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Stratus Properties Inc – ‘10-Q’ for 9/30/97

As of: Thursday, 11/13/97 · For: 9/30/97 · Accession #: 885508-97-16 · File #: 0-19989

  As Of                Filer                Filing    For·On·As Docs:Size

11/13/97  Stratus Properties Inc            10-Q        9/30/97    4:36K

Quarterly Report — Form 10-Q
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        Quarterly Report                                      15     66K 
 2: EX-11       Statement re: Computation of Earnings Per Share        1      5K 
 3: EX-15       Letter re: Unaudited Interim Financial Information     1      6K 
 4: EX-27       Financial Data Schedule (Pre-XBRL)                     1      6K

10-Q — Quarterly Report
Document Table of Contents

Page	(sequential)	\|	(alphabetic)	Top
			Alternative Formats (Word, et al.) Cautionary Statement Exhibits and Reports on Form 8-K Financial Statements Legal Proceedings Management's Discussion and Analysis of Financial Condition and Results of Operations
1	1st Page - Filing Submission
3	Item 1. Financial Statements
9	Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
12	Cautionary Statement
13	Item 1. Legal Proceedings
"	Item 6. Exhibits and Reports on Form 8-K

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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.             

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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               

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FM PROPERTIES INC.            

Part I.  FINANCIAL INFORMATION            

Item 1.   Financial Statements.                                                 

                                                                [Download Table]
                         FM PROPERTIES INC.                        
                CONDENSED BALANCE SHEETS (Unaudited)               

                                        September 30,  December 31,
                                             1997          1996    
                                          ----------    ---------- 
                                               (In Thousands)      
                                                                   
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 
                                          ==========    ========== 

                                                                [Download Table]
                         FM PROPERTIES INC.                                    
                STATEMENTS OF OPERATIONS (Unaudited)                           

                            Three Months Ended          Nine Months Ended      
                               September 30,              September 30,        
                          ------------------------    ------------------------ 
                             1997          1996          1997          1996    
                          ----------    ----------    ----------    ---------- 
                                 (In Thousands, Except Per Share Amounts)      
                                                                               
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 
                              ======        ======        ======        ====== 

The accompanying notes are an integral part of these financial                  
statements.                                                                     

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                                                                [Download Table]
                         FM PROPERTIES INC.                        
                STATEMENTS OF CASH FLOW (Unaudited)                

                                            Nine Months Ended      
                                              September 30,        
                                          ------------------------ 
                                             1997          1996    
                                          ----------    ---------- 
                                               (In Thousands)      
                                                                   
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                                  $        -    $        - 
                                          ==========    ========== 

The accompanying notes are an integral part of these financial                  
statements.                                                                     

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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):            

                                                                [Download Table]
                           BALANCE SHEETS                            

                                          September 30,  December 31,
                                               1997         1996     
                                          ------------   ------------
                                                (In Thousands)       
                                                                     
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   
                                          ==========    ==========   

                                                                [Download Table]
                      STATEMENTS OF OPERATIONS                                 

                                Three Months               Nine Months Ended   
                                   Ended                      September 30,    
                               September 30,                                   
                          ------------------------    ------------------------ 
                             1997          1996          1997          1996    
                          ----------    ----------    ----------    ---------- 
                                             (In Thousands)                    
                                                                               
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 
                          ==========    ==========    ==========    ========== 

(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.                                                                     

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                                                                [Download Table]
                      STATEMENTS OF CASH FLOW                      

                                             Nine Months Ended     
                                               September 30,       
                                          ------------------------ 
                                             1997          1996    
                                          ----------    ---------- 
                                               (In Thousands)      
                                                                   
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 
                                          ==========    ========== 

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.             

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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.                                    

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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                                                                

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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                      

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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                                

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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.                                                        

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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.                             

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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.                                     

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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                                                     

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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

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Dates Referenced Herein and Documents Incorporated by Reference

		Referenced-On Page
This ‘10-Q’ Filing	Date	First	Last	Other Filings

	1/1/98	11
	12/15/97	6
Filed on:	11/13/97	14
	11/3/97	10
	10/27/97	11
	10/21/97	8	15
	10/17/97	11
For Period End:	9/30/97	1	8
	9/5/97	11
	8/27/97	6	10
	8/26/97	6	10
	4/21/97	15
	1/21/97	8
	12/31/96	8	15	10-K405
	12/20/96	15
	9/30/96	8		10-Q, 10-Q/A
	12/31/95	15		10-K405/A
	9/30/95	15
	6/30/95	15
	5/28/92	15
				List all Filings

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Filing Submission 0000885508-97-000016 – Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)

Stratus Properties Inc – ‘10-Q’ for 9/30/97

As of: Thursday, 11/13/97 · For: 9/30/97 · Accession #: 885508-97-16 · File #: 0-19989

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