SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 1997
Commission File Number: 0-19989
FM Properties Inc.
Incorporated in Delaware 72-1211572
(IRS Employer Identification No.)
1615 Poydras Street, New Orleans, Louisiana 70112
Registrant's telephone number, including area code: (504) 582-4000
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 (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes [X] No
On September 30, 1997, there were issued and outstanding 14,288,270
shares of the registrant's Common Stock, par value $0.01 per share.
<PAGE> 1
FM PROPERTIES INC.
TABLE OF CONTENTS
Page
Part I. Financial Information
Financial Statements:
Condensed Balance Sheets 3
Statements of Operations 3
Statements of Cash Flow 4
Notes to Financial Statements 5
Remarks 7
Report of Independent Public Accountants 8
Management's Discussion and Analysis
of Financial Condition and Results of Operations 9
Part II. Other Information 13
Signature 14
Exhibit Index E-1
<PAGE> 2
FM PROPERTIES INC.
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
FM PROPERTIES INC.
CONDENSED BALANCE SHEETS (Unaudited)
<CAPTION>
September 30, December 31,
1997 1996
---------- ----------
(In Thousands)
<S> <C> <C>
ASSETS
Current assets:
Accounts receivable and other $ - $ 56
Income tax receivable - 503
Amounts receivable from the Partnership 4,630 4,371
---------- ----------
Total current assets 4,630 4,930
Investment in the Partnership 63,597 56,055
---------- ----------
Total assets $ 68,227 $ 60,985
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Other liabilities $ 1,455 $ 1,386
Stockholders' equity 66,772 59,599
---------- ----------
Total liabilities and stockholders'
equity $ 68,227 $ 60,985
========== ==========
</TABLE>
<TABLE>
FM PROPERTIES INC.
STATEMENTS OF OPERATIONS (Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Income from the
Partnership $ 3,515 $ 1,009 $ 7,541 $ 704
General and administrative
expenses (60) (77) (150) (165)
---------- ---------- ---------- ----------
Operating income 3,455 932 7,391 539
Income tax (provision)
benefit - 526 (220) 526
---------- ---------- ---------- ----------
Net income $ 3,455 $ 1,458 $ 7,171 $ 1,065
========== ========== ========== ==========
Net income per share $.24 $.10 $.50 $.07
==== ==== ==== ====
Average shares
outstanding 14,550 14,395 14,481 14,364
====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE> 3
<TABLE>
FM PROPERTIES INC.
STATEMENTS OF CASH FLOW (Unaudited)
<CAPTION>
Nine Months Ended
September 30,
------------------------
1997 1996
---------- ----------
(In Thousands)
<S> <C> <C>
Cash flow from operating activities:
Net income $ 7,171 $ 1,065
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Excess of equity in income of the
Partnership over distributions
received (7,541) (705)
Change in working capital 370 (360)
---------- ----------
Net cash provided by operating activities - -
Cash flow from investing activities - -
Cash flow from financing activities - -
---------- ----------
Net change in cash and cash equivalents - -
Cash and cash equivalents at beginning
of year - -
---------- ----------
Cash and cash equivalents at end of
period $ - $ -
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE> 4
FM PROPERTIES INC.
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
FM Properties Inc. (FMPO) operates through its 99.8 percent interest
in FM Properties Operating Co. (the Partnership), with 0.2 percent
owned by the Managing General Partner, Freeport-McMoRan Inc. (FTX).
FTX guarantees the Partnership's debt. Because of the rights that
FTX retains in connection with its guarantee of the Partnership's
debt, FMPO reflects its interest in the Partnership under the equity
basis of accounting. However, if the FTX guarantee is eliminated,
FMPO will have the authority to remove FTX as the Managing General
Partner and FTX's rights with respect to the Partnership and FMPO
would be eliminated. FMPO has no significant operations or source
of funds other than its interest in the Partnership. The
Partnership's financial statements follow (certain prior year
amounts have been reclassified to conform to the 1997 presentation):
<TABLE>
BALANCE SHEETS
<CAPTION>
September 30, December 31,
1997 1996
------------ ------------
(In Thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,944 $ 2,108
Accounts receivable and other 2,490 4,133
---------- ----------
Total current assets 6,434 6,241
Real estate and facilities, net 103,936 118,029
Other assets 9,894 5,922
---------- ----------
Total assets $ 120,264 $ 130,192
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable and accrued liabilities $ 2,650 $ 5,754
Amounts due to FMPO 4,630 4,371
Short-term debt 42,518 -
---------- ----------
Total current liabilities 49,798 10,125
Long-term debt - 58,325
Other liabilities 6,742 5,574
Partners' capital 63,724 56,168
---------- ----------
Total liabilities and partners' capital $ 120,264 $ 130,192
========== ==========
</TABLE>
<TABLE>
STATEMENTS OF OPERATIONS
<CAPTION>
Three Months Nine Months Ended
Ended September 30,
September 30,
------------------------ ------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
(In Thousands)
<S> <C> <C> <C> <C>
Revenues $ 4,037 $ 34,461 $ 24,298 $ 72,054
Costs and expenses:
Cost of sales 4,033 32,216 18,568a 67,643
General and administrative
expenses 581 481 1,970 1,704
---------- ---------- ---------- ----------
Total costs and
expenses 4,614 32,697 20,538 69,347
---------- ---------- ---------- ----------
Operating income (loss) (577) 1,764 3,760 2,707
Interest expense, net (547) (1,193) (1,608) (3,085)
Other income, net 4,646b 440 5,404b 1,083
---------- ---------- ---------- ----------
Net income $ 3,522 $ 1,011 $ 7,556 $ 705
========== ========== ========== ==========
</TABLE>
(a) Includes a $3.1 million reimbursement for previously expensed
infrastructure costs.
(b) Includes a $4.5 million gain from sale of oil and gas
properties.
<PAGE> 5
<TABLE>
STATEMENTS OF CASH FLOW
<CAPTION>
Nine Months Ended
September 30,
------------------------
1997 1996
---------- ----------
(In Thousands)
<S> <C> <C>
Cash flow from operating activities:
Net income $ 7,556 $ 705
Adjustments to reconcile net income to
net cash provided by operating activities:
Cost of real estate sales and depreciation
and amortization 19,349 61,439
(Increase) decrease in working capital:
Accounts receivable and other 1,166 895
Accounts payable and accrued
liabilities (2,843) (1,558)
Other (765) -
---------- ----------
Net cash provided by operating activities 24,463 61,481
---------- ----------
Cash flow from investing activities:
Real estate and facilities (a) (6,820) (4,620)
---------- ----------
Net cash used in investing activities (6,820) (4,620)
---------- ----------
Cash flow from financing activities:
Proceeds from debt - 70,000
Repayment of debt (15,807) (127,354)
---------- ----------
Net cash used in financing activities (15,807) (57,354)
---------- ----------
Net increase (decrease) in cash and cash
equivalents 1,836 (493)
Cash and cash equivalents at beginning
of year 2,108 2,282
---------- ----------
Cash and cash equivalents at end of
period $ 3,944 $ 1,789
========== ==========
</TABLE>
a. Includes capitalized interest of $1.2 million in the 1997
period and $2.7 million in the 1996 period.
2. FTX MERGER AGREEMENT
On August 27, 1997 FTX and IMC Global Inc. (IGL) announced that they
had executed an Agreement and Plan of Merger dated as of August 26,
1997 in which FTX and IGL agree to merge, with IGL as the surviving
entity. The proposed combination is subject to several conditions,
including approval by the stockholders of both companies. FTX and
IGL have stated that the merger transaction is expected to be
completed by the end of 1997. As a condition of the merger, FTX
agreed to sell its interest as Managing General Partner in the
Partnership to FMPO or an affiliate of FMPO. Additionally, IGL
agreed to assume the FTX guarantee of the Partnership's debt under
terms and conditions currently being negotiated. Once this is
accomplished, FMPO will assume direct managerial control over its
business and thereafter will report its financial statements under
consolidation accounting.
3. SALE OF OIL & GAS INTERESTS
In September 1997, the Partnership sold to McMoRan Oil & Gas Co.
(MOXY) and Freeport-McMoRan Resource Partners, Limited Partnership
(FRP) several working interests and numerous overriding royalty
interests in oil and gas properties which have been held since its
formation for $4.5 million cash, resulting in a gain of $4.5
million. Each of MOXY and FTX, the owner of a 51.6% interest in and
administrative managing general partner of FRP, share common
management and a common director with FMPO. These interests, which
had no cost basis, remained with the Partnership after the sale of
substantially all of its oil and gas properties in 1993. The gain is
reflected in Other Income, and proceeds were used to reduce
Partnership debt. Other Income also includes royalty income
generated by these properties totaling $0.1 million and $0.3 million
for the third quarter and $0.8 million and $1.0 million for the
nine-month periods of 1997 and 1996, respectively.
4. NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 128 (SFAS
128), "Earnings Per Share", which simplifies the computation of
earnings per share. SFAS 128 is effective for financial statements
issued for periods ending after December 15, 1997 and requires
restatement for all prior period earnings per share data presented.
<PAGE> 6
Earnings per share calculated in accordance with SFAS 128 would be
unchanged for the periods presented.
In June 1997, the FASB issued SFAS 130, "Reporting
Comprehensive Income," and SFAS 131, "Disclosures About Segments of
an Enterprise and Related Information." SFAS 130 establishes
standards for the reporting and display of comprehensive income in
the financial statements. Comprehensive income is the total of net
income and all other non-owner changes in equity. SFAS 131 requires
that companies disclose segment data based on how management makes
decisions about allocating resources to segments and measuring their
performance. SFAS 130 and 131 are effective for 1998. Adoption of
these standards is not expected to have an effect on FMPO's
financial statements, financial position or results of operations.
--------------------
Remarks
The information furnished herein should be read in conjunction with
FMPO's financial statements contained in its 1996 Annual Report to
stockholders included in its Annual Report on Form 10-K.
The information furnished herein reflects all adjustments which are,
in the opinion of management, necessary for a fair statement of the
results for the periods. All such adjustments are, in the opinion
of management, of a normal recurring nature.
<PAGE> 7
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of FM Properties Inc.:
We have reviewed the accompanying condensed balance sheet of FM
Properties Inc. (the Company), a Delaware Corporation, as of
September 30, 1997, and the related condensed statements of
operations for the three-month and nine-month periods ended
September 30, 1997 and 1996 and the condensed statements of and cash
flow for the nine-month periods ended September 30, 1997 and 1996.
These financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by
the American Institute of Certified Public Accountants. A review of
interim financial information consists principally of applying
analytical procedures to financial data and making inquiries of
persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which
is the expression of an opinion regarding the financial statements
taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the financial statements referred to above
for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted
auditing standards, the balance sheet of FM Properties Inc. as of
December 31, 1996, and the related statements of operations,
stockholders' equity and cash flow for the year then ended (not
presented herein), and in our report dated January 21, 1997, based
on our audit, we expressed an unqualified opinion on those financial
statements. In our opinion, the information set forth in the
accompanying condensed balance sheet as of December 31, 1996, is
fairly stated, in all material respects, in relation to the balance
sheet from which it has been derived.
ARTHUR ANDERSEN LLP
New Orleans, Louisiana
October 21, 1997
<PAGE> 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
OVERVIEW
FM Properties Inc. (FMPO) operates through its 99.8 percent interest
in FM Properties Operating Co. (the Partnership), with 0.2 percent
owned by the Managing General Partner, Freeport-McMoRan Inc. (FTX).
The Partnership's most significant investments are located near
Austin, Texas and include approximately 3,300 acres of primarily
undeveloped land in and around the Barton Creek Community and
approximately 1,000 acres of undeveloped commercial and multi-family
property in the Circle C development. The Partnership is also
engaged in the development and marketing of real estate in the
Dallas, Houston and San Antonio, Texas areas.
FTX guarantees the Partnership's debt. Because of the rights
that FTX retains in connection with its guarantee of the
Partnership's debt, FMPO currently reflects its interest in the
Partnership under the equity basis of accounting. Refer to Note 2
of the accompanying financial statements regarding the merger of FTX
and IMC Global Inc. (IGL).
RESULTS OF OPERATIONS
Third Quarter Nine Months
------------------------ ------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
(In Thousands)
Income from the
Partnership a $ 3,515 $ 1,009 $ 7,541 $ 704
Operating income 3,455 932 7,391 539
Net income 3,455 1,458 7,171 1,065
(a) Includes a $4.5 million gain from sale of oil and gas
properties in the 1997 third quarter.
FMPO has no significant operations or source of funds other
than its interest in the Partnership. Accordingly, the following
discussion and analysis addresses the results of operations and the
capital resources and liquidity of the Partnership. The
Partnership's summary operating results follow:
Third Quarter Nine Months
----------------------- ------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
(In Thousands)
Revenues:
Developed properties $ 4,037 $ 28,081 $ 9,227 $ 40,368
Undeveloped properties
and other - 6,380 15,071 31,686
---------- ---------- ---------- ----------
Total revenues 4,037 34,461 24,298 72,054
---------- ---------- ---------- ----------
Operating income (loss) a (577) 1,764 3,760 2,707
Net income a, b 3,522 1,011 7,556 705
(a) Includes a $3.1 million reimbursement of previously expensed
infrastructure costs in the 1997 second quarter.
(b) Includes a $4.5 million gain from sale of oil and gas
properties in the 1997 third quarter.
Revenues from developed properties represented the sale of 66
and 151 single-family homesites during the third-quarter and nine-
month periods of 1997, respectively. Revenues from developed
properties for the 1996 periods include $25.0 million from the sale
of the Barton Creek Country Club and Conference Resort, as well as
the sale of 57 and 339 single-family homesites during the third-
quarter and nine-month periods of 1996, respectively. Revenues from
undeveloped properties for the third-quarter and nine-month period
of 1997 represented the sale of zero and 194 acres of undeveloped
commercial and multi-family property, respectively, compared with
the sale of 46 and 649 undeveloped acres for the comparable 1996
periods.
In September 1997, the Partnership sold to McMoRan Oil & Gas
Co. (MOXY) and Freeport-McMoRan Resource Partners, Limited
Partnership (FRP) several working interests and numerous overriding
royalty interests in oil and gas properties which have been held
since its formation for $4.5 million cash, resulting in a gain of
$4.5 million. Each of MOXY and FTX, owner of a 51.6% interest in
and the administrative managing general partner of FRP, share common
management and a common director with FMPO. These interests, which
had no cost basis, remained with the Partnership after the
<PAGE> 9
sale of substantially all of its oil and gas properties in 1993. The
gain is reflected in Other Income, and proceeds were used to reduce
Partnership debt. Other Income also includes royalty income
generated by these properties totaling $0.1 million and $0.3 million
for the third quarter and $0.8 million and $1.0 million for the
nine-month periods of 1997 and 1996, respectively.
During 1995, legislation was enacted that enabled the
Partnership to create a series of municipal utility districts (MUDs)
to serve the Barton Creek development. The MUDs, through the
issuance of bonds, are designed to reimburse the Partnership for
costs related to the installation of major utility, drainage and
water quality infrastructure. During the second quarter of 1997,
the Partnership received $3.1 million from MUD bond proceeds
representing the reimbursement of infrastructure costs relating to
previously sold properties. The funds were used to reduce the
Partnership's debt. The Partnership expects to receive additional
reimbursements for past infrastructure costs related to the Barton
Creek development from the proceeds of MUD bonds issued in the
future. However, the timing and the amount of future reimbursements
are uncertain.
Net interest costs incurred by the Partnership totaled $0.5
million in the third quarter of 1997 and $1.6 million during the
first nine months of 1997 compared with $1.2 million and $3.1
million during the comparable 1996 periods, decreasing primarily
because of lower average debt levels.
FMPO's business strategy includes the sale of larger
undeveloped tracts of land. The timing of these transactions can
cause significant variations in operating results between accounting
periods and may result in future operating losses. Consequently,
past operating results are not necessarily indicative of future
trends in profitability. The Partnership continues to develop
single-family homesites in Austin, Dallas and Houston and to
evaluate the development of income-producing properties on certain
tracts.
CAPITAL RESOURCES AND LIQUIDITY
During the first nine months of 1997, the Partnership generated
operating cash flow of $24.5 million which, after funding capital
additions, enabled the Partnership to reduce its debt from the
beginning of 1997 by $15.8 million to $42.5 million.
The Partnership amended its credit agreements in late
1996, extending maturities until February 1998, lowering interest
rates and eliminating the debt guarantee of Freeport-McMoRan Copper
& Gold Inc., leaving FTX as the sole guarantor through February
1998. On August 27, 1997 FTX and IMC Global Inc. (IGL) announced
that they had executed an Agreement and Plan of Merger dated as of
August 26, 1997 in which FTX and IGL agree to merge, with IGL as the
surviving entity. The proposed combination is subject to several
conditions, including approval by the stockholders of both
companies. FTX and IGL have stated that the merger transaction is
expected to be completed by the end of 1997. In connection with the
merger FTX agreed to sell its interest as Managing General Partner
in the Partnership to FMPO or an affiliate of FMPO. Additionally,
IGL agreed to assume the FTX guarantee of the Partnership's debt
under terms and conditions currently being finalized. Once this is
accomplished, FMPO will assume direct managerial control over its
business and thereafter will reflect the Partnership's financial
statements under consolidation accounting. FMPO currently is
negotiating a revised bank credit facility in conjunction with the
proposed assumption of the FTX bank debt guarantee by IGL that
would, among other provisions, extend current debt maturities. FMPO
also continues to consider other means of financial restructuring,
including issuing new debt or equity. Such restructuring, while
potentially allowing FMPO to establish itself as a stand-alone
company, may also increase financing costs significantly if the
current FTX or any successor guarantee is eliminated as a result
thereof.
The future performance and the financial viability of FMPO are
dependent on the future cash flows from the Partnership's assets.
These cash flows will be significantly affected by future real
estate values and interest rate levels. There can be no assurance
that the Partnership will generate cash flow or obtain funds
sufficient to make required interest and principal payments.
During 1996, the State Court of Appeals overturned the
favorable 1995 District Court ruling which invalidated the City of
Austin (the City) "SOS" ordinance; however, the appeals court upheld
the lower court's favorable ruling with respect to the
interpretation of certain grandfathered rights for previously
platted land. A significant portion of the Partnership's Austin
area properties was previously platted and is expected to benefit
from these grandfathered rights. An application for Writ of Error
was filed with the Texas Supreme Court in January 1997. The Writ of
Error was accepted by the Texas Supreme Court and oral argument was
heard on November 3, 1997. The Supreme Court is not anticipated to
issue its decision for several months. An unfavorable final
judgment is not expected to adversely affect the
<PAGE> 10
Partnership's
property holdings because of its grandfathered rights and because
the Partnership's property was removed from the jurisdiction of the
City pursuant to the water quality protection zone at Barton Creek
(the Barton Creek WQPZ) and a portion of the Circle C development
(the Circle C WQPZ, see below), which are authorized by Texas state
legislation enacted in 1995.
In October 1996, the City filed a petition for declaratory
judgment asserting that the legislation that created the Southwest
Travis County Water District (the STCWD) is unconstitutional. The
Partnership's property in the Circle C development, comprising
approximately 1,000 acres of undeveloped commercial and multi-family
property, is located in the STCWD. None of the Partnership's other
properties are in the STCWD. STCWD defended itself against the
City's claim. Court-ordered mediation held in June 1997 was
unsuccessful. The Court entered a final judgment on October 27,
1997 finding that the legislation creating the STCWD is
unconstitutional. It is uncertain whether the STCWD will pursue an
appeal, which would likely be protracted. Because the Partnership's
Circle C property is expected to be developed under either
grandfathered entitlements or pursuant to the Circle C WQPZ, it is
uncertain whether there would be any adverse impact from a final
judgment in favor of the City.
On October 17, 1997, the City published notice of its intention
to annex all land lying within the STCWD. If the City completes the
annexation process, which could occur as early as January 1, 1998,
all land so annexed would be subject to City regulations and
ordinances. The City also then would be required to assume all
municipal utility district debt and reimburse the Partnership a
significant portion of the costs of water, wastewater, and drainage
infrastructure. Without annexation by the City, the Partnership
anticipated that these reimbursements would be paid over the next 10
to 15 years; if the City annexes the four municipal utility
districts within the Circle C development, these reimbursement costs
are required to be paid at the time of the annexation, much earlier
than the Partnership initially anticipated.
The Partnership owns approximately 553 acres in the Circle C
development outside the boundaries of any municipal utility
district. In order to permit development of this property under
state rather than City regulation, the Partnership filed a water
quality protection zone covering its 553 acres and other property
owned by a third party (the "Circle C WQPZ"). The Circle C WQPZ is
anticipated to prevent the City from annexing the Partnership's 553
acres lying outside any municipal utility district and, to confirm
that effect, the Partnership initiated a lawsuit in Hays County
seeking a declaratory judgment that the legislation authorizing the
creation of water quality protection zones is valid. The
Partnership anticipates a favorable result in this litigation.
In the last legislative session, a bill to reorganize a state
governmental agency inadvertently repealed the provisions of law
which established grandfathered rights for land which was platted or
in the permitting process. Under the Texas Code Construction Act,
previously vested rights are not affected by the repeal of this
statute. FMPO's counsel has advised the Company that in its
opinion, this inadvertent repeal should not affect the Partnership's
rights to develop its properties. In response to the legislature's
inadvertent repeal, the City enacted an ordinance effective
September 5, 1997, establishing interim regulations on land
development. It is anticipated that the City will enact a final
ordinance and may attempt to apply it to portions of the
Partnership's Circle C property and Lantana. If the City takes this
position, the Partnership is anticipated to assert and defend its
grandfathered entitlements.
During February 1997, FMPO filed a petition for declaratory
judgment against Phoenix Holdings, Ltd. (Phoenix) in order to
confirm its ownership of certain municipal utility district
receivables that pertain to existing infrastructure that serves the
Circle C development. Phoenix filed a counterclaim against Circle C
in June 1997. A favorable outcome, which FMPO expects to occur,
would result in significant refunds of prior capital expenditures to
the Partnership over the next several years.
In April 1997, the U.S. Department of Interior (DOI) listed the
Barton Springs Salamander as an endangered species after a federal
court overturned a March 1997 decision by the DOI not to list the
Barton Springs Salamander based on a conservation agreement between
the State of Texas and federal agencies. The listing of the Barton
Springs Salamander is not anticipated to affect the Partnership's
Barton Creek and Lantana properties because of its 10A permit
obtained in 1995. The Partnership's Circle C properties could,
however, be affected, although the extent of any impact cannot be
determined at this time.
<PAGE> 11
CAUTIONARY STATEMENT
Management's Discussion and Analysis contains "forward-looking
statements." All statements other than statements of historical
fact included in this report, including, without limitation,
statements regarding future reimbursement for infrastructure costs,
future events related to financing and the FTX guarantee, the
anticipated outcome of the litigation and regulatory matters, the
expected results of FMPO's business strategy, and other plans and
objectives of management of the Company for future operations and
activities, are forward-looking statements.
Important factors that could cause actual results to differ
materially from FMPO's expectations include, without limitation,
economic and business conditions, business opportunities that may be
presented to and pursued by the Company, changes in laws or
regulations and other factors, many of which are beyond the control
of the Company. Further information regarding these and other
factors that might cause future results to differ from those
projected in the forward-looking statements are described in more
detail under the heading "Cautionary Statement" in FMPO's Form 10-K
for the year ended December 31, 1996.
----------------------------
The results of operations reported and summarized above are not
necessarily indicative of future operating results.
<PAGE> 12
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings.
In October 1997, the Partnership filed an action against the
City of Austin in Hays County, Texas. The Partnership seeks a
declaratory judgment that the legislation authorizing water quality
protection zones is valid.
Item 6. Exhibits and Reports on Form 8-K.
(a) The exhibits to this report are listed in the Exhibit
Index appearing on page E-1 hereof.
(b) No reports on Form 8-K were filed by the registrant during
the quarter for which this report is filed.
<PAGE> 13
SIGNATURE
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.
FM PROPERTIES INC.
By: /s/ C. Donald Whitmire, Jr.
---------------------------
C. Donald Whitmire, Jr.
Vice President & Controller
(authorized signatory and
Principal Accounting Officer)
Date: November 13, 1997
<PAGE> 14
FM PROPERTIES INC.
EXHIBIT INDEX
Exhibit
Number
3.1 Amended and Restated Certificate of Incorporation of the
Company. Incorporated by reference to Exhibit 3.1 to the 1992 Form
10-K.
3.2 By-laws of the Company, as amended. Incorporated by
reference to Exhibit 3.2 to the 1992 Form 10-K.
4.1 The Company's Certificate of Designations of Series A
Participating Cumulative Preferred Stock. Incorporated by reference
to Exhibit 4.1 to the 1992 Form 10-K.
4.2 Rights Agreement dated as of May 28, 1992 between the
Company and Mellon Securities Trust Company, as Rights Agent (the
"Rights Agent"). Incorporated by reference to Exhibit 4.2 to the
1992 Form 10-K.
4.3 Amendment No. 1 to Rights Agreement dated as of April 21,
1997 between the Company and the Rights Agent. Incorporated by
reference to Exhibit 4 to the Company's Current Report on Form 8-K
dated April 21, 1997.
4.4 Amended and Restated Credit Agreement dated as of December
20, 1996 (the "Credit Agreement") among FTX, the Partnership,
certain banks, and The Chase Manhattan Bank, as Administrative
Agent, FTX Collateral Agent and Documentation Agent. Incorporated
by reference to Exhibit 4.3 to the Annual Report on Form 10-K of the
Company for the fiscal year ended December 31, 1996 (the "1996 Form
10-K").
4.5 Second Amended and Restated Note Agreement dated as of
June 30, 1995, among FTX, FCX, the Partnership, Chemical Bank, and
Hibernia National Bank, individually and as agent. Incorporated by
reference to Exhibit 4.4 to the Quarterly Report on Form 10-Q of FTX
for the quarter ended September 30, 1995.
4.6 First Amendment to Second Amended and Restated Note
Agreement dated as of December 31, 1995, among FTX, FCX, the
Partnership, Chemical Bank and Hibernia National Bank, individually
and as agent. Incorporated by reference to Exhibit 10.18 to the
Annual Report on Form 10-K of FCX for the fiscal year ended December
31, 1995.
4.7 Second Amendment to Second Amended and Restated Note
Agreement dated as of December 20, 1996, among FTX, the Partnership,
The Chase Manhattan Bank and Hibernia National Bank, individually
and as agent. Incorporated by reference to Exhibit 4.6 to the 1996
Form 10-K.
4.8 Credit Agreement dated as of December 20, 1996, between
FTX and the Partnership. Incorporated by reference to Exhibit 4.7
to the 1996 Form 10-K.
4.9 Amended and Restated Credit Agreement dated as of December
20, 1996 between Circle C Land Corp. ("Circle C") and Texas Commerce
Bank National Association ("TCB"). Incorporated by reference to
Exhibit 4.8 to the 1996 Form 10-K.
11.1 Computation of Net Income per Common and Common Equivalent
Share.
15.1 Letter dated October 21, 1997 from Arthur Andersen LLP
regarding unaudited interim financial statements.
27.1 Financial Data Schedule
EXHIBIT 11.1
FM PROPERTIES INC.
COMPUTATION OF NET INCOME PER COMMON AND
COMMON EQUIVALENT SHARE
Three Months Nine Months
Ended September 30, Ended September 30,
----------------------- ----------------------
1997 1996 1997 1996
---------- ---------- ---------- ---------
(In Thousands, Except Per Share Amounts)
Primary:
Net income applicable to
common stock $ 3,455 $ 1,458 $ 7,171 $ 1,065
========== ========== ========== ==========
Average common shares
outstanding 14, 289 14,286 14,287 14,286
Common stock equivalents:
Stock options 261 109 194 78
---------- ---------- ---------- ----------
Common and common
equivalent shares 14,550 14,395 14,481 14,364
========== ========== ========== ==========
Net income per common
and common equivalent
share $.24 $.10 $.50 $.07
==== ==== ==== ====
Note: No computation of fully diluted net income per common and
common equivalent share is shown as there are no convertible
securities.
Exhibit 15.1
October 21, 1997
FM Properties Inc.
1615 Poydras St.
New Orleans, LA 70112
Gentlemen:
We are aware that FM Properties Inc. has incorporated by
reference in its Registration Statements (File Nos. 33-
78798 and 333-31059) its Form 10-Q for the quarter ended
September 30, 1997, which includes our report dated
October 21, 1997 covering the unaudited interim
financial information contained therein. Pursuant to
Regulation C of the Securities Act of 1933 (the Act),
this report is not considered a part of the registration
statements prepared or certified by our firm or a report
prepared or certified by our firm within the meaning of
Sections 7 and 11 of the Act.
Very truly yours,
/s/Arthur Andersen LLP
Arthur Andersen LLP
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
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