of the gas liquids removed from our
reserve base because they are not currently economic to process would be added
back if prices improve to the point that operation of the out-of-service plants
again is justified.
GAS GATHERING
AND TRANSMISSION
Average gas throughput along our intrastate pipeline systems was down slightly
in fiscal 1994 to 549,000 Mcf per day from 566,000 Mcf a year earlier, mainly
due to a reduction in contract volumes and to natural declines in some of the
fields our pipelines serve. However, our Ferguson-Burleson County Gas
Gathering System moved record volumes of gas in fiscal 1994, thanks to a
108-mile expansion project that also boosted gas compression on the line. The
Company holds a 45 percent interest in partnership with Union Pacific
(MAP)
19
<PAGE> 18
Resources. The system moved a daily average of 256,000 MMBtu during the year,
an increase of more than 12 percent over volumes carried in fiscal 1993. Also,
on our Winnie Pipeline system, volumes surged from roughly 170,000 Mcf per day
in November to as high as 300,000 Mcf in late January, due to a prolonged cold
snap in the Northeast and to recent transmission system improvements.
In November, we completed a strategic link-up between Winnie and the
Texaco Sabine interstate pipeline. That interconnection boosted volumes last
winter on the Winnie system by as much as 120,000 Mcf per day because it
enabled us for the first time to help our third-party customers get their gas
from Southeast Texas to the important Henry Hub gas trading market in South
Central Louisiana.
Our new Spindletop storage facility at Beaumont, Texas, also attracted
new volumes of gas to the Winnie system last year. We are continuing to
increase our storage capacity at Spindletop with the development of a second
cavern. Using the new cavern, we plan to double the facility's current 1.7 Bcf
of working gas capacity by December.
The storage project originally was conceived as a means of enhancing
Winnie's service to existing customers in the Golden Triangle, a highly
industrialized area along the upper Texas Gulf Coast. However, it soon became
clear that the facility offered opportunities for attracting off-system
customers. In July, the Company signed a 10-year lease agreement with Natural
Gas Clearinghouse, the nation's largest independent natural gas marketer, for 1
Bcf of storage capacity--half last year and the remainder in the current year.
PIPELINE OPERATIONS
(GRAPH)
As a result of that contract, Spindletop's first cavern was fully
utilized during its first year of operation. Plans call for the storage
facility to be expanded to at least 12 Bcf, and possibly to 18 Bcf of working
gas capacity by 1997.
Because the Transmission and Processing Division's expenditures for
several major projects were largely funded earlier, the division's capital
spending in 1994 was substantially lower than in the prior year. The division's
capital budget for fiscal 1995 has been set
20
<PAGE> 19
at $29.6 million, down from $48.6 million in fiscal 1994.
OTHER
Other division operations include Brazos Gas Compressing Co., a service company
that increases the pressure of natural gas to move it through gathering or
transmission lines. That subsidiary, which works both for us and for third
parties, is a consistent contributor to the division's operating earnings.
Natural Gas Processing
(CHART)
21
<PAGE> 20
REAL ESTATE DIVISION
THE WOODLANDS
The Woodlands, our largest real estate project, maintained its number-one
ranking in the Houston area in new home sales and starts for the fourth year in
a row. It also was named one of the top 10 communities in the United States by
American Metro/Study Corporation and was honored as 1993 winner of the world's
premier real estate award, the Prix D'Excellence, by the Paris-based
International Real Estate Federation.
The Woodlands' population increased by about 2,600 during the year, to
more than 38,500. Approximately 750 jobs were added, bringing total
non-construction employment to about 11,500. But the substantial progress we
made during fiscal 1994 was not fully reflected in operating earnings, which
were affected by a slowdown in residential lot sales.
Commercial activity picked up dramatically, however, with the
beginning of construction of The Woodlands Mall, a regional shopping center
encompassing a million square feet and featuring four major retailers as anchor
tenants. The Woodlands Corporation is building the mall in a 50-50 joint
venture with Sears' Homart subsidiary. The partnership will own approximately
345,000 square feet of space not being occupied by the four department stores.
The mall is on schedule for an October 1994 grand opening.
Construction of the mall has spurred real estate activity in The
Woodlands,
FINANCIAL HIGHLIGHTS YEAR ENDED JANUARY 31 (in thousands)
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
REVENUES
The Woodlands . . . . . . . . . . . . . . . . $108,218 $ 99,556
Other . . . . . . . . . . . . . . . . . . . 17,888 21,897
-------- --------
$126,106 $121,453
======== ========
SEGMENT OPERATING EARNINGS
The Woodlands . . . . . . . . . . . . . . . $ 24,601 $ 23,466
Other . . . . . . . . . . . . . . . . . . . (3,523) (665)
-------- --------
$ 21,078 $ 22,801
======== ========
CAPITAL ADDITIONS . . . . . . . . . . . . . . $ 65,132 $ 84,954
======== ========
</TABLE>
22
<PAGE> 21
23
<PAGE> 22
24
<PAGE> 23
including the sale in fiscal 1994 of more than 30 acres of prime commercial
land. In addition, institutional clients purchased approximately 113 acres. For
the year, our commercial and institutional land sales exceeded $13.3 million,
compared with $5.1 million in the prior year.
We've made significant progress on the development of Pinecroft
Center, a 350,000-square-foot retail facility adjacent to the mall. The first
phase opened in 1991 with a 112,000-square-foot Target store. Construction is
in progress for several other retailers and restaurants, including Service
Merchandise, Marshalls, Toys 'R' Us, Black-Eyed Pea, Chili's, Guadalajara Cafe
and Grille, and Jack-in-the-Box.
Groundbreaking also took place for a neighborhood shopping center
serving the villages of Cochran's Crossing and Alden Bridge. A Kroger
"signature" store and an Eckerd Drug store have signed leases as anchors for
the 136,000-square-foot center, and prospects are excellent for filling the
remaining space. This project, a joint venture with an institutional investor,
is scheduled to open this fall.
The office occupancy rate in The Woodlands averaged 90 percent for
fiscal 1994, its highest level since 1981. At the beginning of the year, Hughes
Christensen completed its move into its new world headquarters and
manufacturing facility in The Woodlands. Allstate Insurance Co. moved into its
39,000 square feet of space in the new Parkwood II office building in March
1994. At year end, all five of our Ventures Technology buildings in The
Woodlands' Research Forest were 100 percent leased. Indicating their potential
for growth, five young Research Forest companies completed initial or secondary
public stock offerings totaling more than $80 million during the year.
THE WOODLANDS RESIDENTIAL
(GRAPHS)
Construction will commence this year on a 38,000-square-foot,
build-to-
25
<PAGE> 24
suit headquarters and technology facility for GeneMedicine, which will add 65
employees to the community's work force. The pharmaceutical company was formed
to transfer to the marketplace technologies developed at Baylor College of
Medicine.
Service Corporation International, the largest funeral home operator
in the world, purchased a 70-acre site in The Woodlands at the end of fiscal
year 1994. The property will be used for development of Forest Park-The
Woodlands, a cemetery and funeral home.
A lack of job growth in the region and a slow start due to unusually
wet weather and a reduced inventory of available lots caused residential lot
sales to decline 7 percent, from 911 in the prior year to 844 in fiscal 1994.
However, the average lot price rose from $38,196 to $39,055, and the price per
square foot increased to $3.38 from $3.14. Residential lot sales picked up in
the third quarter, carrying into the new fiscal year.
Occupancy rates for apartments managed by the Company averaged 90
percent for the year, and demand remains strong. In July, construction of the
Forest View Apartments, a 256-unit affordable housing project, was completed.
By year end, 95 percent of its units were leased.
The Woodlands Executive Conference Center, Resort and Country Club had
record earnings and revenues in fiscal 1994. Group bookings at the
REAL ESTATE HOLDINGS AT JANUARY 31, 1994
<TABLE>
<CAPTION>
Property Description Company-Owned Acreage
- -------- ----------- ---------------------
<S> <C> <C>
The Woodlands Master-planned, 25,000-acre
community located 27 miles north
of downtown Houston. 16,820
Land held for investment, Principally undeveloped properties
development or sale in Galveston, Grimes, Harris,
Montgomery, San Jacinto and Waller
counties, Texas. 37,750
Resort and other operating Includes Pirates' Beach, Pirates'
Cove properties and other developed properties on
Galveston Island; Magnolia Country
subdivisions northwest of Houston;
and Cape Royale on Lake Livingston. 970
------
55,540
======
</TABLE>
26
<PAGE> 25
conference center increased substantially, and country club membership reached
an all-time high. In addition, Shell Oil announced an extension of its
sponsorship of the Shell Houston Open PGA golf tournament at The Woodlands for
the next three years. The tournament again will receive
THE WOODLANDS STATISTICAL HIGHLIGHTS
AT JANUARY 31, EXCEPT AS NOTED
<TABLE>
<CAPTION>
1994 1993
------ ------
<S> <C> <C>
Population . . . . . . . . . . . . . . . . . 38,550 35,910
Employment (non-construction) . . . . . . . . 11,500 10,750
Occupancy rates
Office-industrial . . . . . . . . . . . . 88% 88%
Apartments . . . . . . . . . . . . . . . . 92% 88%
Woodlands Executive Conference Center
and Resort (average for the year) . . . 62% 58%
Managed properties (square feet)
Office-industrial . . . . . . . . . . . . 1,725,660 1,686,630
Retail . . . . . . . . . . . . . . . . . . 478,760 453,340
</TABLE>
COMMERCIAL ACTIVITY IN THE WOODLANDS MALL AREA
(MAP)
27
<PAGE> 26
national television coverage on the ABC network.
Mitchell Mortgage Company continued its successful lending program in
fiscal 1994. During the year, this subsidiary originated $67 million in
permanent home mortgage loans for both newly purchased and refinanced
single-family dwellings. Although the subsidiary sells virtually all of the
loans, it retains servicing rights through which it earns loan administration
fees. The servicing portfolio at year end amounted to approximately $600
million.
At year end, cumulative capital investment in The Woodlands by the
Company and third parties totaled approximately $2.9 billion, up from $2.6
billion the year before. The Company's share was 24 percent, about the same as
a year earlier.
Including the mall, some 1.5 million square feet of private and public
construction was under way in The Woodlands at the beginning of fiscal 1995.
When completed, these facilities should create 3,000 to 4,000 new jobs. Among
the public-sector projects are the 72,000-square-foot Colin Powell Elementary
School, a 30,000-square-foot library and a 12,000-square-foot Montgomery County
annex building.
THE WOODLANDS CONSTRUCTION STARTS
YEAR ENDED JANUARY 31
(GRAPH)
OTHER
The San Luis Hotel in Galveston is now one of the largest resort and conference
centers on the Gulf Coast. With its added conference and dining facilities, the
hotel has expanded its market and increased off-peak occupancy rates. On
Company property adjacent to The San Luis, construction is under way on a
500-seat Landry's Restaurant. Resort property sales on West Galveston Island
were soft throughout the year, in large part due to the flat Houston economy.
During the year, a partnership in which the Company has an interest
acquired several important government permits for the Lake Catamount skiing
development near Steamboat Springs, Colorado. These permits should add value to
the property and allow the partnership to proceed with a business plan for
possible development.
28
<PAGE> 27
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL POSITION
AND RESULTS OF OPERATIONS
MITCHELL ENERGY & DEVELOPMENT CORP. AND SUBSIDIARIES
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.
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. 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 adopted a dual-class common stock structure during fiscal
1993 to facilitate the use of common stock in connection with general financing
transactions, acquisitions or corporate restructurings. During May 1993, the
Company sold 5.9 million Class B shares, and Mr. Mitchell, the Company's
majority shareholder, sold one million of his Class B shares. The Company's
$123.4 million net proceeds of this public offering were used in connection
with its buy-out of the MEC Development, Ltd., partnership and to fund fiscal
1994 drilling costs that otherwise would have been expenditures of that
partnership.
The Company's bank revolving credit and commercial paper facilities
provide for aggregate borrowings of approximately $558 million. Exclusive of
the $206 million which was used in late February to redeem the 11 1/4% senior
notes, the Company had unused capacity of $299 million available under these
committed credit facilities at January 31, 1994. The terms of the Company's
$250 million Energy and $165 million Real Estate bank revolving credit
facilities were amended during October 1993. The term-loan feature that
previously was part of these agreements was eliminated, and these facilities
are now five-year revolvers maturing on July 31, 1998. For their fifth year,
which begins on August 1, 1997, the committed amounts for these facilities
decrease to 75% of their initial size. Also during October 1993, the maturity
of the Company's $125 million commercial paper program was extended through
June 1997, and the term of a mortgage subsidiary's $18 million bank credit
facility was extended through July 1996. Exclusive of the $200 million debt
prepayment discussed above and maturities under its bank credit facilities and
commercial paper program, the Company's aggregate five-year debt maturities
totaled approximately $136 million at January 31, 1994.
Because of its continued 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
29
<PAGE> 28
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.
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 provide for the Company's
longer-term needs.
At January 31, 1994, the Company's long-term debt totaled $988.3
million, up $40.6 million from the balance at the beginning of the year.
Primarily because of the Class B stock sale, however, the debt/equity ratio
declined to 1.31 from 1.50.
Since the Company's short-term liquidity needs can be completely
satisfied using its committed bank revolving credit facilities, it has chosen
not to maintain the large excess cash balances that would be necessary for
positive working capital to be reported. Because of this and since its
principal sources of operating cash flows (the following year's production of
energy reserves and sales of real estate) cannot be reported as working
capital, the Company had a working capital deficit of $28.2 million at January
31, 1994.
Cash flows from gas processing operations historically have
constituted a significant portion of the Company's overall cash flows. NGL
margins and cash flows were adversely affected during the second half of fiscal
1994 by low sales prices - which were largely the result of low world oil
prices - and by relatively high costs for replacement gas under keep-whole
processing agreements. For the most part, this trend persisted throughout a
relatively cold winter. As the end of the winter heating season approaches, the
outlook for future NGL prices is unclear. Domestic NGL inventories have
declined substantially in recent months because of price-related production
cutbacks, and while this is expected to positively affect future NGL prices, it
is not clear what, if anything, OPEC will do to firm world oil prices and
thereby reduce the downward pressure that such prices have exerted on NGL
realizations.
In the recent pricing environment, margins for the Company's
keep-whole processing plants generally have not been sufficient to cover
operating costs, and consequently many of these smaller facilities have been
temporarily shut down. The Company's NGL production volumes averaged 42,000
barrels per day in fiscal 1994's fourth quarter, 22% below the first-half
average. Production continued at a reduced level early in fiscal 1995.
The poor pricing scenario for NGLs and oil also had a negative impact
on the estimated quantities and present values of the Company's reserves. The
estimated present value of pretax future net revenues of the Company's energy
reserves, calculated in accordance with Securities and Exchange Commission
regulations, totaled $1.038 billion at January 31, 1994 - $842 million for
natural gas and oil and $196 million for plant NGLs. At January 31, 1993, these
amounts totaled $1.22 billion - $880 million for natural gas and oil and $340
million for plant NGLs. Principally because uneconomic quantities are excluded
from the reported amounts, the Company's plant NGL reserves declined by 16%
during fiscal 1994. However, the presently uneconomic quantities remain
committed to the Company's processing plants and would be restored to the
reported reserves with improved gas processing economics.
The depressed oil and NGL prices also negatively impact the Company's
full cost ceiling limitation calculations, and the "cushion" between this
ceiling and the financial statement carrying value of the Company's oil and gas
properties eroded substantially during fiscal 1994. Additional erosion could
necessitate additions to the Company's future DD&A expense provisions.
As discussed in the following section, the low prices for oil and NGLs
also caused the Company to reduce its fiscal 1995 capital budget. Furthermore,
the Company is seeking other means of improving
30
<PAGE> 29
its fiscal 1995 earnings and cash flows. Although specific measures have not
yet been determined, such actions could include the disposition of assets and
other steps that would result in both operating and overhead cost reductions.
CAPITAL SPENDING
The following table compares the fiscal 1995 capital budget with the actual
capital additions for fiscal 1994 and 1993 (dollars in millions):
<TABLE>
<CAPTION>
1995 Budget 1994 1993
--------------- ----------------- ----------------
Amount % Amount % Amount %
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Exploration and Production . . . . $129.7 56.2 $159.9 44.9 $77.7 32.7
MEC Development, Ltd. buy-out . . -- -- 78.3 22.0 -- --
Transmission and Processing . . . . 29.6 12.8 48.6 13.7 70.5 29.7
Real Estate . . . . . . . . . . . . 65.5 28.4 65.1 18.3 85.0 35.7
Corporate . . . . . . . . . . . . . 6.0 2.6 3.9 1.1 4.5 1.9
------ ----- ------ ----- ------ -----
$230.8 100.0 $355.8 100.0 $237.7 100.0
====== ===== ====== ===== ====== =====
</TABLE>
The consolidated budget for fiscal 1994 capital spending, initially set at
$226.6 million, was later revised to $372.7 million. Most of the revisions were
related to the buy-out of MEC Development, Ltd., effective May 1, 1993,
including increases in the consolidated budget to cover drilling costs that
otherwise would have been expenditures of the partnership. Including the $78.3
million for the partnership buy-out, fiscal 1994 capital additions ultimately
totaled $355.8 million, 4.5% below the revised budget.
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. This level of
spending is believed adequate to allow the Company to replace the gas and oil
reserves that will be produced in fiscal 1995, to fund its ongoing Transmission
and Processing projects and to provide for the ongoing development of The
Woodlands. The Company monitors its cash flows on an ongoing basis, and the
fiscal 1995 capital budget may be adjusted - either upward or downward - in
response to changed circumstances. Because of continued low margins for NGLs
and the timing of annual Texas ad valorem tax payments, semiannual senior note
interest payments and the previously mentioned debt prepayment premium, the
Company's long-term debt may rise during the early part of fiscal 1995 by an
amount approximating fiscal 1994's $40 million increase. With some expected
improvements in energy prices and margins and receipts from sales of mature
real estate properties later in the year, debt subsequently is projected to
decline. However, such reductions may not be sufficient to entirely erase the
earlier increase.
Even after excluding the effect of fiscal 1994's buy-out of MEC
Development, Ltd., the capital budget calls for lower Exploration and
Production Division capital spending, the bulk of which will consist of
reduced drilling expenditures. The division will continue to emphasize the
development of known reserves and expects to replace production even at the
lower spending level by concentrating its efforts on the best available
prospects. Also, it is anticipated that the Company's fiscal 1995 average
production volumes for natural gas and oil will rise both because of the
carryover effect of fiscal 1994's drilling activity and the full-year's impact
of the partnership buy-out.
The $19.0 million planned reduction in capital additions for
Transmission and Processing in fiscal 1995 is principally attributable to lower
expenditures for pipeline projects and reduced capital contributions to an
unconsolidated partnership which is completing the construction of an MTBE
plant. Construction will continue in fiscal 1995 on the wholly owned Spindletop
natural gas storage facility, where initial operations commenced late in the
third quarter of fiscal 1993. However, since the capital expenditures for
Spindletop's infrastructure have already been made, storage capacity can be
added at a relatively low cost.
31
<PAGE> 30
The fiscal 1995 capital budget calls for Real Estate Division spending
to remain essentially unchanged from the prior-year level. Capitalized costs
should decline somewhat because of an expected reduction in the Company's
effective interest rate due to the prepayment of the 11 1/4% senior notes while
"hard" costs will increase if build-to-suit facilities are constructed, as
planned, for companies that are considering relocating to The Woodlands.
In addition to its fiscal 1995 consolidated capital budget, the
Company will be participating through partnerships in several significant
construction projects. These projects, which are funded principally using
proceeds of loan agreements of the partnerships, include the previously noted
MTBE plant, expansion of a fractionation facility and construction of a
regional mall in The Woodlands.
A partnership in which the Company has a one-third interest is
constructing 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, is expected to begin production
during the summer of 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., has agreed 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. The Company's capital contributions to the partnership, which are
expected to decline to $1 million in fiscal 1995 from the prior year's $9
million, are included in the consolidated capital budget. Conversely,
expenditures funded by partnership borrowings are not included in the
consolidated budget.
Through its 38.75% ownership in Gulf Coast Fractionators (GCF), the
Company is participating in a 40,000 barrel-per-day expansion of an NGL
fractionation plant at Mont Belvieu, Texas. The expanded facility is expected
to begin operating in 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. The expansion costs are being funded by borrowings
under the partnership's loan agreement. Accordingly, such expenditures are not
included in the Company's consolidated capital budget. 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, is the
largest project in which the Real Estate Division will participate in fiscal
1995. The mall, which is being developed by a partnership equally owned by the
Company and Homart Development Co., a subsidiary of Sears, Roebuck and Co., is
expected to open in October 1994. 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. Because of this, the Company's
consolidated capital budget does not include these costs.
ENVIRONMENTAL AND OTHER MATTERS
Concern for the environment has been part of the Company's operating philosophy
for many years. In the ordinary course of conducting its business, the Company
incurs costs, both expensed and capitalized, to preserve and protect the
environment. As public concern for the environment has grown in recent years,
new environmental regulations and laws have been enacted, and the enforcement
of existing laws has been strengthened. Among other things, these
regulations - some of which affect the Company's energy and real estate
activities - involve significant financial responsibilities and impose
constraints on the manner in which operations may be conducted. The Company
considers compliance with environmental protection regulations and laws, and
the related costs, to be a necessary and manageable part of its business. To
date, the Company has not been faced with major clean-up obligations and has
been able to conform with environmental regulations without materially altering
its operating strategies.
32
<PAGE> 31
The Company's real estate development activities are subject to
certain wetlands preservation regulations. The timely performance of
environmental impact assessments, together with flexibilities available because
of the Company's large landholdings and its practice of designing and
constructing projects in harmony with the natural environment, have enabled the
Company to comply with these and other resource preservation regulations. While
it is not possible to fully anticipate the financial obligations or operating
constraints that might ultimately result from increasingly stringent
environmental regulations and enforcement programs, management believes the
Company is well-positioned within the industries in which it competes to deal
with environmental protection requirements. Furthermore, clean-burning natural
gas, the cornerstone of the Company's energy operations, is likely to benefit
from increasing environmental awareness.
Real estate development activities also are affected by regulations,
policies and actions of various governmental agencies and other entities
relating to essential public services, including utilities, telephone service
and schools. To date, these public services have been obtained in a manner that
has enhanced the Company's development activities, and management expects that
this will continue to be the case for the foreseeable future.
As previously reported, litigation had been brought by a pipeline
purchaser related to three natural gas sales contracts which extended until
2000 and provided for above-market minimum prices. This litigation was settled
in January 1994 when new gas sales contracts were executed. While near-term
revenues under the new contracts will likely be lower, the Company estimates
that total revenues over the terms of these contracts will at least equal those
which would have been received under the previous agreements.
OPERATING STATISTICS
Certain operating statistics (including, where applicable, proportional
interests in equity partnerships) for fiscal 1994, 1993 and 1992 follow:
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
AVERAGE DAILY VOLUMES
Natural gas sales (Mcf) . . . . . . . . . . . . 193,800 149,000 157,800
Crude oil and condensate sales (Bbls) . . . . . 6,000 5,600 5,400
Natural gas liquids produced (Bbls) . . . . . . 49,800 47,200 44,000
Pipeline throughput (Mcf) . . . . . . . . . . . 549,000 566,000 581,000
AVERAGE SALES PRICES
Natural gas (per Mcf) . . . . . . . . . . . . . $ 2.86 $ 2.84 $ 2.74
Crude oil and condensate (per Bbl) . . . . . . 16.31 18.49 18.95
Natural gas liquids produced (per Bbl) . . . . 12.18 13.41 13.41
RESIDENTIAL LOT SALES - THE WOODLANDS
Lots sold . . . . . . . . . . . . . . . . . . . 844 911 910
Average price . . . . . . . . . . . . . . . . . $ 39,055 $ 38,196 $ 36,400
</TABLE>
RESULTS OF OPERATIONS - FISCAL 1994 COMPARED WITH FISCAL 1993
The Company's results for fiscal 1994 and 1993 - both before and after unusual
items which affected each year's earnings - are shown on the table on the
following page. Exclusive of the unusual items, the Company earned $36.1
million in fiscal 1994, compared with $50.0 million in the prior year. After
considering the unusual items, net earnings were $19.7 million ($.39 per share
on 51,004,000 shares) in fiscal 1994 and $18.5 million ($.39 per share on
46,858,000 shares) in fiscal 1993. The average number of outstanding shares
rose primarily because of the May 1993 sale of 5.9 million Class B shares.
33
<PAGE> 32
Exploration and Production earnings rose substantially in fiscal 1994
due to sharply higher natural gas volumes and prices, including the impact of
the previously mentioned buy-out of MEC Development, Ltd., effective May 1,
1993. More than offsetting these gains, however, were sharply lower earnings
for Transmission and Processing operations, particularly in the second half of
the year. Gas processing margins were adversely affected by declining NGL
sales prices and rising market-sensitive natural gas feedstock costs under
keep-whole processing agreements. The following table and discussion identify
and explain the major increases (decreases) in earnings (in millions):
<TABLE>
<CAPTION>
Segment Operating Earnings
--------------------------------
Trans-
Exploration mission
and and Real Pretax Net
Production Processing Estate Other* Earnings Earnings
---------- ---------- ------ ------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
FISCAL 1993 AMOUNTS . . . . . . . . . . . . . $22.6 $ 88.5 $22.8 $(86.6) $ 47.3 $ 18.5
ADD BACK FISCAL 1993
UNUSUAL ITEMS
Restructuring charges . . . . . . . . . . . . 20.7 -- -- .5 21.2 13.7
Extraordinary item . . . . . . . . . . . . . -- -- -- -- -- 7.3
Cumulative effect of change
in accounting methods . . . . . . . . . . . -- -- -- -- -- 10.5
----- ------ ----- ------ ------ ------
FISCAL 1993 AMOUNTS
BEFORE UNUSUAL ITEMS . . . . . . . . . . . 43.3 88.5 22.8 (86.1) 68.5 50.0
----- ------ ----- ------ ------ ------
MAJOR INCREASES (DECREASES)
Natural gas
Sales under fixed-price contracts . . . . . 9.6 -- -- -- 9.6 6.2
Market-sensitive sales . . . . . . . . . . 16.1 -- -- -- 16.1 10.5
Oil and condensate sales . . . . . . . . . . (3.2) -- -- -- (3.2) (2.1)
Oil and gas DD&A rate increase . . . . . . . (8.3) -- -- -- (8.3) (5.4)
Gas processing
NGL price . . . . . . . . . . . . . . . . . -- (16.4) -- -- (16.4) (10.7)
Marketing activities . . . . . . . . . . . -- (6.9) -- -- (6.9) (4.5)
Increased cost of sales . . . . . . . . . . -- (10.6) -- -- (10.6) (6.9)
Full year's ownership of C&L
Processors' (C&L) plants . . . . . . . . -- 3.0 -- -- 3.0 2.0
Production volumes (excluding
impact of C&L plant acquisitions) . . . . -- (1.9) -- -- (1.9) (1.2)
Gas gathering and transmission . . . . . . . -- (6.6) -- -- (6.6) (4.3)
Real estate . . . . . . . . . . . . . . . . . -- -- (1.1) -- (1.1) (.7)
Interest expense incurred . . . . . . . . . . -- -- -- 1.2 1.2 .8
Other
Recognition of previously
deferred natural gas revenues . . . . . . 3.9 -- -- -- 3.9 2.5
Excise tax refunds . . . . . . . . . . . . 1.0 -- -- 1.9 2.9 1.9
Contingent liability reversal . . . . . . . 1.9 -- -- -- 1.9 1.2
SAR/Bonus unit expense accruals . . . . . . (1.0) (.4) (.6) (1.1) (3.1) (2.0)
Miscellaneous . . . . . . . . . . . . . . . 3.3 (6.1) -- 1.3 (1.5) (1.2)
----- ------ ----- ------ ------ ------
23.3 (45.9) (1.7) 3.3 (21.0) (13.9)
----- ------ ----- ------ ------ ------
FISCAL 1994 AMOUNTS
BEFORE UNUSUAL ITEMS . . . . . . . . . . . 66.6 42.6 21.1 (82.8) 47.5 36.1
FISCAL 1994 UNUSUAL ITEMS
Deferred income tax charge due
to increased statutory tax rate . . . . . . -- -- -- -- -- (11.0)
Extraordinary item . . . . . . . . . . . . . -- -- -- -- -- (5.4)
----- ------ ----- ------ ------ ------
FISCAL 1994 AMOUNTS
AFTER UNUSUAL ITEMS . . . . . . . . . . . . $66.6 $ 42.6 $21.1 $(82.8) $ 47.5 $ 19.7
===== ====== ===== ====== ====== ======
</TABLE>
- -------------------------
* Includes general and administrative expense and other expense.
34
<PAGE> 33
FISCAL 1993 UNUSUAL ITEMS
Restructuring charges. Pretax restructuring charges of approximately $21.2
million ($8.0 million of cash costs and $13.2 million of additional DD&A and
asset write-downs) were recorded in the first quarter of fiscal 1993, all but
$0.5 million of which were related to a reorganization of oil and gas
exploration and production activities. See Note 9 of Notes to Consolidated
Financial Statements for additional information.
Extraordinary item. On April 13, 1992, the Company completed the early
retirement of its $250 million of 11 1/4% Senior Notes Due 1997. The redemption
price was 103.21% of principal, and the premium and related unamortized debt
issuance costs were expensed, resulting in an extraordinary loss of $7.3
million (after tax benefit of $3.7 million).
Cumulative effect of change in accounting methods. Effective February 1, 1992,
the Company adopted SFAS No. 106 concerning postretirement medical benefits by
recording, as the cumulative effect of a change in accounting methods,
prior-service cost of $15.9 million. After a tax benefit of $5.4 million, this
reduced fiscal 1993's net earnings by $10.5 million.
EXPLORATION AND PRODUCTION OVERVIEW
Excluding the effect of the prior year's restructuring charges, Exploration and
Production Division operating earnings rose by $23.3 million in fiscal 1994,
to $66.6 million. Because of improved natural gas market conditions and
acquisitions of all remaining interests in MEC Development, Ltd., properties,
average daily natural gas sales volumes totaled 193,800 Mcf, up from 149,000 in
fiscal 1993. For the fourth quarter, such sales averaged 217,400 Mcf per day,
up 36% from the prior-year period's 159,400.
Natural Gas - Sales under fixed-price contracts ($9.6 million increase).
Production under fixed-price contracts averaged 101,700 Mcf per day at a price
of $3.52 per Mcf during fiscal 1994; such amounts were 85,300 and $3.54,
respectively, during the prior year. The volume increase was largely the result
of the acquisition in December 1992 of additional interests in producing
properties that had been owned by MEC Development, Ltd., and the buy-out of the
limited partner's remaining interests in May 1993. The average sales price
received for contract natural gas was virtually the same as last year's
average. This was because the positive impact of a $.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 essentially
offset by lower realizations for leasehold natural gas liquids and reduced
amortization of deferred restructuring proceeds associated with the NGPL
contract.
Natural Gas - Market-sensitive sales ($16.1 million increase). The average
sales price received by the Company for market-sensitive gas during fiscal 1994
was $2.14 per Mcf, up 13% from the previous year's $1.90. Production volumes
rose 45% to 92,100 Mcf per day. The previously discussed acquisitions of
partnership interests contributed to the higher volumes. Also, because of the
improved pricing for market-sensitive gas, most of the Company's properties
were at full production during fiscal 1994; production had been curtailed
during the first half of fiscal 1993 in response to depressed prices.
Oil and condensate sales ($3.2 million decrease). Fiscal 1994's average sales
price for oil and condensate of $16.31 per barrel was down 12% from the $18.49
of the prior year, reducing operating earnings by $4.6 million. Oil prices
declined substantially during the last half of fiscal 1994 as world oil prices
fell, and the Company's average price for the fourth quarter of $13.82 was
substantially below the full-year average. Partially offsetting the effect of
the lower prices was a 400 barrel-per-day increase in production volumes, which
added $1.4 million to operating earnings.
Oil and gas DD&A rate increase ($8.3 million decrease). The Company's overall
DD&A rate rose during fiscal 1994 primarily because of the buy-out of MEC
Development, Ltd.
35
<PAGE> 34
TRANSMISSION AND PROCESSING OVERVIEW
Transmission and Processing operating earnings declined $45.9 million (52%) in
fiscal 1994 principally because of sharply lower gas processing margins and
reduced earnings from gas gathering and transmission operations. NGL production
volumes averaged 49,800 Bbls per day, up from 47,200 during fiscal 1993 because
of the previously reported acquisition by a 50% owned partnership of interests
in 13 plants effective August 1, 1992, which more than offset volume declines
at other plants.
Gas Processing - NGL price ($16.4 million decrease). The average price for NGLs
produced during fiscal 1994 declined $1.23 per Bbl to $12.18, reducing
operating earnings by $16.4 million. As previously discussed, NGL prices fell
particularly in the last half of fiscal 1994, and the average price for the
fourth quarter of $10.59 per barrel was substantially below the average for the
full year.
Gas Processing - Marketing activities ($6.9 million decrease). Because of a
time lag between the production of unfractionated NGLs and the sale of the
fractionated products (propane, ethane, etc.), the Company's marketing
activities generally benefit from a rising trend in NGL prices and absorb
losses when such prices decline. Principally because NGL prices declined during
much of fiscal 1994 after increasing during most of the previous year, a $6.9
million unfavorable year-to-year operating earnings variance for marketing
activities was reported.
Gas Processing - Increased cost of sales ($10.6 million decrease). Gas
processing cost of sales consists principally 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. Costs under
keep-whole contracts rose substantially during fiscal 1994 because of the
previously mentioned increase in market-sensitive natural gas prices. Also
contributing to the year-to-year rise in costs was the fact that in fiscal 1993
the Company successfully used futures-market transactions to fix the price on a
portion of its natural gas feedstock requirements, reducing its fiscal 1993
costs by $3.5 million; there were no such transactions in fiscal 1994.
Gas Processing - Full year's ownership of C&L Processors' plants ($3.0 million
increase). The acquisition by C&L Processors, a 50% owned partnership, of
interests in 13 gas processing plants effective August 1, 1992 added $3.0
million to the Company's gas processing operating earnings during the first
half of fiscal 1994 (the period for which its results were not included in the
prior year). Since the partnership is accounted for on an equity basis, these
earnings are after all expenses, including interest charges, which were
substantial since the acquisition was funded entirely by partnership
borrowings.
Gas Processing - Production volumes, excluding impact of C&L plant acquisitions
($1.9 million decrease). For plants other than those owned by C&L Processors,
the Company's average daily production volumes during fiscal 1994 totaled
41,700 barrels per day - 1,100 barrels per day below their prior-year level. The
reduced fiscal 1994 production of these plants, which lowered operating
earnings by $1.9 million, was principally the result of lesser throughput for
certain plants because of normal production declines for natural gas wells in
their service areas and the temporary shut-down of other plants beginning in
the fourth quarter because of inadequate processing margins.
Gas Gathering and Transmission ($6.6 million decrease). Excluding the effect of
increased SAR/Bonus unit expense accruals, fiscal 1994 operating earnings from
gas gathering and transmission activities were $6.6 million below those of the
prior year. The principal causes of this decline were lower margins for the
wholly owned Winnie Pipeline system and for two 45% owned partnerships with
Union Pacific Resources Company (UPRC). Winnie's margins were lower primarily
because of the required renegotiation of certain contracts in the first quarter
of calendar 1993 (when market-sensitive natural gas prices rose to a level
exceeding the equivalent price for fuel oil) and because of volume declines
caused by certain contract terminations which occurred late in fiscal 1993. The
margin decline for the pipeline partnerships was largely the result of changes
in certain contracts (see page 33 for additional information). Partially
offsetting the effect of reduced pipeline margins were increased fiscal 1994
earnings from the marketing of "off-system" natural gas.
36
<PAGE> 35
REAL ESTATE AND OTHER
Real estate ($1.1 million decrease). Excluding the effect of increased
SAR/Bonus unit expense accruals, Real Estate Division operating earnings during
fiscal 1994 were $1.1 million below those of the prior year. The absence in
fiscal 1994 of a commercial property transaction similar to last year's sale of
a half interest in the Panther Creek Retail Center, sharply lower sales of
resort lots and a 7% decline in residential lot sales in The Woodlands
contributed to the lower earnings. Largely offsetting the negative impact of
these items were increased profits from sales of commercial and institutional
land in The Woodlands.
Largely because of the flat Houston economy, fiscal 1994 resort lot
sales declined sharply from the prior-year level. While The Woodlands continued
to lead the Houston area in home sales, the Company sold 844 residential lots
to builders in fiscal 1994, down from 911 during the prior year. This decline
occurred both because of softness in the Houston-area market (due to reduced
growth in jobs and fewer corporate relocations) and as a result of slowed lot
development in The Woodlands, which caused shortages in certain categories of
lot inventories during the first half of the year. Lot sales improved during
the second half of fiscal 1994 due, in part, to low interest rates and to the
offering by home builders of a broader range of housing products.
Operating earnings from sales of commercial and institutional acreage
in The Woodlands rose substantially in fiscal 1994 when the Company sold 144
acres of such land (versus 58 acres in the previous year). Revenues from such
transactions rose by $8.2 million, to $13.3 million, both as a result of the
increased volume and because the average sales price was higher since a larger
portion of the activity involved prime retail sites.
Interest expense incurred. Interest expense incurred, excluding amounts
reported as cost of sales for finance operations, totaled $74.1 million during
fiscal 1994, down $1.2 million from the prior-year amount. This reduction was
caused by a decline in the Company's average effective interest rate to 7.7%
from 8.1%. Contributing to the rate decline were the refunding at 9 1/4% in
April 1992 of $250 million of 11 1/4% fixed-rate notes and lower market rates
for short-term obligations. The beneficial impact of the lower interest rates
was partially offset by an increase in the Company's average debt balance and a
decrease in the percentage of lower-priced, floating-rate debt because of the
sale of $100 million of 8% Senior Notes in July 1992.
Other - Recognition of previously deferred natural gas revenues ($3.9 million
increase). During the second quarter of fiscal 1994, the Company recognized
certain natural gas revenues which previously had been deferred because of
future obligations for which the Company is no longer expected to be liable.
Other - Excise tax refunds ($2.9 million increase). During the fourth quarter
of fiscal 1994, the Company recognized excise tax refunds applicable to prior
years, of which $1.0 million was for taxes previously charged to oil and gas
operating earnings and $1.9 million was for accrued interest on such tax
overpayments.
Other - Contingent liability reversal ($1.9 million increase). During the first
quarter of fiscal 1994, a contingent liability related to contractual matters
was reversed when it was determined that this liability - which had been
recorded several years ago - was no longer needed.
Other - SAR/Bonus unit expense accruals ($3.1 million decrease). Expense
accruals for SARs/Bonus units were substantially higher in fiscal 1994 because
of larger year-to-year per share rises in the Company's common stock prices
($4.38 for Class A shares and $5.63 for Class B shares versus $2.13 and $1.25
in the prior year). Also contributing to this expense increase were exercises
at higher mid-year prices of options and bonus units, many of which had January
1994 expiration dates.
37
<PAGE> 36
FISCAL 1994 UNUSUAL ITEMS
Deferred tax charge due to increased Federal income tax rate. Deferred Federal
income tax expense for the third quarter of fiscal 1994 included $11 million
attributable to an increase enacted in August 1993 in the corporate statutory
Federal income tax rate from 34% to 35%. Because of the rate change, it was
necessary to increase the Company's deferred tax liability by an amount equal
to 1% of the aggregate cumulative difference between the book and tax bases of
its assets and liabilities.
Extraordinary item. In January 1994, the Company called for redemption its $200
million of 11 1/4% Senior Notes Due 1999. The redemption price was 103.21% of
principal, and the premium and related unamortized debt issuance costs were
expensed, resulting in an extraordinary loss on the early retirement of debt of
$5.4 million (after tax benefits of $2.9 million).
QUARTERLY FINANCIAL DATA (UNAUDITED)
MITCHELL ENERGY & DEVELOPMENT CORP. AND SUBSIDIARIES
(in thousands except per share data)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
FISCAL 1994
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . $230,846 $243,652 $247,418 $230,893
Segment operating earnings . . . . . . . . . . . . . . . . 36,389 37,679 30,467 25,785
Earnings (loss) before extraordinary item . . . . . . . . . 10,289 10,751 (1,964)(a) 6,037
Extraordinary item (early retirement
of $200 million of senior notes) . . . . . . . . . . . . -- -- -- (5,426)
Net earnings (loss) . . . . . . . . . . . . . . . . . . . . 10,289 10,751 (1,964)(a) 611
Earnings per share
Before extraordinary item . . . . . . . . . . . . . . . . .22 .21 (.04)(a) .11
Net earnings (loss) . . . . . . . . . . . . . . . . . . . .22 .21 (.04)(a) .01
FISCAL 1993
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . $186,321 $214,911 $250,712 $250,890
Segment operating earnings . . . . . . . . . . . . . . . . 9,118(b) 35,815 45,121 43,843
Earnings (loss) before extraordinary
item and cumulative effect of
change in accounting methods . . . . . . . . . . . . . . (8,602)(b) 9,295 16,138 19,458
Extraordinary item (early retirement
of $250 million of senior notes) . . . . . . . . . . . . (7,251) -- -- --
Cumulative effect of change in accounting
methods (for post-retirement medical benefits) . . . . . (10,551) -- -- --
Net earnings (loss) . . . . . . . . . . . . . . . . . . . . (26,404) 9,295 16,138 19,458
Earnings per share
Before extraordinary item and cumulative
effect of change in accounting methods . . . . . . . . (.18) .20 .34 .41
Net earnings (loss) . . . . . . . . . . . . . . . . . . . (.56) .20 .34 .41
</TABLE>
- -------------------------
(a) During the third quarter of fiscal 1994, the Company recorded a
deferred tax provision of $11 million as the result of an August 1993
increase in the corporate statutory Federal income tax rate from 34%
to 35%.
(b) During the first quarter of fiscal 1993, the Company recorded
restructuring charges which reduced segment operating earnings by
$20,726 and net earnings before extraordinary item and cumulative
effect of change in accounting methods by $13,706.
38
<PAGE> 37
RESULTS OF OPERATIONS - FISCAL 1993 COMPARED
WITH FISCAL 1992
The Company reported net earnings of $18.5 million ($.39 per share) for fiscal
1993. Absent the effect of the unusual items set forth below, net earnings for
the period would have been $50 million ($1.07 per share). This compares with
the $44.3 million ($.95 per share) earned during the prior year. The following
table and discussion identify and explain the major increases (decreases) in
earnings (in millions):
<TABLE>
<CAPTION>
Segment Operating Earnings
--------------------------------
Trans-
Exploration mission
and and Real Pretax Net
Production Processing Estate Other* Earnings Earnings
---------- ---------- ------ ------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
FISCAL 1992 AMOUNTS . . . . . . . $ 41.3 $ 89.8 $ 22.7 $(85.5) $ 68.3 $ 44.3
------ ------ ------ ------ ------ ------
MAJOR INCREASES (DECREASES)
Natural gas
Sales under fixed-price contracts . . . .3 -- -- -- .3 .2
Market-sensitive sales . . . . . . . . . 5.9 -- -- -- 5.9 3.9
Oil and gas DD&A rate increase . . . . . . (2.8) -- -- -- (2.8) (1.8)
Gas processing
Increased cost of sales . . . . . . . . -- (7.3) -- -- (7.3) (4.8)
C&L Processors acquisition . . . . . . . -- 4.4 -- -- 4.4 2.9
Production volumes and
operating expenses . . . . . . . . . . -- (3.5) -- -- (3.5) (2.3)
Marketing activities . . . . . . . . . . -- 1.9 -- -- 1.9 1.2
Gas gathering and transmission . . . . . . -- 2.3 -- -- 2.3 1.5
Real estate . . . . . . . . . . . . . . . . -- -- .1 -- .1 .1
Interest expense incurred . . . . . . . . . -- -- -- 5.9 5.9 3.9
Interest capitalized . . . . . . . . . . . -- -- -- (3.2) (3.2) (2.1)
General and administrative expense . . . . -- -- -- (3.2) (3.2) (2.1)
Lower effective income tax rate . . . . . . -- -- -- -- -- 5.5
Other . . . . . . . . . . . . . . . . . . . (1.4) .9 -- (.1) (.6) (.4)
------ ------ ------ ------ ------ ------
2.0 (1.3) .1 (.6) .2 5.7
------ ------ ------ ------ ------ ------
FISCAL 1993 AMOUNTS
BEFORE UNUSUAL ITEMS . . . . . . . . . . 43.3 88.5 22.8 (86.1) 68.5 50.0
------ ------ ------ ------ ------ ------
UNUSUAL ITEMS (see page 35)
Restructuring charges . . . . . . . . . . . (20.7) -- -- (.5) (21.2) (13.7)
Extraordinary charge . . . . . . . . . . . -- -- -- -- -- (7.3)
Cumulative effect of change
in accounting methods . . . . . . . . . -- -- -- -- -- (10.5)
------ ------ ------ ------ ------ ------
(20.7) -- -- (.5) (21.2) (31.5)
------ ------ ------ ------ ------ ------
FISCAL 1993 AMOUNTS
AFTER UNUSUAL ITEMS . . . . . . . . . . $ 22.6 $ 88.5 $ 22.8 $(86.6) $ 47.3 $ 18.5
====== ====== ====== ====== ====== ======
</TABLE>
- -------------------------
* Includes general and administrative expense and other expense.
EXPLORATION AND PRODUCTION OVERVIEW
Exclusive of the restructuring charges, Exploration and Production Division
operating earnings rose by $2.0 million in fiscal 1993, to $43.3 million. The
Company's average daily natural gas sales volumes totaled 149,000 Mcf in fiscal
1993, down from 157,800 in the previous year, while the average sales price
rose to $2.84 per Mcf from $2.74.
Natural Gas - Sales under fixed-price contracts ($0.3 million increase).
Because of offsetting year-to-year volume and price variances, the Company's
operating earnings from natural gas sales under fixed-price contracts rose $0.3
million in fiscal 1993. An average of 85,300 Mcf per day of natural gas was
produced by the Company under fixed-price contracts during fiscal 1993 at an
average price of $3.54 per Mcf; such amounts were 96,100 and $3.43,
respectively, in the prior year. The production decline, which reduced
operating earnings
39
<PAGE> 38
by $5.3 million, resulted primarily from reduced quantities of North Texas
production sold to NGPL and from lower contract sales in the Limestone County
area. The higher average sales price, which was caused by the $.25 per MMBtu
annual rate escalation for residue gas sales under the NGPL contract, increased
operating earnings by $2.6 million. The production decline, of which 8,100 Mcf
per day was in North Texas, resulted principally from the Company's decision to
meet a larger portion of the NGPL contract volumes using natural gas purchased
in that area, rather than production from the Company's wells. During fiscal
1993, such purchases and resales averaged 10,400 Mcf per day, roughly double
the prior-year amount, and operating profits from such transactions rose by
$3.0 million.
Natural Gas - Market-sensitive sales ($5.9 million increase). During
fiscal 1993, the Company's market-sensitive natural gas production volumes
averaged 63,700 Mcf per day at an average price of $1.90 per Mcf, up from
61,700 and $1.65 in the prior year, increasing operating earnings by $5.9
million. After declining to as low as $1.00 per MMBtu at times during the first
quarter, market-sensitive prices rose sharply over the remainder of the fiscal
year as the market perceived that natural gas demand had, or soon would, come
into balance with production capabilities. Because of the unacceptably low
prices for market-sensitive production early in fiscal 1993, the Company
limited such production to 45,700 Mcf per day in the first quarter. In response
to subsequent price improvements, market-sensitive production volumes were
increased, and for the fourth quarter such production averaged 74,400 Mcf per
day.
Oil and gas DD&A rate increase ($2.8 million decrease). The Company's DD&A rate
per dollar of oil and gas revenue rose during fiscal 1993, reducing operating
earnings by $2.8 million.
TRANSMISSION AND PROCESSING OVERVIEW
On an overall basis, Transmission and Processing Division operating earnings
fell by $1.3 million, to $88.5 million, as a $4.5 million decline in gas
processing earnings more than offset increases in earnings from gas gathering
and transmission ($2.3 million) and other activities ($0.9 million). The
Company produced an average of 47,200 barrels of NGLs per day during fiscal
1993 at an average price of $13.41 per barrel. In the prior year, these amounts
were 44,000 barrels per day and $13.41 per barrel.
Contributing to the increased production of NGLs in fiscal 1993 was
the previously mentioned acquisition of interests in 13 plants by C&L
Processors, which added 8,700 barrels to the Company's average daily production
during the last half of fiscal 1993 (or 4,300 barrels per day to the full
year's average). An increase from 30% to 45% in the Company's interest in the
U. P. Bryan partnership effective November 1, 1991 also contributed to the
higher production. The impact of this ownership increase would have been
substantially greater, however, had this partnership's operations not been
adversely affected by liquids pipeline curtailments - which continued through
the fourth quarter - associated with an April 1992 explosion at an unaffiliated
NGL storage facility. This had the effect of reducing production volumes since
ethane, which constitutes approximately one-third of the NGL product stream,
had to be "rejected" and sold as part of the natural gas stream. The annual
volume gains attributable to these two partnerships were partially offset,
however, by a production decline of 2,300 barrels per day for the Company's
consolidated plants. These declines were principally the result of reduced
plant inlet volumes caused by field declines, producer curtailments early in
fiscal 1993 associated with depressed natural gas prices and the previously
discussed lower North Texas natural gas production volumes.
Gas Processing - Increased cost of sales ($7.3 million decrease). Gas
processing cost of sales consists principally of amounts paid to the owners of
processed natural gas. Such payments are based either on the value of the
natural gas consumed in processing under keep-whole agreements or on a
percentage of the value of NGLs produced under percent-of-proceeds agreements.
Such costs rose $7.3 million during fiscal 1993, both because of sharply higher
prices for market-sensitive natural gas beginning in the second quarter and
higher transportation costs for plants that were affected during much of fiscal
1993 by liquids pipeline curtailments, requiring production to be trucked,
rather than moved through product pipelines.
40
<PAGE> 39
Gas Processing - C&L Processors acquisition ($4.4 million increase). The
acquisition by C&L Processors, a newly formed 50%-owned entity, of interests in
13 gas processing plants effective August 1, 1992 added $4.4 million to fiscal
1993's gas processing operating earnings. Since the partnership is accounted
for on an equity basis, this $4.4 million is after all expenses, including
interest charges. Such charges were substantial since the acquisition was
funded entirely using proceeds from partnership borrowings.
Gas Processing - Production volumes and operating expenses ($3.5 million
decrease). Operating earnings attributable to the production of gas processing
plants other than those owned by C&L Processors fell by $3.5 million in fiscal
1993 due to the previously discussed declines in production volumes and to
higher operating expenses, which were largely attributable to the Company's
increased ownership interest in certain partnership plants.
Gas Processing - Marketing activities ($1.9 million increase). Earnings
attributable to NGL marketing activities increased by $1.9 million in fiscal
1993. Because of a time lag between the production of unfractionated NGLs -
which are transferred to the Company's marketing department at market values
during the period produced - and the sale of the fractionated products
(propane, ethane, etc.), marketing activities generally benefit from a rising
trend in NGL prices and absorb losses when such prices decline. Largely
because of rising NGL prices during much of the year, fiscal 1993 marketing
profits were $4.3 million above those of the prior year. Partially offsetting
these added profits, however, was an unfavorable $2.4 million year-to-year
variance in deferred profits. For financial statement purposes, profits
applicable to NGL production inventoried by the marketing department must be
deferred since it has not yet been sold to third parties. As a result, earnings
are reduced in periods when inventories rise. Alternatively, when such volumes
decrease, previously deferred profits are recognized, thereby increasing
earnings. NGL inventories rose during fiscal 1993 after declining during the
previous year. Because of this, profits of $0.7 million were deferred in the
current year. Conversely, $1.7 million of previously deferred profits were
recognized in fiscal 1992, resulting in the $2.4 million year-to-year operating
earnings variance.
Gas Gathering and Transmission ($2.3 million increase). Operating earnings from
gas gathering and transmission activities totaled $25.5 million in fiscal 1993,
$2.3 million above the prior-year amount. This improvement was attributable to
a $5.8 million increase in the Company's equity in the earnings of the
Ferguson-Burleson partnership, which resulted both from an increase in the
Company's ownership percentage and from an expansion of the partnership's
operations. Effective November 1, 1991, the Company increased its ownership
interest from 30% to 45% by contributing certain pipeline assets to the
partnership. The Ferguson-Burleson system serves an area in which the Company's
partner, UPRC, has an active drilling program. Throughput of this system
increased substantially because many wells were connected to it during fiscal
1993 and 1992. Partially offsetting the higher earnings of this partnership was
a $3.5 million decline in the Company's earnings from its other pipeline
systems, which occurred largely because of volume declines. The lower volumes
occurred because of field declines, producer curtailments early in fiscal 1993
associated with depressed natural gas prices and a "loss" of volumes that
resulted from the contribution to the Ferguson-Burleson partnership of assets
that had been 100% owned.
REAL ESTATE AND OTHER
Real estate ($0.1 million increase). Real Estate Division fiscal 1993 operating
earnings totaled $22.8 million, or $0.1 million more than those of the prior
year. Operating earnings rose $2.1 million due to increased earnings from
residential activities ($1.3 million) and Commercial and Investment Properties
("C&I") ($0.8 million). These increases were essentially offset, however, by a
decrease in operating earnings of $2.0 million attributable to the lack of a
transaction in the current year comparable to the sale of 565 acres of
undeveloped property in Colorado, which contributed $1.7 million to fiscal
1992's operating earnings, and to a decline of $0.3 million in earnings from
other activities.
41
<PAGE> 40
Residential lot sales in The Woodlands totaled 911 in fiscal 1993,
substantially unchanged from fiscal 1992's level. Profits from such sales rose
$1.3 million, however, largely because of a 5% increase in the average sales
price.
The improvement in C&I operating earnings of $0.8 million was
principally due to increased earnings from hospitality operations (primarily
The Woodlands Executive Conference Center and Resort), office buildings and
retail properties. Gains from sales of commercial properties contributed
approximately $2.0 million to real estate operating earnings in each of fiscal
1993 and 1992.
Interest expense incurred. Interest expense, excluding amounts reported
as cost of sales for finance operations, totaled $75.3 million during fiscal
1993, down $5.9 million from the prior-year amount due to lower effective
interest rates ($13.3 million) offset by an increase in the average debt
balance ($7.4 million). Contributing to the decline in the Company's average
effective interest rate (from 9.5% to 8.1%) were substantially lower market
rates for short-term obligations in fiscal 1993 as well as the refunding during
April 1992--at a 2% lower rate--of $250 million of 11 1/4% Senior Notes.
Partially offsetting the beneficial impact of the lower interest rates
was an increase in the Company's average debt balance, which raised interest
expense by $7.4 million. Although the Company's long-term debt balance at
January 31, 1993 was below the level at the beginning of the year, the average
balance of debt outstanding during fiscal 1993 was substantially above the
prior year's average. This occurred largely because of the timing of the
closing of certain major transactions. In fiscal 1993, several major
transactions were completed during the fourth quarter; whereas in the prior
year such transactions were spread fairly evenly over the year.
Interest capitalized. Because of the Company's lower effective interest rate,
interest capitalized declined by $3.2 million in fiscal 1993, even after
increases in the average balances of energy and real estate assets subject to
capitalization.
General and administrative expense. General and administrative expense
increased in fiscal 1993 principally as the result of inflationary increases in
payroll and other costs. Also contributing to the higher costs were increased
charges for incentive compensation and for increased SAR/Bonus unit expense
accruals because of a rise in the Company's stock price during fiscal 1993.
Lower effective income tax rate. The Company's effective tax rate in fiscal
1993 of 23.3% was down sharply from the 35.1% rate of the prior year for
several reasons, the largest of which was the reversal of certain prior-year
Texas franchise tax accruals that reduced income taxes by $3.5 million. See
Note 5 of Notes to Consolidated Financial Statements for reconciliations
between the statutory rate and the Company's effective tax rate for these
periods and for additional information concerning the major items which
contributed to the year-to-year reduction in the Company's effective tax rate.
42
<PAGE> 41
QUARTERLY STOCK DATA
MITCHELL ENERGY & DEVELOPMENT CORP. AND SUBSIDIARIES
(dollars per share)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
FISCAL 1994
Class A--Market price
High . . . . . . . . . . . . . . . . . . . . . $ 25 1/2 $ 27 1/8 $ 29 5/8 $ 24 1/2
Low . . . . . . . . . . . . . . . . . . . . . 17 21 24 1/4 17 3/4
Cash dividends . . . . . . . . . . . . . . . . . .12 .12 .12 .12
Class B--Market price
High . . . . . . . . . . . . . . . . . . . . . 23 27 3/8 27 1/4 22
Low . . . . . . . . . . . . . . . . . . . . . 16 1/8 20 3/8 21 1/8 16 1/8
Cash dividends . . . . . . . . . . . . . . . . . .1325 .1325 .1325 .1325
FISCAL 1993
Prior to Reclassification
Market price
High . . . . . . . . . . . . . . . . . . . . . $ 16 7/8 $ 17 1/2
Low . . . . . . . . . . . . . . . . . . . . . 14 1/4 14 3/4
Cash dividends . . . . . . . . . . . . . . . . . .10 .10
Class A--Market price
High . . . . . . . . . . . . . . . . . . . . . 17 1/2 $ 19 5/8 $ 19 1/4
Low . . . . . . . . . . . . . . . . . . . . . 13 5/8 16 3/4 16
Cash dividends . . . . . . . . . . . . . . . . . -- .10 .12
Class B--Market price
High . . . . . . . . . . . . . . . . . . . . . 17 1/8 18 5/8 17 5/8
Low . . . . . . . . . . . . . . . . . . . . . 13 16 1/4 14 1/8
Cash dividends . . . . . . . . . . . . . . . . . -- .1050 .1325
</TABLE>
43
<PAGE> 42
CONSOLIDATED BALANCE SHEETS
MITCHELL ENERGY & DEVELOPMENT CORP. AND SUBSIDIARIES
JANUARY 31, 1994 AND 1993 (dollar amounts in thousands)
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 21,832 $ 28,097
Trade receivables, net of allowance for
doubtful accounts of $2,720 and $2,004 . . . . . . . . . . . . . . . . . . . . 134,570 143,080
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,400 19,672
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,123 10,795
---------- ----------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 188,925 201,644
---------- ----------
PROPERTY, PLANT AND EQUIPMENT, AT COST
Oil and gas properties, full cost method of accounting
Costs being amortized . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,907,799 1,736,926
Costs not being amortized . . . . . . . . . . . . . . . . . . . . . . . . . . 50,389 40,957
Transmission and processing facilities . . . . . . . . . . . . . . . . . . . . . 561,605 540,984
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175,825 180,713
---------- ----------
2,695,618 2,499,580
Less - accumulated depreciation, depletion and amortization . . . . . . . . . . 1,390,729 1,315,800
---------- ----------
1,304,889 1,183,780
---------- ----------
REAL ESTATE (Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 896,652 864,351
---------- ----------
OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,010 22,024
---------- ----------
$2,415,476 $2,271,799
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,955 $ 10,635
Oil and gas proceeds payable . . . . . . . . . . . . . . . . . . . . . . . . . . 64,110 69,163
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92,895 94,303
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,156 45,960
---------- ----------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 217,116 220,061
---------- ----------
LONG-TERM DEBT (Note 4)
Energy operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 486,066 448,883
Real estate operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 502,252 498,840
---------- ----------
988,318 947,723
---------- ----------
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes (Note 5) . . . . . . . . . . . . . . . . . . . . . . . . . 339,456 330,763
Natural gas contract restructuring proceeds . . . . . . . . . . . . . . . . . . 51,527 69,908
Deferred income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,731 34,871
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,374 36,421
---------- ----------
458,088 471,963
---------- ----------
COMMITMENTS AND CONTINGENCIES (Notes 3 and 6)
STOCKHOLDERS' EQUITY (Notes 7 and 10)
Preferred stock, $.10 par value (authorized 10,000,000 shares; none issued)
Common stock, $.10 par value
(authorized 100,000,000 Class A and 100,000,000 Class B shares) . . . . . . . 5,386 4,796
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . 143,440 20,347
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 617,214 623,469
Treasury stock, at cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . (14,086) (16,560)
---------- ----------
751,954 632,052
---------- ----------
$2,415,476 $2,271,799
========== ==========
</TABLE>
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
44
<PAGE> 43
CONSOLIDATED STATEMENTS
OF EARNINGS
MITCHELL ENERGY & DEVELOPMENT CORP. AND SUBSIDIARIES
FOR THE YEARS ENDED JANUARY 31, 1994, 1993 AND 1992
(in thousands except per share amounts)
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
REVENUES
Exploration and production . . . . . . . . . . . . . . . . . . . . . . $266,166 $214,681 $231,073
Transmission and processing . . . . . . . . . . . . . . . . . . . . . 560,537 566,700 511,979
Real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126,106 121,453 131,318
-------- -------- --------
952,809 902,834 874,370
-------- -------- --------
OPERATING COSTS AND EXPENSES (including DD&A) (Note 9)
Exploration and production (including
restructuring charges of $20,726 in 1993). . . . . . . . . . . . . . 199,583 192,089 189,809
Transmission and processing . . . . . . . . . . . . . . . . . . . . . 517,878 478,196 422,122
Real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105,028 98,652 108,594
-------- -------- --------
822,489 768,937 720,525
-------- -------- --------
SEGMENT OPERATING EARNINGS (Note 9). . . . . . . . . . . . . . . . . . 130,320 133,897 153,845
General and administrative expense . . . . . . . . . . . . . . . . . . 43,222 41,398 38,184
-------- -------- --------
TOTAL OPERATING EARNINGS . . . . . . . . . . . . . . . . . . . . . . . 87,098 92,499 115,661
-------- -------- --------
OTHER EXPENSE
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . 74,057 75,284 81,169
Capitalized interest . . . . . . . . . . . . . . . . . . . . . . . . . (35,721) (36,205) (39,426)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,224 6,096 5,618
-------- -------- --------
39,560 45,175 47,361
-------- -------- --------
EARNINGS BEFORE INCOME TAXES, EXTRAORDINARY ITEM
AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING METHODS . . . . . . . 47,538 47,324 68,300
INCOME TAXES (including deferred tax charge of $11,000
in 1994 due to increase in corporate tax rate) (Note 5) . . . . . . 22,425 11,035 23,954
-------- -------- --------
EARNINGS BEFORE EXTRAORDINARY ITEM AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING METHODS . . . . . . . . . . . . . . . 25,113 36,289 44,346
EXTRAORDINARY ITEM - LOSS FROM EARLY RETIREMENT
OF DEBT (net of tax benefit of $2,921 and $3,736) (Note 4) . . . . . (5,426) (7,251) --
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
METHODS (net of tax benefit of $5,435) (Note 11) . . . . . . . . . . -- (10,551) --
-------- -------- --------
NET EARNINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 19,687 $ 18,487 $ 44,346
======== ======== ========
EARNINGS PER SHARE
Earnings before extraordinary item and cumu-
lative effect of change in accounting methods . . . . . . . . . . . $ .49 $ .77 $ .95
Extraordinary item . . . . . . . . . . . . . . . . . . . . . . . . . . (.10) (.15) --
Cumulative effect of change in accounting methods . . . . . . . . . . -- (.23) --
-------- -------- --------
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .39 $ .39 $ .95
======== ======== ========
AVERAGE COMMON SHARES OUTSTANDING (including
both Class A and Class B shares effective with the reclassi-
fication of the common stock in June 1992) (Note 7) . . . . . . . . 51,004 46,858 46,849
======== ======== ========
</TABLE>
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
45
<PAGE> 44
CONSOLIDATED STATEMENTS
OF CASH FLOWS
MITCHELL ENERGY & DEVELOPMENT CORP. AND SUBSIDIARIES
FOR THE YEARS ENDED JANUARY 31, 1994, 1993 AND 1992 (in thousands)
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES
Earnings before extraordinary item and cumu-
lative effect of change in accounting methods . . . . . . . . . . . $ 25,113 $ 36,289 $ 44,346
Adjustments to reconcile earnings before extraordinary
item and cumulative effect of change in accounting
methods to cash provided by operating activities
Depreciation, depletion and amortization . . . . . . . . . . . . 153,245 133,029 128,084
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . 10,432 3,698 10,976
Cost of land sold . . . . . . . . . . . . . . . . . . . . . . . . 33,367 28,424 36,446
Residential land development
costs, net of reimbursements . . . . . . . . . . . . . . . . . (14,303) (17,333) (19,292)
Partnership distributions in excess of (less than) earnings . . . 13,849 (16,832) (12,268)
Amortization of deferred natural gas
contract restructuring proceeds . . . . . . . . . . . . . . . . (18,723) (20,360) (26,698)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,972) 5,887 383
--------- --------- ---------
198,008 152,802 161,977
Changes in operating assets and liabilities
Trade receivables . . . . . . . . . . . . . . . . . . . . . . . 4,071 (3,089) (3,843)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . (1,728) 2,754 (2,329)
Payables . . . . . . . . . . . . . . . . . . . . . . . . . . . (29,075) 17,895 (12,404)
Short-term debt . . . . . . . . . . . . . . . . . . . . . . . . -- (3,308) (10,961)
Accrued liabilities and other . . . . . . . . . . . . . . . . . (1,469) 3,629 (4,118)
--------- --------- ---------
Cash provided by operating activities . . . . . . . . . . . . . . 169,807 170,683 128,322
--------- --------- ---------
INVESTING ACTIVITIES
Capital additions
Total on accrual basis . . . . . . . . . . . . . . . . . . . . . . . (355,845) (237,668) (223,612)
Residential land development costs deducted above . . . . . . . . . 14,303 17,333 19,292
Adjustment to cash basis . . . . . . . . . . . . . . . . . . . . . . 21,125 (206) (1,100)
--------- --------- ---------
(320,417) (220,541) (205,420)
Proceeds from sales of commercial properties . . . . . . . . . . . . . -- 27,129 13,428
Proceeds from sale of notes receivable . . . . . . . . . . . . . . . . -- 20,095 --
Proceeds from dispositions of property, plant and equipment . . . . . 8,625 5,855 1,191
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (286) 6,119 1,186
--------- --------- ---------
Cash used for investing activities. . . . . . . . . . . . . . . . (312,078) (161,343) (189,615)
--------- --------- ---------
FINANCING ACTIVITIES
Proceeds from issuance of debt . . . . . . . . . . . . . . . . . . . . 351,728 385,274 148,694
Debt repayments . . . . . . . . . . . . . . . . . . . . . . . . . . . (311,813) (381,243) (94,979)
Net proceeds from issuance of common stock (Note 7) . . . . . . . . . 123,429 -- --
Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . (25,942) (20,097) (18,739)
Debt prepayment premium . . . . . . . . . . . . . . . . . . . . . . . -- (8,025) --
Treasury stock purchases . . . . . . . . . . . . . . . . . . . . . . . -- (4,347) --
Senior note issuance costs . . . . . . . . . . . . . . . . . . . . . . (2,431) (4,249) --
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,035 57 2,585
--------- --------- ---------
Cash provided by (used for) financing activities. . . . . . . . . 136,006 (32,630) 37,561
--------- --------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . (6,265) (23,290) (23,732)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR . . . . . . . . . . . . . 28,097 51,387 75,119
--------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR . . . . . . . . . . . . . . . . $ 21,832 $ 28,097 $ 51,387
========= ========= =========
</TABLE>
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
46
<PAGE> 45
CONSOLIDATED STATEMENTS
OF STOCKHOLDERS' EQUITY
MITCHELL ENERGY & DEVELOPMENT CORP. AND SUBSIDIARIES
FOR THE YEARS ENDED JANUARY 31, 1994, 1993 AND 1992
(dollar amounts in thousands)
<TABLE>
<CAPTION>
Additional
Common Paid-in Retained Treasury
Stock Capital Earnings Stock Total
------ ---------- -------- -------- -----
<S> <C> <C> <C> <C> <C>
DOLLAR AMOUNTS
BALANCE, JANUARY 31, 1991. . . . . . . . . . . . . $4,796 $ 20,344 $599,472 $(13,667) $610,945
Net earnings . . . . . . . . . . . . . . . . . . . -- -- 44,346 -- 44,346
Cash dividends (40 cents per share). . . . . . . . -- -- (18,739) -- (18,739)
Exercises of stock options . . . . . . . . . . . . -- (53) -- 870 817
------ -------- -------- -------- --------
BALANCE, JANUARY 31, 1992. . . . . . . . . . . . . 4,796 20,291 625,079 (12,797) 637,369
Net earnings . . . . . . . . . . . . . . . . . . . -- -- 18,487 -- 18,487
Cash dividends (20 cents per share prior to
reclassification; 22 cents per share on Class A
and 23.75 cents per share on Class B). . . . . . -- -- (20,097) -- (20,097)
Purchase and cancellation of fractional shares . . -- (8) -- -- (8)
Treasury stock purchases . . . . . . . . . . . . . -- -- -- (4,347) (4,347)
Exercises of stock options . . . . . . . . . . . . -- 64 -- 584 648
------ -------- -------- -------- --------
BALANCE, JANUARY 31, 1993 . . . . . . . . . . . . 4,796 20,347 623,469 (16,560) 632,052
Issuance of common stock (Note 7). . . . . . . . . 590 122,839 -- -- 123,429
Net earnings . . . . . . . . . . . . . . . . . . . -- -- 19,687 -- 19,687
Cash dividends (48 cents per share on
Class A and 53 cents per share on Class B) . . . -- -- (25,942) -- (25,942)
Exercises of stock options . . . . . . . . . . . . -- 254 -- 2,474 2,728
------ -------- -------- -------- --------
BALANCE, JANUARY 31, 1994 . . . . . . . . . . . . $5,386 $143,440 $617,214 $(14,086) $751,954
====== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Common Stock Issued Treasury Stock
--------------------------------------- ------------------------------------
Prior to Prior to
Reclassi- Reclassi-
fication Class A Class B fication Class A Class B
--------- ------- ------- --------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
SHARE AMOUNTS
BALANCE, JANUARY 31, 1991. . . . . . 47,956,869 1,131,684
Exercises of stock options . . . . . -- (74,147)
---------- ---------
BALANCE, JANUARY 31, 1992. . . . . . 47,956,869 1,057,537
Exercises of stock options . . . . . -- (23,600)
Reclassification of stock. . . . . . (47,956,292) 23,978,146 23,978,146 (1,033,936) 516,968 516,968
Cancellation of
fractional shares. . . . . . . . . (577) -- -- (1)
Exercises of stock options . . . . . -- -- -- -- (13,000) (11,200)
Treasury stock purchases . . . . . . -- -- -- -- 15,000 281,600
----------- ---------- ---------- ---------- ------- -------
BALANCE, JANUARY 31, 1993. . . . . . -- 23,978,146 23,978,146 -- 518,968 787,368
=========== ==========
Issuance of common stock . . . . . . -- 5,900,000 -- --
Exercises of stock options . . . . . -- -- (101,138) (94,887)
Other . . . . . . . . . . . . . . . (29) (29) (353) (353)
---------- ---------- ------- -------
BALANCE, JANUARY 31, 1994. . . . . . 23,978,117 29,878,117 417,477 692,128
========== ========== ======= =======
</TABLE>
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements
47
<PAGE> 46
Notes to Consolidated
Financial Statements
Mitchell Energy & Development Corp. and Subsidiaries
January 31, 1994, 1993 and 1992
(1) Summary of Significant Accounting Policies
Principles of consolidation. The consolidated financial statements include the
accounts of Mitchell Energy & Development Corp. 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.
Property, plant and equipment. The Company follows the full cost method of
accounting for oil and gas properties. All costs associated with the
acquisition, exploration and development of oil and gas properties, including
nonproductive costs, are capitalized. Properties are considered to be
unevaluated until a determination of the quantity of proved reserves
attributable to the property can be made. Unless impairment has occurred, the
cost of unevaluated properties is excluded from the amortization base.
Amortization is provided on the unit-of-production method based on future gross
revenues. Volumes of oil and gas are converted to common units on the basis of
future gross revenues computed using current market prices except where
otherwise specified by contractual agreement. Amortization per dollar of oil
and gas revenue was $.48 in fiscal 1994, 1993 and 1992. An analysis of the
capitalized costs of unevaluated properties excluded from the full cost
amortization base at January 31, 1994 follows (in thousands):
<TABLE>
<CAPTION>
Fiscal Year During Which Incurred
Total ----------------------------------------
Costs 1994 1993 1992 Prior
----- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C>
Lease acquisitions . . . . . . . . . $16,221 $ 6,333 $4,130 $3,568 $2,190
Exploration . . . . . . . . . . . . . 30,113 22,488 2,978 3,091 1,556
Capitalized interest . . . . . . . . 4,055 2,014 1,186 683 172
------- ------- ------ ------ ------
$50,389 $30,835 $8,294 $7,342 $3,918
======= ======= ====== ====== ======
</TABLE>
The Company expects that the majority of these costs will be added to the
amortization base over the next four years as reserve determinations are made
or impairment occurs. Depreciation of natural gas processing plants, gas
transmission facilities and other property is generally provided on the
straight-line method over estimated service lives of 12 to 24; 5 to 25 and 3 to
25 years, respectively.
Real estate operations. Costs associated with the acquisition and development
of real estate, including holding costs, are capitalized as incurred.
Capitalization of holding costs, principally interest and ad valorem taxes, is
limited to properties for which active development continues. Where
practicable, capitalized costs are specifically assigned to individual assets;
otherwise, such costs are allocated based on estimated values of the affected
assets. Depreciable real estate assets are depreciated on the straight-line
method over estimated useful lives ranging from three to fifty years. Real
estate is carried at the lower of historical cost or estimated net realizable
value. The impact of changes in economic conditions and other factors on the
realizable values of real estate are regularly monitored and evaluated. The
effect of any significant changes which adversely impact real estate carrying
values are reported in earnings in the period such effect can be reasonably
estimated.
Earnings from sales of real estate are recognized when a buyer has
made an adequate cash down payment and has attained the attributes of
ownership. Notes received in connection with land sales are discounted when the
stated purchase prices are significantly different from those which would have
resulted from similar cash transactions.
48
<PAGE> 47
The cost of land sold is generally determined as a specific percentage
of the sales revenues recognized for each land development project. These
percentages are based on estimated development costs and sales revenues to
completion for each project. The specific identification method is used to
determine the cost of land sold for certain land parcels located outside The
Woodlands.
Because they represent the principal 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.
Deferred natural gas contract restructuring proceeds. The Company has deferred
earnings recognition for certain natural gas contract restructuring proceeds.
These deferred amounts are being amortized to earnings over the periods to
which the consideration relates. Such amortization totaled $18,723,000;
$20,360,000 and $26,698,000 in fiscal 1994, 1993 and 1992.
Earnings per common share. Earnings per common share have been computed
by dividing net earnings by the weighted average number of common shares
outstanding during each period, which for periods subsequent to June 24, 1992
includes both Class A and Class B shares. After giving effect to the differing
cash dividends paid on these shares, fiscal 1994 earnings per share before
extraordinary item for the Class A and Class B shares were $.46 and $.52
(versus $.49 on a combined basis) while net earnings per share for each class
were $.36 and $.40 (versus $.39 on a combined basis). The effect of the
differing dividend payments was not significant to earnings per common share in
fiscal 1993. The dilutive effect of outstanding stock options, which is less
than 3%, has not been included in the earnings per share computations.
Statements of Cash Flows. Short-term investments with maturities of three
months or less are considered to be cash equivalents. Commercial paper and
bank revolving credit agreement borrowings with terms of three months or less
are excluded from the amounts reported as debt proceeds and repayments.
Inter-est paid--excluding amounts capitalized, but including amounts reported
as cost of sales for finance oper-ations--totaled $38,052,000; $40,556,000 and
$45,143,000 during fiscal 1994, 1993 and 1992. Income taxes paid during these
periods totaled $12,840,000; $6,619,000 and $11,248,000. There were no
significant non-cash investing or financing activities during the three-year
period ended January 31, 1994.
(2) REAL ESTATE
In accordance with industry accounting practice, real estate assets are
reported as long-term assets in the consolidated balance sheets. Such assets
consisted of the following at January 31, 1994 and 1993 (in thousands):
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
The Woodlands
Land and improvements . . . . . . . . . . . . . . . . . $479,461 $463,461
Commercial properties, net of accumulated
depreciation of $47,135 and $42,110 . . . . . . . . . 148,301 135,517
-------- --------
627,762 598,978
Land held for investment, development or sale . . . . . . 159,949 159,712
Resort and other operating properties, net of
accumulated depreciation of $7,648 and $6,807 . . . . . 65,956 65,574
Notes and contracts receivable, at cost, net of
allowance for doubtfu accounts of $507 and $678 . . . . 42,985 40,087
-------- --------
$896,652 $864,351
======== ========
</TABLE>
The Company's real estate activities are concentrated in the area
surrounding Houston, Texas. Consequently, these operations and the associated
credit risks may be affected, either positively or negatively, by changes in
economic conditions in this geographical area. The Company's principal real
estate property is a master-planned community located north of Houston known as
"The Woodlands," which is being developed on approximately 25,000 acres.
Activities associated with this development
49
<PAGE> 48
include residential and commercial land sales; the construction and operation
of office and industrial buildings, apartments, retail shopping centers, golf
courses and a conference center and the mortgage banking operations of a wholly
owned subsidiary, Mitchell Mortgage Company. Other real estate assets include
large landholdings northwest of Houston and certain resort properties.
(3) EQUITY INVESTMENTS
Entities accounted for on the equity method include approximately 30
partnerships engaged in energy or real estate activities. The principal
partnership interests included the following at January 31, 1994:
<TABLE>
<CAPTION>
Ownership
Percentage Nature of Operations
---------- --------------------
<S> <C> <C>
ENERGY OPERATIONS
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 natural gas liquids
U. P. Bryan 45 Natural gas processing
REAL ESTATE OPERATIONS
The Fort Crockett Hotel Limited 50 Resort hotel in Galveston, Texas
Lake Catamount Joint Venture 50 Land held for development
The Woodlands Mall Associates 50 Regional mall in The Woodlands
</TABLE>
Other real estate partnerships own a cable television system located in The
Woodlands and various commercial properties, most of which are located in The
Woodlands.
Summarized balance sheet information at January 31, 1994 and 1993 for
all entities accounted for on the equity method follows (in thousands):
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 83,764 $ 94,778
Net noncurrent assets
Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 483,583 392,724
Real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157,016 133,363
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72,281 88,024
Debt (including current maturities of $25,514 and $32,367)
Company's proportionate share
Recourse to the Company . . . . . . . . . . . . . . . . . . . . . . . . . 118,705 53,553
Nonrecourse to the Company . . . . . . . . . . . . . . . . . . . . . . . 59,010 87,194
Other parties' proportionate share ($17,855 of which
was guaranteed by the Company at January 31, 1994) . . . . . . . . . . . 245,797 166,449
-------- --------
423,512 307,196
Notes payable to the Company . . . . . . . . . . . . . . . . . . . . . . . . 9,751 8,945
Deferred credits and other . . . . . . . . . . . . . . . . . . . . . . . . . 737 2,543
Owners' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 218,082 214,157
</TABLE>
Summarized earnings information for the years ended January 31, 1994,
1993 and 1992 for all entities accounted for on the equity method follows (in
thousands):
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . $505,374 $494,297 $308,270
Operating earnings . . . . . . . . . . . . . . . . . . . . . . 71,271 106,630 85,917
Pretax earnings* . . . . . . . . . . . . . . . . . . . . . . . 56,837 93,586 75,337
Proportionate share of pretax earnings included
in the Company's reported operating earnings . . . . . . . . 23,249 43,813 30,002
- -------------------------
</TABLE>
* Before interest expense for those entities whose activities are funded by
capital contributions of the owners.
50
<PAGE> 49
Using a portion of the proceeds of a common stock offering (see Note
7), 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 caused a significant portion of the fiscal 1994
earnings declines for these entities.
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. A summary of the outstanding indebtedness of
these entities (excluding notes payable to the Company) at January 31, 1994 and
1993 follows (in thousands):
<TABLE>
<CAPTION>
The Company's
Proportionate Share in 1994 Entity Total
--------------------------- -------------------------
Recourse Nonrecourse 1994 1993
-------- ----------- -------- --------
<S> <C> <C> <C> <C>
ENERGY OPERATIONS
Belvieu Environmental Fuels, $176 million . . . . $ 45,333 $ -- $136,000 $ 25,000
C&L Processors Partnership . . . . . . . . . . . 31,514 26,846 116,719 130,000
Gulf Coast Fractionators, $85 million . . . . . 24,897 -- 64,250 --
MEC Development, Ltd. . . . . . . . . . . . . . . -- -- -- 62,425
-------- ------- -------- --------
101,744 26,846 316,969 217,425
-------- ------- -------- --------
REAL ESTATE OPERATIONS
The Fort Crockett Hotel Limited . . . . . . . . . 4,168 2,030 12,397 13,172
The Woodlands Mall Associates, $65 million . . . 9,345 -- 18,689 --
Apartment partnerships . . . . . . . . . . . . . 1,178 14,610 37,728 32,363
Others . . . . . . . . . . . . . . . . . . . . . 2,270 15,524 37,729 44,236
-------- ------- -------- --------
16,961 32,164 106,543 89,771
-------- ------- -------- --------
$118,705 $59,010 $423,512 $307,196
======== ======= ======== ========
</TABLE>
Belvieu Environmental Fuels is constructing a plant at Mont Belvieu,
Texas, which is designed to produce 12,500 barrels per day of MTBE, a gasoline
additive that reduces carbon monoxide emissions. The plant, which has an
estimated cost of $220,000,000, is expected to begin production during the
summer of 1994. Plant construction costs are being funded using proceeds of the
partnership's loan agreement and equal capital contributions of the partners.
The partnership's debt is nonrecourse to the partners except during the
construction period when each partner has guaranteed its one-third share of the
debt. The partnership has entered into agreements which require each of the
three partners to provide one-third of the plant's isobutane feedstock and one
of the partners, Sun Company, Inc., to purchase all of its production for a
period of ten years.
The Company and its partner, Conoco, Inc., have each agreed to make
aggregate future cash contributions to C&L Processors Partnership of up to 27%
of the partnership's loan balance should its operating cash flows not be
sufficient to cover scheduled principal and interest payments. No such
contributions were required through January 31, 1994.
Gulf Coast Fractionators (GCF) executed an $85,000,000 bank term loan
agreement in June 1993. The primary uses of the loan proceeds were to fund a
$40,000,000 expansion of GCF's fractionator and $40,000,000 in cash
distributions to the partners, of which the Company's share was $15,500,000. In
connection with the 40,000-barrel-per-day expansion, Conoco, Inc. became a
22.5% owner of GCF, and the Company's ownership was reduced from 50% to 38.75%.
Each of the three partners has guaranteed its pro rata share of the $40,000,000
expansion financing (until the plant is satisfactorily completed) and any
shortfall in a $10,000,000 reserve fund until a specified financial ratio is
met. After these requirements are satisfied, the debt will be nonrecourse to
the partners. Each partner also has executed long-term contracts with GCF for
the fractionation of production from certain of its gas processing plants.
51
<PAGE> 50
In connection with its guarantee of certain indebtedness of The Fort
Crockett Hotel Limited partnership, the Company has agreed to make cash
advances to fund the partnership's cash flow deficiencies until certain debt
coverage tests are met. Such advances, which included funds for operations,
debt retirement and capital improvements, aggregated $2,972,000; $4,747,000 and
$2,943,000 during fiscal 1994, 1993 and 1992. The fiscal 1994 and 1993 advances
included $469,000 and $2,884,000 to cover the costs of an expansion of the
partnership's facilities. The principal loan agreements of this partnership
include call provisions which could require these loans to be repaid at any
time after December 1994. Based on preliminary discussions with the lenders,
the Company expects these loans can be extended beyond their call dates.
The Woodlands Mall Associates is a partnership owned equally by the
Company and Homart Development Co., a wholly owned subsidiary of Sears, Roebuck
and Co. It was formed to develop a one million square foot, regional shopping
mall in The Woodlands. Construction began in June 1992, and it is anticipated
that the mall will open in October 1994. On January 31, 1994, the partnership
entered into a $65,000,000 five-year term loan, which is secured by the
property and the joint and several guaranties of the partners.
(4) LONG-TERM DEBT
The Company's outstanding debt includes parent company borrowings, the proceeds
of which have been advanced to the operating subsidiaries, as well as direct
borrowings by certain subsidiaries. Allocation of the parent company advances
among the subsidiaries changes in response to the specific financing needs of
the subsidiaries and the parent company. A summary of outstanding long-term
debt at January 31, 1994 and 1993 follows (in thousands):
<TABLE>
<CAPTION>
1994
--------------------------------------
Real
Energy Estate 1993
Operations Operations Total Total
---------- ---------- -------- --------
<S> <C> <C> <C> <C>
PARENT COMPANY SENIOR NOTES, UNSECURED
11 1/4% (redeemed in February 1994) . . . . . $200,000 $200,000
5.10%, due February 15, 1997 . . . . . . . . 100,000 --
8%, due July 15, 1999 . . . . . . . . . . . 100,000 100,000
9 1/4%, due January 15, 2002 . . . . . . . . 250,000 250,000
6 3/4 %, due February 15, 2004 . . . . . . . 250,000 --
-------- --------
$446,386* $453,614* 900,000 550,000
SUBSIDIARY BORROWINGS
Bank revolving credit agreements, unsecured
Energy, $250 million . . . . . . . . . . . -- -- -- 76,000
Real estate, $165 million . . . . . . . . -- 19,000 19,000 113,000
Mitchell Mortgage Company, $18 million,
at floating interest rates . . . . . . . -- 11,300 11,300 12,000
Commercial paper, at floating
interest rates . . . . . . . . . . . . . . 9,680 12,320 22,000 124,763
Uncommitted money market
facilities, at floating interest rates . . -- -- -- 35,000
Unsecured term loan, 7.98%,
due in May 1997 . . . . . . . . . . . . . 30,000 -- 30,000 30,000
Mortgages, 10.4% average rate . . . . . . . -- 15,973 15,973 17,595
-------- -------- -------- --------
486,066 512,207 998,273 958,358
Less - Amounts reported as
short-term debt . . . . . . . . . . . . . . -- 9,955 9,955 10,635
-------- -------- -------- --------
$486,066 $502,252 $988,318 $947,723
======== ======== ======== ========
</TABLE>
- ------------
*Intercompany loans from parent company.
During January 1994, the parent company called for redemption its
$200,000,000 of 11 1/4% Senior Notes Due 1999. This early redemption was
completed on February 25, 1994 at a price of 103.21% of principal. The
expensing of this premium and related unamortized debt issuance costs
resulted in an extraordinary charge of $5,426,000 (after tax benefit of
$2,921,000), which was recorded when the debt was called in January 1994.
52
<PAGE> 51
During January 1994, the parent company issued $250,000,000 of 6 3/4%
Senior Notes Due 2004 and $100,000,000 of 5.10% Senior Notes Due 1997.
Initially, the loan proceeds were advanced to the operating subsidiaries,
which used them to pay down borrowings under their commercial paper and
bank revolving credit agreements. In February 1994, the subsidiaries
reborrowed a portion of the amounts temporarily paid down and advanced such
funds to the parent company, which used them to fund the February 1994 debt
redemption.
On April 13, 1992, the parent company redeemed its $250,000,000 of
11 1/4% Senior Notes Due 1997 using the proceeds of a March 1992 offering
of $250,000,000 of 9 1/4% Senior Notes Due 2002. This early redemption was
completed at a price of 103.21% of principal, and the expensing of this
premium and related unamortized debt issuance costs resulted in an
extraordinary charge of $7,251,000 (after tax benefit of $3,736,000).
Except for the notes which were redeemed in February 1994, the
Company's senior notes have no sinking fund requirements and are not
redeemable prior to their respective maturity dates. The terms of the
Company's Energy and Real Estate bank revolving credit facilities were
amended during October 1993. The term-loan feature that previously was part
of these agreements was eliminated, and these facilities are now five-year
revolvers maturing on July 31, 1998. For their fifth year--which begins on
August 1, 1997--the committed amounts for these facilities are to be
reduced to 75% of their initial size. Interest rates on these floating-rate
borrowings are based on the London Interbank Offered Rate, the prevailing
certificate of deposit rate or prime. Also during October 1993, the
maturity of the Company's commercial paper program was extended through
June 1997, and the term of Mitchell Mortgage Company's bank credit facility
was extended through July 1996.
The debt agreements contain certain restrictions which, among other
things, require consolidated stockholders' equity to equal at least
$400,000,000 and require the maintenance of specified financial and oil and
gas reserve and/or asset value-to-debt ratios. The agreements also limit
additional borrowings, restrict the sale or lease of certain assets and
limit the right of the parent company and certain subsidiaries to merge
with other companies. Retained earnings available for the payment of cash
dividends totaled $351,954,000 at January 31, 1994. The loan agreements
also limit cash advances and dividend payments to the parent company by the
subsidiaries. At January 31, 1994, transfers to the parent of approximately
$1,240,000,000 were allowable under these agreements.
Maturities of long-term debt for the five fiscal years subsequent to
January 31, 1994 are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999
-------- ------ ------- -------- ------
<S> <C> <C> <C> <C> <C>
Senior notes . . . . . . . . . . . . . . $200,000 $ -- $ -- $100,000 $ --
Bank revolving credit agreements . . . . -- -- 11,300 -- 9,045
Commercial paper . . . . . . . . . . . . -- -- -- 22,000 --
Unsecured term loan . . . . . . . . . . -- -- -- 30,000 --
Mortgages . . . . . . . . . . . . . . . 598 3,697 503 464 494
-------- ------ ------- -------- ------
$200,598 $3,697 $11,803 $152,464 $9,539
======== ====== ======= ======== ======
</TABLE>
Bank revolving credit agreement maturities are based on present
conversion dates, which may be extended. The fiscal 1995 debt maturities
shown above are included in noncurrent liabilities in the accompanying
balance sheet since the Company repaid these obligations by borrowing under
existing commercial paper and bank revolving credit agreements having no
fiscal 1995 maturities.
At January 31, 1994, additional borrowings of approximately
$505,000,000 were available under existing commercial paper and bank
revolving credit agreements. The Company compensates the banks for these
facilities by paying commitment and other fees and maintaining minimum
unrestricted cash deposits of $3,125,000.
53
<PAGE> 52
(5) Income Taxes
The Company follows Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes." This statement requires deferred tax assets and
liabilities to be determined by applying tax regulations existing at the end of
a reporting period to the cumulative temporary differences between the tax
bases of assets and liabilities and their reported amounts in the financial
statements.
Exclusive of the tax benefits attributable to the extraordinary
charges discussed in Note 4 and the cumulative effect of a change in accounting
methods discussed in Note 11, income taxes for the years ended January 31,
1994, 1993 and 1992 consist of the following (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
CURRENT
Federal . . . . . . . . . . . . . . . . . . . . . . $ 8,805 $ 9,515 $ 9,633
State . . . . . . . . . . . . . . . . . . . . . . . 3,188 (2,178) 3,345
------- ------- -------
11,993 7,337 12,978
------- ------- -------
DEFERRED
Federal (including charge of $11,000 in
1994 due to increase in corporate tax rate) . . . 11,958 3,665 3,371
State . . . . . . . . . . . . . . . . . . . . . . . (1,526) 33 7,605
------- ------- -------
10,432 3,698 10,976
------- ------- -------
$22,425 $11,035 $23,954
======= ======= =======
</TABLE>
The Omnibus Budget Reconciliation Act of 1993 was signed into law during August
1993, increasing the corporate statutory Federal income tax rate from 34% to
35%. The principal impact of this rate change on the Company's financial
statements was a fiscal 1994 deferred tax provision of $11,000,000 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.
Of the aggregate fiscal 1992 provisions for current and deferred state
income taxes, approximately $10,500,000 was attributable to the August 1991
enactment of an income-based franchise tax by the State of Texas. After the
resultant Federal income tax benefit, this increased the Company's net
provision for income taxes by approximately $6,900,000. As enacted, the
legislation provided for retroactive taxation of the income of certain prior
periods, including for the Company all of fiscal 1992 and most of fiscal 1991.
Furthermore, under the liability method of accounting for income taxes, it was
necessary to apply the revised Texas franchise tax rules to a portion of the
Company's cumulative temporary differences, which resulted in a substantial
deferred tax provision.
During November 1992, the Texas franchise tax rules were revised in a
manner that eliminated a substantial portion of the Company's liability for
taxes attributable to periods prior to the enactment of the legislation.
Because of this, the Company's current and deferred state income tax provisions
for fiscal 1993 were reduced by $2,775,000 and $2,539,000, respectively. After
the resultant Federal income tax charge, this lowered the Company's net
provision for income taxes by $3,507,000.
Reconciliations from the applicable statutory Federal income tax rates
to the Company's effective income tax rates (exclusive of tax benefits
attributable to extraordinary charges and the cumulative effect of a change in
accounting methods) for the fiscal years 1994, 1993 and 1992 follow:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Statutory Federal income tax rate . . . . . . . . . . . . . . . . 35.0% 34.0% 34.0%
State income taxes, net of Federal income tax benefit . . . . . . 2.3 (3.0) 10.6
Federal tax credits . . . . . . . . . . . . . . . . . . . . . . . (10.8) (7.9) (2.5)
Utilization of tax carryforwards . . . . . . . . . . . . . . . . (2.3) -- (6.6)
Increase in corporate statutory Federal income tax rate . . . . . 23.1 -- --
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . (.1) .2 (.4)
---- ---- ----
47.2% 23.3% 35.1%
==== ==== ====
</TABLE>
54
<PAGE> 53
Federal tax credits consist principally of amounts available under
Section 29 of the Internal Revenue Code for natural gas produced from certain
wells. The provisions for deferred Federal income taxes for fiscal 1994 and
1992 were reduced by $1,054,000 and $4,503,000, respectively, when certain tax
carryforwards were estimated to be utilizable that previously had been expected
to expire.
The principal components of the Company's deferred income tax liability
include the following at January 31, 1994 and 1993 (in thousands):
<TABLE>
<CAPTION>
1994 1993
---------- ---------
<S> <C> <C>
Oil and gas acquisition, exploration and development costs deducted
for tax purposes in excess of financial statement DD&A . . . . . . . . . . . . . $ 197,511 $ 206,607
Real estate holding costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179,790 168,241
Depreciation of other energy assets . . . . . . . . . . . . . . . . . . . . . . . . 69,727 65,521
Business tax credit carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . (34,254) (36,499)
Unused alternative minimum tax credits . . . . . . . . . . . . . . . . . . . . . . (25,396) (25,569)
Natural gas contract restructuring proceeds . . . . . . . . . . . . . . . . . . . . (18,034) (23,769)
Employee benefits expense not currently deductible for tax purposes . . . . . . . . (14,249) (13,284)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (15,639) (10,485)
---------- ---------
$ 339,456 $ 330,763
========== =========
</TABLE>
At January 31, 1994, the Company had business tax credit carryforwards
(consisting principally of investment tax credits) of approximately $34,254,000
substantially all of which expire during the fiscal years 1996 through 2001 and
approximately $25,396,000 of unused alternative minimum tax credits that can be
carried forward indefinitely. These carryforwards have been recognized in the
calculation of financial statement tax provisions. Accordingly, their future
utilization will only reduce the amount of taxes currently payable, not the
financial statement provision for income taxes.
(6) COMMITMENTS AND CONTINGENCIES
Environmental regulations. The Company is considered by the United States
Environmental Protection Agency to be a potentially responsible party with
respect to four Superfund waste disposal sites. The only site involving more
than minimal potential exposure to the Company is the Operating Industries,
Inc. site located in Monterey Park, California, where small amounts of drilling
fluids from Company-operated oil and gas wells were deposited. Although the
Company contends that it should be exempt from liability with respect to this
site, to date it has paid and expensed approximately $290,000 of clean-up
costs. Additional exposure exists for future clean-up and closure costs of this
site.
While the Company believes that it is in substantial compliance with
the many federal, state and local laws and regulations relating to the
protection of the environment and public health, such laws and regulations
affect the Company's operations, expenses and costs; and changes and potential
changes in such regulations are continually monitored by the Company. In
particular, Congress is currently considering reauthorization of the
Comprehensive Environmental Response, Compensation and Liability Act (the
Superfund legislation) and amendments to the Clean Water Act dealing with
wetlands. However, management expects that none of the matters discussed in
this or the preceding paragraph, when ultimately resolved, will have a material
adverse effect upon the Company's financial position or results of operations.
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
$202,000,000 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.
55
<PAGE> 54
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.
Leases and contingent liabilities. The Company has various noncancellable
equipment and facility operating lease agreements which provide for aggregate
future payments of approximately $92,900,000. Minimum rentals for each of the
five years subsequent to January 31, 1994 total #approximately $9,400,000;
$9,200,000; $8,800,000; $8,900,000 and $8,200,000. Rental expense for all
operating leases was approximately $9,900,000; $9,300,000 and $8,800,000 in
fiscal 1994, 1993 and 1992. Exclusive of obligations described elsewhere in
these notes, the Company had contingent liabilities at January 31, 1994
totaling approximately $14,700,000, including $5,700,000 of debt guarantees
(principally for nonprofit institutions located in The Woodlands).
(7) COMMON STOCK
In May 1993, the Company sold 5,900,000 shares of its nonvoting Class B common
stock at $21.875 per share. After deducting offering costs, the net proceeds
from the sale totaled approximately $123,400,000. Of the net proceeds,
$78,251,000 was used in connection with the buy-out of MEC Development, Ltd.
(see Note 3). The remaining proceeds initially were used to pay down borrowings
under certain Energy Division credit facilities. Such amounts subsequently were
reborrowed to fund drilling costs that otherwise would have been expenditures
of the partnership.
On June 24, 1992, the stockholders approved an amendment to the
Articles of Incorporation which authorized the reclassification of the
Company's common stock into two classes of common stock designated Class A and
Class B. Each share of the Company's prior common stock was converted into
one-half share of Class A common stock and one-half share of Class B common
stock, with any resulting fractional amounts redeemed for cash. Both the Class
A and Class B common shares are freely transferable and are listed on the New
York Stock Exchange; neither is convertible into the other class of common
stock or any other security of the Company at the option of the holder. The
Class A shares have full voting rights, whereas the Class B shares have no
voting rights except as provided by law. The amended Articles of Incorporation
allow cash dividends on Class B shares to be greater, but not less, than those
paid on Class A shares and also contain certain Class B protection provisions.
(8) TRANSACTIONS WITH RELATED PARTIES
As a result of transactions occurring prior to fiscal 1973, when the Company
became publicly owned, certain individuals, principally George P. Mitchell,
Chairman of the Board and majority stockholder, hold real estate adjacent to
that owned by the Company and interests in oil and gas properties in which the
Company also owns interests, from which the related parties could realize
substantial personal benefits as a result of the Company's activities.
56
<PAGE> 55
(9) SEGMENT INFORMATION
Industry segment data for the fiscal years ended January 31, 1994, 1993 and
1992 are as follows (in thousands):
<TABLE>
<CAPTION>
Inter- Segment Identi-
Outside segment Operating Capital fiable
Revenues Revenues Earnings DD&A Additions Assets
-------- -------- -------- ---- --------- ------
<S> <C> <C> <C> <C> <C> <C>
FISCAL 1994
EXPLORATION AND PRODUCTION
Oil and gas . . . . . . . . . . . . . $ 265,798 $ -- $ 66,948 $ 121,178 $ 237,876 $ 1,011,802
Other . . . . . . . . . . . . . . . . 368 5,779 (365) 415 343 7,630
---------- ------------ --------- ----------- --------- -----------
266,166 5,779 66,583 121,593 238,219 1,019,432
---------- ------------ --------- ----------- --------- -----------
TRANSMISSION AND PROCESSING
Gas processing . . . . . . . . . . . 255,537 18,819 21,932 9,705 5,641 147,937
Gas gathering and transmission . . . 296,373 88,744 18,742 9,352 30,668 244,932
Other . . . . . . . . . . . . . . . . 8,627 12,766 1,985 2,651 12,319 34,576
---------- ------------ --------- ----------- --------- -----------
560,537 120,329 42,659 21,708 48,628 427,445
---------- ------------ --------- ----------- --------- -----------
REAL ESTATE . . . . . . . . . . . . . 126,106 6,620 21,078 7,282 65,132 930,535
---------- ------------ --------- ----------- --------- -----------
CORPORATE . . . . . . . . . . . . . . -- -- -- 2,662 3,866 38,064
---------- ------------ --------- ----------- --------- -----------
$ 952,809 $ 132,728 $ 130,320 $ 153,245 $ 355,845 $ 2,415,476
========== ============ ========= =========== ========= ===========
FISCAL 1993
EXPLORATION AND PRODUCTION
Oil and gas . . . . . . . . . . . . . $ 202,692 $ -- $ 44,722 $ 89,731 $ 77,397 $ 890,631
Restructuring charges . . . . . . . . -- -- (4,990) -- -- --
Other . . . . . . . . . . . . . . . . 11,989 9,017 (1,404) 962 306 13,071
Restructuring charges . . . . . . . . -- -- (15,736) 8,713 -- --
---------- ------------ --------- ----------- --------- -----------
214,681 9,017 22,592 99,406 77,703 903,702
---------- ------------ --------- ----------- --------- -----------
TRANSMISSION AND PROCESSING
Gas processing . . . . . . . . . . . 309,917 18,485 60,370 10,464 8,326 177,399
Gas gathering and transmission . . . 248,605 60,596 25,517 10,144 57,325 229,356
Other . . . . . . . . . . . . . . . . 8,178 15,035 2,617 3,118 4,822 25,203
---------- ------------ --------- ----------- --------- -----------
566,700 94,116 88,504 23,726 70,473 431,958
---------- ------------ --------- ----------- --------- -----------
REAL ESTATE . . . . . . . . . . . . . 121,453 5,456 22,801 7,143 84,954 893,001
---------- ------------ --------- ----------- --------- -----------
CORPORATE . . . . . . . . . . . . . . -- -- -- 2,754 4,538 43,138
---------- ------------ --------- ----------- --------- -----------
$ 902,834 $ 108,589 $ 133,897 $ 133,029 $ 237,668 $ 2,271,799
========== ============ ========= =========== ========= ===========
FISCAL 1992
EXPLORATION AND PRODUCTION
Oil and gas . . . . . . . . . . . . . $ 205,035 $ -- $ 43,365 $ 93,280 $ 83,265 $ 894,729
Other . . . . . . . . . . . . . . . . 26,038 11,887 (2,101) 2,053 863 35,037
---------- ------------ --------- ----------- --------- -----------
231,073 11,887 41,264 95,333 84,128 929,766
---------- ------------ --------- ----------- --------- -----------
TRANSMISSION AND PROCESSING
Gas processing . . . . . . . . . . . 271,497 22,430 64,900 9,755 15,214 164,917
Gas gathering and transmission . . . 231,068 65,400 23,212 11,241 31,824 176,344
Other . . . . . . . . . . . . . . . . 9,414 15,202 1,745 2,123 3,711 20,023
---------- ------------ --------- ----------- --------- -----------
511,979 103,032 89,857 23,119 50,749 361,284
---------- ------------ --------- ----------- --------- -----------
REAL ESTATE . . . . . . . . . . . . . 131,318 6,220 22,724 7,050 82,881 892,558
---------- ------------ --------- ----------- --------- -----------
CORPORATE . . . . . . . . . . . . . . -- -- -- 2,582 5,854 68,716
---------- ------------ --------- ----------- --------- -----------
$ 874,370 $ 121,139 $ 153,845 $ 128,084 $ 223,612 $ 2,252,324
========== ============ ========= =========== ========= ===========
</TABLE>
57
<PAGE> 56
The Company's gas gathering and transmission revenues historically
have consisted principally of amounts attributable to the purchase and resale
by its pipelines of natural gas flowing through their systems. However,
beginning in fiscal 1993, transactions involving buying and reselling of
"off-system" natural gas have constituted an increasing percentage of gas
gathering and transmission revenues. Since such activities do not use the
Company's pipeline systems, they can be economic even though the margins are
relatively small. As these low-margined activities have expanded, they have
caused the ratio of operating earnings to revenues for the gas gathering and
transmission segment to decline.
During the first quarter of fiscal 1993, the Company recorded pretax
restructuring charges totaling $21,191,000 in connection with a reorganization
of its Exploration and Production Division. The major charges were related to
oil and gas and other operations; the remaining $465,000 was charged to other
expense. The charges consisted principally of costs attributable to an early
retirement program and other personnel reductions, additional depreciation
expense on drilling rigs and asset write-downs (principally inventories)
resulting from the Company's decision to substantially reduce the scope of its
contract drilling and oil field supply operations. Because of their magnitude
and unusual nature, and in accordance with Accounting Principles Board Opinion
No. 30, these restructuring charges have been reported as separate components
of segment operating earnings.
Intersegment revenues are recorded at prevailing market prices and are
eliminated in consolidation. Substantially all of the Company's operations are
conducted in the United States. The Company's energy revenues are derived
principally from uncollateralized sales to customers in the electrical
generation, gas distribution, petrochemical and oil and gas industries. These
industry concentrations have the potential to impact the Company's exposure to
credit risk, either positively or negatively, because customers may be
similarly affected by changes in economic or other conditions. The
creditworthiness of this customer base is strong, and the Company has not
experienced significant credit losses on such receivables. Oil and gas segment
sales to Natural Gas Pipeline Company of America constituted approximately 13%,
12% and 11% of consolidated revenues, respectively, during fiscal 1994, 1993
and 1992.
(10) STOCK OPTIONS AND BONUS UNITS
The Company's stock option plans authorize the granting of incentive options
and nonqualified options to purchase common stock at prices not less than the
market value on the date of grant. The options have maximum terms of ten years
and become exercisable over a five-year period. Certain of the option grants
have associated stock appreciation rights (SARs) which entitle the optionee to
receive a cash payment equal to the difference between the market value and the
option price for the number of options being exercised. Summarized stock option
information follows:
<TABLE>
<CAPTION>
Exercisable Options
-------------------
Shares
Options Average Reserved for
Outstanding Number Price Future Grant
----------- ------ ----- ------------
<S> <C> <C> <C> <C>
AT JANUARY 31, 1991 . . . . . . . . . . . . . . . . 554,950 517,775 $ 8.76 479,000
Granted . . . . . . . . . . . . . . . . . . . . . . 41,500
Exercised (at average price of $8.76 per share) . . (105,975)
---------
AT JANUARY 31, 1992 . . . . . . . . . . . . . . . . 490,475 422,875 $ 8.83 437,500
Exercised (at average price of $8.78 per share) . . (65,000)
Cancelled . . . . . . . . . . . . . . . . . . . . . (21,400)
---------
AT JANUARY 31, 1993 . . . . . . . . . . . . . . . . 404,075 344,375 $ 8.96 437,500
Granted . . . . . . . . . . . . . . . . . . . . . . 120,000
Exercised (at average price of $8.82 per share) . . (218,375)
Cancelled . . . . . . . . . . . . . . . . . . . . . (4,400)
---------
AT JANUARY 31, 1994 . . . . . . . . . . . . . . . . 301,300 142,100 $ 9.99 321,900
=========
</TABLE>
58
<PAGE> 57
The Company also uses phantom-stock awards, which it calls "bonus
units", as a long-term incentive. Upon the redemption of such awards, grantees
receive gross compensation in amounts equal to the difference between the
market price of the Company's common stock and a floor price (the market price
of the stock when the units were awarded). The Company's 1991 Bonus Unit Plan
authorized the issuance of up to 700,000 units, substantially all of which have
been granted. These units generally vest in equal annual installments over a
five-year period. At January 31, 1994, grants covering 553,050 units with an
average floor price of $15.90 were outstanding (188,850 of which were
exercisable). The Company recognizes compensation expense over the applicable
vesting terms of the SARs and bonus units. Such expense aggregated $3,875,000;
$757,000 and $941,000 in fiscal 1994, 1993 and 1992.
(11) RETIREMENT BENEFITS
Qualified retirement plan. Substantially all employees, except hospitality
industry employees, who meet age and service requirements are covered by a
defined benefit retirement plan which is maintained without cost to the
employees. Pension benefits are based on years of service and average earnings
for the three highest consecutive years during the ten years immediately
preceding retirement. The Company's funding policy is to make contributions to
the plan of at least the minimum amounts required by applicable Federal laws
and regulations. Such contributions to the plan were none in fiscal 1994 and
1993 and $1,400,000 in fiscal 1992.
The projected unit credit actuarial method is used in determining the
Company's required annual contributions to the retirement plan and in computing
financial statement pension expense. The assumptions used in the computations
include an expected long-term rate of return on plan assets of 9%, annual
increases in salary levels of 5% in fiscal 1994 (6% in prior years) and
discount rates for the projected benefit obligation of 7.25%; 8.5% and 7.75%
for fiscal 1994, 1993 and 1992, respectively. Plan assets consist primarily of
marketable equity securities and long-term U. S. Treasury notes. Components of
financial statement pension expense for the years ended January 31, 1994, 1993
and 1992 were (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Service cost - benefits accrued during the year . . . . $ 4,097 $ 4,554 $ 3,993
Interest accrued on projected benefit obligation . . . 7,188 6,559 5,895
Early-retirement benefits accrued . . . . . . . . . . . -- 1,586 --
Return on plan assets . . . . . . . . . . . . . . . . . (8,581) (7,995) (6,964)
Amortization of unrecognized gains . . . . . . . . . . (1,853) (1,149) (1,149)
-------- -------- --------
Financial statement pension expense . . . . . . . . . . $ 851 $ 3,555 $ 1,775
======== ======== ========
</TABLE>
The following table summarizes the plan's funded status for financial
statement purposes and the related amounts included in the Company's balance
sheets at January 31, 1994 and 1993 (in thousands):
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
ACTUARIAL PRESENT VALUE OF PENSION BENEFIT OBLIGATION
Vested benefits . . . . . . . . . . . . . . . . . . . . . $ 77,289 $ 59,086
Nonvested benefits . . . . . . . . . . . . . . . . . . . 3,809 6,106
--------- ---------
Accumulated benefit obligation . . . . . . . . . . . . . 81,098 65,192
Provision for future salary increases . . . . . . . . . . 24,637 21,228
--------- ---------
Projected benefit obligation . . . . . . . . . . . . . . $ 105,735 $ 86,420
========= =========
AMOUNTS AVAILABLE TO SATISFY PENSION BENEFIT OBLIGATION
Plan assets, at market value . . . . . . . . . . . . . . $ 110,600 $ 97,191
Unrecognized actuarial gains . . . . . . . . . . . . . . (16,509) (21,564)
Balance sheet accrual for pension expense . . . . . . . . 11,644 10,793
--------- ---------
$ 105,735 $ 86,420
========= =========
</TABLE>
59
<PAGE> 58
Nonqualified retirement plans. Internal Revenue Service regulations limit the
benefits that may be paid to certain "highly-compensated" employees under the
Company's qualified retirement plan. Nonqualified plans are maintained to make
the basis on which those individuals' retirement benefits are determined the
same as is used for other employees. The Company's liability to make these
payments is a general obligation for which a trust fund has not been
established. Approximately $819,000; $2,108,000 (including $1,656,000
attributable to early retirement benefits provided in connection with the
Exploration and Production Division restructuring) and $310,000 was expensed in
fiscal 1994, 1993 and 1992 related to these plans. At January 31, 1994, the
aggregate balance sheet liability attributable to these plans totaled
$3,587,000.
Postretirement medical benefits. Retirees who reach retirement age while
working for the Company and meet certain other eligibility requirements may
elect coverage under the Company's medical plan. The Company has the right to
amend or terminate medical benefits for active employees and retirees or to
change the required level of participant contributions. Prior to fiscal 1993,
the cost of providing these postretirement health care benefits, which is
reduced by available Medicare coverage and retiree contributions, was expensed
as claims were paid. The Company's net cost for this coverage was approximately
$695,000 in fiscal 1992.
The Company adopted SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," effective February 1, 1992.
Accordingly, a charge for postretirement medical benefits of $10,551,000
($15,986,000 before tax) was recorded as the cumulative effect of the change in
accounting methods for periods prior to fiscal 1993. Components of financial
statement expense for postretirement medical benefits for the years ended
January 31, 1994 and 1993 were (in thousands):
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Service cost - benefits accrued during the year . . . . . . $ 554 $ 720
Interest accrued on projected benefit obligation . . . . . 1,046 1,323
Amortization of unrecognized gains . . . . . . . . . . . . (291) --
--------- --------
$ 1,309 $ 2,043
========= ========
</TABLE>
The plan is unfunded, and benefits are paid as costs are incurred. Such
benefits payments totaled approximately $1,200,000 and $900,000 in fiscal 1994
and 1993. The following table summarizes the plan's status for financial
statement purposes and the related amounts included in the Company's balance
sheets at January 31, 1994 and 1993 (in thousands):
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
ACTUARIAL PRESENT VALUE OF POSTRETIREMENT BENEFIT OBLIGATION
Retirees . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,463 $ 8,784
Fully eligible, active plan participants . . . . . . . . . 2,913 2,659
Other active plan participants . . . . . . . . . . . . . . 5,921 5,736
Unrecognized actuarial gains (losses) . . . . . . . . . . . (1,059) (50)
--------- --------
Balance sheet accrual for postretirement benefits . . . . . $ 17,238 $ 17,129
========= ========
</TABLE>
Effective February 1, 1993, the Company amended its medical plan to
incorporate a scheduled-reimbursements methodology under which the Company and
providers agree to specified rates for individual services. In connection with
this change, the assumed medical cost trend rate was also revised. In fiscal
1994, the Company's medical cost trend rate was assumed to start at 7% and
decline gradually to 5.5% in 2002 and remain at that level thereafter; for
fiscal 1993, these amounts were 12% and 6%, respectively. The medical cost
trend rate assumption has a significant effect on the amount
60
<PAGE> 59
of the obligation and the periodic cost reported. An increase of 1% in the
assumed trend rate for each year would have increased the actuarial present
value of the postretirement benefit obligation at January 31, 1994 by
$2,737,000 and the aggregate service and interest components of the fiscal 1994
cost by a total of $268,000. Discount rates of 7.25% and 8.5% were used in
determining the present value of the postretirement benefit obligation at
January 31, 1994 and 1993, respectively.
(12) Financial Instruments
The following table summarizes the carrying amounts and estimated fair values
of the Company's financial instruments for which it is practicable to estimate
that value as of January 31, 1994 (in thousands):
<TABLE>
<CAPTION>
Carrying Estimated
Amounts Fair Values
-------- -----------
<S> <C> <C>
BALANCE SHEET FINANCIAL INSTRUMENTS
Cash and cash equivalents . . . . . . . . . . . . . . . . . $ 21,832 $ 21,832
Notes and contracts receivable . . . . . . . . . . . . . . 42,985 38,208
Short-term debt . . . . . . . . . . . . . . . . . . . . . . 9,955 9,955
Long-term debt . . . . . . . . . . . . . . . . . . . . . . 988,318 1,049,803
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS
Financial guarantees and commitments . . . . . . . . . . . -- 3,875
</TABLE>
The estimated fair values for cash and cash equivalents are assumed to
equal their carrying amounts because of the short maturities of these
instruments. The estimated fair values of notes and contracts receivable are
determined by discounting future cash flows using interest rates at which
similar loans currently could be made for similar maturities to borrowers with
comparable credit ratings.
Estimated fair values of fixed-rate, long-term debt are based on
quoted market prices or, where such prices are not available, on current
interest rates offered to the Company for debt with similar remaining
maturities. For other long-term and all short-term debt obligations, which bear
interest at floating rates, carrying amounts and fair values are assumed to be
equal because of the nature of these obligations. Estimated fair values of
financial guarantees and commitments are based on the estimated costs of
obtaining letters of credit to relieve the Company of its obligations under
such agreements.
(13) SUBSEQUENT EVENTS
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 could be realized during the next two years. This sale effectively
completes the Company's withdrawal from the contract drilling business. A
pretax gain on this sale of approximately $3,800,000 will be included in the
results of fiscal 1995's first quarter.
On April 18, 1994, the Company signed a letter of understanding which
could lead to the sale of its Winnie Pipeline and Spindletop storage
facilities, together with a related gas processing plant. The Company would
receive approximately $120,000,000 in cash and would realize a gain, based on
the terms of the letter of understanding. Closing of this transaction is
subject to completion of due diligence, execution of definitive agreements,
receipt of regulatory approvals and other conditions, and no assurance can be
given that this will be accomplished. If consummated, it is expected that this
sale would close during the second quarter of fiscal 1995.
61
<PAGE> 60
REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS
Mitchell Energy & Development Corp.:
We have audited the accompanying consolidated balance sheets of Mitchell Energy
& Development Corp. (a Texas corporation) and subsidiaries as of January 31,
1994 and 1993, and the related consolidated statements of earnings,
stockholders' equity and cash flows for each of the three years in the period
ended January 31, 1994. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Mitchell Energy &
Development Corp. and subsidiaries as of January 31, 1994 and 1993, and the
results of their operations and their cash flows for each of the three years in
the period ended January 31, 1994, in conformity with generally accepted
accounting principles.
As discussed in Note 11 to the consolidated financial statements,
effective February 1, 1992, the Company changed its method of accounting for
postretirement benefits other than pensions.
ARTHUR ANDERSEN & CO.
Houston, Texas
April 18, 1994
62
<PAGE> 61
SUPPLEMENTAL OIL AND GAS
INFORMATION
MITCHELL ENERGY & DEVELOPMENT CORP. AND SUBSIDIARIES
(UNAUDITED)
Reserve quantities. The following tables summarize changes in total proved
reserve quantities for the fiscal years ended January 31, 1994, 1993 and 1992
and the proved developed reserve quantities at the dates indicated:
<TABLE>
<CAPTION>
Total Proved Reserves
----------------------------------------------------------------------------------------------
1994 1993 1992
------------------------------ ------------------------------ ----------------------------
Equity Equity Equity
Consol- Partner- Consol- Partner- Consol- Partner-
Total idated ships Total idated ships Total idated ships
----- ------ ----- ----- ------ ----- ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NATURAL GAS (BCF)
Beginning balance . . . . . . . . . 583.7 511.7 72.0 581.7 503.6 78.1 576.6 529.0 47.6
Extensions and discoveries . . . . 94.5 84.0 10.5 56.6 12.1 44.5 51.5 22.3 29.2
Production marketed . . . . . . . . (70.7) (69.0) (1.7) (54.6) (47.6) (7.0) (57.6) (52.2) (5.4)
Production consumed in operations . (3.7) (3.6) (.1) (3.0) (2.7) (.3) (2.9) (2.7) (.2)
Purchases of minerals in-place . . 34.6 34.6 -- 15.0 15.0 -- 6.7 6.7 --
Transfers of undeveloped
reserves to partnerships . . . . (.3) (1.4) 1.1 -- (.1) .1 (.9) (4.6) 3.7
Purchases of partnership interests -- 79.0 (79.0) -- 42.5 (42.5) -- -- --
Revisions of previous estimates . . (9.4) (6.7) (2.7) (2.3) (1.4) (.9) 9.2 6.0 3.2
Sales of minerals in-place . . . . (1.2) (1.1) (.1) (9.7) (9.7) -- (.9) (.9) --
----- ----- ------ ----- ----- ----- ----- ----- -----
Ending balance . . . . . . . . . . 627.5 627.5 -- 583.7 511.7 72.0 581.7 503.6 78.1
===== ===== ====== ===== ===== ===== ===== ===== =====
OIL AND CONDENSATE (MMBBLS)
Beginning balance . . . . . . . . . 15.8 14.0 1.8 15.6 14.1 1.5 15.4 14.6 .8
Extensions and discoveries . . . . 1.7 1.6 .1 1.5 .4 1.1 1.6 .8 .8
Production . . . . . . . . . . . . (2.2) (2.1) (.1) (2.1) (1.9) (.2) (2.0) (1.8) (.2)
Purchases of minerals in-place . . .8 .8 -- 1.1 1.1 -- .8 .8 --
Sales of minerals in-place . . . . (.5) (.4) (.1) (.4) (.4) -- -- -- --
Revisions of previous estimates . . (.7) (.7) -- (.4) (.5) .1 (.4) (.5) .1
Improved recovery . . . . . . . . . .5 .5 -- .4 .4 -- .3 .3 --
Transfers and other . . . . . . . . (.1) 1.6 (1.7) .1 .8 (.7) (.1) (.1) --
----- ----- ------ ----- ----- ----- ----- ----- -----
Ending balance . . . . . . . . . . 15.3 15.3 -- 15.8 14.0 1.8 15.6 14.1 1.5
===== ===== ====== ===== ===== ===== ===== ===== =====
PLANT NGLS (MMBBLS)
Beginning balance . . . . . . . . . 127.4 79.1 48.3 101.6 84.3 17.3 104.8 94.6 10.2
Additions . . . . . . . . . . . . . 10.7 7.1 3.6 17.2 6.1 11.1 15.2 6.2 9.0
Production . . . . . . . . . . . . (18.1) (11.3) (6.8) (17.1) (12.4) (4.7) (16.1) (13.7) (2.4)
Purchase of interests in
C&L Processors' plants . . . . . . -- -- -- 30.2 -- 30.2 -- -- --
Revisions of previous estimates . . (12.6) (7.6) (5.0) (4.5) 1.1 (5.6) (2.3) (2.8) .5
----- ----- ------ ----- ----- ----- ----- ----- -----
Ending balance . . . . . . . . . . 107.4 67.3 40.1 127.4 79.1 48.3 101.6 84.3 17.3
===== ===== ====== ===== ===== ===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
Proved Developed Reserves at January 31,
----------------------------------------
1994 1993 1992 1991
---- ---- ---- ----
<S> <C> <C> <C> <C>
NATURAL GAS (BCF)
Consolidated . . . . . . . . . . . . 558.5 437.7 419.9 447.6
Equity partnerships . . . . . . . . . -- 72.0 78.1 47.6
----- ----- ----- -----
558.5 509.7 498.0 495.2
===== ===== ===== =====
OIL AND CONDENSATE (MMBBLS)
Consolidated . . . . . . . . . . . . 13.8 12.3 11.9 11.9
Equity partnerships . . . . . . . . . -- 1.8 1.5 .8
----- ----- ----- -----
13.8 14.1 13.4 12.7
===== ===== ===== =====
PLANT NGLS (MMBBLS)
Consolidated . . . . . . . . . . . . 59.2 70.8 77.4 87.4
Equity partnerships . . . . . . . . . 37.2 43.1 17.3 10.2
----- ----- ----- -----
96.4 113.9 94.7 97.6
===== ===== ===== =====
</TABLE>
63
<PAGE> 62
Future net cash flows. The following table sets forth estimates of the
standardized measure of discounted future net cash flows from total proved
reserves at January 31, 1994, 1993 and 1992 (in millions):
<TABLE>
<CAPTION>
1994 1993 1992
------------------------------ ---------------------------- ----------------------------
Equity Equity Equity
Consol- Partner- Consol- Partner- Consol- Partner-
Total idated ships Total idated ships Total idated ships
----- ------ ----- ----- ------ ----- ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Oil and Gas
Future cash inflows . . . . . . $ 1,881 $ 1,881 $ -- $ 1,938 $ 1,718 $ 220 $1,855 $1,645 $ 210
Future production and
development costs . . . . . . (620) (620) -- (643) (584) (59) (658) (597) (61)
Discount -- 10% annually . . . (419) (419) -- (415) (362) (53) (384) (335) (49)
------- ------- ------- ------- ------- ------ ------ ------ ------
Present value of
future net revenues . . . . . 842 842 -- 880 772 108 813 713 100
Future income taxes, discounted
at 10% annually . . . . . . . (135) (135) -- (194) (164) (30) (184) (164) (20)
------- ------- ------- ------- ------- ------ ------ ------ ------
$ 707 $ 707 $ -- $ 686 $ 608 $ 78 $ 629 $ 549 $ 80
======= ======= ======= ======= ======= ====== ====== ====== ======
PLANT NGLS
Future cash inflows . . . . . . $ 1,188 $ 762 $ 426 $ 1,741 $ 1,086 $ 655 $1,167 $ 971 $ 196
Future production costs . . . . (859) (533) (326) (1,201) (727) (474) (815) (672) (143)
Discount -- 10% annually . . . (133) (90) (43) (200) (132) (68) (124) (112) (12)
------- ------- ------- ------- ------- ------ ------ ------ ------
Present value of
future net revenues . . . . . 196 139 57 340 227 113 228 187 41
Future income taxes,
discounted at 10% annually . . (50) (30) (20) (94) (59) (35) (53) (42) (11)
------- ------- ------- ------- ------- ------ ------ ------ ------
$ 146 $ 109 $ 37 $ 246 $ 168 $ 78 $ 175 $ 145 $ 30
======= ======= ======= ======= ======= ====== ====== ====== ======
</TABLE>
Proved reserves are the estimated quantities which geological and
engineering data demonstrate with reasonable certainty to be recoverable in
future years from known reservoirs under economic and operating conditions at
each year end. Proved developed reserves are expected to be recovered via
existing wells using existing equipment and operating methods. Consolidated
reserves represent the Company's net interest in oil and gas properties or in
reserves committed to Company-owned gas processing plants. Equity partnership
reserves represent the Company's proportional interest in the reserves of
partnerships that are accounted for using the equity method. The partnerships
engaged in oil and gas activities in which the Company previously held an
interest were liquidated during fiscal 1994--see Note 3 for additional
information concerning the buy-out of MEC Development, Ltd. During fiscal 1993,
the Company purchased the remaining interests in Phase 6 of that partnership.
The natural gas reserve quantities reported as oil and gas reserves
represent wet gas volumes, and include gas quantities that will be converted by
processing to NGLs (both leasehold and plant ownership). The oil and gas future
net cash flows, however, include only the Company's leasehold reimbursement for
natural gas liquids extracted during processing. As discussed below, the
remainder of the cash flows associated with the Company's ownership of NGL
reserves extracted from its wet gas volumes, is included in plant NGL future
net cash flows since those cash flows accrue to the Company because of its
ownership of gas processing plants.
The quantities reported herein for plant NGLs include all liquids that
will be extracted from gas streams contractually committed to Company-owned gas
processing plants since the Company, as plant owner, generally has beneficial
ownership of all the NGLs so produced. Accordingly, the plant NGL reserves and
future net cash flows include amounts attributable to Company-owned NGL
reserves and to NGLs extracted from gas streams owned by third parties. The
Company reimburses the owners of the natural gas streams based either on a
percentage of the value of the liquids produced or on the value of the natural
gas consumed in processing under keep-whole agreements. Such reimbursements,
including amounts attributable to the Company's oil and gas leasehold interests
(included in oil and gas future net cash flows), are deducted as production
costs in determining future net cash flows from plant NGLs.
Of the total remaining natural gas reserves at January 31, 1994, 267.4
Bcf will be processed at Company plants, including 35.5 Bcf of fiscal 1994's
natural gas reserve additions from extensions and discoveries. It is esti-
64
<PAGE> 63
mated that 65.7 Bcf of such reserves and 8.7 Bcf of such reserve additions will
be converted by processing into 37.2 MMBbls and 4.9 MMBbls, respectively, of
plant NGL reserves and plant NGL reserve additions.
Except where otherwise specified by contractual agreement, future cash
inflows are estimated using year-end prices. The future cash inflows shown for
fiscal 1994, 1993 and 1992 include deferred contract restructuring proceeds of
$51,527,000, $69,908,000 and $90,268,000. Future production and development
cost estimates are based on economic conditions at the respective year ends.
Future income taxes are computed by applying applicable statutory tax rates to
the difference between the present value of estimated future net revenues and
the tax basis of proved oil and gas properties after considering applicable tax
credit carryforwards, estimated future percentage depletion deductions and
energy tax credits.
The following table sets forth the changes in the standardized measure
of discounted future net cash flows for the years ended January 31, 1994, 1993
and 1992 (in millions):
<TABLE>
<CAPTION>
1994 1993 1992
-------------------------- --------------------------- ---------------------------
Equity Equity Equity
Consol- Partner- Consol- Partner- Consol- Partner-
Total idated ships Total idated ships Total idated ships
----- ------ -------- ----- ------- -------- ----- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OIL AND GAS
Extensions and discoveries,
net of related costs . . . . . . $ 108 $ 92 $ 16 $ 88 $ 10 $ 78 $ 50 $ 12 $ 38
Sales, net of production costs . . (197) (192) (5) (152) (133) (19) (156) (141) (15)
Net changes in prices
and production costs . . . . . . (28) (25) (3) 66 57 9 (89) (87) (2)
Accretion of discount . . . . . . . 68 64 4 65 55 10 70 64 6
Transfers of undeveloped
reserves to partnerships . . . . -- (2) 2 (1) (2) 1 (1) (5) 4
Purchase of partner-
ship interests . . . . . . . . . -- 110 (110) -- 60 (60) -- -- --
Production rate
changes and other . . . . . . . (28) (21) (7) (26) (16) (10) (9) (15) 6
Development costs incurred . . . . 13 13 -- 13 13 -- 22 22 --
Purchases of minerals in-place . . 47 47 -- 27 27 -- 18 18 --
Sales of minerals in-place . . . . (4) (4) -- (6) (6) -- (1) (1) --
Revisions of previous
quantity estimates . . . . . . . (17) (12) (5) (7) (6) (1) 6 2 4
----- ----- ----- ----- ----- ---- ----- ----- ----
Change in present value
of future net revenues . . . . . (38) 70 (108) 67 59 8 (90) (131) 41
Net change in present value
of future income taxes . . . . . 59 29 30 (10) -- (10) 35 39 (4)
----- ----- ----- ----- ----- ---- ----- ----- ----
$ 21 $ 99 $ (78) $ 57 $ 59 $ (2) $ (55) $ (92) $ 37
===== ===== ===== ===== ===== ==== ===== ===== ====
PLANT NGLS
Additions, net of related costs . . $ 17 $ 15 $ 2 $ 47 $ 20 $ 27 $ 40 $ 16 $ 24
Sales, net of production costs . . (30) (16) (14) (52) (34) (18) (58) (48) (10)
Net changes in
prices and costs . . . . . . . . (144) (97) (47) 17 18 (1) (222) (201) (21)
Purchase of interests in
C&L Processors' plants . . . . . -- -- -- 72 -- 72 -- -- --
Accretion of discount . . . . . . . 34 23 11 23 19 4 42 38 4
Revisions of previous
quantity estimates . . . . . . . (17) (8) (9) -- 14 (14) 2 1 1
Other . . . . . . . . . . . . . . . (4) (5) 1 5 3 2 1 2 (1)
----- ----- ----- ----- ----- ---- ----- ----- ----
Change in present value
of future net revenues . . . . . (144) (88) (56) 112 40 72 (195) (192) (3)
Net change in present value
of future income taxes . . . . . 44 29 15 (41) (17) (24) 69 67 2
----- ----- ----- ----- ----- ---- ----- ----- ----
$(100) $ (59) $ (41) $ 71 $ 23 $ 48 $(126) $(125) $ (1)
===== ===== ===== ===== ===== ==== ===== ===== ====
</TABLE>
65
<PAGE> 64
Reserve estimates are subject to numerous uncertainties inherent in
the estimation of quantities of proved reserves and in the projection of future
rates of production and the timing of development expenditures. The accuracy of
such estimates is a function of the quality of available data and of
engineering and geological interpretation and judgment. Results of subsequent
drilling, testing and production may cause either upward or downward revisions
of previous estimates. Further, the volumes considered to be commercially
recoverable fluctuate with changes in prices and operating costs. Reserve
estimates, by their nature, are generally less precise than other financial
statement disclosures.
Discounted future cash flow estimates such as those shown above are
not intended to represent estimates of the fair market value of oil and gas
properties. Estimates of fair market value also should consider probable
reserves, anticipated future oil and gas prices and interest rates, changes in
development and production costs and risks associated with future production.
Because of these and other considerations, any estimate of fair market value is
necessarily subjective and imprecise.
Oil and gas related costs and operating results. The following tables set forth
capitalized costs at January 31, 1994, 1993 and 1992 and capitalized costs
incurred and operating results for oil and gas producing activities for the
years then ended (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
CAPITALIZED COSTS
Oil and gas properties
Consolidated . . . . . . . . . . . . . . . . . . . . . . . . . . $1,958,188 $1,766,616 $1,717,396
Equity partnership investments
(principally undistributed earnings) . . . . . . . . . . . . . -- 11,267 15,847
---------- ---------- ----------
1,958,188 1,777,883 1,733,243
Support equipment and facilities . . . . . . . . . . . . . . . . 67,675 66,524 63,513
Accumulated depreciation, depletion and amortization . . . . . . (1,065,993) (1,000,397) (953,369)
---------- ---------- ----------
Net capitalized costs . . . . . . . . . . . . . . . . . . . . . . $ 959,870 $ 844,010 $ 843,387
========== ========== ==========
Proportional interest in net capitalized
costs of equity partnerships . . . . . . . . . . . . . . . . . $ -- $ 38,772 $ 39,867
========== ========== ==========
CAPITALIZED COSTS INCURRED
Unevaluated lease acquisition . . . . . . . . . . . . . . . . . . $ 9,222 $ 8,650 $ 11,124
Exploration . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,192 19,676 20,545
Development . . . . . . . . . . . . . . . . . . . . . . . . . . . 98,326 27,489 33,066
Producing property acquisition . . . . . . . . . . . . . . . . . 89,972 18,934 15,390
---------- --------- ----------
Capitalized costs incurred . . . . . . . . . . . . . . . . . . . 233,712 74,749 80,125
Equity partnership investments . . . . . . . . . . . . . . . . . . 314 27 507
Support equipment and facilities . . . . . . . . . . . . . . . . . 3,850 2,621 2,633
---------- --------- ----------
Capital additions . . . . . . . . . . . . . . . . . . . . . . . . $ 237,876 $ 77,397 $ 83,265
========== ========= ==========
Proportional interest in capitalized
costs incurred by equity partnerships . . . . . . . . . . . . . $ 5,470 $ 20,039 $ 21,328
========== ========= ==========
OPERATING RESULTS (excluding general and
administrative and interest expense)
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 262,163 $ 188,683 $ 195,072
Less - Production costs . . . . . . . . . . . . . . . . . . . . . 61,082 55,523 53,812
Other operating costs . . . . . . . . . . . . . . . . . . . 16,590 12,716 14,578
Depreciation, depletion and amortization . . . . . . . . . 121,178 89,731 93,280
Restructuring charges . . . . . . . . . . . . . . . . . . . -- 4,990 --
---------- --------- ----------
63,313 25,723 33,402
Equity in earnings of partnerships . . . . . . . . . . . . . . . . 3,635 14,009 9,963
---------- --------- ----------
Oil and gas segment operating earnings . . . . . . . . . . . . . . 66,948 39,732 43,365
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 19,279 9,776 14,649
---------- --------- ----------
$ 47,669 $ 29,956 $ 28,716
========== ========= ==========
</TABLE>
66
<PAGE> 65
HISTORICAL SUMMARY
MITCHELL ENERGY & DEVELOPMENT CORP. AND SUBSIDIARIES
YEAR ENDED JANUARY 31, (DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
FINANCIAL POSITION AT YEAR END
Oil and gas properties . . . . . . . . . . . . . . $ 933,402 $ 818,400 $ 817,977 $ 818,987 $ 793,037
Transmission and processing facilities . . . . . . 318,141 313,178 270,651 243,524 235,773
Other . . . . . . . . . . . . . . . . . . . . . . . 53,346 52,202 59,016 57,672 56,030
---------- ---------- ---------- ---------- ----------
Net property, plant and equipment . . . . . . . $1,304,889 $1,183,780 $1,147,644 $1,120,183 $1,084,840
========== ========== ========== ========== ==========
Real estate . . . . . . . . . . . . . . . . . . . . $ 896,652 $ 864,351 $ 873,326 $ 842,180 $ 795,199
Total assets . . . . . . . . . . . . . . . . . . . 2,415,476 2,271,799 2,252,324 2,216,235 2,099,360
Capital employed
Long-term debt . . . . . . . . . . . . . . . . $988,318 $947,723 $954,327 $904,997 $844,745
Deferred income taxes . . . . . . . . . . . . . 339,456 330,763 329,526 319,681 304,423
Deferred credits and other liabilities . . . . 118,632 141,200 133,488 154,439 172,131
Stockholders' equity . . . . . . . . . . . . . 751,954 632,052 637,369 610,945 582,258
---------- ---------- ---------- ---------- ----------
$2,198,360 $2,051,738 $2,054,710 $1,990,062 $1,903,557
========== ========== ========== ========== ==========
CAPITAL ADDITIONS (accrual basis)
Exploration and Production . . . . . . . . . . . . $ 159,968 $ 77,703 $ 84,128 $ 99,290 $ 80,075
MEC Development, Ltd. buy-out . . . . . . . . . . 78,251 -- -- -- --
Transmission and Processing . . . . . . . . . . . . 48,628 70,473 50,749 29,662 29,236
Real Estate . . . . . . . . . . . . . . . . . . . . 65,132 84,954 82,881 94,084 82,696
Corporate . . . . . . . . . . . . . . . . . . . . . 3,866 4,538 5,854 6,217 3,643
---------- ---------- ---------- ---------- ----------
$ 355,845 $ 237,668 $ 223,612 $ 229,253 $ 195,650
========== ========== ========== ========== ==========
ENERGY OPERATING STATISTICS
Average daily volumes
Natural gas sales (Mcf) . . . . . . . . . . . . 193,800 149,000 157,800 150,600 147,300
Crude oil and condensate sales (Bbls) . . . . . 6,000 5,600 5,400 5,200 4,900
Natural gas liquids produced (Bbls) . . . . . . 49,800 47,200 44,000 37,600 33,600
Pipeline throughput (Mcf) . . . . . . . . . . . 549,000 566,000 581,000 458,000 421,000
Average annual sales price (dollars)
Natural gas (per Mcf) . . . . . . . . . . . . . $ 2.86 $ 2.84 $ 2.74 $ 2.88 $ 2.79
Crude oil and condensate (per Bbl) . . . . . . 16.31 18.49 18.95 22.89 18.36
Natural gas liquids produced (per Bbl) . . . . 12.18 13.41 13.41 14.36 10.50
Drilling program (gross wells)
Wells drilled . . . . . . . . . . . . . . . . . 154 152 163 156 133
Wells completed . . . . . . . . . . . . . . . . 127 129 134 133 122
Well count at year end (gross wells) . . . . . . . 3,413 3,532 3,666 3,613 3,124
REAL ESTATE OPERATING STATISTICS
The Woodlands
Residential lots sold . . . . . . . . . . . . . . 844 911 910 907 882
Average price per lot (dollars) . . . . . . . . 39,055 38,196 36,400 32,431 26,822
Average price per square foot (dollars) . . . . 3.38 3.14 2.95 2.59 2.37
Commercial and institutional acreage sold . . . . 144 58 171 16 27
Office, industrial and retail space
managed (thousands of square feet) . . . . . . . 2,204 2,140 1,798 1,786 1,711
Apartment units managed . . . . . . . . . . . . . . 1,883 2,055 2,055 1,915 1,279
Bulk acreage sold . . . . . . . . . . . . . . . . . 250 -- 565 -- 74
STOCKHOLDERS' EQUITY (per share at year end) . . . $ 14.26 $ 13.55 $ 13.59 $ 13.05 $ 12.41
RATIO OF EARNINGS TO FIXED CHARGES . . . . . . . . 1.30x 1.18x 1.45x 1.30x 1.05x
</TABLE>
67
<PAGE> 66
Historical Summary
MITCHELL ENERGY & DEVELOPMENT CORP. AND SUBSIDIARIES
YEAR ENDED JANUARY 31 (IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1994 1993(a) 1992 1991 1990
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
REVENUES
Exploration and Production . . . . . . . . . . . . . . $266,166 $214,681 $231,073 $237,301 $230,861
-------- -------- -------- -------- --------
Transmission and Processing
Gas processing . . . . . . . . . . . . . . . . . . 255,537 309,917 271,497 241,073 164,275
Gas gathering and transmission . . . . . . . . . . 296,373 248,605 231,068 203,709 169,313
Other . . . . . . . . . . . . . . . . . . . . . . . 8,627 8,178 9,414 10,391 5,504
-------- -------- -------- -------- --------
560,537 566,700 511,979 455,173 339,092
-------- -------- -------- -------- --------
Real Estate . . . . . . . . . . . . . . . . . . . . . . 126,106 121,453 131,318 98,803 88,079
-------- -------- -------- -------- --------
Total revenues . . . . . . . . . . . . . . . . . . $952,809 $902,834 $874,370 $791,277 $658,032
======== ======== ======== ======== ========
SEGMENT OPERATING EARNINGS
Exploration and Production
Operations . . . . . . . . . . . . . . . . . . . . $66,583 $43,318 $41,264 $56,062 $62,549
Restructuring charges . . . . . . . . . . . . . . . -- (20,726) -- -- --
-------- -------- -------- -------- --------
66,583 22,592 41,264 56,062 62,549
-------- -------- -------- -------- --------
Transmission and Processing
Gas processing . . . . . . . . . . . . . . . . . . 21,932 60,370 64,900 74,282 35,795
Gas gathering and transmission . . . . . . . . . . 18,742 25,517 23,212 20,866 10,001
Other . . . . . . . . . . . . . . . . . . . . . . . 1,985 2,617 1,745 2,897 2,828
-------- -------- -------- -------- --------
42,659 88,504 89,857 98,045 48,624
-------- -------- -------- -------- --------
Real Estate . . . . . . . . . . . . . . . . . . . . . . 21,078 22,801 22,724 4,313(b) 15,120
-------- -------- -------- -------- --------
Total segment operating earnings . . . . . . . . 130,320 133,897 153,845 158,420 126,293
General and administrative expense . . . . . . . . . . 43,222 41,398 38,184 37,638 36,962
Interest expense . . . . . . . . . . . . . . . . . . . 74,057 75,284 81,169 88,387 90,239
Capitalized interest . . . . . . . . . . . . . . . . . (35,721) (36,205) (39,426) (45,427) (46,993)
Other expense . . . . . . . . . . . . . . . . . . . . . 1,224 6,096 5,618 6,224 (50)
-------- -------- -------- -------- --------
EARNINGS BEFORE INCOME TAXES,
EXTRAORDINARY ITEM AND CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING METHODS . . . . . . . . . . . 47,538 47,324 68,300 71,598 46,135
Income taxes . . . . . . . . . . . . . . . . . . . . . 22,425(c) 11,035 23,954 24,343 15,686
-------- -------- -------- -------- --------
EARNINGS BEFORE EXTRAORDINARY ITEM
AND CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING METHODS . . . . . . . . . . . . . . . . 25,113 36,289 44,346 47,255 30,449
Extraordinary item . . . . . . . . . . . . . . . . . . (5,426) (7,251) -- -- --
Cumulative effect of change
in accounting methods . . . . . . . . . . . . . . . . -- (10,551) -- -- --
-------- -------- -------- -------- --------
NET EARNINGS . . . . . . . . . . . . . . . . . . . . . $ 19,687 $ 18,487 $ 44,346 $ 47,255 $ 30,449
======== ======== ======== ======== ========
PER COMMON SHARE AMOUNTS
Earnings before extraordinary item
and cumulative effect of change
in accounting methods . . . . . . . . . . . . . . . . $ .49 $ .77 $ .95 $ 1.01 $ .65
Extraordinary item . . . . . . . . . . . . . . . . . . (.10) (.15) -- -- --
Cumulative effect of change in accounting methods . . . -- (.23) -- -- --
-------- -------- -------- -------- --------
Net earnings . . . . . . . . . . . . . . . . . . . . . $ .39 $ .39 $ .95 $ 1.01 $ .65
======== ======== ======== ======== ========
CASH DIVIDENDS (cents per share)
Prior to stock reclassification . . . . . . . . . . . . 20.00 40.00 34.00 36.00
Class A . . . . . . . . . . . . . . . . . . . . . . . . 48.00 22.00
Class B . . . . . . . . . . . . . . . . . . . . . . . . 53.00 23.75
AVERAGE COMMON SHARES OUTSTANDING . . . . . . . . . . . 51,004 46,858 46,849 46,935 46,868
</TABLE>
(a) Where applicable, amounts are after pretax restructuring charges which
reduced Exploration and Production segment operating earnings by $20.7
million; an additional $.5 million was charged to other expense.
(b) After asset write-downs of $11.6 million.
(c) Includes $11 million deferred provision related to an increase from 34% to
35% in the corporate statutory Federal income tax rate.
68
<PAGE> 67
BOARD OF DIRECTORS
<TABLE>
<S> <C> <C>
GEORGE P. MITCHELL SHAKER A. KHAYATT (1) MICHAEL B. MORRIS (1)
Chairman and President and Petroleum Consultant;
Chief Executive Officer, Chief Executive Officer, retired President of
Mitchell Energy & Khayatt and Company, Inc. Petroleum Operations,
Development Corp. (investment banking), Conoco, Inc.,
New York City Houston
BERNARD F. CLARK
Vice Chairman, BEN F. LOVE (2)(3) RAYMOND L. WATSON (2)
Mitchell Energy & Consultant; Chairman,
Development Corp. retired Chairman and Executive Committee
Chief Executive Officer, of the Board of Directors,
W. D. STEVENS (3) Texas Commerce Bancshares, The Walt Disney Company,
President and Houston Burbank, California;
Chief Operating Officer, Vice Chairman,
President-Exploration and WALTER A. LUBANKO (2) The Irvine Company,
Production Division, Chairman and President, Newport Beach, California
Mitchell Energy & W.A. Lubanko & Co., Inc.
Development Corp. (investment banking), BENJAMIN N. WOODSON (2)
Brookville, New York Independent Insurance
ROBERT W. BALDWIN (1) Consultant; Partner,
Consultant M. KENT MITCHELL (1)(3) FIF Management, Ltd.
(energy/management); President and (investment management);
retired President, Chief Executive Officer, retired Chairman and
Gulf Refining and Marketing Bald Head Island Chief Executive Officer,
Company (a division of Management, Inc. American General Corporation,
Gulf Oil Corp.), (real estate development), Houston
Houston Bald Head Island,
North Carolina (1) Compensation Committee
WILLIAM D. EBERLE (1)(3) (2) Audit Committee
Chairman, J. TODD MITCHELL (3) (3) Executive Committee
EBCO, Inc. (hotel, real estate President,
and service business); The Discovery Bay Company
President, Manchester (seismic software) and
Associates, Ltd. (international Dolomite Resources, Inc.
business consulting), (exploration and investments),
Boston and Washington, D.C. Houston
</TABLE>
69
<PAGE> 68
PRINCIPAL OFFICERS
<TABLE>
<S> <C>
(PICTURE) GEORGE P. MITCHELL
Chairman and Chief
Executive Officer
BERNARD F. CLARK (PICTURE) (PICTURE) W. D. STEVENS
Vice Chairman President and Chief
Operating Officer,
President-Exploration
and Production Division
ROGER L. GALATAS (PICTURE) (PICTURE) PHILIP S. SMITH
Corporate Senior Corporate Senior
Vice President, Vice President,
President-Real Estate Chief Financial Officer and
Division President-Administration
and Financial Division
ALLEN J. TARBUTTON, JR. (PICTURE) (PICTURE) THOMAS P. BATTLE
Corporate Senior Corporate Senior
Vice President, Vice President,
President-Transmission General Counsel
and Processing Division and Secretary
</TABLE>
70
<PAGE> 69
CORPORATE INFORMATION
<TABLE>
<S> <C>
STOCK LISTINGS FORM 10-K
New York Stock Exchange Copies of the Company's
The Pacific Stock Exchange Form 10-K are available upon
Ticker Symbols: MND A and MND B written request to:
Options Trading: The Pacific Stock Vice President-Public Affairs
Exchange Mitchell Energy & Development Corp.
P.O. Box 4000
TRANSFER AGENT AND REGISTRAR The Woodlands, Texas 77387-4000
Chemical Shareholder Services Group, Inc. Phone: 713-377-5650
c/o Chemical Bank
450 West 33rd St.
New York, New York 10001
Phone: 1-800-635-9270
ANNUAL MEETING
10 a.m. CDT
Wednesday, June 29, 1994
The Woodlands Executive Conference
Center and Resort
2301 North Millbend
The Woodlands, Texas 77380
Design: Gluth, Weaver Design
Artwork: Mike Benny
Photography: Robb Kendrick, Robert Mihovil,
Cliff Roe, Gaylon Wampler, Ted
Washington
Printing: Champagne Fine Printing
</TABLE>
71
<PAGE> 70
<TABLE>
<S> <C>
MITCHELL ENERGY & DEVELOPMENT CORP. Bulk Rate
U.S. Postage
P.O. BOX 4000 PAID
2001 TIMBERLOCH PLACE Spring, Texas
THE WOODLANDS, TEXAS 77387-4000 Permit No. 67
(713) 377-5500
AN EQUAL OPPORTUNITY EMPLOYER
</TABLE>
<PAGE> 1
Exhibit 21
MITCHELL ENERGY & DEVELOPMENT CORP.
SUBSIDIARIES
Listings of the Company's major subsidiaries and partnership interests
at January 31, 1994 follow. These entities, along with others which in the
aggregate are not significant, are included in the financial statements
appearing in the Company's Annual Report to Stockholders. Parent/subsidiary
relationships are indicated by indentions. Except where otherwise indicated,
each subsidiary is incorporated in Delaware and is 100% owned by its parent.
CONSOLIDATED SUBSIDIARIES
MND Energy Corporation
Mitchell Energy Corporation
Brazos Gas Compressing Company
Liquid Energy Corporation
Mitchell Marketing Company
Southeastern Marketing Company (Louisiana)
Southwestern Gas Pipeline, Inc. ("SWGPL")
Winnie Pipeline Company
The Woodlands Corporation
Mitchell Catamount, Inc. (Texas)
Mitchell & Mitchell Investment Corp.
Mitchell Mortgage Company (Texas)
MND Hospitality, Inc.
The Woodlands Communications Network, Inc. (Texas)
The Woodlands Investment Group, Inc.
MND Service, Inc.
The Woodlands Venture Capital Company
PARTNERSHIP INTERESTS (accounted for on equity basis)
Austin Chalk Natural Gas Marketing Services (45% owned by Mitchell
Marketing Company)
Bee County Joint Venture (50% owned by Liquid Energy Corporation)
Belvieu Environmental Fuels (33.33% owned by Liquid Energy Corporation)
Brooks-Hidalgo Pipeline System (50% owned by SWGPL)
C&L Processors Partnership (50% owned by Liquid Energy Corporation)
Cochran's Crossing - 94 Limited (50% owned by The Woodlands Corporation)
Ferguson-Burleson County Gas Gathering System (45% owned by SWGPL)
The Fort Crockett Hotel Limited (50% owned by The Woodlands Corporation)
Gulf Coast Fractionators (38.75% owned by Liquid Energy Corporation)
Lake Catamount Joint Venture (50% owned by Mitchell Catamount, Inc.)
Madison Gas Marketing Services (80% owned by Mitchell Marketing Company)
PC Retail-93 Limited Partnership (50% owned by The Woodlands Corporation)
Pecos Pipeline System (80% owned by SWGPL)
Southwood Limited I (50% owned by The Woodlands Corporation)
The Woodlands Communications Network (50% owned by
The Woodlands Communications Network, Inc.)
The Woodlands Mall Associates (50% owned by The Woodlands Corporation)
UP Bryan Plant (45% owned by Liquid Energy Corporation)
Woodlands/Durham Enclave, Ltd. (49% owned by The Woodlands Corporation,
1% owned by The Woodlands Investment Group, Inc.)
Woodlands Equity Partnership-89 (50% owned by The Woodlands Corporation)
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our reports included or incorporated by reference in this Form
10-K into the Company's previously filed Form S-8 Registration Statement Nos.
2-74458, 2-86550, 2-93380, 33-2716, 33-26276 and 33-31446 and into the
previously filed Form S-3 Registration Statement Nos. 33-57332 and 33-61070.
ARTHUR ANDERSEN & CO.
Houston, Texas
April 26, 1994
<PAGE> 1
Exhibit 99(a)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-6959
------------------
MITCHELL ENERGY & DEVELOPMENT CORP.
THRIFT AND SAVINGS PLAN
------------------
MITCHELL ENERGY & DEVELOPMENT CORP.
(Name of issuer of securities held pursuant to the Plan)
P. O. Box 4000, The Woodlands, Texas 77387-4000
(Address of Plan and principal executive office of issuer)
The financial statements and schedules of the Mitchell Energy & Development
Corp. Thrift and Savings Plan required to be filed on Form 11-K by Section
15(d) of the Securities Exchange Act of 1934 will be filed as an amendment to
this Form 10-K.
<PAGE> 1
Exhibit 99(b)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-6959
----------------
MND HOSPITALITY, INC.
THRIFT AND SAVINGS PLAN
----------------
MITCHELL ENERGY & DEVELOPMENT CORP.
(Name of issuer of securities held pursuant to the Plan)
P. O. Box 4000, The Woodlands, Texas 77387-4000
(Address of Plan and principal executive office of issuer)
The financial statements and schedules of the MND Hospitality, Inc., Thrift and
Savings Plan required to be filed on Form 11-K by Section 15(d) of the
Securities Exchange Act of 1934 will be filed as an amendment to this Form
10-K.
