<PAGE> 1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED APRIL 30, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-6959
MITCHELL ENERGY & DEVELOPMENT CORP.
(Exact name of registrant as specified in charter)
TEXAS 74-1032912
(State of incorporation) (I.R.S. Employer Identification No.)
2001 TIMBERLOCH PLACE
THE WOODLANDS, TEXAS 77380
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 377-5500
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
---- ----
Shares of common stock outstanding at May 31, 1995:
<TABLE>
<S> <C>
Class A . . . . . . . . 23,211,422
Class B . . . . . . . . 28,818,121
</TABLE>
================================================================================
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
Page
Part I - Financial Information Number
------
<S> <C>
Item 1. Financial Statements
Representation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Unaudited Consolidated Statements of Earnings . . . . . . . . . . . . . . . . . . . . . 4
Unaudited Consolidated Statement of Stockholders' Equity . . . . . . . . . . . . . . . . 5
Unaudited Condensed Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . 6
Notes to Unaudited Consolidated Financial Statements . . . . . . . . . . . . . . . . . . 7
Item 2. Management's Discussion and Analysis of
Financial Position and Results of Operations . . . . . . . . . . . . . . . . . . . . . . 11
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
DEFINITIONS. As used herein, "MMBtu" means million British thermal units,
"Mcf" means thousand cubic feet, "MMcf" means million cubic feet, "Bcf" means
billion cubic feet, "Bbl" means barrel, "MMBbls" means million barrels, "NGL"
or "NGLs" means natural gas liquids, "fiscal 1995" and "fiscal 1996" refer,
respectively, to the twelve-month periods ended January 31, 1995 and 1996 and
"DD&A" means depreciation, depletion and amortization. Pipeline volumes are
based on average energy content of 1,000 Btu per cubic foot. Oil, gas and NGL
volume, price and reserve information amounts include applicable equity
partnership interests.
-1-
<PAGE> 3
Part I - Financial Information
ITEM 1. FINANCIAL STATEMENTS
The consolidated financial statements of Mitchell Energy & Development
Corp. and subsidiaries (the "Company") and related notes included herein have
been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to those rules and regulations, although the Company believes
that the disclosures included herein are adequate to make the information
presented not misleading. In the opinion of the Company's management, all
adjustments--which include only normal and recurring adjustments--necessary for
a fair presentation of the financial position and results of operations for the
periods presented have been made. These financial statements should be read in
conjunction with the financial statements and the notes thereto included in the
Company's Annual Report for the year ended January 31, 1995 and with the
Management's Discussion and Analysis of Financial Position and Results of
Operations sections of that and this report.
Applicable prior-period financial statement amounts included herein have
been restated to give effect to the Company's previously reported adoption of
the successful efforts method of accounting for its oil and gas producing
activities.
-2-
<PAGE> 4
MITCHELL ENERGY & DEVELOPMENT CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollar amounts in thousands)
<TABLE>
<CAPTION>
APRIL 30, January 31,
1995 1995
----------- -----------
ASSETS (unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,960 $ 11,967
Trade receivables, net of allowance for
doubtful accounts of $2,359 and $2,304 . . . . . . . . . . . . . . . . . 117,427 133,995
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,037 13,068
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,972 24,808
--------- ---------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . 155,396 183,838
--------- ---------
PROPERTY, PLANT AND EQUIPMENT, at cost less accumulated depreciation,
depletion and amortization of $1,408,364 and $1,381,977
Exploration and production
Oil and gas properties . . . . . . . . . . . . . . . . . . . . . . . . . 491,187 487,981
Support equipment and facilities . . . . . . . . . . . . . . . . . . . . 27,703 28,340
Gas services
Natural gas processing . . . . . . . . . . . . . . . . . . . . . . . . . 100,259 100,139
Natural gas gathering . . . . . . . . . . . . . . . . . . . . . . . . . . 93,906 92,725
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,545 17,794
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,974 7,120
--------- ---------
738,574 734,099
--------- ---------
REAL ESTATE
The Woodlands . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 656,353 654,881
Land held for investment, development or sale . . . . . . . . . . . . . . . 157,219 157,446
Resort and other operating properties . . . . . . . . . . . . . . . . . . . 66,271 65,249
Notes and contracts receivable, at cost, net of
allowance for doubtful accounts of $479 and $515 . . . . . . . . . . . . 38,285 40,314
--------- ---------
918,128 917,890
--------- ---------
OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,446 20,044
--------- ---------
$1,831,544 $1,855,871
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,820 $ 11,617
Oil and gas proceeds payable . . . . . . . . . . . . . . . . . . . . . . . 58,915 51,211
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49,374 67,452
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,146 39,962
--------- ---------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . 171,255 170,242
--------- ---------
LONG-TERM DEBT
Energy operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 347,202 375,869
Real estate operations . . . . . . . . . . . . . . . . . . . . . . . . . . 532,721 519,093
--------- ---------
879,923 894,962
--------- ---------
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 195,635 200,722
Natural gas contract restructuring proceeds . . . . . . . . . . . . . . . . 31,447 35,017
Deferred income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,705 29,774
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62,422 50,124
--------- ---------
319,209 315,637
--------- ---------
COMMITMENTS AND CONTINGENCIES (Notes 3 and 5)
STOCKHOLDERS' EQUITY
Preferred stock, $.10 par value (authorized 10,000,000 shares; none issued)
Common stock, $.10 par value
(authorized 100,000,000 Class A and 100,000,000 Class B shares) . . . . . 5,386 5,386
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . 143,443 143,472
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 337,786 347,573
Treasury stock, at cost . . . . . . . . . . . . . . . . . . . . . . . . . . (25,458) (21,401)
--------- ---------
461,157 475,030
--------- ---------
$1,831,544 $1,855,871
========= =========
</TABLE>
- -------------------------------------
The accompanying notes are an integral part of these financial statements.
-3-
<PAGE> 5
MITCHELL ENERGY & DEVELOPMENT CORP. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands except per-share data)
<TABLE>
<CAPTION>
Three Months Ended
April 30
---------------------
1995 1994
--------- ---------
<S> <C> <C>
REVENUES
Exploration and production . . . . . . . . . . . . . . . . . . . . . . . . . . $ 63,775 $ 74,409
Gas services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119,511 116,975
Real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,689 33,784
-------- --------
214,975 225,168
-------- --------
OPERATING COSTS AND EXPENSES (including personnel reduction program costs of
$14,535 in 1995) (Note 6)
Exploration and production . . . . . . . . . . . . . . . . . . . . . . . . . . 54,331 45,892
Gas services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110,180 114,774
Real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,664 26,710
-------- --------
193,175 187,376
-------- --------
SEGMENT OPERATING EARNINGS (Note 6) . . . . . . . . . . . . . . . . . . . . . . 21,800 37,792
General and administrative expense (including personnel reduction program costs
of $5,665 in 1995) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,553 10,255
-------- --------
TOTAL OPERATING EARNINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,247 27,537
-------- --------
OTHER EXPENSE
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,441 18,284
Capitalized interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,770) (7,683)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 384 1,042
-------- --------
10,055 11,643
-------- --------
EARNINGS (LOSS) BEFORE INCOME TAXES . . . . . . . . . . . . . . . . . . . . . (4,808) 15,894
INCOME TAXES (Note 4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,627) 5,476
-------- --------
NET EARNINGS (LOSS) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (3,181) $ 10,418
======== ========
EARNINGS (LOSS) PER SHARE . . . . . . . . . . . . . . . . . . . . . . . . . . . $(.06) $ .20
==== ====
AVERAGE COMMON SHARES OUTSTANDING . . . . . . . . . . . . . . . . . . . . . . 52,055 52,753
======== ========
</TABLE>
- -------------------------------------
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE> 6
MITCHELL ENERGY & DEVELOPMENT CORP. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the Three Months Ended April 30, 1995
(dollar amounts in thousands)
<TABLE>
<CAPTION>
Additional
Common Paid-In Retained Treasury
DOLLAR AMOUNTS Stock Capital Earnings Stock Total
- -------------- -------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 31, 1995 . . . . . . . . . . . . . $ 5,386 $143,472 $347,573 $(21,401) $475,030
Net earnings (loss) . . . . . . . . . . . . . . . . - - (3,181) - (3,181)
Cash dividends (12 cents per share on Class A
and 13 1/4 cents per share on Class B) . . . . - - (6,606) - (6,606)
Treasury stock purchases . . . . . . . . . . . . . - - (4,130) (4,130)
Exercises of stock options . . . . . . . . . . . . - (29) - 73 44
------ ------- ------- ------- -------
BALANCE, APRIL 30, 1995 . . . . . . . . . . . . . . $ 5,386 $143,443 $337,786 $(25,458) $461,157
====== ======= ======= ======= =======
</TABLE>
__________________________________________
__________________________________________
<TABLE>
<CAPTION>
Common Stock Issued Treasury Stock
--------------------------- ----------------------
SHARE AMOUNTS Class A Class B Class A Class B
- ------------- ---------- ---------- ------- --------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 31, 1995 . . . . . . . . . . 23,978,104 29,878,104 677,577 896,478
Treasury stock purchases . . . . . . . . . . - - 94,100 167,500
Exercises of stock options . . . . . . . . . - - (2,500) (2,500)
Other . . . . . . . . . . . . . . . . . . . . (4) (4) - -
---------- ---------- ------- ---------
BALANCE, APRIL 30, 1995 . . . . . . . . . . . 23,978,100 29,878,100 769,177 1,061,478
========== ========== ======= =========
</TABLE>
_____________________________________
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE> 7
MITCHELL ENERGY & DEVELOPMENT CORP. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
April 30
------------------------
1995 1994
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (3,181) $ 10,418
Adjustments to reconcile net earnings
(loss) to cash provided by operating activities
Depreciation, depletion and amortization . . . . . . . . . . . . . . . 30,267 31,695
Exploration expenses, including dry hole . . . . . . . . . . . . . . . 4,358 2,693
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . (5,087) 4,403
Cost of land sold . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,602 8,853
Residential land development costs, net of reimbursements . . . . . . . (3,844) (4,229)
Distributions in excess of earnings of equity investees . . . . . . . . 3,683 2,088
Amortization of deferred natural gas contract restructuring proceeds . . (3,570) (4,126)
Accrued personnel reduction program costs . . . . . . . . . . . . . . . 11,128 -
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,947 (1,816)
-------- --------
42,303 49,979
Changes in operating assets and liabilities . . . . . . . . . . . . . . 22,455 (11,375)
-------- --------
Cash provided by operating activities . . . . . . . . . . . . . . . . . 64,758 38,604
-------- --------
INVESTING ACTIVITIES
Capital and exploratory expenditures
Total on accrual basis . . . . . . . . . . . . . . . . . . . . . . . . . . (50,440) (56,967)
Residential land development costs deducted above . . . . . . . . . . . . 3,844 4,229
Adjustment to cash basis . . . . . . . . . . . . . . . . . . . . . . . . . (3,754) (10,122)
-------- --------
(50,350) (62,860)
Proceeds from major energy asset sales (collection of
final portion of Winnie/Spindletop proceeds in 1995) . . . . . . . . . . . 12,000 9,000
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (311) 697
-------- --------
Cash used for investing activities . . . . . . . . . . . . . . . . . . (38,661) (53,163)
-------- --------
FINANCING ACTIVITIES
Proceeds from issuance of debt . . . . . . . . . . . . . . . . . . . . . . . 900 224,763
Debt repayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (14,736) (200,265)
Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,606) (6,695)
Treasury stock purchases . . . . . . . . . . . . . . . . . . . . . . . . . . (4,130) -
Debt prepayment premium . . . . . . . . . . . . . . . . . . . . . . . . . . . - (6,420)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (532) (400)
-------- --------
Cash provided by (used for) financing activities . . . . . . . . . . . (25,104) 10,983
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . 993 (3,576)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD . . . . . . . . . . . . . . . 11,967 21,832
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD . . . . . . . . . . . . . . . . . . $ 12,960 $ 18,256
======== ========
</TABLE>
_____________________________________
The accompanying notes are an integral part of these financial statements.
-6-
<PAGE> 8
MITCHELL ENERGY & DEVELOPMENT CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1995
(1) ACCOUNTING POLICIES
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 successful efforts method of accounting is used for the Company's
oil and gas producing activities.
(2) REAL ESTATE OPERATIONS
In accordance with industry accounting practice, real estate assets are
reported as long-term assets in the consolidated balance sheets. Because they
represent the principal revenues and costs for these activities, interest
income and interest expense of the Company's finance operations are reported,
respectively, as revenues and as costs and expenses in the consolidated
statements of earnings.
(3) EQUITY INVESTMENTS
Entities accounted for on the equity method include approximately 30
partnerships engaged in energy or real estate activities. The principal
partnership interests included the following at April 30, 1995:
<TABLE>
<CAPTION>
Ownership
Percentage Nature of Operations
---------- ----------------------------------
<S> <C> <C>
ENERGY
Austin Chalk Natural Gas Marketing Services 45 Natural gas marketing
Belvieu Environmental Fuels 33.33 Production of MTBE
C&L Processors Partnership 50 Natural gas processing
Ferguson-Burleson County Gas Gathering System 45 Natural gas gathering
Gulf Coast Fractionators 38.75 Fractionation of NGLs
U. P. Bryan 45 Natural gas processing
REAL ESTATE
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 serving The
Woodlands and various commercial properties, most of which are located in The
Woodlands.
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 revenues or operating costs and expenses caption of the consolidated
statements of earnings.
-7-
<PAGE> 9
The following paragraphs present summarized financial statement
information, which is generally reported on a one-month lag, for all entities
accounted for on the equity method. Summarized earnings information for these
entities for the three-month periods ended April 30, 1995 and 1994 follows (in
thousands):
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . $101,799 $101,630
Operating earnings . . . . . . . . . . . . . . . . . . . . . 15,690 4,121
Pretax earnings (before interest expense for
those entities whose activities are funded
by capital contributions of the owners) . . . . . . . . . . 9,276 556
Proportionate share of pretax earnings included
in the Company's reported operating earnings . . . . . . . 4,314 (366)
</TABLE>
The operations of certain 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. Information concerning debt payable to third
parties by these entities at April 30, 1995 and January 31, 1995 and the
Company's proportionate share of such debt at April 30, 1995 is summarized as
follows (in thousands):
<TABLE>
<CAPTION>
Entity Total April 30, 1995 -- Company's Share
-------------------------- -------------------------------------
April 30, January 31, Non-
1995 1995 Recourse Recourse Total
---------- ----------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
ENERGY ACTIVITIES
Belvieu Environmental Fuels . . . . . . $176,000 $176,000 $ 58,667 $ - $ 58,667
C&L Processors Partnership . . . . . . 97,459 101,209 26,314 22,416 48,730
Gulf Coast Fractionators . . . . . . . 78,925 79,550 16,582 14,001 30,583
------- ------- ------- ------ -------
352,384 356,759 101,563 36,417 137,980
------- ------- ------- ------ -------
REAL ESTATE ACTIVITIES
The Fort Crockett Hotel Limited . . . . 11,396 11,592 4,000 1,698 5,698
The Woodlands Mall Associates . . . . . 57,158 54,683 28,579 - 28,579
Apartment partnerships . . . . . . . . 42,935 41,019 838 15,117 15,955
Others . . . . . . . . . . . . . . . . 42,730 42,609 2,270 18,063 20,333
------- ------- ------- ------ -------
154,219 149,903 35,687 34,878 70,565
------- ------- ------- ------ -------
$506,603 $506,662 $137,250 $71,295 $208,545
======= ======= ======= ====== =======
</TABLE>
See Note 4 of Notes to Consolidated Financial Statements on pages 56 and 57 of
the Company's Fiscal 1995 Annual Report for additional information concerning
the indebtedness of these partnerships. In that regard, it should be noted
that the conversion date for the Belvieu Environmental Fuels' indebtedness has
been extended to June 30, 1995.
-8-
<PAGE> 10
(4) INCOME TAXES
Income taxes for the three-month periods ended April 30, 1995 and 1994
consist of the following (in thousands):
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
CURRENT
Federal . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,114 $ 912
State . . . . . . . . . . . . . . . . . . . . . . . . . . 346 161
------ ------
3,460 1,073
------ ------
DEFERRED
Federal . . . . . . . . . . . . . . . . . . . . . . . . . (5,322) 4,039
State . . . . . . . . . . . . . . . . . . . . . . . . . . 235 364
------ ------
(5,087) 4,403
------ ------
$(1,627) $ 5,476
====== ======
</TABLE>
The Company's estimated annual tax rates for the three-month periods
ended April 30, 1995 and 1994 of 33.8% and 34.5% were lower than the applicable
statutory Federal income tax rate of 35% primarily because Federal tax credits
available under Section 29 of the Internal Revenue Code were somewhat larger
than the state income tax expense for these periods.
(5) COMMITMENTS AND CONTINGENCIES
LITIGATION AND OTHER. The Company is party to various claims and other
legal actions arising in the ordinary course of its business and to recurring
examinations performed by the Internal Revenue Service and other regulatory
agencies. While the outcome of such matters cannot be predicted with
certainty, management expects that adjustments, if any, resulting from the
ultimate resolution of these matters will not be material to the Company's
financial statements.
MORTGAGE ACTIVITIES. Mitchell Mortgage Company (MMC) administers
approximately $177,000,000 of securities backed by Federal Housing
Administration (FHA) and Department of Veterans Affairs (VA) mortgages, on
which it has guaranteed payments of principal and interest to the security
holders. These mortgages are supported by government-sponsored insurance and
are collateralized by real estate. In the event of default by a mortgagor, MMC
may incur a loss if uncollected principal and interest, together with
foreclosure and other costs, exceed established FHA or VA reimbursement limits.
Management expects that losses, if any, incurred in connection with defaults by
borrowers under FHA and VA mortgages serviced by MMC will not be material to
the Company's financial statements.
-9-
<PAGE> 11
(6) SEGMENT INFORMATION
Selected industry segment data for the three-month periods ended April
30, 1995 and 1994 are as follows (in thousands):
<TABLE>
<CAPTION>
Segment
Outside Operating Capital
Revenues Earnings DD&A Expenditures*
-------------------- ----------------- ------------------ ------------------
1995 1994 1995 1994 1995 1994 1995 1994
-------- -------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EXPLORATION AND PRODUCTION
Operations . . . . . . . . . . . $ 63,775 $ 69,725 $17,379 $24,726 $23,478 $23,241 $31,226 $34,583
Personnel reduction
program costs . . . . . . . . . - - (7,935) - - - - -
Gain on sale of drilling rigs . . - 4,684 - 3,791 - - - -
------- ------- ------ ------ ------ ------ ------ ------
63,775 74,409 9,444 28,517 23,478 23,241 31,226 34,583
------- ------- ------ ------ ------ ------ ------ ------
GAS SERVICES
Natural gas processing . . . . . 81,238 49,142 9,642 2,317 1,705 2,287 2,394 341
Natural gas gathering
and marketing . . . . . . . . . 37,440 65,611 2,723 281 1,803 2,636 6,481 4,438
Other . . . . . . . . . . . . . . 833 2,222 566 (397) 27 664 92 1,339
Personnel reduction
program costs . . . . . . . . . - - (3,600) - - - - -
------- ------- ------ ------ ------ ------ ------ ------
119,511 116,975 9,331 2,201 3,535 5,587 8,967 6,118
------- ------- ------ ------ ------ ------ ------ ------
REAL ESTATE
Operations . . . . . . . . . . . 31,689 33,784 6,025 7,074 2,370 2,018 9,236 15,478
Personnel reduction
program costs . . . . . . . . . - - (3,000) - - - - -
------- ------- ------ ------ ------ ------ ------ ------
31,689 33,784 3,025 7,074 2,370 2,018 9,236 15,478
------- ------- ------ ------ ------ ------ ------ ------
CORPORATE . . . . . . . . . . . . - - - - 884 849 1,011 788
------- ------- ------ ------ ------ ------ ------ ------
$214,975 $225,168 $21,800 $37,792 $30,267 $31,695 $50,440 $56,967
======= ======= ====== ====== ====== ====== ====== ======
</TABLE>
__________________________________
*On accrual basis, including exploratory expenditures.
During the three months ended April 30, 1995, the Company implemented a
personnel reduction program whose goal was the lowering of ongoing costs
through the elimination of approximately 300 jobs. Aggregate pretax costs of
this program totaled $20,200,000. Of these costs, $11,128,000 represented the
present value of incremental pension and retiree medical benefits provided
under a voluntary incentive retirement program offered to 130 employees (114 of
whom accepted) while $9,072,000 represented the cash costs of severance and
other benefits.
During the three-month period ended April 30, 1994, the Company sold 16
land drilling rigs for $9,000,000 in cash and warrants to acquire common stock
of the purchaser under which as much as an additional $1,000,000 may be
realized during the two-year period following the sale. This sale effectively
completed the Company's withdrawal from the contract drilling business. The
$3,791,000 gain from this sale, which did not include any value for the
warrants, is reported as a component of the segment operating earnings of the
Exploration and Production Division.
(7) SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid--excluding amounts capitalized, but including amounts
reported as cost of sales for finance operations--totaled $7,148,000 and
$6,452,000 during the three-month periods ended April 30, 1995 and 1994.
Income taxes paid during these periods totaled $1,875,000 and $4,000. There
were no significant non-cash investing or financing activities during these
periods.
-10-
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS
OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The discussion which follows summarizes the Company's financial position
at April 30, 1995 and the results of its operations for the three-month period
then ended, and should be read in conjunction with the summarized financial
statements and notes thereto included elsewhere in this Form 10-Q and the
financial statements, notes thereto and other financial data included in the
Company's Annual Report for the fiscal year ended January 31, 1995. Applicable
amounts shown herein for the three-month period ended April 30, 1994 have been
restated to give effect to the Company's previously reported adoption of the
successful efforts method of accounting for its oil and gas producing
activities.
REFOCUSING OF THE COMPANY'S OPERATIONS. For many years now, the 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 assets are developed and operated or sold. While the overall
nature of the Company's business or this strategy was not altered, a
significant refocusing of the Company's operations was begun in fiscal 1995
that has continued in fiscal 1996.
Because of recurring volatility in energy prices and the approaching
expiration in December 1997 of a favorably priced North Texas gas sales
contract, management has undertaken an extensive review of the Company's
operations and business strategies. The objective of this review is to
position the Company to better compete in the market-sensitive natural gas
price environment in which it expects soon to be operating. Actions involved
in this continuing process include streamlining operations by concentrating
activities on core businesses with an appropriate mix of near- and long-term
profit potential in which the Company has a strong competitive position and by
eliminating other activities and the costs associated with them. Consistent
with this, capital spending is being directed almost exclusively to the
drilling and recompletion of wells and acquisitions of oil and gas properties
in core areas, expanding gas processing plants serving core areas, expansion of
an Austin Chalk gas gathering system and continued development of The
Woodlands. In addition, the Company's oil and gas exploration program has been
refocused to concentrate more on development activities in core areas where it
has had the greatest success.
During fiscal 1995, as part of the refocusing initiative, a companywide
asset review was begun to identify and sell underutilized assets or non-core
holdings that have greater value to others. Three major energy assets were
sold at a pretax gain of $52.6 million for a total consideration of $164
million. As part of the ongoing study, the Company has identified certain
other assets that it plans to dispose of. These include marginally profitable
oil and gas properties, certain underutilized gas processing plants and gas
gathering systems, and a few real estate assets located outside The Woodlands.
Asset write-downs and restructuring charges totaling $36.9 million were
recorded in fiscal 1995 to, among other things, reduce the carrying values of
the assets to be disposed of to their estimated sales values. It is expected
that additional assets will be identified for disposal in the future as the
asset study is completed.
The FASB issued a statement on March 31, 1995 that is intended to
establish more consistent accounting standards for measuring the recoverability
of long-lived assets. In certain instances, the statement specifies that
carrying values of assets be written down to fair values, which would result in
larger charges than previously would have been required. The Company believes
that the adoption of this statement and the completion of its ongoing asset
management study are most likely to impact its real estate assets located
outside The Woodlands, particularly any which management might subsequently
conclude will not continue to be held for long-term investment and
development. The Company must adopt SFAS No. 121 no later than for
its quarter ending April 30, 1996. Since the above-mentioned asset review and
the Company's analysis of the potential impact of this statement have not been
completed, it is not possible at this time to estimate the impact, if any,
that the adoption of SFAS No. 121 will have on the Company's financial
statements.
-11-
<PAGE> 13
As a result of the above-mentioned asset sales, attrition and a voluntary
incentive retirement program covering the Gas Services Division, the Company's
full-time employment level was reduced by approximately 300 in fiscal 1995. To
further lower costs, a companywide cost reduction program was undertaken in
fiscal 1996's first quarter that resulted in the elimination of approximately
300 additional jobs. Voluntary incentive retirement benefits were provided to
114 participants and severance benefits were paid to terminated employees not
eligible for those benefits. The $20.2 million pretax cost of this program,
which the Company expects to recover in approximately one year, was accrued
during the first quarter of fiscal 1996 (see Note 6 on page 10).
FUNDING OF THE COMPANY'S OPERATIONS. The Company generally has funded its
investing activities using cash provided from operating activities and sales of
varying interests in mature real estate assets, supplemented to the extent
necessary with proceeds from long-term borrowings. Because of the previously
mentioned refocusing, it is expected that the Company's near-term need for
incremental borrowings will be lessened. And, depending on the timing of
planned asset sales, cost reductions, etc., the level of outstanding
indebtedness may decline, as it did in fiscal 1995 (at April 30, 1995, the
Company's long-term debt totaled $879.9 million, down $15 million from the
level at the beginning of the fiscal year). The primary sources of borrowed
funds in recent years 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 or Class B common stock.
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 in February 1994 and to pay down outstanding borrowings under the
Company's bank credit agreements. The $123.4 million proceeds of a May 1993
offering of 5.9 million Class B shares were used to fund the Company's buy-out
of MEC Development, Ltd., and drilling costs that otherwise would have been
expenditures of that partnership.
The Company's committed bank revolving credit and commercial paper
facilities provide for an aggregate borrowing capacity of approximately $558
million, of which approximately $410 million was unused at April 30, 1995.
Exclusive of maturities under its bank credit facilities and commercial paper
program, the Company's five-year debt maturities totaled approximately $233
million at April 30, 1995.
The Company's business plan includes the use of energy and real estate
partnerships and sales in the normal course of business of mature real estate
properties to provide for some of its funding needs. The Company believes that
these resources, together with operating cash flows and additional borrowings
supported by cash flows and asset values, will be sufficient to allow it to
provide for its short- and long-term liquidity needs. Such short-term needs,
if any, can be met by supplementing operating cash flows with borrowings under
existing committed bank credit facilities while public debt and equity markets
can be accessed to provide for longer-term needs.
As previously reported, the Company's fiscal 1996 budget for capital and
exploratory expenditures was set at $228.7 million, 4.1% above fiscal 1995's
actual spending. The Company replaced 171% of the natural gas reserves it
produced in fiscal 1995 and expects, even at the relatively low planned
drilling level, to more than replace the reserves it will produce in fiscal
1996. During the first quarter, the Company's capital and exploratory
expenditures totaled $50.4 million.
-12-
<PAGE> 14
OTHER MATTERS
A partnership in which the Company has a one-third interest constructed
an MTBE (methyl tertiary butyl ether) plant at Mont Belvieu, Texas, with a
design capacity of 12,500 barrels per day. MTBE is an oxygenate used in the
production of environmentally cleaner gasoline. Each of the three partners in
this venture provides one-third of the plant's isobutane feedstock, and one of
the partners, Sun Company, Inc., is contractually obligated to purchase all of
the MTBE production for a period of 10 years. Plant construction costs, which
totaled $225 million, were funded through the partnership's $176 million loan
agreement and capital contributions from the partners. The plant commenced
production in June 1994 and, because of start-up problems, has operated below
its design capacity. Because of the plant's start-up problems, the
partnership's loan was not converted to term loan status by a May 31, 1995
deadline (which now has been extended to June 30). As a result, the lenders
could require the partners to repay the partnership's debt on June 30, 1995 or
at some future date (the Company's unused committed credit facilities are
sufficient to allow it to fund its $58.7 million share of the partnership's
debt).
OPERATING STATISTICS
Certain operating statistics (including, where applicable, proportional
interests in equity partnerships) for the three-month periods ended April 30,
1995 and 1994 follow:
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
AVERAGE DAILY VOLUMES
Natural gas sales (Mcf) . . . . . . . . . . . . . . . . . . . . . . . 224,900 218,700
Crude oil and condensate sales (Bbls) . . . . . . . . . . . . . . . . 5,500 6,700
Natural gas liquids produced (Bbls) . . . . . . . . . . . . . . . . . 48,400 43,200
Pipeline throughput (Mcf)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 360,800 511,000
Exclusive of Winnie Pipeline (which was sold in June 1994) . . . . 360,800 324,200
AVERAGE SALES PRICES
Natural gas (per Mcf) . . . . . . . . . . . . . . . . . . . . . . . . $ 2.51 $ 2.82
Crude oil and condensate (per Bbl) . . . . . . . . . . . . . . . . . 17.35 13.36
Natural gas liquids produced (per Bbl) . . . . . . . . . . . . . . . 11.51 10.99
RESIDENTIAL LOT SALES - THE WOODLANDS
Lots sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185 228
Average price . . . . . . . . . . . . . . . . . . . . . . . . . . . . $38,833 $37,807
Average price per square foot . . . . . . . . . . . . . . . . . . . . $3.78 $3.46
</TABLE>
RESULTS OF OPERATIONS - THREE MONTHS ENDED APRIL 30, 1995 COMPARED WITH THREE
MONTHS ENDED APRIL 30, 1994
The Company's results for the three-month periods ended April 30, 1995
and 1994--both before and after unusual items--are summarized on the table on
the following page. Largely because of the impact of unusual items, first
quarter net earnings for fiscal 1996 were below those of the prior-year period
by $13.6 million. Net earnings for the fiscal 1996 period were reduced by
$12.5 million because of the after-tax impact of pretax charges totaling $20.2
million associated with the previously mentioned personnel reduction program.
On the other hand, fiscal 1995's first quarter net earnings were increased $2.5
million as the result of a $3.8 million pretax gain on the sale of 16 drilling
rigs.
Excluding the unusual items, fiscal 1996's first quarter net earnings
were $1.4 million above those of the comparable prior-year period. Favorable
year-to-year earnings variances included improved earnings from increased
natural gas production volumes and improved gas processing and gas gathering
and marketing margins. These gains were largely offset, however, by the
negative impact of lower natural gas prices and lesser earnings from real
estate operations in the fiscal 1996 period.
-13-
<PAGE> 15
The following table and discussion identify and explain the major
increases (decreases) in earnings (in millions):
<TABLE>
<CAPTION>
Segment Operating Earnings
---------------------------------
Exploration
and Gas Real Pretax Net
Production Services Estate Other* Earnings Earnings
----------- ---------- ------ ------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
FISCAL 1995 AMOUNTS . . . . . . . . . . $28.5 $ 2.2 $ 7.1 $(21.9) $ 15.9 $ 10.4
ELIMINATE IMPACT OF
FISCAL 1995 UNUSUAL ITEM -- Gain
on sale of drilling rigs
(see page 10) . . . . . . . . . . . . (3.8) - - - (3.8) (2.5)
---- ---- ---- ----- ----- -----
FISCAL 1995 AMOUNTS BEFORE UNUSUAL ITEM 24.7 2.2 7.1 (21.9) 12.1 7.9
---- ---- ---- ----- ----- -----
MAJOR INCREASES (DECREASES)
Natural gas production
Market-sensitive sales price . . . . (6.2) - - - (6.2) (4.0)
Sales under fixed-price contracts . . 1.3 - - - 1.3 .8
Higher exploratory dry hole costs . . . (1.2) - - - (1.2) (.8)
Oil and condensate sales . . . . . . . .8 - - - .8 .5
Natural gas processing
NGL price . . . . . . . . . . . . . - 2.0 - - 2.0 1.3
Production volumes . . . . . . . . . - 1.0 - - 1.0 .7
Change in feedstock costs due to
Lower market-sensitive gas prices - 4.2 - - 4.2 2.7
Higher NGL prices . . . . . . . . - (1.0) - - (1.0) (.7)
Deferred profits on NGL inventories . . - 1.2 - - 1.2 .8
Natural gas gathering and marketing . . - 2.5 - - 2.5 1.6
Real estate . . . . . . . . . . . . . . - - (.8) - (.8) (.5)
Interest expense incurred . . . . . . . - - - 1.8 1.8 1.2
Capitalized interest . . . . . . . . . - - - (.9) (.9) (.6)
Other
SAR/Bonus unit expense accruals . . . (.4) (.2) (.3) (.6) (1.5) (1.0)
Miscellaneous . . . . . . . . . . . (1.6) 1.0 - .7 .1 (.6)
---- ---- ---- ----- ----- -----
(7.3) 10.7 (1.1) 1.0 3.3 1.4
---- ---- ---- ----- ----- -----
FISCAL 1996 AMOUNTS BEFORE UNUSUAL ITEM 17.4 12.9 6.0 (20.9) 15.4 9.3
FISCAL 1996 UNUSUAL ITEM--Personnel
reduction program costs
(see page 10) . . . . . . . . . . . . (7.9) (3.6) (3.0) (5.7) (20.2) (12.5)
---- ---- ---- ----- ----- -----
FISCAL 1996 AMOUNTS AFTER UNUSUAL ITEM $ 9.5 $ 9.3 $ 3.0 $(26.6) $ (4.8) $ (3.2)
==== ==== ==== ===== ===== =====
</TABLE>
___________________________________
*Includes general and administrative expense and other expense.
EXPLORATION AND PRODUCTION OVERVIEW
Exploration and Production Division operating earnings before unusual items
declined $7.3 million during fiscal 1996's first quarter, to $17.4 million.
This unfavorable earnings comparison was primarily the result of lower
market-sensitive natural gas prices and increased fiscal 1996 exploratory dry
hole costs. Average daily natural gas sales volumes rose to 224,900 Mcf from
218,700 in the prior-year period principally due to increased market-sensitive
volumes.
NATURAL GAS - MARKET-SENSITIVE SALES PRICE ($6.2 MILLION DECREASE). The
current period's average market-sensitive sales price of $1.52 per Mcf was 30%
below the $2.18 per Mcf realized in the comparable period of the prior year.
Prices were strong in the prior year's first quarter before declining over the
remainder of the year (the Company's full-year average market-sensitive sales
price was $1.90 per Mcf).
-14-
<PAGE> 16
NATURAL GAS - SALES UNDER FIXED-PRICE CONTRACTS ($1.3 MILLION INCREASE).
Production under fixed-price contracts averaged 102,500 Mcf per day at a price
of $3.69 per Mcf; such amounts were 104,500 Mcf and $3.52, respectively, in
fiscal 1995's first quarter. Approximately 90% of these volumes consist of
sales under a contract with Natural Gas Pipeline Company of America (NGPL),
which covers most of the Company's North Texas production and provides for
annual increases of $.25 per MMBtu in the fixed sales price on January 1 of
each year. After expiration of this contract in December 1997, it is expected
that this production will be sold at the then-existing prices for
market-sensitive gas. The current period's volume decline resulted from the
expiration in June 1994 of sales contracts covering certain Gulf Coast
production and the resultant conversion of such production to market-sensitive
sales. The conversion of these volumes from higher contract prices to lower
market-sensitive prices also reduced the favorable impact of the annual price
increase under the NGPL contract. This volume decline more than offset an
increase in sales volumes to NGPL resulting from the imposition during the
prior year's first quarter of production limits in order to eliminate an
over-delivered position that existed at the beginning of fiscal 1995.
HIGHER EXPLORATORY DRY HOLE COSTS ($1.2 MILLION DECREASE). Exploratory dry
hole costs totaled $1.2 million in the first quarter of fiscal 1996 when
exploratory wells in Polk County, Texas and Hell's Hole, Colorado were
determined to be nonproductive. Virtually no dry hole costs were expensed in
fiscal 1995's first quarter.
OIL AND CONDENSATE SALES ($.8 MILLION INCREASE). The average sales price for
oil and condensate during fiscal 1996's first quarter was $17.35 per barrel, up
30% from the $13.36 average of the prior year's corresponding period, improving
operating earnings by $1.9 million. This favorable price variance was largely
offset, however, by a decline in sales volumes (to 5,500 barrels per day from
6,700 in the prior-year period), which reduced operating earnings by $1.1
million. The production decline occurred largely because natural volume
declines from older producing properties were not offset by production from new
wells as a result of limited drilling activity beginning in the second half of
fiscal 1995.
GAS SERVICES OVERVIEW
Gas Services Division operating earnings before unusual items rose $10.7
million during fiscal 1996's first quarter largely because of lower NGL
feedstock costs, higher NGL sales prices and improved earnings from gas
gathering and marketing activities. Higher NGL prices combined with lower
feedstock costs associated with depressed market-sensitive natural gas prices
improved natural gas processing margins substantially during the first quarter
of fiscal 1996. NGL production volumes averaged 48,400 barrels per day, up
from 43,200 during the first quarter of fiscal 1995. Gas gathering and
marketing operations also benefited from lower market-sensitive natural gas
prices which caused margins under fixed-price sales contracts to increase.
NATURAL GAS PROCESSING - NGL PRICE ($2.0 MILLION INCREASE). The average price
for NGLs produced during the current quarter of $11.51 per barrel was $.52
above the average for the comparable prior-year period, increasing operating
earnings by $2 million. NGL prices were higher in the fiscal 1996 period
largely in response to higher prevailing world crude oil prices during that
period.
NATURAL GAS PROCESSING - PRODUCTION VOLUMES ($1.0 MILLION INCREASE). NGL
production volumes averaged 48,400 barrels per day in fiscal 1996's first
quarter, up 12% from the prior-year period's 43,200. As a result of the
relatively high market-sensitive feedstock costs during fiscal 1995's first
quarter, when NGL prices were severely depressed, most plants operating under
keep-whole processing agreements were uneconomical to operate and were shut
down during that period. Most of these plants were back in operation during
fiscal 1996's first quarter and this, coupled with increased production at
certain other plants, caused volumes to be higher in the current year.
-15-
<PAGE> 17
NATURAL GAS PROCESSING - REDUCED FEEDSTOCK COSTS ($3.2 MILLION INCREASE).
Feedstock costs consist primarily of amounts paid to the natural gas producers.
Such amounts are based either on the value of natural gas consumed in
processing under keep-whole agreements or on a percentage of the value of NGLs
produced under percent-of-proceeds agreements. Accordingly, feedstock costs
under keep-whole agreements vary directly with market-sensitive natural gas
prices, while costs under percentage-of-proceeds agreements vary directly with
NGL prices. Consequently, lower market-sensitive gas prices during fiscal
1996's first quarter caused feedstock costs under keep-whole agreements to
decline, increasing operating earnings by $4.2 million. Conversely, higher NGL
realizations during that period increased feedstock costs under
percentage-of-proceeds agreements, reducing operating earnings by $1.0 million.
DEFERRED PROFITS ON NGL INVENTORIES ($1.2 MILLION INCREASE). Since for plant
settlement purposes all plant production is presumed to be sold, the earnings
applicable to production inventoried by the Marketing department must be
eliminated for accounting purposes. This elimination typically decreases
earnings (defers profit) when NGL inventory volumes increase and vice versa
when volumes decrease. In the current period, the Company's NGL inventories
were reduced by 1.4 million barrels as essentially all the remaining volumes of
unfractionated liquids associated with the April 1994 fire at Gulf Coast
Fractionators' facility were fractionated and sold. As a result, $1.2 million
of previously deferred profits were recognized. Because of thin margins and a
minor fluctuation in inventory levels, there was little change in deferred
profits in the prior-year period.
NATURAL GAS GATHERING AND MARKETING ($2.5 MILLION INCREASE). Excluding the
impact of increased SAR/Bonus unit expense accruals, fiscal 1996's operating
earnings (exclusive of unusual items) from natural gas gathering and marketing
activities were $2.5 million above those of the prior-year period. This rise
was largely the result of a $1.8 million increase in the Company's segment
operating earnings attributable to its 45%-owned venture with Union Pacific
Resources Company. This venture has a large fixed-price sales contract, and
its margins were favorably impacted by fiscal 1996's lower market-sensitive
natural gas prices. Also contributing to the increased earnings from natural
gas gathering and marketing activities were higher marketing margins under a
contract that was renegotiated effective November 1, 1994.
REAL ESTATE ($.8 MILLION DECREASE). Excluding the impact of increased
SAR/Bonus unit expense accruals, Real Estate Division operating earnings before
unusual items declined by $.8 million during the first quarter of fiscal 1996.
The decline was principally the result of lower sales of recreational
properties in Galveston and a $.5 million charge associated with the settlement
of litigation brought by property owners concerning oil and gas drilling
activities near one of the Company's resort properties.
-16-
<PAGE> 18
Overall, operating earnings from activities in The Woodlands were essentially
flat when compared with those of the prior-year period. Earnings from
residential lot sales were $.6 million lower because of a 19% decline in the
number of lots sold (185 in the current period, compared with 228 in the
corresponding prior-year period) that occurred primarily because the favorable
impact on sales in the prior-year period of substantially lower mortgage
interest rates. Operating earnings from commercial land sales were down
slightly as current-period profits from sales of two sites in the Town Center
and one near the Panther Creek Retail Center were somewhat less than the gain
recognized in the prior period on the sale of a 16.3-acre tract for the
Cochran's Crossing retail center. Partly offsetting these declines was a
$1.5 million increase in commercial property operating earnings during fiscal
1996's first quarter. Several factors contributed to this, including receipt of
a $.6 million construction management fee, higher occupancy at The Woodlands
Executive Conference Center (79%, up from 77% in the prior-year period) due to
increased corporate conference bookings and equity in earnings from The
Woodlands Mall, which opened in October 1994.
INTEREST EXPENSE INCURRED. Interest expense incurred during fiscal 1996's
first quarter was $1.8 million below that of the prior-year period due to a
$125 million lower average outstanding debt balance. This decline occurred
principally because proceeds from fiscal 1995's major energy asset sales were
used to pay down debt. The benefit from the average balance decline was
partially eroded by higher short-term (variable) interest rates during the
current year's first quarter.
CAPITALIZED INTEREST. The amount of interest capitalized fell by $.9 million
in fiscal 1996's first quarter because of a decline in the average energy and
real estate asset balances subject to capitalization.
OTHER - SAR/BONUS UNIT EXPENSE ACCRUALS ($1.5 MILLION DECREASE). During the
fiscal 1996 period, $.8 million in SAR/Bonus unit expense accruals were
recorded as the average price of the Company stock rose $1.69 per share.
Conversely, in the previous year's period, SAR/Bonus expense accrual reversals
of $.7 million were recorded as the average stock price fell by $1.94 per
share.
Part II - Other Information
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
12 Computation of ratio of earnings to fixed charges
27 Financial Data Schedule for Commercial and Industrial
Companies
(b) No reports were filed on Form 8-K during the three-month period
ended April 30, 1995.
-17-
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MITCHELL ENERGY & DEVELOPMENT CORP.
-----------------------------------
(Registrant)
Dated: June 14, 1995
Philip S. Smith
Senior Vice President - Administration
and Chief Financial Officer
-18-
<PAGE> 20
Index to Exhibits
Exhibit
12 Computation of ratio of earnings to fixed charges
27 Financial Data Schedule for Commercial and Industrial
Companies
<PAGE> 1
Exhibit 12
Mitchell Energy & Development Corp.
Computation of Ratio of Earnings to Fixed Charges
(dollar amounts in thousands)
<TABLE>
<CAPTION>
3 Months
Fiscal Year Ended January 31 Ended
----------------------------------------------------- April 30,
1991 1992 1993 1994 1995 1995
-------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
EARNINGS
Pretax earnings (loss) . . . . . . . . . . $ 60,484 $ 73,188 $ 60,022 $ 47,376 $ 70,551 $ (4,808)
Add (Deduct):
Previously capitalized interest
charged against pretax earnings . . . . 8,776 14,887 9,545 11,552 22,158 2,364
Losses of less-than-50%-owned persons . . 23 26 99 32 1,104 572
Fixed charges (see below) . . . . . . . 98,633 90,107 85,169 84,788 85,988 21,149
Reverse effect of inclusion of interest
capitalized in fixed charges . . . . . (44,253) (37,460) (34,161) (33,956) (33,011) (7,803)
Undistributed earnings of
less-than-50%-owned persons . . . . . (11,690) (10,521) (10,305) (3,594) (914) (1,081)
------- ------- ------- ------- ------- -------
$111,973 $130,227 $110,369 $106,198 $145,876 $ 10,393
======= ======= ======= ======= ======= =======
FIXED CHARGES
Interest expense incurred
Consolidated (a) (c) . . . . . . . . . . $ 92,874 $ 84,025 $ 77,451 $ 75,252 $ 71,570 $ 16,895
50%-owned persons . . . . . . . . . . . 3,670 3,284 4,609 6,236 7,912 2,421
Less-than-50%-owned persons (b) . . . . - - - - 3,032 1,033
------- ------- ------- ------- ------- -------
96,544 87,309 82,060 81,488 82,514 20,349
Portion of rental expense
representing interest (d) . . . . . . . 2,089 2,798 3,109 3,300 3,474 800
------- ------- ------- ------- ------- -------
$ 98,633 $ 90,107 $ 85,169 $ 84,788 $ 85,988 $ 21,149
======= ======= ======= ======= ======= =======
RATIO OF EARNINGS TO FIXED CHARGES . . . . 1.14 1.45 1.30 1.25 1.70 -
======= ======= ======= ======= ======= =======
ADDITIONAL EARNINGS NECESSARY
TO BRING RATIO TO 1.0X . . . . . . . . . $ - $ - $ - $ - $ - $ 10,756(e)
======= ======= ======= ======= ======= =======
</TABLE>
_____________________________________
(a) Consists of interest expense as reported in consolidated statements of
earnings and interest expense related to finance operations which is
reported as costs and expenses in the consolidated statements of earnings.
(b) At April 30, 1995, the Company had an outstanding guaranty covering
$58,667,000 of indebtedness of Belvieu Environmental Fuels (BEF), a
33.33%-owned entity, under which it could be required to perform at some
future date. Because of this, interest expense attributable to the
Company's share of BEF's debt (all of which was capitalized by BEF) has
been included in the fixed charges of the Company.
(c) At April 30, 1995, the Company had outstanding guaranties of approximately
$22,600,000 of indebtedness of less-than-fifty percent owned partnerships
(other than BEF) and approximately $4,400,000 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 $500,000 for the
three-month period ended April 30, 1995, have been excluded from the
reported fixed charges.
(d) Represents one-third of rental expense under operating lease agreements.
(e) This shortfall occurred principally because of the recording during this
period of $20,200,000 in personnel cost reduction program charges, a large
portion of which is expected to be recovered over the remainder of fiscal
1996. Absent these charges, the ratio of earnings to fixed charges for
this period would have been 1.45.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements and related notes of Mitchell Energy &
Development Corp. and subsidiaries at April 30, 1995 and for the three-month
period then ended and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-START> FEB-01-1995
<PERIOD-END> APR-30-1995
<CASH> 12,960
<SECURITIES> 0
<RECEIVABLES> 119,786
<ALLOWANCES> 2,359
<INVENTORY> 14,037
<CURRENT-ASSETS> 155,396
<PP&E> 2,146,938
<DEPRECIATION> 1,408,364
<TOTAL-ASSETS> 1,831,544
<CURRENT-LIABILITIES> 171,255
<BONDS> 879,923
<COMMON> 5,386
0
0
<OTHER-SE> 455,771
<TOTAL-LIABILITY-AND-EQUITY> 1,831,544
<SALES> 214,975
<TOTAL-REVENUES> 214,975
<CGS> 193,175
<TOTAL-COSTS> 193,175
<OTHER-EXPENSES> 16,937
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,671
<INCOME-PRETAX> (4,808)
<INCOME-TAX> (1,627)
<INCOME-CONTINUING> (3,181)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,181)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
