Annual Report (Form 10-K), fiscal year 1994

ITEM 1 - BUSINESS
Except for a discussion of competition, information required by this item is incorporated by reference from portions of Mitchell Energy & Development Corp.'s Annual Report to Stockholders for the fiscal year ended January 31, 1994 furnished to the Commission pursuant to Rule 14a-3(b) under the Securities Exchange Act of 1934 (Annual Report to Stockholders).
Competition
The Registrant is a holding company which conducts all of its operations through its subsidiaries, collectively referred to as "the Company." The Company is one of the nation's largest independent oil and gas producers and is a leading real estate developer in the Houston-Galveston area. Its energy-related operations include the exploration for and production of natural gas and crude oil, production of natural gas liquids (NGLs) and the operation of intrastate pipelines. The Company has substantial real estate holdings, mostly within a 50-mile radius of Houston, Texas.
Within its energy businesses, the Company competes with many companies that have substantially larger financial and other resources or whose operations are more fully integrated than the Company's. The oil and gas industry is highly competitive. There is competition within the industry and also with other industries in supplying the fuel and energy needs of commerce, industry and individuals. Due to relatively higher domestic finding costs and continued unfavorable price levels for oil and gas, many energy companies have chosen in recent years to focus on international activities and to reduce or eliminate their U.S. operations. However, the Company intends to retain its domestic focus and hopes to benefit from lessened competition for prospects and the availability of opportunities for producing property acquisitions. From a competitive standpoint, those focusing on international activities have chosen to seek potentially more prolific opportunities in areas where operations generally are subject to much greater political risk and other uncertainties. Alternatively, the Company has chosen to limit these risks by continuing to operate only in the U.S. Also, the Company's operations and cash flows benefit from the fact that almost one-half of its natural gas production is sold under a long-term contract at prices well above those that are available currently for market-sensitive production.
The Company owns or has interests in over 60 natural gas processing plants located in Texas, Oklahoma and New Mexico, and it ranked 13th in daily domestic NGL production in calendar 1992. The Company also has fractionating equipment at several of its processing plants and owns a 38.75% interest in a large fractionating plant near Mont Belvieu on the upper Texas Gulf Coast. After being fractionated into ethane, propane, butanes and natural gasoline, the NGLs are used by others in the production of plastics, paints, solvents, synthetic rubber, gasoline and a wide variety of other products. Propane also is widely used as a fuel in rural areas for cooking, home heating and crop drying. The Company has entered the downstream business through its one-third interest in a partnership which is constructing a plant at Mont Belvieu, Texas, to produce MTBE, an oxygenate used in the production of environmentally cleaner gasoline. The plant, which has a design capacity of 12,500 barrels per day, is expected to begin production during the summer of 1994.
The Company owns or has interests in intrastate natural gas pipeline systems located in Texas with an aggregate length of over 4,000 miles. The Company's pipeline systems tend to be regional gathering systems which operate in highly competitive local markets. These pipelines intersect with numerous other pipelines, enabling the Company to buy, sell, transport and exchange gas with other pipeline operators. In the fall of 1992, the Company commenced limited operations of its Spindletop Gas Storage Facility, which is expected to improve the Company's competitive position in the petrochemical and industrial markets of Southeast Texas.
The Company's largest real estate development project--The Woodlands--is a 25,000-acre master-planned community with a population approaching 39,000. During each of the last four years, The Woodlands ranked first among Houston's residential communities in lot sales, new home sales and housing starts. The Woodlands Mall is under construction and is projected to open in October 1994 with four major anchor department stores. The Company believes the new mall will be a catalyst for additional commercial land sales and will enhance residential and commercial land values in The Woodlands. The number of residential communities competing for new home buyers in the Houston area is expected to increase, resulting in a reduced market share (based on the percentage of new homes sold) for the master-planned communities. However, with the related expansion in the size of the overall market, the Company anticipates that it will be able to maintain its residential unit sales volume near the level achieved in recent years. Several of the Houston area master-planned communities are owned by companies having substantially greater financial resources than the Company.
The Company's operations have been and may be in the future affected from time to time in varying degree by general economic conditions and by laws and regulations, including restrictions on production, price controls, tax increases and environmental regulations. The Company's energy price realizations are often volatile and generally are affected by world supply and demand conditions. Real estate sales, on the other hand, may be affected by available disposable income, interest rates, availability of financing and numerous other factors.
ITEM 2



ITEM 2 - PROPERTIES
Information required by this item is incorporated by reference from portions of the Annual Report to Stockholders.
OTHER OIL AND GAS RELATED DATA
The following information is required by Sections 3, 5 and 6 of the Securities Act Industry Guide 2, Disclosure of Oil and Gas Operations.
AVERAGE PRODUCTION COST IN EQUIVALENT UNITS(a)
(a) Includes equity partnership interests. (b) Expressed in equivalent units of production with barrels of oil converted to cubic feet of gas based on relative sales value.
UNDEVELOPED ACREAGE At January 31, 1994
- ---------------- (a) Expiring leases may be renewed if conditions warrant. (b) Percentage of the state's net acres located in the indicated areas of concentration. (c) Includes Alabama, Arkansas, California, Kansas, Louisiana, Mississippi, Montana, Nebraska, New York, Oklahoma, Pennsylvania and West Virginia.
DRILLING ACTIVITY (a) For the year ended January 31
___________________________ (a) Excludes service wells; includes equity partnership interests. (b) Mississippi, New York, Ohio and Pennsylvania. (c) An additional 50 wells (41.7 net wells) were in the process of being drilled or completed on January 31, 1994.
ITEM 3

ITEM 3 - LEGAL PROCEEDINGS
A settlement was reached in January 1994 for the previously reported litigation brought against two 45%-owned partnerships by a pipeline purchaser related to three contracts covering natural gas sales in Burleson County, Texas. The settlement agreement provided for new contracts and for no payment of damages by the partnership. While near-term revenues under the new contracts will likely be lower, the Company estimates that total revenues over the terms of these contracts will at least equal those which would have been received under the previous agreements.
ITEM 4

ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of fiscal 1994, no matter was submitted to a vote of security holders, either through the solicitation of proxies or otherwise.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following is a list of the executive officers of the Company as of April 1, 1994.
All of the executive officers, except Mr. Stevens, were elected at a Board of Directors meeting held on June 30, 1993 for a term of one year, or until their respective successors are qualified. Mr. Stevens was elected to the new position of President and Chief Operating Officer at the Board of Directors meeting held on December 10, 1993. His term of office began January 3, 1994 and will extend until the meeting of the Board following the next annual meeting of stockholders or until his successor is duly qualified.
There are no significant family relationships among the officers of the Company, either by blood, marriage or adoption.
PART II
ITEM 5

ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Except for the approximate number of holders of record of common stock securities, information required by this item is incorporated by reference from portions of the Annual Report to Stockholders.
The numbers of holders of Class A Common Stock and of Class B Common Stock at March 31, 1994 were 2,668 and 2,644, respectively. Including those whose shares are carried in street names, the Registrant estimates that there are approximately 9,000 holders of each class of its common stock.
ITEM 6

ITEM 6 - SELECTED FINANCIAL DATA
Information required by this item is incorporated by reference from pages 67 and 68 of the Annual Report to Stockholders under the caption "Historical Summary." Incorporation by reference from these pages is restricted to the information provided under the captions: Revenues, net earnings, net earnings per common share, cash dividends per common share, ratio of earnings to fixed charges, total assets and long-term debt for the fiscal years 1990 through 1994.
ITEM 7

ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Information required by this item is incorporated by reference from pages 29 through 42 of the Annual Report to Stockholders.
ITEM 8


ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information required by this item is incorporated by reference from portions of the Annual Report to Stockholders.
ITEM 9

ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
No Form 8-K's were filed by the Registrant during its fiscal years ended January 31, 1993 and 1994 or any subsequent period reporting a change of accountants or any disagreement on any matter of accounting principles, practices or financial statement disclosure.
PART III
ITEM 10



ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this item is incorporated by reference from portions of the Registrant's definitive Proxy Statement to be filed with the Securities and Exchange Commission within 120 days after January 31, 1994 pursuant to Regulation 14A under the Securities Exchange Act of 1934 (Proxy Statement), under the caption "Election of Directors." See page 6 of this Form 10-K for information regarding Executive Officers of the Registrant.
ITEM 11

ITEM 11 - EXECUTIVE COMPENSATION
Information required by this item is incorporated by reference from portions of the Proxy Statement to be filed with the Securities and Exchange Commission within 120 days after January 31, 1994, under the captions "Executive Compensation" and "Compensation Committee Interlocks and Insider Participation."
ITEM 12

ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this item is incorporated by reference from portions of the Proxy Statement to be filed with the Securities and Exchange Commission within 120 days after January 31, 1994, under the caption "Voting Securities and Principal Holders Thereof."
ITEM 13

ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item is incorporated by reference from portions of the Proxy Statement to be filed with the Securities and Exchange Commission within 120 days after January 31, 1994, under the caption "Certain Transactions."
PART IV
ITEM 14

ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
FINANCIAL STATEMENT SCHEDULES
Schedules not listed above are omitted as the information required to be set forth therein is included in the consolidated financial statements or the footnotes thereto, or the schedules are not applicable.
EXHIBITS
The following exhibits 10(b) through 10(n) filed under paragraph 10 of Item 601 of Regulation S-K are the Company's management contracts and compensation plans or arrangements.
REPORTS FILED ON FORM 8-K
On January 18, 1994, Mitchell Energy & Development Corp. filed a Form 8-K reporting its intention to (1) issue $250 million of 6 3/4% Senior Notes Due 2004 pursuant to the terms of a Senior Debt Indenture dated January 1, 1993, as supplemented by a First Supplemental Indenture dated January 15, 1994, between Mitchell Energy & Development Corp. and NationsBank of Texas, National Association, as trustee and (2) redeem, with the proceeds from such issuance, its $200 million 11 1/4% Senior Notes Due 1999 at 103.21% of their principal amount.
On January 20, 1994, Mitchell Energy & Development Corp. filed a Form 8-K reporting its intention to (1) issue $100 million of 5.10% Senior Notes Due 2004 pursuant to the terms of the Senior Debt Indenture identified in the preceding paragraph and (2) repay floating-rate borrowings under revolving credit agreements of its primary energy and real estate subsidiaries.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Mitchell Energy & Development Corp.
/s/ GEORGE P. MITCHELL April 18, 1994 _________________________________________ George P. Mitchell, Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
/s/ GEORGE P. MITCHELL April 18, 1994 _________________________________________ George P. Mitchell, Chairman and Chief Executive Officer
/s/ BERNARD F. CLARK April 18, 1994 _________________________________________ Bernard F. Clark, Vice Chairman
/s/ W. D. STEVENS April 18, 1994 _________________________________________ W. D. Stevens, Director, President and Chief Operating Officer
/s/ PHILIP S. SMITH April 18, 1994 _________________________________________ Philip S. Smith, Senior Vice President - Administration, Chief Financial Officer and Principal Accounting Officer
/s/ ROBERT W. BALDWIN April 18, 1994 _________________________________________ Robert W. Baldwin, Director
/s/ WILLIAM D. EBERLE April 18, 1994 _________________________________________ William D. Eberle, Director
SIGNATURES (continued)
/s/ SHAKER A. KHAYATT April 18, 1994 _________________________________________ Shaker A. Khayatt, Director
/s/ BEN F. LOVE April 18, 1994 _________________________________________ Ben F. Love, Director
/s/ WALTER A. LUBANKO April 18, 1994 _________________________________________ Walter A. Lubanko, Director
/s/ J. TODD MITCHELL April 18, 1994 _________________________________________ J. Todd Mitchell, Director
/s/ M. KENT MITCHELL April 18, 1994 _________________________________________ M. Kent Mitchell, Director
/s/ MICHAEL B. MORRIS April 18, 1994 _________________________________________ Michael B. Morris, Director
_________________________________________ Raymond L. Watson, Director
/s/ BENJAMIN N. WOODSON April 18, 1994 _________________________________________ Benjamin N. Woodson, Director
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Mitchell Energy & Development Corp.:
We have audited, in accordance with generally accepted auditing standards, the consolidated financial statements included in Mitchell Energy & Development Corp.'s Annual Report to Stockholders incorporated by reference in this Form 10-K, and have issued our report thereon dated April 18, 1994. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The financial statement schedules listed in Item 14 on page 9 are the responsibility of the Company's management and are presented for purposes of complying with rules of the Securities and Exchange Commission, and are not part of the basic financial statements. These financial statement schedules have been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN & CO.
Houston, Texas April 18, 1994
S-1 Mitchell Energy & Development Corp. and Subsidiaries SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDER- WRITERS, PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES FOR THE YEARS ENDED JANUARY 31, 1994, 1993 AND 1992 (in thousands)
___________________________ This receivable, which arose in conjunction with the acquisition of a pipeline company of which Mr. Wilshusen was formerly an owner, bears interest at prime and is secured by a second lien on certain real estate. This loan has been fully reserved.
S-2 Mitchell Energy & Development Corp. and Subsidiaries SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT -- PAGE 1 OF 4
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Mitchell Energy & Development Corp. CONDENSED BALANCE SHEETS January 31, 1994 and 1993 (in thousands)
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Mitchell Energy & Development Corp. CONDENSED STATEMENTS OF EARNINGS For the Years Ended January 31, 1994, 1993 and 1992 (in thousands except per share amounts)
___________________________ The accompanying notes are an integral part of these condensed financial statements.
S-3 Mitchell Energy & Development Corp. and Subsidiaries SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT -- PAGE 2 OF 4
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Mitchell Energy & Development Corp. CONDENSED STATEMENTS OF CASH FLOWS For the Years Ended January 31, 1994, 1993 and 1992
(in thousands)
___________________________ The accompanying notes are an integral part of these condensed financial statements.
S-4 Mitchell Energy & Development Corp. and Subsidiaries SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT -- PAGE 3 OF 4
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Mitchell Energy & Development Corp. NOTES TO CONDENSED FINANCIAL STATEMENTS JANUARY 31, 1994, 1993 AND 1992
(A) General. The accompanying condensed financial statements of Mitchell Energy & Development Corp. (MEDC) should be read in conjunction with the consolidated financial statements and notes thereto included in the Annual Report to Stockholders of Mitchell Energy & Development Corp. and subsidiaries (the Company) for fiscal 1994, which is filed as an exhibit to this annual report on Form 10-K. For information regarding the components of and an analysis of the activity in stockholders' equity, refer to the Consolidated Statements of Stockholders' Equity included in the Company's Annual Report to Stockholders. For information regarding the issuance of Class B shares in fiscal 1994, the reclassification of MEDC's common stock in fiscal 1993 and the Company's stock option and bonus unit plans, see Notes 7 and 10 of Notes to Consolidated Financial Statements included in the Company's Annual Report to Stockholders. Also, see Note 4 for information regarding extraordinary losses from early debt retirements recorded in fiscal 1994 and fiscal 1993 and Note 11 for the cumulative effect of a change in accounting methods for postretirement benefits recorded in fiscal 1993. These charges reduced the reported equity in net earnings of subsidiaries for fiscal 1994 by $5,426,000 and for fiscal 1993 by $7,251,000 and $10,551,000, respectively.
(B) Income Taxes. MEDC is included in the consolidated tax return of the Company. As the parent company, MEDC allocates to its subsidiaries amounts equal to the income taxes that the subsidiaries would pay or receive as a refund if separate returns were filed. MEDC's income tax benefit in fiscal 1992 arose when certain tax carryforwards were estimated to be utilizable that previously had been expected to expire.
(C) Long-term Debt. A summary of outstanding long-term debt at January 31, 1994 and 1993 follows (in thousands):
During January 1994, MEDC called for redemption on February 25, 1994 its $200,000,000 of 11 1/4% Senior Notes Due 1999. This early redemption was completed at a price of 103.21% of principal, and the expensing of this premium and related unamortized debt issuance costs resulted in an extraordinary charge of $5,426,000 (after tax benefit of $2,921,000). This charge was recorded in fiscal 1994 since the loss was incurred when the debt was called in January 1994. Because all proceeds of senior note borrowings are advanced to the operating subsidiaries and all the costs of such indebtedness are rebilled to the subsidiaries, the extraordinary charge was allocated to MEDC's subsidiaries.
During January 1994, MEDC issued $250,000,000 of 6 3/4% Senior Notes Due 2004 and $100,000,000 of 5.10% Senior Notes Due 1997. Initially, the loan proceeds were advanced to MEDC's subsidiaries, which used them to pay down borrowings under their commercial paper and bank revolving credit agreements. In February 1994, the subsidiaries reborrowed a portion of the amounts temporarily paid down and advanced such funds to MEDC to fund the debt redemption mentioned in the preceding paragraph.
S-5 Mitchell Energy & Development Corp. and Subsidiaries SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT -- PAGE 4 OF 4 ================================================================================
On April 13, 1992, MEDC redeemed its $250,000,000 of 11 1/4% Senior Notes Due 1997 using the proceeds of a March 1992 offering of $250,000,000 of 9 1/4% Senior Notes Due 2002. This early redemption was completed at a price of 103.21% of principal, and the expensing of this premium and related unamortized debt issuance costs resulted in an extraordinary charge of $7,251,000 (after tax benefit of $3,736,000), which was allocated to MEDC's subsidiaries as previously discussed.
During July 1992, MEDC issued $100,000,000 of 8% Senior Notes Due 1999. The proceeds of this financing were advanced to MEDC's subsidiaries, which used them to pay down borrowings under their bank revolving credit agreements.
Except for the notes which were redeemed in February 1994, the Company's senior notes have no sinking fund requirements and are not redeemable prior to their respective maturity dates. The senior note indentures contain certain restrictions which, among other things, limit cash dividend payments and additional borrowings, restrict the sale or lease of certain assets and limit MEDC's right to consolidate or merge with other companies. Retained earnings available for the payment of cash dividends totaled $351,954,000 at January 31, 1994.
Certain loan agreements of MEDC's subsidiaries limit the amount of cash advances and dividends that can be paid to MEDC. At January 31, 1994, transfers to MEDC of approximately $1,240,000,000 were available under these agreements.
(D) Debt Guarantees. At January 31, 1994, MEDC was contingently liable for the repayment of approximately $80,000,000 in outstanding debt of subsidiaries and certain of their equity investees. Also, MEDC had contingent liabilities at that date totaling approximately $6,000,000, consisting principally of debt guarantees for nonprofit institutions located in The Woodlands.
(E) General and Administrative Expense Allocation. General and administrative expense in the Condensed Statements of Earnings is net of amounts charged to subsidiaries of $43,222,000; $41,398,000 and $38,184,000 in fiscal 1994, 1993 and 1992. Such costs are allocated based on estimates of time spent and benefits derived by the subsidiaries from the services provided.
(F) Statements of Cash Flows. Short-term investments with a maturity of three months or less are considered to be cash equivalents. Bank revolving credit agreement borrowings with terms of three months or less are excluded from the amounts reported as debt proceeds and repayments. Interest paid totaled $53,625,000; $52,754,000 and $52,032,000 during the years ended January 31, 1994, 1993 and 1992. Income taxes of $12,240,000; $5,935,000 and $11,233,000 were paid during these same periods. There were no significant non-cash investing or financing activities during the three-year period ended January 31, 1994.
(G) Fair Value of Financial Instruments. The following table summarizes the carrying amounts and estimated fair values of MEDC's financial instruments for which it is practicable to estimate that value at January 31, 1994 (in thousands):
The estimated fair values for cash and cash equivalents are assumed to equal their carrying values because of the short maturities of these instruments. Estimated fair values of long-term debt are based on quoted market prices for these instruments. Estimated fair values of financial guarantees and commitments are based on the estimated costs of obtaining letters of credit to relieve MEDC of its obligations under such agreements.
S-6 Mitchell Energy & Development Corp. and Subsidiaries SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT FOR THE YEARS ENDED JANUARY 31, 1994, 1993 AND 1992 (in thousands)
___________________________ * "Other changes" include transfers between asset categories and differences between the Company's equity in earnings (losses) of and distributions from equity investees, the investments in which are included in property, plant and equipment.
S-7 Mitchell Energy & Development Corp. and Subsidiaries SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT FOR THE YEARS ENDED JANUARY 31, 1994, 1993 AND 1992 (in thousands)
- ------------------------- * "Other changes" for gas gathering and transmission for fiscal 1992 consist primarily of reductions related to assets that were contributed to a 45% owned partnership.
S-8 MITCHELL ENERGY & DEVELOPMENT CORP. AND SUBSIDIARIES INDEX TO EXHIBITS
INDEX TO EXHIBITS (Continued)
INDEX TO EXHIBITS (Continued)