<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT JULY 31, 1997
(Date of earliest event reported)
MITCHELL ENERGY & DEVELOPMENT CORP.
(Exact name of registrant as specified in charter)
COMMISSION FILE NUMBER 1-6959
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
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ITEM 2 - ACQUISITION OR DISPOSITION OF ASSETS
In a transaction that closed on July 31, 1997, Mitchell Energy &
Development Corp. (the Company) sold its real estate subsidiary, The Woodlands
Corporation (TWC) for $543 million in cash to a partnership of Crescent Real
Estate Equities Company and Morgan Stanley Real Estate Fund II, L.P. After
adjustments for certain net additional amounts to be received pursuant to the
contract and deductions for current income taxes and transaction costs, the
Company's net cash proceeds from the sale are estimated at approximately $460
million. The anticipated uses of these proceeds include the funding of energy
asset acquisitions, debt retirement and repurchases of Class A and Class B
common stock.
In connection with the TWC sale, the Company will recognize a second
quarter after-tax loss of approximately $65 million to $70 million (estimated
herein at $68.1 million). Effective with the agreement to sell TWC on June 12,
1997, the Company substantially completed its withdrawal from the real estate
business and will hereafter report real estate activities as discontinued
operations in its financial statements.
ITEM 7(b) - FINANCIAL STATEMENTS, PRO FORMA FINANCIAL STATEMENTS AND EXHIBITS
The following unaudited financial statements of the Company are filed with
this report:
Pro Forma Condensed Consolidated Balance Sheet at April 30, 1997
Pro Forma Condensed Consolidated Statements of Earnings for the
following periods:
Three-Month Period Ended April 30, 1997
Year Ended January 31, 1997
Condensed Consolidated Statements of Earnings following periods:
January 31, 1996
January 31, 1995
The Pro Forma Condensed Consolidated Balance Sheet at April 30, 1997 shows
the pro forma financial position of the Company after giving effect to (i) its
decision to discontinue its real estate operations, (ii) the sale effective
July 31, 1997 of The Woodlands Corporation, its most significant real estate
asset and (iii) the Company's planned use of the net proceeds from that sale.
The Pro Forma Condensed Consolidated Statements of Earnings For the Three-Month
Period Ended April 30, 1997 and For the Year Ended January 31, 1997 assume that
the sale of The Woodlands occurred on the first day of each respective period
and that the net sales proceeds were used in the manner indicated effective on
that day. The Condensed Consolidated Statements of Earnings For the Years Ended
January 31, 1996 and 1995 are included to show the impact of the discontinuance
of the Company real estate operations on its statements of earnings for those
periods.
The unaudited pro forma condensed consolidated financial statements have
been prepared by the Company using assumptions it deemed appropriate and are
presented herein for illustrative purposes only. Furthermore, although the pro
forma use of the TWC sales proceeds described is in accordance with the
Company's present plans, such actions may or may not actually happen. These
pro forma financial statements are not necessarily indicative of the future
financial position or results of operations of the Company, or of the financial
position or results of operations of the Company that would have actually been
reported had the events reported herein occurred as of the dates indicated.
The sale of TWC was only recently closed, and the Company has not yet
prepared financial statements for a period covering that sale. Accordingly,
certain amounts included herein are preliminary estimates, which are subject to
change as the accounting procedures necessary to achieve a final accounting for
these matters are completed.
These unaudited pro forma condensed consolidated financial statements
should be read in conjunction with the historical financial statements and
notes thereto included in the Company's Fiscal 1997 Annual Report to
Stockholders and in its Form 10-Q for the Quarter Ended April 30, 1997.
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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.
Dated: August 14, 1997 /s/ Philip S. Smith
---------------------------------------
Philip S. Smith
Senior Vice President - Administration,
Chief Financial Officer and
Principal Accounting Officer
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<PAGE> 4
Mitchell Energy & Development Corp.
EXPLANATION OF RECLASSIFICATIONS AND PRO FORMA ADJUSTMENTS TO
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
APRIL 30,1997
The accompanying pro forma condensed consolidated balance sheet at April 30,
1997 was prepared to show the pro forma effect on the Company's financial
position of the sale of The Woodlands Corporation (TWC) on July 31, 1997 and
the Company's decision to discontinue its real estate operations effective June
12, 1997.
DISCONTINUED OPERATIONS. Effective with the agreement to sell The Woodlands
Corporation on June 12, 1997, the Company determined that it would withdraw from
the real estate business and thereafter report real estate activities as
discontinued operations in its financial statements. The "Reclassify
Discontinued Operations" column of the accompanying pro forma balance sheet
removes the amounts attributable to the discontinued operations from each
applicable condensed account description and combines them into a single
category, "Net Assets of Discontinued Real Estate Operations." A separate "As
Reclassified" column is included for information purposes.
While most of the Company's real estate has now been sold, certain properties
held for sale were not included in the TWC transaction, and the Company's
efforts to dispose of them continue. The table which follows details the
components of the Company's net real estate assets at April 30, 1997, just
prior to the pro forma entries for the TWC sale and immediately thereafter:
<TABLE>
<CAPTION>
Just Just
Prior to After
TWC Sale TWC Sale
-------- --------
<S> <C> <C>
ASSETS
Current assets...................................... $ 15.4 $ 2.8
Real estate......................................... 650.6 16.8
Long-term investments and other assets.............. 40.4 7.9
------ -----
706.4 27.5
------ -----
LIABILITIES
Current liabilities................................. 26.5 .5
Long-term debt...................................... 1.1 .2
Deferred income tax liability (asset)............... 118.9 (7.7)
Retirement obligations and other liabilities........ 17.7 1.2
------ -----
164.2 (5.8)
------ -----
Net assets of discontinued real estate operations... $542.2 $33.3
====== =====
</TABLE>
PRO FORMA ADJUSTMENTS. The pro forma adjustments required to give effect to the
events described below are shown on the accompanying balance sheet in two
separate columns, each of which is described below.
Sale-of-TWC. The amounts in this column give effect to (i) the estimated net
cash proceeds realized from the TWC sale (after transaction costs and current
income taxes), (ii) the write-off of the $508.9 million of real estate net
assets that were liquidated in connection with the TWC transaction, (iii) an
increase in deferred income taxes resulting from the utilization of certain
Alternative Maximum Tax (AMT) credit carryforwards, (iv) the retention by the
Company of defined benefit retirement plan obligations applicable to individuals
previously involved in its real estate activities and (v) a reduction in
stockholders' equity for the estimated net loss incurred in connection with the
sale of TWC.
Use-of-Proceeds. The pro forma adjustments in this column give effect to the
repurchase of an estimated 4.2 million shares of the Company's common stock at a
total cost of $100 million and the spending of $200 million in a tender offer to
repurchase $180 million face amount of the Company's 9.25% senior notes at an
extraordinary after-tax loss of $13 million ($20 million before tax).
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<PAGE> 5
Mitchell Energy & Development Corp.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)
APRIL 30, 1997
(in millions)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
RECLASSIFY ----------------------
AS DISCONTINUED AS SALE OF USE OF
REPORTED OPERATIONS RECLASSIFIED TWC PROCEEDS PRO FORMA
---------- -------- ------------ -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents ............... $ 57.6 $ (2.6) $ 55.0 $ 460.3 $ (300.0) $ 215.3
Other current assets .................... 108.0 (12.8) 95.2 -- -- 95.2
---------- -------- --------- -------- ---------- ----------
TOTAL CURRENT ASSETS ................... 165.6 (15.4) 150.2 460.3 (300.0) 310.5
PROPERTY, PLANT AND EQUIPMENT, net....... 790.9 -- 790.9 -- -- 790.9
REAL ESTATE ............................. 650.6 (650.6) -- -- -- --
NET ASSETS OF DISCONTINUED REAL ESTATE
OPERATIONS............................. -- 542.2 542.2 (508.9) -- 33.3
LONG-TERM INVESTMENTS AND OTHER ASSETS... 79.3 (40.4) 38.9 -- -- 38.9
---------- -------- --------- -------- ---------- ----------
$ 1,686.4 $ (164.2) $ 1,522.2 $ (48.6) $ (300.0) $ 1,173.6
========== ======== ========= ======== ========== ==========
CURRENT LIABILITIES ..................... $ 211.1 $ (26.5) $ 184.6 $ -- $ -- $ 184.6
LONG-TERM DEBT .......................... 601.1 (1.1) 600.0 -- (180.0) 420.0
DEFERRED INCOME TAXES ................... 234.5 (118.9) 115.6 16.6 (7.0) 125.2
RETIREMENT OBLIGATIONS AND OTHER
LIABILITIES............................ 81.0 (17.7) 63.3 2.9 -- 66.2
STOCKHOLDERS' EQUITY .................... 558.7 -- 558.7 (68.1) (113.0) 377.6
---------- -------- --------- -------- ---------- ----------
$ 1,686.4 $ (164.2) $ 1,522.2 $ (48.6) $ (300.0) $ 1,173.6
========== ======== ========= ======== ========== ==========
</TABLE>
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See page 3 for an explanation of the pro forma adjustments.
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<PAGE> 6
Mitchell Energy & Development Corp.
EXPLANATION OF RECLASSIFICATIONS AND PRO FORMA ADJUSTMENTS TO
PRO FORMA AND CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
The accompanying pro forma and condensed consolidated statements of earnings
were prepared to show the pro forma effect on the Company's historical
consolidated statements of earnings of the sale of The Woodlands Corporation
(TWC) on July 31, 1997 and the Company's decision to discontinue its real estate
operations effective June 12, 1997.
DISCONTINUED OPERATIONS. In each case, the "Reclassify Discontinued Operations"
column removes from each applicable caption the "As Reported" amount previously
included therein for the now-discontinued real estate operating activities. A
separate "As Reclassified" column is included for information purposes.
PRO FORMA ADJUSTMENTS. The pro forma adjustments required to give effect to
the events described below, which are applicable only to the statements for the
periods ended April 30, 1997 and January 31, 1997 are shown in two separate
columns.
ASSUMED OBLIGATIONS. In connection with the TWC sale, the parent company
contributed to TWC's equity the intercompany debt obligations TWC previously
had owed to the parent. The "Assumed Obligations" column increases pro forma
interest expense for the intercompany interest applicable to that debt which
had been charged to TWC during the applicable period.
USE OF PROCEEDS. The following uses of the approximately $460 million of net
cash proceeds from the TWC sale were assumed in the preparation of each of the
accompanying pro forma statements of earnings (in millions):
<TABLE>
<S> <C>
Repurchases of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $100
Debt tender offer (including $20 million in acquisition costs that
will be expensed as an extraordinary charge when the debt is retired) . . . . . . . . 200
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160
---
$460
====
</TABLE>
The "Use of Proceeds" pro forma adjustment column on the applicable accompanying
statements of earnings shows the estimated earnings effect of the actions
described below for the indicated quarterly or annual period.
Repurchases of Common Stock -- It was assumed that 4.2 million shares of the
Company's common stock would be repurchased with this $100 million use of
proceeds. To give effect to this pro forma transaction, the historical average
number of shares outstanding was determined by reducing the historical average
by 4.2 million.
Debt Tender Offer -- It was assumed that this $200 million use of proceeds would
involve the retirement of $180 million of the Company's 9.25% senior notes.
The resultant pro forma interest savings totaled $4.1 million and $16.7 million,
respectively, for the applicable quarterly and annual period.
Short-Term Investments -- For purposes of these pro forma statements, it was
assumed that the remaining $160 million of proceeds would be invested in
short-term investments of the highest quality at an estimated 5.5% annual rate
of return. The resultant pro forma interest income totaled $2.1 million and
$8.8 million, respectively, for the applicable quarterly and annual period.
The Company ultimately plans to invest this $160 million of the TWC sales
proceeds in energy operating assets that will achieve returns substantially
greater than 5.5%. However, given uncertainties concerning the specific nature
of any such acquisitions and their timing, it was deemed impractical to include
assumptions of this type herein.
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MITCHELL ENERGY & DEVELOPMENT CORP.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS (Unaudited)
FOR THE THREE MONTHS ENDED APRIL 30, 1997
(in millions, except per share amounts)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
RECLASSIFY ---------------------
AS DISCONTINUED AS ASSUMED USE OF
REPORTED OPERATIONS RECLASSIFIED OBLIGATIONS PROCEEDS PRO FORMA
--------- ------------ ----------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
REVENUES ...................... $ 206.9 $ (37.1) $169.8 -- -- $ 169.8
OPERATING COSTS AND EXPENSES... 169.4 (25.9) 143.5 -- -- 143.5
-------- ------- ------ ------ ------ --------
SEGMENT OPERATING EARNINGS..... 37.5 (11.2) 26.3 -- -- 26.3
General and administrative
expenses..................... 9.2 (1.2) 8.0 -- -- 7.9
-------- ------- ------ ------ ------ --------
TOTAL OPERATING EARNINGS....... 28.3 (10.0) 18.3 -- -- 18.4
-------- ------- ------ ------ ------ --------
OTHER EXPENSE
Interest expense .............. 12.1 (7.6) 4.5 7.6 (4.1) 8.0
Capitalized interest .......... (6.7) 6.5 (0.2) -- -- (0.2)
Interest income ............... (1.1) -- (1.1) -- (2.1) (3.2)
Other, net .................... (1.3) 0.7 (0.6) -- -- (0.6)
-------- ------- ------ ------ ------ --------
3.0 (0.4) 2.6 7.6 (6.2) 4.0
-------- ------- ------ ------ ------ --------
EARNINGS BEFORE INCOME TAXES... 25.3 (9.6) 15.7 (7.6) 6.2 14.4
INCOME TAXES .................. 8.8 (3.3) 5.5 (2.7) 2.2 5.0
-------- ------- ------ ------ ------ --------
EARNINGS FROM CONTINUING
OPERATIONS................... 16.5 -- 10.2 $ (4.9) $ 4.0 $ 9.3
====== ====== ========
EARNINGS FROM DISCOINTINUED
REAL ESTATE OPERATIOINS........ -- 6.3 6.3
-------- ------- ------
NET EARNINGS .................. $ 16.5 -- $ 16.5
======== ======= ======
EARNINGS PER SHARE
Earnings from continuing
operations................. $0.32 $0.20
Discointinued real estate
operations................. -- 0.12
----- -----
$0.32 $0.32
===== =====
AVERAGE SHARES OUTSTANDING..... 51.8 47.6
===== =====
</TABLE>
- -------------------------
See page 5 for an explanation of the pro forma adjustments. For purposes of
these pro forma statements, it was assumed that $160 million of the TWC sales
proceeds would be invested in short-term investments rather than in the
substantially higher return energy assets in whichg the Company ultimately
expects to invest in (see "Use of Proceeds -- Short-Term Investments" on
page 5 for additional information concerning this).
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<PAGE> 8
MITCHELL ENERGY & DEVELOPMENT CORP.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS (Unaudited)
FOR THE YEAR ENDED JANUARY 31, 1997
(in millions, except per share amounts)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
RECLASSIFY ----------------------
AS DISCONTINUED AS ASSUMED USE OF
REPORTED OPERATIONS RECLASSIFIED OBLIGATIONS PROCEEDS PRO FORMA
--------- ------------ ------------ ----------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
REVENUES ............................ $ 1,104.8 $ (198.1) $ 906.7 $ -- $ -- $ 906.7
OPERATING COSTS AND EXPENSES......... 873.2 (155.4) 717.8 -- -- 717.8
---------- -------- --------- ------- ------- --------
SEGMENT OPERATING EARNINGS........... 231.6 (42.7) 188.9 -- -- 188.9
General and administrative expense... 38.6 (4.8) 33.8 -- -- 33.8
---------- -------- --------- ------- ------- --------
TOTAL OPERATING EARNINGS ............ 193.0 (37.9) 155.1 -- -- 155.1
---------- -------- --------- ------- ------- --------
OTHER EXPENSE
Interest expense..................... 55.6 (32.8) 22.8 34.0 (16.7) 40.1
Capitalized interest................. (25.8) 24.9 (0.9) -- -- (0.9)
Interest income ..................... (0.6) -- (0.6) -- (8.8) (9.4)
Other, net .......................... 4.2 (1.2) 3.0 -- -- 3.0
---------- -------- --------- ------- ------- --------
33.4 (9.1) 24.3 34.0 (25.5) 32.8
---------- -------- --------- ------- ------- --------
EARNINGS BEFORE INCOME TAXES......... 159.6 (28.8) 130.8 (34.0) 25.5 122.3
INCOME TAXES......................... 56.4 (10.0) 46.4 (11.9) 8.9 43.4
---------- -------- --------- ------- ------- --------
EARNINGS FROM CONTINUING OPERATIONS.. 103.2 (18.8) 84.4 $ (22.1) $ 16.6 $ 78.9
======= ======= ========
EARNINGS FROM DISCONTINUED REAL ESTATE
OPERATIONS ........................ -- 18.8 18.8
---------- -------- ---------
NET EARNINGS ........................ $ 103.2 $ -- $ 103.2
========== ======== =========
EARNINGS PER SHARE
CONTINUING OPERATIONS.............. $1.99 $1.63 $1.65
=====
DISCONTINUED REAL ESTATE
OPERATIONS......................... -- 0.36
----- -----
$1.99 $1.99
===== =====
AVERAGE SHARES OUTSTANDING........... 51.9 51.9 47.7
===== ===== =====
</TABLE>
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See page 5 for an explanation of the pro forma adjustments. For purposes of
these pro forma statements, it was assumed that $160 million of the TWC sales
proceeds would be invested in short-term investments rather than in the
substantially higher return energy assets in which the Company ultimately
expects to invest (see "Use of Proceeds -- Short-Term Investments" on page 5
for additional information concerning this).
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<PAGE> 9
MITCHELL ENERGY & DEVELOPMENT CORP.
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS (Unaudited)
FOR THE YEAR ENDED JANUARY 31, 1996
(in millions, except per share amounts)
<TABLE>
<CAPTION>
RECLASSIFY
AS DISCONTINUED AS
REPORTED OPERATIONS RECLASSIFIED
--------- ------------ ------------
<S> <C> <C> <C>
REVENUES ............................ $ 1,071.7 $ (168.8) $ 902.9
OPERATING COSTS AND EXPENSES......... 928.6 (246.9) 681.7
---------- --------- --------
SEGMENT OPERATING EARNINGS........... 143.1 78.1 221.2
General and administrative expense... 44.8 (6.2) 38.6
---------- --------- --------
TOTAL OPERATING EARNINGS............. 98.3 84.3 182.6
---------- --------- --------
OTHER EXPENSE
Interest expense.................... 64.2 (36.8) 27.4
Capitalized interest................ (28.3) 26.9 (1.4)
Other, net.......................... 4.1 (0.8) 3.3
---------- --------- --------
40.0 (10.7) 29.3
---------- --------- --------
EARNINGS BEFORE INCOME TAXES........ 58.3 95.0 153.3
INCOME TAXES........................ 21.2 33.2 54.4
---------- --------- --------
EARNINGS FROM CONTINUING
OPERATIONS........................ 37.1 61.8 98.9
EARNINGS FROM DISCONTINUED REAL
ESTATE OPERATIONS................. -- (61.8) (61.8)
---------- --------- --------
NET EARNINGS........................ $ 37.1 $ -- $ 37.1
========== ========= ========
EARNINGS PER SHARE
Continuing Operations............... $0.71 $1.90
Discontinued real estate
operations........................ -- (1.19)
----- -----
$0.71 $0.71
===== =====
AVERAGE SHARES OUTSTANDING.......... 52.0 52.0
===== =====
</TABLE>
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MITCHELL ENERGY & DEVELOPMENT CORP.
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS (Unaudited)
FOR THE YEAR ENDED JANUARY 31, 1995
(in millions except per share amounts)
<TABLE>
<CAPTION>
RECLASSIFY
AS DISCONTINUED AS
REPORTED OPERATIONS RECLASSIFIED
-------- ------------ ------------
<S> <C> <C> <C>
REVENUES ............................ $ 894.5 $ (129.4) $ 765.1
OPERATING COSTS AND EXPENSES......... 734.2 (109.3) 624.9
-------- -------- --------
SEGMENT OPERATING EARNINGS........... 160.3 (20.1) 140.2
General and administrative expense... 42.2 (5.8) 36.4
-------- -------- --------
TOTAL OPERATING EARNINGS............. 118.1 (14.3) 103.8
-------- -------- --------
OTHER EXPENSE........................
Interest expense..................... 70.0 (37.0) 33.0
Capitalized interest................. (28.8) 26.5 (2.3)
Other, net........................... 6.4 (0.6) 5.8
-------- -------- --------
47.6 (11.1) 36.5
-------- -------- --------
EARNINGS BEFORE INCOME TAXES......... 70.5 (3.2) 67.3
INCOME TAXES......................... 24.7 (1.1) 23.6
-------- -------- --------
EARNINGS FROM CONTINUING OPERATIONS.. 45.8 (2.1) 43.7
EARNINGS FROM DISCONTINUED
REAL ESTATE OPERATIONS............. -- 2.1 2.1
-------- -------- --------
NET EARNINGS......................... $ 45.8 $ -- $ 45.8
======== ======== ========
EARNINGS PER SHARE
Continuing operations.................. $0.87 $0.83
Discontinued real estate
operations........................... -- 0.04
----- -----
$0.87 $0.87
===== =====
AVERAGE SHARES OUTSTANDING........... 52.7 52.7
===== =====
</TABLE>
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