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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended September 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
COMMISSION FILE NUMBER: 1-4219
ZAPATA CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
C-74-1339132
STATE OF DELAWARE (I.R.S. EMPLOYER
(STATE OR OTHER JURISDICTION OF IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
77056
1717 ST. JAMES PLACE, SUITE 550 (ZIP CODE)
HOUSTON, TEXAS
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 940-6100
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, $0.25 par value........................... New York Stock Exchange
10 1/4% Subordinated Debentures due 1997................ New York Stock Exchange
10 7/8% Subordinated Debentures due 2001................ New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
$2 Noncumulative Convertible Preference Stock, $1 par value.
On December 15, 1995, there were outstanding 29,548,507 shares of the
Company's Common Stock, $0.25 par value. The aggregate market value of the
Company's voting stock held by nonaffiliates of the Company is $64,660,407,
based on the closing price in consolidated trading on December 15, 1995 for the
Company's Common Stock and the value of the number of shares of Common Stock
into which the Company's $2 Noncumulative Convertible Preference Stock was
convertible on such date.
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 .
--- ---
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405
OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. [_]
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Proxy Statement to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934
in connection with the Company's 1996 Annual Meeting of Stockholders are
incorporated by reference into Part III hereof (to the extent set forth in Items
10, 11, 12 and 13 of Part III of this Annual Report on Form 10-K).
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TABLE OF CONTENTS
PAGE
----
PART I
Items 1 and 2. Business and Properties.............................. 1
General............................................. 1
Historical Contributions of Major Divisions......... 2
Marine Protein Operations........................... 3
Oil and Gas Operations.............................. 5
Employees........................................... 8
Geographical Information............................ 8
Executive Officers of the Registrant................ 9
Properties.......................................... 10
Item 3. Legal Proceedings.................................... 10
Item 4. Submission of Matters to a Vote of Security Holders.. 11
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters................................. 12
Item 6. Selected Financial Data.............................. 13
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations................. 14
Item 8. Financial Statements and Supplementary Data.......... 23
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................. 61
PART III
Item 10. Directors and Executive Officers of the Registrant... 61
Item 11. Executive Compensation............................... 61
Item 12. Security Ownership of Certain Beneficial Owners and
Management.......................................... 61
Item 13. Certain Relationships and Related Transactions....... 61
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K......................................... 62
PART I
ITEM 1 AND 2. BUSINESS AND PROPERTIES
GENERAL
Zapata Corporation is a Delaware corporation organized in 1954. As used
herein, the term "Zapata" or the "Company" refers to Zapata Corporation or to
Zapata Corporation and its consolidated subsidiaries, as applicable.
In fiscal 1993, Zapata began to redirect its operations into the natural gas
services market. The Company acquired the common stock of Cimarron Gas Holding
Company ("Cimarron") in fiscal 1993. Cimarron was engaged in the business of
marketing and trading natural gas liquids, as well as gathering and processing
natural gas and its constituent products. Cimarron was purchased to serve as
the vehicle for Zapata's expansion into the gathering and processing segments
of the natural gas services markets. Since being acquired, Cimarron has
purchased additional gathering and processing assets through the acquisition of
Stellar Energy Corporation and three affiliated companies (collectively,
"Stellar") in September 1993. Zapata acquired the natural gas compression
businesses of Energy Industries, Inc. and certain other affiliated companies
(collectively, "Energy Industries") in November 1993. Energy Industries was
engaged in the business of renting, fabricating, selling, installing and
servicing natural gas compressor packages.
In late 1994 and early 1995, the Company began to develop a strategic plan
involving the repositioning of the Company into the food packaging, food and
food service equipment and supply (collectively, "food services") businesses
and exiting the energy business. The strategic plan that was developed called
for the divestiture of most of the Company's remaining energy operations,
including Energy Industries, Cimarron and the Company's remaining domestic oil
and gas assets, and the acquisition of, or joint ventures with, selected
companies in the food services industry.
In September 1994, Zapata's Board of Directors announced that the Company
would immediately undertake efforts to sell its U.S. natural gas producing
properties. The six properties in the Gulf of Mexico, representing Zapata's
domestic oil and gas producing operations, were sold in fiscal 1995. Zapata
received cash of $4.0 million and recorded an $8.9 million receivable
representing (i) a production payment entitling Zapata to a share of revenues
from certain properties and (ii) a share of future proceeds from a revenue
sharing agreement. No gain or loss resulted from the sales. The decision to
sell its U.S. natural gas producing properties did not impact Zapata's Bolivian
oil and gas operations.
In September 1995, Zapata entered into an agreement (the "Purchase
Agreement") to sell the assets of Energy Industries (the "Energy Industries
Sale") to Weatherford Enterra, Inc. and its wholly owned subsidiary, Enterra
Compression Company (collectively, "Weatherford Enterra"). Pursuant to the
Purchase Agreement, Weatherford Enterra purchased from the Company all of the
assets of Energy Industries for approximately $131 million in cash and assumed
certain liabilities of Energy Industries, subject to final post closing
adjustments. The Energy Industries Sale closed on December 15, 1995 after
receiving stockholder approval. The Energy Industries Sale resulted in an
after-tax gain of approximately $14.0 million, which will be reflected in the
Company's fiscal 1996 financial results. Although a sale price for Cimarron has
not been determined, the Company estimates that, based on preliminary
indications of interest from potential purchasers, the minimum sale price for
Cimarron should be at least equal to book value. The Company expects to
complete the sale of Cimarron in fiscal 1996.
In 1994, the Board of Directors determined that the interests of Zapata's
stockholders would best be served by a sale of the marine protein operations.
In March 1995, the Company executed an agreement to sell its marine protein
operations to an investor group. However, that agreement was terminated in
April 1995 due to the investor group's failure to obtain sufficient financing.
The Company has since decided to retain the marine protein operations.
1
In August 1995, the Company purchased 4,189,298 shares, or 31%, of the common
stock of Envirodyne Industries, Inc. ("Envirodyne") for $18.8 million from a
trust controlled by Malcolm Glazer, Chairman of the Board of the Company and,
through his beneficial ownership of a trust, a major stockholder of the
Company. Mr. Glazer is also a director of Envirodyne. Such shares represented
all of Mr. Glazer's ownership interest in Envirodyne. The Company paid the
purchase price by issuing a subordinated promissory note bearing interest at
the prime rate and maturing in August 1997, subject to prepayment at the
Company's option. The Company has since prepaid approximately $15.6 million on
the promissory note. Envirodyne is a major supplier of food packaging products
and food service supplies and is a leading worldwide producer of cellulosic
casings used in the preparation of packaging of processed meat products. It is
the world's second largest producer of heat shrinkable plastic bags and
specialty films for packaging and preserving fresh and processed meat products,
poultry and cheeses. Envirodyne is also a leading domestic producer of (i)
disposable plastic cutlery, drinking straws, custom dining kits and related
products and (ii) thermo-formed and injection-molded plastic containers and
horticultural trays and inserts. The Company may continue to evaluate the
acquisition of additional shares of Envirodyne common stock or proposing a
merger with, or acquisition of, Envirodyne in the future, although the Company
currently has no plans or proposals to do so.
The Company sold its remaining 673,077 shares of Tidewater Inc. ("Tidewater")
common stock in fiscal 1995. Zapata sold 3.5 million and 4.1 million shares of
Tidewater common stock in 1993 and 1994, respectively.
HISTORICAL CONTRIBUTIONS OF MAJOR DIVISIONS
The following table summarizes historical revenues, operating results (before
net interest expense, other income and income taxes), identifiable assets,
depreciation, depletion and amortization and capital expenditures for the
Company's continuing operations, by major division, for the periods indicated.
As a result of the decision to sell the natural gas compression and natural gas
gathering, processing and marketing operations, the Company's financial
statements have been restated in 1995 to reflect these operations as
discontinued operations, and therefore are not included below.
OPERATING DEPRECIATION,
AS OF OR FOR THE YEAR INCOME IDENTIFIABLE DEPLETION AND CAPITAL
ENDED SEPTEMBER 30, REVENUES (LOSS) ASSETS AMORTIZATION EXPENDITURES
--------------------- -------- --------- ------------ ------------- ------------
(IN THOUSANDS)
1995
Marine protein.......... $ 94,959 $ (6,437)(1) $ 85,012 $14,977(1) $ 5,573
Oil and gas............. 8,109 658 13,571 2,856 1,767
Corporate............... (3,441) 38,914 115 1
-------- -------- -------- ------- -------
$103,068 $ (9,220) $137,497 $17,948 $ 7,341
======== ======== ======== ======= =======
1994
Marine protein.......... $ 96,614 $ 5,445 $ 87,565 $ 4,535 $ 3,671
Oil and gas............. 12,549 (28,285)(3) 20,062 33,770(3) 11,792
Corporate............... (8,767) 44,044(2) 2,321 67
-------- -------- -------- ------- -------
$109,163 $(31,607) $151,671 $40,626 $15,530
======== ======== ======== ======= =======
1993
Marine protein.......... $ 58,565 $ 4,296 $ 92,728 $ 4,510 $ 1,477
Oil and gas............. 20,189 6,032 41,630 7,688 1,327
Corporate............... (6,769) 169,888(2) 378 8
-------- -------- -------- ------- -------
$ 78,754 $ 3,559 $304,246 $12,576 $ 2,812
======== ======== ======== ======= =======
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(1) Includes a $12.3 million provision for asset impairment to reduce the
marine protein assets to their fair market value as a result of adopting
Statement of Financial Accounting Standards No. 121.
2
(2) Includes Zapata's investment in Tidewater, which was sold through a series
of transactions effected in fiscal 1995, 1994 and 1993.
(3) Includes a $29.2 million provision for oil and gas property valuation
required as a result of low gas prices and a revision of estimated future
costs.
The net amounts of interest expense (net of interest income), other income
and income tax expense (benefit) from continuing operations are set forth
below.
INCOME
TAX
INTEREST OTHER EXPENSE
YEAR ENDED SEPTEMBER 30, EXPENSE INCOME (BENEFIT)
------------------------ -------- ------- ---------
(IN THOUSANDS)
1995...................................... $1,789 $ 1,986(1) $(3,179)
1994...................................... 2,983 33,161(1) (572)
1993...................................... 12,414 23,523(1) 4,210
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(1) Includes pretax gains of $4.8 million, $37.5 million and $32.9 million in
fiscal 1995, 1994 and 1993 respectively, from sales of Tidewater, Inc.
common stock.
MARINE PROTEIN OPERATIONS
The Company's marine protein operations involve the production and sale of a
variety of protein and oil products from menhaden, a species of fish found
along the Gulf of Mexico and Atlantic coasts. Because the magnitude of the fish
catch depends on the availability of the natural resource, which is affected by
various factors beyond the Company's control, and because the prices for the
Company's products are established by worldwide supply and demand relationships
over which the Company has no control, the Company cannot predict the
profitability of this business segment in any given year.
Fishing. The Company owns a fleet of 51 fishing vessels and 27 spotter
aircraft for use in its fishing operations and also leases aircraft where
necessary to facilitate operations. During the 1995 fishing season in the Gulf
of Mexico, where the fishing season runs from mid-April through October, the
Company operated 32 fishing vessels and 26 spotter aircraft. The fishing area
in the Gulf stretches from the south Texas coastline to the panhandle of
western Florida, with a concentration off the Louisiana and Mississippi coasts.
The fishing season on the Atlantic coast begins in early May and usually
extends into December. The Company operated 9 fishing vessels and 8 spotter
aircraft along the mid-Atlantic coast, concentrated in and around the
Chesapeake Bay.
Menhaden usually school in large, tight clusters and are commonly found in
warm, shallow waters. Spotter aircraft locate the schools and direct the
fishing vessels to them. The principal fishing vessels are steamers, which
transport two 40-foot purse boats, each carrying several fishermen and one end
of a 1,500-foot net. The purse boats encircle the school and capture the fish
in the net. The fish are then pumped from the net into refrigerated holds of
the steamer, and then are unloaded at the Company's processing plants.
Processing. The Company owns five processing plants--three in Louisiana, one
in Mississippi and one in Virginia--where the menhaden are processed into fish
meal, fish oil and fish solubles. The fish are unloaded from the vessels into
storage boxes and then conveyed into steam cookers. The fish are then passed
through presses to remove most of the oil and water. The solid portions of the
fish are dried and then ground into fish meal. The liquid that is produced in
the cooking and pressing operations contains oil, water, dissolved protein and
some fish solids. This liquid is decanted to remove the solids and is then put
through a centrifugal oil/water separation process. The separated fish oil is a
finished product. The separated water and protein mixture is further processed
through evaporators to remove the soluble protein, which can be sold as a
finished product or added to the solid portions of the fish for processing into
fish meal.
3
Fish meal, the principal product made from menhaden, is sold primarily as a
high-protein ingredient. It is also used as a protein supplement in feed
formulated for pigs and other livestock. Each use requires certain standards to
be met regarding quality and protein content, which are determined by the
freshness of the fish and by processing conditions such as speed and
temperatures. Fish solubles are a liquid protein product used as an additive in
fish meal and also marketed as an independent product to animal feed
formulators and the fertilizer industry.
Fish oil from menhaden is widely used for human consumption as an edible fat
in Europe. Refined and hydrogenated menhaden oils have a wide variety of
applications as ingredients of margarine, cooking oil and solid cooking fats
used in baked goods. The U.S. Food and Drug Administration has approved the use
of fully hydrogenated menhaden oil and partially hydrogenated menhaden oil for
human consumption in the United States and is considering a petition for use of
refined unhydrogenated menhaden oil for human consumption in the United States.
In October 1995, the Company announced plans to cease processing operations
in 1996 at its Dulac, Louisiana plant. The Company's decision was based on the
anticipated capital expenditures and operating capital requirements necessary
to maintain the long-term viability of the Dulac processing operation. The
entire harvesting effort previously managed from this location, as well as a
significant portion of the processing assets, will be redeployed to other
Company facilities. Therefore, the Company's harvesting efforts in future years
are expected to remain comparable to recent years, and the Company's processing
capabilities will not be significantly changed.
In August 1993, the Company acquired a 60% equity interest in Venture Milling
Company ("Venture"), a Delaware corporation involved in the milling of animal
feeds and protein-ingredient products for the poultry, hog and dairy
industries. Venture leases and operates a feed mill in Seaford, Delaware and
manages its processing operations and sales activities independently of the
Company. The Company consolidates the financial results of Venture. The
Company's financial results for the 1995 or 1994 fiscal years were not
materially impacted by activity related to Venture.
Marketing. Most of the Company's marine protein products are sold directly to
about 300 customers by the Company's marketing department, while a smaller
amount is sold through independent sales agents. Total product inventory (at
the lower of average cost or market) was $22,947,000 as of September 30, 1995
compared to $34,143,000 on September 30, 1994. While the fishing season usually
extends from April into December, sales from inventory continue throughout the
year.
The Company's fish meal is primarily sold to domestic feed producers for
utilization as a high-protein ingredient for the poultry industry. Fish oil
sales primarily involve export markets where the fish oil is refined for use as
an edible oil. One customer for fish oil, Unilever Raw Material B.V., accounted
for approximately 11.9% of the Company's consolidated revenues in fiscal 1995,
and lesser amounts in the two preceding years. Sales to Unilever Raw Material
B.V. were approximately $12.3 million in 1995.
Competition. The principal competition for the Company's fish meal and fish
solubles is from other protein sources such as soybean meal and other vegetable
or animal products. The Company believes, however, that these other sources are
not complete substitutes because fish meal offers nutritional values not
contained in such sources. Vegetable fats and oils, such as soybean and palm
oils, provide the primary market competition for fish oil. In addition, the
Company competes against domestic, privately owned menhaden fishing companies
as well as international producers of fish meal and fish oil derived from
species such as anchovy and mackerel.
Fish meal prices generally bear a direct relationship to prevailing soybean
meal prices, while prices for fish oil are generally influenced by prices for
vegetable fats and oils, such as soybean and palm oils. Thus, the prices for
the Company's products are established by worldwide supply and demand
relationships over which the Company has no control and tend to fluctuate to a
significant extent over the course of a year and from year to year.
4
Regulation. The Company's marine protein operations are subject to federal,
state and local laws and regulations relating to the location and periods in
which fishing may be conducted, as well as environmental and safety matters.
The Company, through its operation of fishing vessels, is subject to the
jurisdiction of the U.S. Coast Guard, the National Transportation Safety Board
and the U.S. Customs Service. The U.S. Coast Guard and the National
Transportation Safety Board set safety standards and are authorized to
investigate vessel accidents and recommend improved safety standards. The U.S.
Customs Service is authorized to inspect vessels at will.
The marine protein operations of the Company also are subject to federal,
state and local laws and regulations relating to the protection of the
environment, including the federal Water Pollution Control Act of 1972, which
was significantly modified in 1977 to deal with toxic water pollutants and re-
named as the Clean Water Act, and which imposes strict controls against the
discharge of oil and other water pollutants into navigable waters. The Clean
Water Act provides penalties for any discharge of pollutants in reportable
quantities and, along with the Oil Pollution Act of 1990, imposes substantial
liability for the costs of oil removal, remediation and damages. The Company's
marine protein operations also are subject to the federal Clean Air Act, as
amended; the federal Resource Conservation and Recovery Act, which regulates
treatment, storage and disposal of hazardous wastes; the federal Comprehensive
Environmental Response, Compensation, and Liability Act, which imposes
liability, without regard to fault, on certain classes of persons that
contributed to the release of any "hazardous substance" into the environment;
and the federal Occupational Safety and Health Act ("OSHA"). The OSHA hazard
communications standard, the Environmental Protection Agency community right-
to-know regulations under Title III of the federal Superfund Amendment and
Reauthorization Act and similar state statutes require the Company to organize
information about hazardous materials used or produced in its operations.
Certain of this information must be provided to employees, state and local
governmental authorities and local citizens. Numerous other environmental laws
and regulations, along with similar state laws, also apply to the marine
protein operations of the Company, and all such laws and regulations are
subject to change.
The Company has made, and anticipates that it will make in the future,
expenditures in the ordinary course of its business in connection with
environmental matters. Such expenditures have not been material in the past and
are not expected to be material in the future. However, there is no assurance
that environmental laws and regulations enacted in the future will not
adversely affect the Company's marine protein operations.
OIL AND GAS OPERATIONS
The Company's only significant remaining oil and gas exploration and
production activity is the production of natural gas in Bolivia. During fiscal
1995, the Company sold its U.S. oil and gas properties in the Gulf of Mexico
for $4.0 million cash and an $8.9 million receivable representing (i) a
production payment entitling Zapata to a share of revenues from certain
properties and (ii) a share of future proceeds from a revenuing sharing
agreement. No gain or loss resulted from the sales. The Company conducts oil
and gas operations through its wholly owned subsidiary, Zapata Exploration
Company ("Zapex").
The Company's decision to sell its U.S. properties did not impact its
Bolivian oil and gas operations. The Company believes the value of the Bolivian
operation would be enhanced by the construction of a proposed gas pipeline
connecting Bolivia's gas producing regions to gas markets in Brazil. The
governments of Bolivia and Brazil currently support this project and a multi-
national group has been formed to construct and operate the pipeline. The
project is progressing toward commencement of construction. Pipeline operations
are currently projected to commence during the late 1990s.
In 1987, the Company wrote off its remaining investment in its oil and gas
properties in Bolivia (held by a joint venture in which the Company has an
approximate 25% interest), and all cash proceeds received by the Company
thereafter that relate to periods prior to 1988 have been recognized as
revenues. The write-off resulted from the failure of the Bolivian state-owned
petroleum company to honor its commitment to pay the joint venture for gas
deliveries on a timely basis and to remit past-due payments on an agreed
schedule. The
5
Bolivian properties continue to be operated by the joint venture, which began
receiving payments with respect to current and past-due invoices on June 30,
1991. Based on the Bolivian oil and gas company's performance under
renegotiated contracts and improved operating conditions, Zapata returned to
the accrual method of accounting for its Bolivian oil and gas operations
beginning in October 1993. The Company recorded revenues of $4.1 million in
fiscal 1994 from its Bolivian interest. During 1995, the Company recorded
revenues of $2.7 million.
Since 1993, the Company committed to participate in the drilling of four
exploratory wells in its Bolivian operation, two of which were drilled in 1994,
one during 1995 and the fourth is scheduled to be drilled during 1996.
The Company's oil and gas operations are subject to all of the risks and
hazards typically associated with the exploration for, and production of, oil
and gas, including blowouts, cratering, oil spills and fires, as well as
political, each of which could result in damage to or destruction of oil and
gas wells, production facilities or other property or the environment or injury
to persons. Although the Company maintains customary insurance coverage, it is
not fully insured against such risks, either because such insurance is not
available or because of high premium costs. In addition, the Company's
investment in its Bolivian oil and gas properties is that of a minority
interest owner. Accordingly, the majority owner has the right to determine the
details of any exploration and development drilling program.
Oil and Gas Reserves. The following table sets forth information as to the
Company's proved and proved developed reserves of oil and natural gas as of
September 30, 1995, 1994 and 1993:
UNITED STATES BOLIVIA
-------------- --------------
GAS LIQUIDS GAS LIQUIDS
(MMCF) (MBBL) (MMCF) (MBBL)
------ ------- ------ -------
TOTAL PROVED RESERVES AS OF:
September 30, 1995....................... -- -- 29,552 683.5
September 30, 1994....................... 34,736 366.8 27,317 744.4
September 30, 1993....................... 40,735 360.4 22,534 721.9
TOTAL PROVED DEVELOPED RESERVES AS OF:
September 30, 1995....................... -- -- 29,552 683.5
September 30, 1994....................... 27,386 221.3 27,317 744.4
September 30, 1993....................... 28,181 200.9 22,534 721.9
As used herein, the term "Mcf" means thousand cubic feet, the term "MMcf"
means million cubic feet, the term "Bbl" means barrel and the term "MBbl" means
thousand barrels. Liquids include crude oil, condensate and natural gas
liquids.
The reserve estimates presented herein were prepared by Huddleston & Co.,
Inc. ("Huddleston"), independent petroleum reserve engineers. Since September
30, 1995, no major favorable or adverse event has occurred which the Company
believes significantly affects or changes estimated reserve quantities as of
that date. Zapata is not a party to any contracts that include an obligation to
provide a fixed and determinable quantity of oil and gas in the future. No
estimates of the Company's proved net oil or gas reserves have been filed with
or included in reports to any federal authority or agency other than the
Securities and Exchange Commission since October 1, 1994.
There are numerous uncertainties inherent in estimating quantities of proved
reserves, including many factors beyond the control of the producer. The
reserve data set forth herein represent only estimates. Reserve engineering is
a subjective process of estimating underground accumulations of crude oil and
natural gas that cannot be measured in an exact manner, and the accuracy of any
reserve estimate is a function of the quality of available data and of
engineering and geological interpretation and judgment. As a result, estimates
of
6
different engineers often vary. In addition, results of drilling, testing and
production subsequent to the date of an estimate may justify revision of such
estimate. Accordingly, reserve estimates are often different from the
quantities of crude oil and natural gas that are ultimately recovered. The
meaningfulness of such estimates is highly dependent upon the accuracy of the
assumptions upon which they were based.
Production and Sales. The following table sets forth the Company's production
of oil and gas, net of all royalties, overriding royalties and other
outstanding interests, for the three years ended September 30, 1995, 1994 and
1993. Natural gas production refers only to marketable production of gas on an
"as sold" basis.
UNITED STATES BOLIVIA
-------------- --------------
GAS LIQUIDS GAS LIQUIDS
(MMCF) (MBBL) (MMCF) (MBBL)
------ ------- ------ -------
PRODUCTION VOLUMES FOR THE YEAR ENDED:
September 30, 1995...................... 2,996 44.7 1,724 53.3
September 30, 1994...................... 3,456 73.0 1,967 68.9
September 30, 1993...................... 7,067 47.1 1,665 55.3
The following table shows the average sales prices received by the Company
for its production for the three years ended September 30, 1995, 1994 and 1993:
UNITED STATES BOLIVIA
------------- -------------
GAS LIQUIDS GAS LIQUIDS
(MCF) (BBL) (MCF) (BBL)
----- ------- ----- -------
AVERAGE SALES PRICES FOR THE YEAR ENDED:
September 30, 1995........................ $1.54 $15.21 $1.28 $18.98
September 30, 1994........................ 2.08 14.67 1.34 12.64
September 30, 1993........................ 2.32 16.53 1.15 17.41
The following table shows the average production (lifting) costs per unit of
production of liquids and gas based on equivalent Mcf for the three years ended
September 30, 1995, 1994 and 1993:
UNITED
STATES BOLIVIA
------ --------
AVERAGE PRODUCTION COSTS FOR THE YEAR ENDED:
September 30, 1995.................................... $ .96 $.54
September 30, 1994.................................... 1.42 .22
September 30, 1993.................................... .77 .05
Production (lifting) costs are costs incurred to operate, maintain and
workover certain wells and related equipment and facilities. They do not
include depreciation, depletion and amortization of capitalized acquisition,
exploration and development costs, exploration expenses, general and
administrative expenses, interest expense or income tax. Production costs for
fiscal 1994 include the effects of $600,000 in workover expense incurred as a
part of the Wisdom gas field workover and recompletion programs completed in
September 1994. Differences between sales prices and production (lifting) costs
do not represent profit.
Productive Wells and Acreage. On September 30, 1995, the Company's Bolivian
oil and gas properties consisted of working interests in 18 gross gas wells
(4.65 net wells) capable of production. The Company does not operate any wells.
The following table shows the number of producing wells and wells capable of
production as of September 30, 1995:
BOLIVIA
--------
OIL GAS
--- ----
PRODUCTIVE OIL AND GAS WELLS:
Gross.......................................................... -- 18
Net............................................................ -- 4.65
7
One or more completions in the same bore hole are counted as one well. Twelve
gross (3.00 net) gas wells in Bolivia are dual completions. A "gross well" is a
well in which the Company owns a working interest. A "net well" is deemed to
exist when the sum of the fractional working interests owned by the Company in
gross wells equals one.
The following table sets forth certain information with respect to the
developed and undeveloped acreage of the Company as of September 30, 1995:
DEVELOPED(1) UNDEVELOPED(2) TOTAL
--------------- ----------------- -----------------
GROSS(3) NET(4) GROSS(3) NET(4) GROSS(3) NET(4)
-------- ------ --------- ------- --------- -------
ACREAGE
Bolivia................... 5,760 1,456 1,261,920 337,628 1,267,680 339,084
- --------
(1) Developed acreage is acreage spaced or assignable to productive wells.
(2) Undeveloped acreage is acreage on which wells have not been drilled or
completed to a point that would permit the production of commercial
quantities of oil and gas, regardless of whether such acreage contains
proved reserves.
(3) A "gross acre" is an acre in which a working interest is owned. The number
of gross acres represents the sum of acres in which a working interest is
owned.
(4) A "net acre" is deemed to exist when the sum of the fractional working
interests in gross acres equals one. The number of net acres is the sum of
the fractional working interests in gross acres expressed in whole numbers
or fractions thereof.
Drilling Activity. Since September 30, 1993, the Company has participated in
drilling three exploratory wells in its Bolivian operation that achieved total
depth. The first and third wells, the Los Suris #2 and the Palo Marcado #1,
were successful in discovering gas reserves. The second well, the San Antonio
#1, has been temporarily abandoned.
Marketing. The revenues generated by the Company's exploration and production
operations are highly dependent upon the prices of, and demand for, natural
gas, and, to a lesser extent, oil. For the last several years, prices of oil
and gas have reflected the worldwide surplus of supply over demand.
Market conditions for oil and gas are the result of a number of factors
outside the control of the Company, including changing economic conditions,
seasonal weather conditions, loss of markets to alternative fuels, increased
foreign production, government regulation and the failure or success of members
of OPEC to agree to and maintain price and production controls.
EMPLOYEES
At December 18, 1995, the Company and its subsidiaries employed approximately
1,150 persons. Approximately 117 employees of the Company's marine protein
operations are represented by an affiliate of the United Food and Commercial
Workers Union. The Company considers its employee relations to be generally
satisfactory.
GEOGRAPHICAL INFORMATION
Certain geographical information with respect to the Company's business is
set forth in Note 16 of Notes to Consolidated Financial Statements.
8
EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages and current offices of the executive officers of the Company,
who are to serve until the next annual meeting of the Board of Directors to be
held in 1996, are set forth below. Also indicated is the date when each such
person commenced serving as an executive officer of the Company.
DATE BECAME
NAME AND AGE OFFICE EXECUTIVE OFFICER
------------ ------ -----------------
President and Chief
Avram A. Glazer (34)............. Executive Officer March 1995
Chairman of the Board of
Malcolm I. Glazer (67)........... Directors July 1994
Ronald C. Lassiter (63).......... Chairman and Chief
Executive Officer of
Zapata Protein, Inc. March 1970
Lamar C. McIntyre (57)........... Vice President, Chief
Financial Officer,
Treasurer and Assistant
Secretary October 1994
Joseph L. von Rosenberg III (37). Executive Vice
President, General
Counsel and Corporate
Secretary August 1994
A description of the business experience during the past five years for each
of the executive officers of Zapata is set forth below.
Avram A. Glazer, a director since 1993, has served as President and Chief
Executive Officer of the Company since March 1995. For the past five years, he
has been employed by, and has worked on behalf of, Malcolm I. Glazer and a
number of entities owned and controlled by Malcolm I. Glazer, including Florida
Management Office, TV Management Office, Farmington Mobile Home Park, Inc.,
Century Development Corporation d/b/a KGNS Laredo, and Canadaigua Mobile Park.
Mr. Glazer's principal responsibilities include identifying, implementing,
monitoring and disposing of Malcolm I. Glazer's investment interests. Mr.
Glazer also serves as director of the Houlihan's Restaurant Group, Inc. and is
a director of Specialty Equipment Companies, Inc. and Envirodyne Industries,
Inc. Avram A. Glazer is the son of Malcolm I. Glazer.
Malcolm I. Glazer, a director since 1993, has served as Chairman of the Board
of Directors since July 1994 and served as President and Chief Executive
Officer from August 1994 until March 1995. Mr. Glazer has been a self-employed,
private investor whose diversified portfolio consists of investments in a
National Football League football team, television broadcasting, restaurants,
restaurant equipment, health care, banking, real estate, stocks, government
securities and corporate bonds, for more than the past five years. He is a
director and Chairman of the Board of the Houlihan's Restaurant Group, Inc. and
also is a director of Specialty Equipment Companies, Inc. and Envirodyne
Industries, Inc. He serves on the Executive Committee and Nominating Committee
of the Company's Board of Directors. His current term of office as a director
expires in 1996. Malcolm I. Glazer is the father of Avram A. Glazer.
Ronald C. Lassiter has been a director since 1974. Mr. Lassiter served as
Acting Chief Operating Officer of the Company from December 1994 to March 1995.
He served as Chairman of the Board of Directors of Zapata from December 1985 to
July 1994. From January 1983 to July 1994, he served as Chief Executive Officer
of Zapata, and from July 1994 until December 1994, he served as Chairman and
Chief Executive Officer of Zapata Protein, Inc. In December 1994, Mr. Lassiter
withdrew from an active management role with Zapata Protein, Inc. as a result
of his participation in a group seeking to acquire that subsidiary. That
proposed acquisition was not consummated, and Mr. Lassiter resumed his active
management role as Chairman and Chief Executive Officer of Zapata Protein, Inc.
pursuant to the consulting agreement described under "Employment Agreements and
Other Incentive Plans." He has served in various positions with Zapata since
1970, and he served as a director of Zapata Gulf Marine Corporation from
November 1984 to January 1992. Mr. Lassiter also serves as a director of Daniel
Industries, Inc.
9
Lamar C. McIntyre has served as Vice President, Chief Financial Officer and
Treasurer since October 1994. He served as Vice President, Tax from October
1990 through November 1991, and Vice President, Tax and Treasurer from December
1991 through September 1994.
Joseph L. von Rosenberg III has served as Executive Vice President since
November 1995. He has served as General Counsel since August 1994 and Corporate
Secretary since June 1993. From August 1994 through November 1995, Mr. von
Rosenberg also held the position of Vice President of the Company. Prior to
joining Zapata in June 1993, he served as General Counsel and Corporate
Secretary of both The Permian Corporation and Simmons Corporation.
PROPERTIES
In addition to the properties discussed above with respect to each business
segment, the Company leases office space in Houston, Texas for its executive
offices pursuant to a lease which will expire in 2000. The Company believes its
facilities are adequate and suitable for its current level of operations. The
Company maintains customary compensation, liability, property and marine
insurance for all of its operations.
ITEM 3. LEGAL PROCEEDINGS
On August 11, 1995, a purported derivative lawsuit was filed in a case styled
Harwin v. Glazer, et al., in the Court of Chancery of the State of Delaware in
and for New Castle County. The complaint names the Company and each of its
directors as defendants and generally alleges that the Company's directors
engaged in conduct constituting breach of fiduciary duty and waste of the
Company's assets in connection with the Company's investment in Envirodyne (for
information on the Company's investment in Envirodyne, see "Envirodyne
Ownership Interest" above). The complaint alleges, among other things, that the
purchase of the Envirodyne common stock from Malcolm Glazer's affiliate was a
wrongful expenditure of the Company's funds and was designed to permit Malcolm
Glazer to obtain substantial personal financial advantages to the detriment of
the Company. The complaint seeks relief including, among other things,
rescission of the Company's purchase of the shares of Envirodyne common stock
from the trust controlled by Malcolm Glazer, voiding of the election of Robert
V. Leffler, Jr. and W. George Loar (both of whom were elected at the Company's
Annual Meeting of Stockholders held on July 27, 1995) and an award of
unspecified compensatory damages and expenses, including attorneys' fees. The
complaint alleges, among other things, that Messrs. Leffler and Loar (both of
whom served on the special committee of the Company's Board of Directors that
approved the investment in Envirodyne) lack independence from Malcolm Glazer
because, in the case of Mr. Loar, he was employed by a corporation indirectly
controlled by Malcolm Glazer until Mr. Loar's retirement (which occurred more
than five years ago), and in the case of Mr. Leffler, that he has served as a
paid consultant to Malcolm Glazer. The Company believes that the complaint and
allegations contained therein are without merit and intends to defend the case
vigorously.
On November 16, 1995, a petition was filed in the 148th Judicial District
Court of Nueces County, Texas by Peter M. Holt, a former director of the
Company, and certain of his affiliates who sold their interests in Energy
Industries to the Company in November 1993 (collectively, with Mr. Holt, the
"Holt Affiliates"). The petition lists the Company, Malcolm Glazer and Avram
Glazer as defendants and alleges several causes of action based on alleged
misrepresentations on the part of the Company and the other defendants
concerning the Company's intent to follow a long-term development strategy
focusing its efforts on the natural gas services business. The petition did not
allege a breach of any provision of the purchase agreement pursuant to which
the Company acquired Energy Industries from the Holt Affiliates, but alleged
that various representatives of Zapata and Malcolm Glazer made representations
to Mr. Holt regarding Zapata's intention to continue in the natural gas
services industry. Among the remedies sought by the petition are the following
requests: (i) the Company's repurchase of the approximately 2.8 million shares
of Zapata common stock owned by the Holt Affiliates for $15.6 million, an
amount that represents a premium of approximately $4.7
10
million, or more than 40%, over the market value of such number of shares based
on the closing price of Zapata's common stock on November 16, 1995; (ii) the
disgorgement to the Holt Affiliates of Zapata's profit to be made on its sale
of Energy Industries; or (iii) money damages based on the alleged lower value
of the Common Stock had the alleged misrepresentations not been made. The
Company believes that the petition and the allegations made therein are without
merit and intends to defend the case vigorously.
From time to time, the Company is involved in litigation relating to claims
arising out of its operations in the normal course of its business. The Company
maintains insurance coverage against potential claims in an amount which it
believes to be adequate. In the opinion of management, uninsured losses, if
any, resulting from these matters and from the matters discussed above will not
have a material adverse effect on Zapata's results of operations, cash flows or
financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The information set forth in Item 4 of Zapata's Quarterly Report on Form 10-Q
for the fiscal quarter ended June 30, 1995, as amended by a Form 10-Q/A filed
on November 13, 1995, is incorporated herein by reference.
11
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Zapata's Common Stock is listed on the New York Stock Exchange. On April 27,
1994, Zapata's stockholders approved a one-for-five reverse stock split (the
"Reverse Stock Split") effective May 3, 1994, which reduced the number of
common shares outstanding from approximately 158.3 million to approximately
31.7 million. The number of authorized shares remained at 165.0 million and par
value of the Common Stock was unchanged. Unless the context otherwise requires,
all references in this Report to Common Stock share and per share amounts
reflect the Reverse Stock Split. The high and low sales prices for the Common
Stock, as reported in the consolidated transactions reporting system and
adjusted to reflect the reverse stock split for each quarterly period for the
last two fiscal years, as well as the amount per share of dividends declared
with respect to the Common Stock during such periods, are shown in the
following table.
SEPTEMBER 30, JUNE 30, MARCH 31, DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31, DECEMBER 31,
QUARTER ENDED: 1995 1995 1995 1994 1994 1994 1994 1993
- -------------- ------------- -------- --------- ------------ ------------- -------- --------- ------------
High sales price........ $4.63 $4.38 $4.13 $4.50 $5.50 $6.25 $6.88 $8.13
Low sales price......... 2.88 2.50 3.25 3.25 4.00 4.00 5.63 5.00
Dividends declared...... -- -- -- -- 0.035 0.035 -- --
The Company announced in December 1994 that its Board of Directors had
determined to discontinue indefinitely the payment of dividends on its Common
Stock and $2 Noncumulative Convertible Preference Stock ("Preference Stock").
The rights of holders of the Common Stock to receive dividends or other
payments with respect thereto are subject to the prior and superior rights of
holders of Zapata's Preferred Stock and Preference Stock, then outstanding. As
of the date of this Report, Zapata had outstanding 2,627 shares of Preference
Stock.
As of June 30, 1994, Zapata redeemed one-half of the approximately 45,000
outstanding shares of the Company's $6 Cumulative Preferred Stock at $100 per
share. The Company redeemed the balance of its outstanding $6 Cumulative
Preferred Stock in January 1995.
On December 15, 1995, there were 9,694 holders of record of Common Stock.
12
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain selected financial information for the
periods presented and should be read in conjunction with the Consolidated
Financial Statements of the Company and the related notes thereto and with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in this Report. The selected financial information
contained herein has been restated to reflect the Company's marine protein
operations as a continued operation as a result of the Company's decision to
retain these operations. The Company's Form 10-K for the fiscal year ended
September 30, 1994 reflected the marine protein operations as a discontinued
operation. The Company's financial statements were also restated in 1995 to
reflect the Company's natural gas compression and natural gas gathering,
processing and marketing operations as discontinued operations.
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- ------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE)
INCOME STATEMENT DATA:
Revenues.............. $103,068 $109,163 $78,754 $106,413 $93,410
Operating income
(loss)............... (9,220)(1) (31,607)(2) 3,559 10,901 3,063
Income (loss) from
continuing
operations........... (5,844) (857)(3) 10,458(4) 2,431 2,087
Per share income
(loss) from
continuing
operations........... (0.19) (0.04) 0.37 0.08 0.07
Cash dividends paid... 1,153 1,566 2,933 -- --
Common Stock,
dividends declared,
per share............ -- 0.07 -- -- --
CASH FLOW DATA:
Capital expenditures.. 7,341 15,530 2,812 11,595 8,730
SEPTEMBER 30,
----------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- ------- --------
(IN THOUSANDS)
BALANCE SHEET DATA:
Working capital............... $113,536 $139,526 $136,493(5) $30,281 $ 48,054
Property and equipment, net... 39,238 48,642 86,372 97,768 101,156
Assets of discontinued
operations................... 101,894 103,117 17,827 -- --
Total assets.................. 239,391 254,788 322,073 304,339 318,021
Current maturities of long-
term debt.................... 16,148 531 330 19,652 10,671
Long-term debt................ 37,468 52,581 135,659 120,298 139,951
Stockholders' equity.......... 145,290 154,542 146,264 124,880 122,853
- --------
(1) Includes a $12.3 million provision for asset impairment of the Company's
marine protein assets.
(2) Includes a $29.2 million oil and gas valuation provision.
(3) Includes a $37.5 million pretax gain from the sale of 4.1 million shares of
Tidewater common stock and expenses of $7.4 million related to the
prepayment of indebtedness.
(4) Includes a $32.9 million pretax gain from the sale of 3.5 million shares of
Tidewater common stock, a $6.4 million prepayment penalty in connection
with the senior debt refinancing and a $5.7 million pretax loss resulting
from the disposition of Zapata's investment in Arethusa (Offshore) Limited.
(5) Includes $75.1 million of restricted cash primarily generated from the sale
of Tidewater common stock in June 1993 which was subsequently used to fund
the cash portion of the purchase price for the acquisition of Energy
Industries.
13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is a discussion of the Company's financial condition and
results of operations. This discussion should be read in conjunction with the
Consolidated Financial Statements of the Company appearing under Item 8 herein.
BACKGROUND
Zapata Corporation has undergone a significant transformation during the last
several years. The Company was previously engaged in the operation of offshore
drilling rigs and marine service and supply vessels and oil and gas operations.
All of these operations have been divested in the last few years, with the
exception of the Company's remaining interest in a Bolivian oil and gas
operation.
In fiscal 1993, the Company began to narrow the focus of its operations to
the natural gas services market. In connection with that strategy, the Company
acquired Cimarron Gas Holding Company and its subsidiaries (collectively,
"Cimarron") early in fiscal 1993 for $3.8 million, consisting of $2.5 million
in cash and 437,333 shares of the Company's Common Stock ("Common Stock").
Cimarron was purchased to serve as the vehicle for the Company's expansion into
the gathering and processing segments of the natural gas services markets. In
September 1993, the Company, through Cimarron, acquired the interests of
Stellar Energy Corporation and three affiliated companies (collectively,
"Stellar") engaged in natural gas gathering and processing for $16.4 million.
The purchase price included $6.3 million in cash, the redemption of $3.7
million of notes payable to former Stellar shareholders and the assumption of
$6.4 million of indebtedness of Stellar. The cash portions of the purchase
prices were financed with working capital.
Zapata completed a refinancing of its senior debt in fiscal 1993 which
enabled the Company to move forward with its plan to redirect its focus into
the natural gas services market. Zapata raised a total of $111.4 million from
the issuance of debt and equity pursuant to an agreement (the "Norex
Agreement") with Norex Drilling Ltd. ("Norex Drilling"), a wholly owned
subsidiary of Norex America, Inc. ("Norex America" and collectively with Norex
Drilling and other affiliates, "Norex"). The Norex Agreement enabled the
Company to refinance its then-outstanding senior debt. Such refinancing is
collectively referred to as the "Norex Refinancing."
The Company sold 3.5 million shares of its Tidewater Inc. ("Tidewater")
common stock in June 1993 in an underwritten public offering for net proceeds
of $73.5 million. In November 1993, Zapata used the proceeds to purchase the
natural gas compression businesses of Energy Industries, Inc. and certain other
affiliated companies (collectively, "Energy Industries") as well as certain
real estate used by the business. Total consideration paid for the purchase of
Energy Industries, the related real estate and for a related noncompetition
agreement (collectively, the "Energy Industries Acquisition") was $90.2
million. The purchase price consisted of $74.5 million in cash and 2.7 million
shares of the Common Stock valued at $5.80 per share, which approximated the
average trading price prior to closing of the acquisition.
In late 1994 and early 1995, the Company began to develop a strategic plan
involving the repositioning of the Company into the food packaging, food and
food service equipment and supply (collectively, "food services") businesses
and exiting the energy business. The strategic plan that was developed called
for the divestiture of most of the Company's remaining energy operations,
including Energy Industries, Cimarron and the Company's remaining domestic oil
and gas assets, and the acquisition of, or joint ventures with, selected
companies in the food services industry.
In September 1994, Zapata's Board of Directors announced that the Company
would immediately undertake efforts to sell its U.S. natural gas producing
properties. The six properties in the Gulf of Mexico, representing Zapata's
domestic oil and gas producing operations, were sold in fiscal 1995. Zapata
received cash of $4.0 million and recorded an $8.9 million receivable
representing (i) a production payment entitling Zapata to a share of revenues
from certain properties and (ii) a share of future proceeds from a revenue
sharing agreement. No gain or loss resulted from the sales. The decision to
sell its U.S. natural gas producing properties did not impact Zapata's Bolivian
oil and gas operations.
14
In September 1995, Zapata entered into an agreement (the "Purchase
Agreement") to sell the assets of Energy Industries (the "Energy Industries
Sale") to Weatherford Enterra, Inc. and its wholly owned subsidiary, Enterra
Compression Company (collectively, "Weatherford Enterra"). Pursuant to the
Purchase Agreement, Weatherford Enterra purchased from the Company all of the
assets of Energy Industries for approximately $131 million in cash and assumed
certain liabilities of Energy Industries, subject to final post-closing
adjustments. The Energy Industries Sale closed on December 15, 1995 after
receiving stockholder approval. The Energy Industries Sale resulted in an
after-tax gain of approximately $14.0 million which will be reflected in the
Company's fiscal 1996 financial results. Although a sale price for Cimarron has
not been determined, the Company estimates that, based on preliminary
indications of interest from potential purchasers, the minimum sales price for
Cimarron should be at least equal to book value. The Company expects to
complete the sale of Cimarron in fiscal 1996.
In 1994, the Board of Directors determined that the interests of Zapata's
stockholders would best be served by a sale of the marine protein operations.
Based on preliminary offers to purchase the marine protein operations, the
Company recorded an $8.9 million after-tax book loss in fiscal 1994. On May 5,
1995, Zapata decided to retain the marine protein operations. Zapata had
previously announced that an agreement to sell its marine protein operations
had been reached. However, the acquisition group failed to close the
transaction. The Company subsequently determined to retain these operations. As
a result, the marine protein net assets, results of operations and cash flows
have been reclassified from discontinued operations to continuing operations,
and the $8.9 million after-tax book loss on disposition was reversed in fiscal
1995.
In August 1995, Zapata acquired 31% of the outstanding common stock of
Envirodyne Industries, Inc. ("Envirodyne") for $18.8 million from a trust
controlled by Malcolm Glazer, Chairman of the Board of Zapata and a director of
Envirodyne. Zapata paid the purchase price by issuing to the seller a
subordinated promissory note bearing interest at the prime rate and maturing in
August 1997, subject to prepayment at the Company's option. The Company has
since prepaid approximately $15.6 million on the promissory note. Envirodyne is
one of the world's major suppliers of food packaging products and food service
supplies. This investment was the first step in the transformation of Zapata
into the food-services businesses.
The Energy Industries Sale is another significant step in the Company's
transition from an energy company to a food services company. Of the
approximately $131 million in cash proceeds received from the Energy Industries
Sale, the Company has used approximately $26 million to repay certain bank
debt. See "Liquidity and Capital Resources." Additionally, approximately $1
million was used to pay commissions and fees associated with the sale. The
Company intends to use the remaining net proceeds from the sale for general
corporate purposes, which may include further repayment of debt, and for future
expansion into the food services industry. While the Company is actively
seeking acquisition and joint venture opportunities in the food services
industry, there can be no assurances that the Company will succeed in
consummating any such opportunities or that acquisitions or joint ventures, if
consummated, will be successful. Zapata's Board of Directors has established a
special committee for the purpose of investigating the legal and financial
considerations of one or more merger or acquisition transactions involving the
Company and Houlihan's Restaurant Group, Inc. ("Houlihan's") and Specialty
Equipment Companies, Inc. ("Specialty"). Malcolm Glazer and members of his
family beneficially own approximately 73% and 45% of the outstanding common
stock of Houlihan's and Specialty, respectively, and Malcolm Glazer, Avram
Glazer (the Company's President and Chief Executive Officer) and other members
of their family serve as directors of both of those companies. The Special
Committee was charged with recommending to the Board of Directors what further
steps should be taken by the Company in connection with the above
considerations. To date, the Special Committee has not issued any
recommendations with respect to its consideration of possible transactions
involving either Houlihan's or Specialty.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1995, Zapata's long-term debt of $37.5 million compared
favorably to working capital of $113.5 million and stockholders' equity of
$145.3 million. At September 30, 1994, the Company's long-
15
term debt of $52.6 million also compared favorably to working capital of $139.5
million and stockholder's equity of $154.5 million.
In November 1993 Zapata sold 3.75 million shares of its Tidewater common
stock for $77.8 million. The proceeds were used to prepay $68.5 million of the
13% senior indebtedness to Norex, along with accrued interest, and to pay a
related $3.5 million prepayment premium. In September 1994, the Company prepaid
the remaining $17.3 million of its 13% senior convertible indebtedness to Norex
that was due in 1996. The prepayment was facilitated by the initial drawdown of
$15 million from a $30 million bank credit facility with Texas Commerce Bank
Association (the "TCB Loan Agreement") that Zapata arranged for Energy
Industries in September 1994. In connection with the Energy Industries Sale,
the TCB Loan Agreement was terminated and the outstanding indebtedness
outstanding thereunder was repaid.
In March 1994, Zapata sold 375,175 additional shares of its Tidewater common
stock for a net price of $21.34 per share, generating $8.0 million. The Company
sold its remaining 673,077 shares of Tidewater common stock in March 1995 and
used the $12.7 million proceeds to reduce the Company's $17.5 million in notes
that are due to Norex in 1996.
In fiscal 1994, Zapata redeemed one-half of the approximately 45,000
outstanding shares of the Company's $6 Cumulative Preferred Stock at $100 per
share. The Company redeemed the balance of its outstanding $6 Cumulative
Preferred Stock in January 1995 at $100 per share.
In April 1995, Zapata repurchased 2.25 million shares of Common Stock from
Norex for $4.00 per share. The shares repurchased by Zapata represented 7% of
the Company's then-outstanding Common Stock. Following the repurchase of these
shares, Zapata had approximately 29.5 million shares of Common Stock
outstanding.
In fiscal 1995 and 1994, operating activities generated net cash flows of
$7.4 million and $9.9 million, respectively, as compared to the fiscal 1993
activities that consumed $22.3 million. The fiscal 1993 use of cash was
attributable to the combination of the following: higher interest expense,
expenses related to the Norex Refinancing and increased working capital
requirements.
Fiscal 1995 investing activities provided $16.7 million as compared to the
fiscal 1994 activities that provided $74.9 million. The decrease in 1995 was
primarily attributable to a reduction in proceeds from sales of Tidewater
common stock.
Due to the significant transactions that occurred during fiscal years 1994
and 1993, cash flow from investing activities is combined with financing
activities for the following analysis. On a combined basis, these activities
used $13.1 million during fiscal 1994 and $297,000 during fiscal 1993. The
increase usage in fiscal 1994 can be attributed to higher capital expenditures
and to the redemption of $6 Cumulative Preferred Stock. Capital expenditures
increased in 1994 due primarily to workover projects in certain U.S. oil and
gas operations.
Net cash from financing activities consumed $31.4 million in fiscal 1995 as
compared to $88.0 million in fiscal 1994. The higher use of cash in fiscal 1994
was primarily attributable to the prepayments of Norex indebtedness.
The Company's capital expenditures for fiscal 1996 are currently projected to
be approximately $4.4 million.
Although Zapata currently has only one working capital facility, the Company
considers its current liquidity position to be adequate. A $15.0 million
working capital based loan agreement ("ING Loan Agreement") between
International Nederlanden (U.S.) Capital Corporation and two subsidiaries of
the Company, Zapata Protein, Inc. and Zapata Protein (USA), Inc. (collectively,
"Zapata Protein") provides the marine protein operation with financial
flexibility.
16
The ING Loan Agreement provides Zapata Protein with a revolving credit
facility that is due June 30, 1997. The ING Loan Agreement bears interest at a
variable interest rate that is adjusted periodically based on the prime
interest rate. Pursuant to the ING Loan Agreement, Zapata Protein agreed to
maintain certain financial covenants and to limit additional indebtedness,
dividends, dispositions and acquisitions. The amount of restricted net assets
for Zapata Protein at September 30, 1995 was approximately $47.7 million.
Zapata Corporation has guaranteed up to $10.0 million of the outstanding
balance of debt related to the ING Loan Agreement. Pursuant to the ING Loan
Agreement, Zapata Protein's ability to transfer funds to Zapata Corporation is
limited to $10.0 million. As of September 30, 1995, Zapata Protein had already
transferred the maximum amount of $10.0 million to Zapata Corporation. The
Company remains subject to a covenant in the Norex Agreement that requires
Zapata to maintain a consolidated tangible net worth as defined in such
agreement of at least $100 million. Effective September 30, 1995, the Company
was in compliance with all provisions governing its outstanding indebtedness.
RESULTS OF OPERATIONS
General
Reflecting the Company's decision to retain the marine protein operations and
to sell the natural gas compression and natural gas gathering, processing and
marketing operations, the Company's results from continuing operations include
the marine protein and oil and gas operations and results from discontinued
operations include the natural gas compression and natural gas gathering,
processing and marketing operations.
Fiscal 1995--1994
Zapata's fiscal 1995 net income of $4.2 million improved substantially from
the fiscal 1994 net loss of $8.3 million. The Company's discontinued natural
gas compression and natural gas gathering, processing and marketing operations
contributed net income of $1.2 million in fiscal 1995 and $1.4 million in
fiscal 1994. The discontinued operating results include pretax allocations of
interest on general corporate debt of $2.1 million and $4.3 million in 1995 and
1994, respectively. Fiscal 1995 discontinued operations also include net income
of $8.9 million reflecting the reversal of the estimated loss on the
disposition of the marine protein operations that was recorded in fiscal 1994.
The Company recorded a net loss from continuing operations of $5.8 million in
fiscal 1995 as compared to a net loss of $857,000 in 1994. Sales of the
Company's Tidewater common stock generated pretax gains of $4.8 million in
fiscal 1995 and $37.5 million in fiscal 1994. The fiscal 1995 results also
include a $12.3 million pretax provision for asset impairment of the Company's
marine protein assets as a result of adopting Statement of Financial Accounting
Standards No. 121 ("SFAS 121"), while the fiscal 1994 results include a pretax
valuation provision of $29.2 million associated with Company's oil and gas
operations in the Gulf of Mexico as a result of low gas prices and revision of
estimated future costs.
Revenues of $103.1 million and an operating loss of $9.2 million in fiscal
1995 compared to revenues of $109.2 million and an operating loss of $31.6
million in fiscal 1994. The operating losses are due primarily to the valuation
provisions recorded in both years. The 1994 operating loss also includes a $2.4
million expense related to a reduction in staff at the Company's headquarters.
Fiscal 1994--1993
Zapata's net loss of $8.3 million for fiscal 1994 compared unfavorably to net
income of $9.4 million in fiscal 1993. The Company's discontinued natural gas
compression and natural gas gathering, processing and marketing operations
contributed net income of $1.4 million in fiscal 1994 as compared to a $1.1
million net loss in fiscal 1993 from the natural gas gathering, processing and
marketing operations. Discontinued operating results include allocations of
interest on general corporate debt of $4.3 million and $968,000 in
17
1994 and 1993, respectively. Fiscal 1994 discontinued operations also includes
the estimated net loss of $8.9 million related to the disposition of the marine
protein operations.
On a continuing operations basis, a net loss of $857,000 in fiscal 1994
compared unfavorably to net income of $10.5 million in fiscal 1993. The fiscal
1994 loss includes the $29.2 million pretax write-down of the Company's oil and
gas properties in the Gulf of Mexico. Sales of Tidewater common stock generated
pretax gains of $37.5 million in fiscal 1994 and $32.9 million in fiscal 1993.
The fiscal 1994 gain was partially offset by a $7.4 million expense associated
with the Norex debt prepayments; this expense was comprised of debt prepayment
penalties totalling $4.1 million and a $3.3 million write-off of previously
deferred expenses related to the origination of such indebtedness. The fiscal
1993 gain was partially offset by a $6.4 million prepayment penalty that Zapata
was required to pay in connection with refinancing of senior indebtedness and a
$5.7 million loss from the disposal of Zapata's investment in Arethusa
(Offshore) Limited ("Arethusa"). Interest expense was reduced substantially in
fiscal 1994 as compared to 1993 reflecting the effects of the restructuring of
indebtedness in fiscal 1993 and overall reduction of the Company's indebtedness
in fiscal 1994.
Revenues of $109.2 million and an operating loss of $31.6 million in fiscal
1994 compared to revenues of $78.8 million and operating income of $3.6 million
in fiscal 1993. The 1994 operating loss was primarily attributable to the oil
and gas valuation provision, as well as to a reduced contribution from the
Company's domestic oil and gas operations. The 1994 operating loss also
included a $2.4 million expense related to the reduction in staff at the
Company's corporate headquarters and the related write-off of leasehold
improvements.
Marine Protein
Reflecting the Company's decision to retain the marine protein operations,
the net assets and results of marine protein's operations for all periods have
been reclassified from discontinued operations to continuing operations and the
related $8.9 million after-tax loss on disposition recorded in fiscal 1994 has
been reversed in fiscal 1995. As a result of adopting SFAS 121, in April 1995
the Company recorded a $12.3 million pretax provision for asset impairment to
reduce its marine protein assets to their estimated fair market value. The fair
market value of the marine protein assets was determined based on the highest
third-party competitive bid that had been received by the Company. SFAS 121
requires companies to write down assets to their estimated fair market value
when assets are determined to be impaired.
Revenues of $95.0 million and operating loss of $6.4 million in fiscal 1995
compared unfavorably to revenues of $96.6 million and operating income of $5.4
million in fiscal 1994, reflecting the effects of the provision for asset
impairment and a lower fish catch in fiscal 1995. Fiscal 1995 sales volume of
fish meal declined 11% from the fiscal 1994 level while the average per-ton
price of $350 was approximately 2% higher. The decline in fish meal sales
volume was attributable to a 22% drop in the fiscal 1995 fish catch as compared
to the fiscal 1994 fish catch. Sales volume of fish oil increased 4% in 1995 as
compared to 1994 while the average per ton price of $321 was 7% higher.
Reflecting the lower fish catch, the Company's product inventories at September
30, 1995 for fish meal and fish oil were approximately 37% and 45% lower,
respectively, than the September 30, 1994 inventory levels.
Fiscal 1994 revenues of $96.6 million and operating income of $5.4 million
compared favorably to the fiscal 1993 revenues of $58.6 million and operating
income of $4.3 million. The improved results were achieved by increased sales
volumes that resulted from the combination of a 37% increase in the fiscal 1994
fish catch as compared to 1993 and to higher levels of inventories that were
carried over from the fiscal 1993 fishing season. Compared to the prior year,
sales volume of fish meal during fiscal 1994 was 55% higher while the average
per-ton price of $344 was 9% lower. Likewise, fish oil volumes doubled during
1994 as compared to 1993 while the average per-ton price of $300 was 6% lower.
18
The price for fish meal generally bears a relationship to prevailing soybean
meal prices, while prices for fish oil are usually based on prices for
vegetable fats and oils, such as soybean and palm oils. Thus, the prices for
the Company's products are significantly influenced by worldwide supply and
demand relationships over which the Company has no control and tend to
fluctuate to a significant extent over the course of a year and from year to
year.
The Company's total fish catch dropped in fiscal 1995 after improving during
fiscal 1994 but remained at a higher level than the 1993 catch. The fiscal 1995
fish catch dropped approximately 22% from the 1994 level while the fiscal 1994
catch improved approximately 37% from the catch in fiscal 1993. The annual fish
catch can vary from year to year depending on weather conditions and other
factors outside the Company's control; the Company cannot predict future fish
catch.
Oil and Gas Operations
In September 1994, Zapata's Board of Directors announced that the Company
would immediately undertake efforts to sell its U.S. natural gas producing
properties. The six properties in the Gulf of Mexico, representing Zapata's
domestic oil and gas producing operations, were sold in fiscal 1995. Zapata
received cash of $4.0 million and recorded an $8.9 million receivable
representing (i) a production payment entitling Zapata to a share of revenues
from certain properties and (ii) a share of future proceeds from a revenue
sharing agreement. No gain or loss was recorded from the sales. The decision to
sell its U.S. natural gas properties did not impact Zapata's Bolivian oil and
gas operations.
Revenues of $8.1 million and operating income of $658,000 for fiscal 1995
compared to revenues of $12.6 million and an operating loss of $28.3 million in
fiscal 1994. The decline in fiscal 1995 revenues reflects the sales of the
Company's domestic oil and gas properties during the third and fourth quarters
of fiscal 1995. The fiscal 1994 operating results include the $29.2 million
property valuation provision.
Bolivian operations contributed revenues of $2.7 million and operating income
of $1.4 million in fiscal 1995 as compared to revenues of $4.1 million and
operating income of $3.5 million in fiscal 1994. In fiscal 1994 Zapata returned
to the accrual method of accounting for its Bolivian oil and gas operations
based on the Bolivian oil and gas company's performance under negotiated
contracts and improved operating conditions.
Reflecting the $29.2 million property valuation provision, as well as lower
prices for U.S. natural gas and lower U.S. natural gas production, revenues of
$12.5 million and an operating loss of $28.3 million for fiscal 1994 compared
unfavorably to the fiscal 1993 revenues of $20.2 million and operating income
of $6.0 million. The valuation provision was the result of several factors:
lower natural gas prices, additional capitalized costs incurred in connection
with several workover wells at the Company's Wisdom gas field and an increase
in estimated future costs. The Bolivian operations contributed $3.5 million and
$3.1 million to operating income in fiscal 1994 and 1993, respectively.
The Company's domestic natural gas production for fiscal 1995 was
approximately 14% lower than the fiscal 1994 level of production as a result of
the sale of its domestic properties. Zapata's domestic natural gas production
for fiscal 1994 was approximately one-half of the fiscal 1993 period's level of
production due to production difficulties encountered at the Wisdom gas field
which was the Company's most significant domestic oil and gas property.
Tidewater
In June 1993, Zapata completed the sale of 3.5 million of its shares of
Tidewater common stock through an underwritten public offering. The shares were
sold for a net price of $21.25 per share or $73.5 million and the sale
generated a 1993 pretax gain of $32.9 million. In November 1993, Zapata sold an
additional 3.75
19
million shares of its Tidewater common stock for a net price of $20.75 per
share or $77.8 million and in March 1994, Zapata sold 375,175 additional shares
of its Tidewater stock for a net price of $21.34 per share or $8.0 million. The
fiscal 1994 sales generated pretax gains totaling $37.5 million. In March 1995,
the Company sold its remaining 673,077 shares of Tidewater common stock for a
net price of $18.87 per share or $12.7 million resulting in a $4.8 million
pretax gain. All gains from the sales of Tidewater common stock are reflected
on the statement of operations as other income.
As a result of its decision to sell a portion of its Tidewater common stock,
effective January 1, 1993, Zapata changed from the equity to the cost method of
accounting for its investment in Tidewater. Consequently, Zapata has not
included its percentage of Tidewater's results as equity income since December
31, 1992. Instead, Tidewater dividends to Zapata have been included as other
income when declared. For fiscal 1993, Zapata's reported equity income of $1.1
million was based on 15.6% of Tidewater's results for the three months ended
December 31, 1992. Such percentage represented Zapata's ownership percentage of
Tidewater.
Envirodyne
For fiscal 1995, Zapata's reported equity loss of $719,000 was based on 31%
of Envirodyne's results for the three months ended September 28, 1995 prorated
to Zapata's August 1995 acquisition.
OTHER INCOME (EXPENSE)
Other expense of $2.1 million in fiscal 1995 includes a $2.8 million loss
related to an investment in subordinated debentures of Wherehouse
Entertainment, Inc. This loss was partially offset by a $453,000 gain from the
sale of the Company's corporate aircraft and the receipt of $595,000 from a
note that was written down in previous years.
Other expense of $4.3 million in fiscal 1994 includes expenses of $7.4
million related to the prepayment of the Norex indebtedness, a $2.8 million
gain related to the settlement of a coal note receivable that had previously
been written off and $719,000 dividend income from Zapata's Tidewater common
stock. Also, fiscal 1994 other expense includes a $1.4 million expense related
to a terminated pension plan.
Other expense of $10.5 million incurred during fiscal 1993 includes three
significant items: a $6.4 million prepayment penalty incurred in connection
with the refinancing of the Company's senior debt in May 1993, a $5.7 million
loss resulting from the disposition of the Company's investment in Arethusa
which Zapata was required to make when the Company's offshore drilling rig
fleet was sold, and $1.3 million dividend income generated by Tidewater common
stock.
TAXES
The provisions for U.S. income tax for 1995 and 1994 reflect a benefit
resulting from pretax losses from consolidated operations. In 1993, the
provision reflects expense resulting from pretax consolidated income.
DISCONTINUED OPERATIONS--NATURAL GAS SERVICES OPERATIONS--COMPRESSION
In June 1995, Zapata announced that it had entered into an agreement to sell
the assets of its natural gas compression division for $130 million. The sale
(which was approved by Zapata's stockholders) was finalized in December 1995.
As a result, these operations are reflected as a discontinued operation in the
Company financial statements. The gain from the sale will be reflected in the
Company's fiscal 1996 financial statements.
20
The major segments of Energy Industries' natural gas compression revenues and
operating results for the twelve-month period ended September 30, 1995 and the
eleven-month period ended September 30, 1994, in thousands, are identified
below.
REVENUES OPERATING RESULTS
--------------------------- ---------------------------
TWELVE MONTHS ELEVEN MONTHS TWELVE MONTHS ELEVEN MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1995 1994 1995 1994
------------- ------------- ------------- -------------
Compressor Rental....... $17,706 $16,252 $4,858 $4,866
Fabrication and Sales... 24,358 27,560 2,095 5,384
Parts and Service....... 19,805 19,608 3,853 3,958
Other................... 4,766 9,102 732 1,492
Selling &
Administrative......... -- -- (5,521) (7,730)
------- ------- ------ ------
$66,635 $72,522 $6,017 $7,970
======= ======= ====== ======
Natural gas compressor package rental utilization is affected by the number
and age of producing oil and gas wells, the volume of natural gas consumed and
natural gas prices. Rental rates are determined by the demand for compressor
packages and vary by size and horsepower of a compressor package. Utilization
of the Company's rental units improved during fiscal 1995 and 1994 due
primarily to a greater emphasis being placed on rental operations and to the
changes in the size of the compressor packages in the rental fleet. Rental
rates declined in fiscal 1995 as a result of lower prices for U.S. natural gas.
For the same reason, revenues and operating results from compressor package
sales declined in fiscal 1995 as compared to fiscal 1994. Energy Industries'
utilization, rental rates and fleet size as of September 30, 1995 and 1994 are
set forth in the following table.
SEPTEMBER 30,
----------------
1995 1994
------- -------
Fleet utilization:
Horsepower............................................ 83.5% 82.6%
Monthly rental rate, based on:
Horsepower............................................ $ 15.40 $ 16.61
Fleet size:
Number of units....................................... 785 706
Horsepower............................................ 131,382 113,786
Energy Industry disposed of its heat exchanger manufacturing operation in
fiscal 1995. The sale of the heat exchanger operation did not have a material
impact on Energy Industries' results of operations or financial position.
DISCONTINUED OPERATIONS--NATURAL GAS SERVICES OPERATIONS--GATHERING, PROCESSING
AND MARKETING
In late 1994 and early 1995, the Company began to develop a strategic plan
that called for the divesture of most of the Company's remaining energy
operations, including the Company's natural gas gathering, processing and
marketing operations. Although a sales price has not been determined, the
Company estimates that, based on preliminary indications of interest from
potential purchasers, the minimum sales price for these operations should be at
least equal to book value. The Company expects to complete the sale in fiscal
1996. As a result of the Company's decision to sell, these operations are
reported as a discontinued operation.
21
Revenues and operating results for fiscal 1995, 1994 and 1993 are presented
in the following table by major category, in thousands.
REVENUES OPERATING RESULTS
------------------------- -------------------------
1995 1994 1993 1995 1994 1993
------- -------- -------- ------- ------- -------
Gathering and Processing... $18,080 $ 22,867 $ 11,671 $ 442 $ 718 $ 427
NGL Marketing.............. 49,749 133,274 174,620 21 703 1,345
Selling & Administrative... -- -- -- (1,193) (2,484) (2,324)
------- -------- -------- ------- ------- -------
$67,829 $156,141 $186,291 $ (730) $(1,063) $ (552)
======= ======== ======== ======= ======= =======
For fiscal 1995, gathering and processing revenues and operating results were
lower than the prior year as a result of the negative impact of lower natural
gas prices. Marketing revenues and operating results declined in fiscal 1995 as
compared to 1994, due to the Company's decision to reduce its natural gas
trading activities.
For fiscal 1994, gathering and processing revenues and operating results
increased as a result of the expansion of the division's gathering and
processing operations during fiscal 1994 and 1993 while marketing revenues and
operating results declined primarily due to the Company's decision to reduce
its natural gas trading activities.
RECENTLY ISSUED ACCOUNTING STANDARDS
In April 1995, Zapata adopted SFAS 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," which
established accounting standards for the impairment of long-lived assets,
certain identifiable intangibles, and goodwill related to those assets to be
held and used and for long-lived assets and certain identifiable intangibles to
be disposed of. As a result of adopting SFAS 121 in April 1995 the Company
recorded a $12.3 million pretax provision for asset impairment to reduce its
marine protein assets to their estimated fair market value. The fair market
value of the marine protein assets was determined based upon the highest third-
party competitive bid that had been received by the Company.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation" ("SFAS 123"). The Company does not intend to adopt the
recognition provisions of the statement but will adopt the disclosure
requirements in fiscal year 1997. The Company does not expect that the adoption
of SFAS 123's disclosure requirements will have a significant effect on the
Company's financial statements.
22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors,
Zapata Corporation:
We have audited the accompanying consolidated balance sheets of Zapata
Corporation and subsidiaries as of September 30, 1995 and 1994 and the related
consolidated statements of operations, cash flows and stockholders' equity for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Zapata
Corporation and subsidiaries as of September 30, 1995 and 1994 and the
consolidated results of their operations and their cash flows for the years
then ended, in conformity with generally accepted accounting principles. We
also audited the adjustments for discontinued operations described in Note 5
that were applied to restate the 1993 financial statements. In our opinion,
such adjustments are appropriate and have been properly applied to those
financial statements.
As described in Notes 1 and 10, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" and No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" in 1994 and
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of," in 1995.
COOPERS & LYBRAND L.L.P.
Houston, Texas
December 15, 1995
23
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors,
Zapata Corporation:
We have audited the accompanying income statement, statement of cash flows
and reinvested earnings (deficit) and capital in excess of par value of Zapata
Corporation (a Delaware corporation) and subsidiary companies for the year
ended September 30, 1993 prior to restatement (and, therefore, are not
presented herein) for discontinued operations as described in Note 5 to the
restated financial statements. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and the significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of Zapata
Corporation and subsidiary companies for the year ended September 30, 1993, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
December 17, 1993
24
ZAPATA CORPORATION
CONSOLIDATED BALANCE SHEET
ASSETS
SEPTEMBER 30, SEPTEMBER 30,
1995 1994
------------- -------------
(IN THOUSANDS)
Current assets:
Cash and cash equivalents........................ $ 2,488 $ 9,717
Receivables...................................... 17,550 17,996
Inventories:
Fish products.................................. 22,947 34,143
Materials, parts and supplies.................. 3,358 3,601
Prepaid expenses and other current assets........ 2,400 2,478
Net assets of discontinued operations............ 101,894 103,117
-------- --------
Total current assets......................... 150,637 171,052
-------- --------
Investments and other assets:
Notes receivable (net of a $4.3 million
allowance)...................................... -- 1,925
Production payment and other receivable.......... 8,864 --
Investments in unconsolidated affiliates and
equity securities............................... 18,235 14,471
Deferred income taxes............................ 6,247 2,915
Other assets..................................... 16,170 15,783
-------- --------
Total investments and other assets........... 49,516 35,094
-------- --------
Property and equipment:
Marine protein................................... 67,553 60,188
Oil and gas, full cost method.................... 3,359 77,066
Corporate........................................ 3,363 5,213
-------- --------
74,275 142,467
Accumulated depreciation, depletion and
amortization.................................... (35,037) (93,825)
-------- --------
39,238 48,642
-------- --------
Total assets................................. $239,391 $254,788
======== ========
The accompanying notes are an integral part of the financial statements.
25
ZAPATA CORPORATION
CONSOLIDATED BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
SEPTEMBER 30, SEPTEMBER 30,
1995 1994
------------- -------------
(IN THOUSANDS)
Current liabilities:
Current maturities of long-term debt............. $ 16,148 $ 531
Accounts payable................................. 2,356 4,804
Accrued liabilities:
Compensation and employee benefits............. 9,102 9,960
Insurance...................................... 2,851 4,774
Other.......................................... 6,644 11,457
-------- --------
Total current liabilities.................... 37,101 31,526
-------- --------
Long-term debt..................................... 37,468 52,581
-------- --------
Other liabilities.................................. 19,532 16,139
-------- --------
Commitments and contingencies (Note 11)
Stockholders' equity:
$6.00 cumulative preferred stock (no par),
outstanding: 22,498 shares (1994)............... -- 2,255
$2.00 noncumulative convertible preference stock
($1.00 par), outstanding: 2,627 shares (1995 and
1994)........................................... 3 3
Common Stock ($0.25 par), outstanding: 29,548,407
shares (1995) and 31,716,991 shares (1994)...... 7,387 7,929
Capital in excess of par value................... 131,962 138,294
Reinvested earnings, from October 1, 1990
(deficit balance prior to quasi-reorganization
at September 30, 1990: $296,850,000)............ 5,938 1,785
Investment in equity securities-unrealized gain,
net of taxes.................................... -- 4,276
-------- --------
Total stockholders' equity................... 145,290 154,542
-------- --------
Total liabilities and stockholders' equity... $239,391 $254,788
======== ========
The accompanying notes are an integral part of the financial statements.
26
ZAPATA CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
YEARS ENDED SEPTEMBER 30,
---------------------------
1995 1994 1993
-------- -------- -------
(IN THOSUANDS, EXCEPT PER
SHARE AMOUNTS)
Revenues.......................................... $103,068 $109,163 $78,754
-------- -------- -------
Expenses:
Operating....................................... 86,739 88,148 51,704
Provision for asset write-downs................. 12,341 29,152 --
Depreciation, depletion and amortization........ 5,607 11,474 12,576
Selling, general and administrative............. 7,601 11,996 10,915
-------- -------- -------
112,288 140,770 75,195
-------- -------- -------
Operating income (loss)........................... (9,220) (31,607) 3,559
-------- -------- -------
Other income (expense):
Interest income................................. 905 1,653 2,322
Interest expense................................ (2,694) (4,636) (14,736)
Gain on sale of Tidewater common stock.......... 4,811 37,457 32,928
Equity in income (loss) of unconsolidated
affiliates..................................... (719) -- 1,125
Other........................................... (2,106) (4,296) (10,530)
-------- -------- -------
197 30,178 11,109
-------- -------- -------
Income (loss) from continuing operations before
income taxes..................................... (9,023) (1,429) 14,668
Provision (benefit) for income taxes.............. (3,179) (572) 4,210
-------- -------- -------
Income (loss) from continuing operations.......... (5,844) (857) 10,458
-------- -------- -------
Discontinued operations (Notes 2, 4 and 5):
Income (loss) from discontinued operations, net
of income taxes................................ 1,151 1,435 (1,085)
Reversal (recognition) of loss on disposition,
net of income taxes............................ 8,897 (8,897) --
-------- -------- -------
10,048 (7,462) (1,085)
-------- -------- -------
Net income (loss)................................. 4,204 (8,319) 9,373
Preferred and preference stock dividends.......... 51 356 404
-------- -------- -------
Net income (loss) to Common Stockholders.......... $ 4,153 $ (8,675) $ 8,969
======== ======== =======
Per share data:
Income (loss) from continuing operations........ $ (0.19) $ (0.04) $ 0.37
Income (loss) from discontinued operations...... 0.33 (0.24) (0.04)
-------- -------- -------
Net income (loss) per share..................... $ 0.14 $ (0.28) $ 0.33
======== ======== =======
The accompanying notes are an integral part of the financial statements.
27
ZAPATA CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED SEPTEMBER
30,
--------------------------
1995 1994 1993
------- ------- --------
(IN THOUSANDS)
Cash flow provided (used) by operating activities:
Continuing operations:
Net income (loss) from continuing operations..... $(5,844) $ (857) $ 10,458
------- ------- --------
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
Depreciation, amortization and valuation
provision...................................... 17,948 40,848 12,576
Gain on sale of assets, net..................... (5,268) (37,457) (27,303)
Equity in (income) loss of unconsolidated
affiliates..................................... 719 -- (1,125)
Cash dividends received......................... -- -- 1,238
Changes in assets and liabilities:
Receivables.................................... (446) (7,008) 3,893
Inventories.................................... 11,439 (1,236) (13,880)
Accounts payable and accrued liabilities....... (9,347) 10,616 (445)
Deferred income taxes.......................... (2,828) (3,608) 3,006
Other assets and liabilities................... (1,320) 3,528 (5,263)
------- ------- --------
Total adjustments............................. 10,897 5,683 (27,303)
------- ------- --------
Cash flow provided (used) by continuing
operations.................................... 5,053 4,826 (16,845)
------- ------- --------
Discontinued operations:
Income (loss) from discontinued operations....... 1,151 1,435 (1,085)
Decrease (increase) in net assets of discontinued
operations...................................... 1,223 3,592 (4,400)
------- ------- --------
Cash flow provided (used) by discontinued
operations..................................... 2,374 5,027 (5,485)
------- ------- --------
Net cash provided (used) by operating
activities.................................... 7,427 9,853 (22,330)
------- ------- --------
Cash flow provided (used) by investing activities:
Proceeds from disposition of investments and
other............................................ 18,546 88,533 85,245
Restricted cash investments....................... -- 74,083 (74,083)
Proceeds from notes receivable.................... 5,505 1,061 994
Discontinued business acquisitions, net of cash
acquired......................................... -- (73,222) (12,139)
Capital expenditures.............................. (7,341) (15,530) (2,812)
------- ------- --------
Net cash provided (used) by investing
activities................................... 16,710 74,925 (2,795)
------- ------- --------
Cash flow provided (used) by financing activities:
Borrowings........................................ 11,439 1,873 101,375
Proceeds from issuance of Common Stock............ -- -- 11,250
Principal payments of long-term obligations....... (29,889) (86,040) (107,194)
Preferred stock redemption........................ (2,255) (2,245) --
Common Stock buyback.............................. (9,508) -- --
Dividend payments................................. (1,153) (1,566) (2,933)
------- ------- --------
Net cash provided (used) by financing
activities................................... (31,366) (87,978) 2,498
------- ------- --------
Net decrease in cash and cash equivalents.......... (7,229) (3,200) (22,627)
Cash and cash equivalents at beginning of year..... 9,717 12,917 35,544
------- ------- --------
Cash and cash equivalents at end of year........... $ 2,488 $ 9,717 $ 12,917
======= ======= ========
The accompanying notes are an integral part of the financial statements.
28
ZAPATA CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
CAPITAL
IN
EXCESS INVETMENTS
PREFERRED PREFERENCE COMMON OF PAR REINVESTED IN EQUITY
STOCK STOCK STOCK VALUE EARNINGS SECURITIES
--------- ---------- ------- -------- ---------- ----------
(IN THOUSANDS)
Balance at September 30,
1992................... $4,500 $ 3 $31,697 $ 84,970 $3,710
Net income.............. 9,373
Preferred stock
dividends declared..... (404)
Refinancing of bank debt
(3.0 million shares)... 3,750 7,041
Acquisition of Cimarron
(437,333 shares)....... 547 741
Other................... 182 154
------ --- ------- -------- ------ ------
Balance at September 30,
1993................... 4,500 3 36,176 92,906 12,679
Net loss................ (8,319)
Cash dividends declared:
Common Stock.......... (2,219)
Preferred stock....... (354)
Preference stock...... (2)
Common Stock one-for-
five reverse split..... (31,657) 31,657
Preferred stock
redemption............. (2,245)
Unrealized gain (net of
taxes)................. $4,276
Reclassification of
deferred tax asset..... 1,585
Acquisition of Energy
Industries
(2.7 million shares)... 3,375 12,285
Other................... 35 (139)
------ --- ------- -------- ------ ------
Balance at September 30,
1994................... 2,255 3 7,929 138,294 1,785 4,276
Net income.............. 4,204
Preferred stock dividend
declared............... (51)
Preferred stock
redemption............. (2,255)
Common Stock buyback.... (23) (485)
Repurchase Common Stock
(2.25 million shares)
from Norex............. (563) (8,438)
Reverse unrealized gain
(net of taxes)......... (4,276)
Reclassification of
deferred tax asset..... 2,573
Other................... 44 18
------ --- ------- -------- ------ ------
Balance at September 30,
1995................... $ -- $ 3 $ 7,387 $131,962 $5,938 $ --
====== === ======= ======== ====== ======
The accompanying notes are an integral part of the financial statements.
29
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The financial statements include Zapata Corporation and its wholly and
majority-owned domestic and foreign subsidiaries (collectively, "Zapata" or the
"Company"). Investments in affiliated companies and joint ventures representing
a 20% to 50% voting interest are accounted for using the equity method, while
interests of less than 20% are accounted for using the cost method, except for
investments in oil and gas properties. All investments in oil and gas
properties and joint ventures are proportionately consolidated. All significant
intercompany accounts and transactions are eliminated in consolidation. Certain
reclassifications of prior year information have been made to conform with the
current year presentation. Additionally, prior year information and footnotes
have been restated to reflect the Company's natural gas compression and natural
gas gathering, processing and marketing operations as discontinued operations.
Inventories
Materials, parts and supplies are stated at average cost. Fish product
inventories are stated at the lower of average cost or market.
The marine protein division allocates costs to production from its fish catch
on a basis of total fish catch and total costs associated with each fishing
season. The marine protein inventory is calculated on a standard cost basis
each month and adjusted to an actual cost basis quarterly. The costs incurred
during the off-season period of January through mid-April are deferred to the
next fishing season (mid-April through December) and allocated to production as
the fish catch is processed. The off-season deferred cost was approximately
$2.2 million and $1.9 million at September 30, 1995 and 1994, respectively.
Investments in unconsolidated affiliates and equity securities
In fiscal 1994, the Company adopted Statement of Financial Accounting
Standards No. 115 ("SFAS 115"), "Accounting for Certain Investments in Debt and
Equity Securities," which addresses the accounting and reporting for
investments in equity securities that have readily determinable fair values and
for all investments in debt securities. At September 30, 1994, Zapata owned
673,077 shares of Tidewater Inc. ("Tidewater") common stock. These securities
were considered available for sale and reported at fair value with any
unrealized gain or loss recorded as a separate component of stockholders'
equity (net of deferred income taxes). Cost of the Tidewater common stock was
determined on the average cost method. In March 1995, Zapata sold its remaining
shares of Tidewater common stock.
In August 1995, Zapata acquired 4,189,298 common shares of Envirodyne
Industries, Inc. ("Envirodyne"), representing 31% of the then-outstanding
common stock of Envirodyne. Zapata's investment in Envirodyne is accounted for
using the equity method of accounting. Envirodyne is one of the world's major
suppliers of food packaging products and food service supplies.
Investment in Debentures
In May 1995, Zapata acquired $7,000,000 of 13% Wherehouse Entertainment
senior subordinated debentures due August 1, 2002 ("Wherehouse Debentures") for
$3,238,750 plus accrued interest. At September 30, 1995, Zapata's investment in
the Wherehouse Debentures has been written down to its estimated fair market
value of $910,000. The write-down was based on quoted prices of the Wherehouse
Debentures and the current financial condition of Wherehouse Entertainment,
Inc. which is currently operating as a debtor in possession under Chapter 11 of
the U.S. Bankruptcy Code.
30
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Property, equipment and depreciation
Property and equipment are recorded at cost except as adjusted by the quasi-
reorganization as of October 1, 1990. As a result of the quasi-reorganization
the carrying value of the assets utilized in the marine protein operations was
reduced to estimated fair value.
In April 1995, Zapata adopted Statement of Financial Accounting Standards No.
121 ("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," which established accounting standards
for the impairment of long-lived assets, certain identifiable intangibles, and
goodwill related to those assets to be held and used or to be disposed of. As a
result of adopting SFAS 121, in April 1995 the Company recorded a $12.3 million
pretax provision for asset impairment to reduce its marine protein assets to
their estimated fair market value. The fair market value of the marine protein
assets was determined based upon the highest third-party competitive bid which
had been received by the Company in connection with a contemplated sale of the
marine protein operations in 1995. In accordance with SFAS 121, the Company
periodically evaluates its long-lived assets, except for its oil and gas
properties, for impairment if events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. Oil and gas properties
are evaluated in accordance with the full cost ceiling test as described below.
Depreciation of property and equipment, other than that related to oil and
gas operations, is provided using the straight-line method over the estimated
useful lives of the assets. Estimated useful lives of assets acquired new,
determined as of the date of acquisition, are as follows:
USEFUL LIVES
------------
(YEARS)
Fishing vessels and fish processing plants................... 15-20
Furniture and fixtures....................................... 3-10
Losses resulting from sales and retirements of property and equipment are
included in operating income while gains are included in other income. Property
and equipment no longer in service pending disposition are classified as other
assets and recorded at estimated net realizable value.
Oil and gas operations
Under the full cost accounting method all costs associated with property
acquisition and exploration for, and development of, oil and gas reserves are
capitalized within cost centers established on a country-by-country basis.
Capitalized costs within a cost center as well as the estimated future
expenditures to develop proved reserves and estimated net costs of
dismantlement and abandonment are amortized using the unit-of-production method
based on estimated proved oil and gas reserves. All costs relating to
production activities are charged to expense as incurred.
Capitalized oil and gas property costs, less accumulated depreciation,
depletion and amortization and related deferred income taxes, are limited to an
amount (the ceiling limitation) equal to the sum of (a) the present value
(discounted at 10%) of estimated future net revenues from the projected
production of proved oil and gas reserves, calculated at prices in effect as of
the balance sheet date (with consideration of price changes only to the extent
provided by fixed and determinable contractual arrangements), and (b) the lower
of cost or estimated fair value of unproved and unevaluated properties, less
(c) income tax effects related to differences in the book and tax basis of the
oil and gas properties.
31
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Revenue recognition
The Company utilizes the sales method of accounting for sales of natural gas
whereby revenues are recognized based on the amount of gas sold to purchasers.
The amount of natural gas sold may differ from
the amount to which the Company is entitled based on its working interests in
the properties. The Company's reserve estimates are adjusted accordingly to
reflect any imbalance positions. The gas imbalance position was not significant
to the Company's financial position at September 30, 1995.
All of the Company's oil and gas production from its Bolivian properties is
sold to Yacimientos Petroliferos Fiscales Bolivianos ("YPFB"), Bolivia's state-
owned oil company. Because of YPFB's improved performance under renegotiated
contracts and improved operating conditions in Bolivia, Zapata returned to the
accrual method of accounting for its Bolivian oil and gas operations in fiscal
1994. Prior to 1994, the Company used cash-basis revenue recognition for sales
from its Bolivian oil and gas properties. The effect of changing to accrual
accounting in 1994 increased revenues by $1.8 million. The Bolivian oil and gas
properties contributed revenues and operating income as follows (in millions):
1995 1994 1993
---- ---- ----
Revenues................................................... $2.7 $4.1 $3.2
Operating income........................................... 1.4 3.5 3.1
Income taxes
Zapata adopted Statement of Financial Accounting Standards No. 109 ("SFAS
109"), "Accounting for Income Taxes," as of October 1, 1993. The adoption of
SFAS 109 changed Zapata's method of accounting for income taxes to the asset
and liability approach. This approach requires the recognition of deferred tax
assets and liabilities for the expected future tax consequences of existing
temporary differences between the financial reporting and tax reporting basis
of assets and liabilities, and operating loss and tax credit carryforwards for
tax purposes.
Earnings per share
Income per share is based on the weighted average number of common shares and
common share equivalents outstanding during each year. Common share equivalents
include the average shares issuable for convertible preference stock and stock
options. Income used for purposes of this calculation has been reduced by
accruals for preferred and preference stock dividends.
Loss per share is based on the weighted average number of common shares
outstanding during each year. No common share equivalents are incorporated in
fiscal 1994 calculations because to do so would be antidilutive. Preferred
stock dividends are considered as their effect is to increase the loss per
share.
The average shares used in the per share calculations were 30,706,256 in
fiscal 1995, 31,377,498 in fiscal 1994 and 27,324,993 in fiscal 1993.
Quasi-reorganization
In connection with the comprehensive restructuring accomplished in 1991, the
Company implemented, for accounting purposes, a "quasi-reorganization," an
elective accounting procedure that permits a company that has emerged from
previous financial difficulty to restate its accounts and establish a fresh
start in an accounting sense. After implementation of the accounting quasi-
reorganization, the Company's assets and
32
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
liabilities were revalued and its deficit in reinvested earnings was charged to
capital in excess of par value. The Company effected the accounting quasi-
reorganization as of October 1, 1990. Capital in excess of par value may be
adjusted in the future as a result of the resolution of pre-quasi
reorganization liabilities.
Common Stock
On April 27, 1994, Zapata's stockholders approved a one-for-five reverse
stock split of Zapata's outstanding common stock (the "Common Stock") effective
May 3, 1994 which reduced the number of common shares outstanding from
approximately 158.3 million to approximately 31.7 million. The number of
authorized shares remained at 165.0 million and the par value of the Common
Stock was unchanged. All references to Common Stock, earnings per share, per
share price and average number of common shares outstanding have been restated
to reflect the reverse stock split.
NOTE 2. DISCONTINUED MARINE PROTEIN OPERATIONS SUBSEQUENTLY RETAINED
In July 1994, Zapata announced that it intended to separate its marine
protein operations from its energy-related businesses. In September 1994, the
Board of Directors determined that the interests of Zapata's stockholders would
best be served by a sale of the marine protein operations. This determination
resulted in the 1993 and 1992 consolidated financial statements being restated
to present the net assets and operating results of the marine protein
operations as a discontinued operation. Additionally, based on preliminary
offers received in 1994 to purchase the marine protein operations, the Company
recorded an $8.9 million after-tax book loss in fiscal 1994 to reflect the
estimated loss on disposition of the marine protein operations.
On May 5, 1995, the Board of Directors decided to retain the marine protein
operations. Zapata had previously announced that an agreement to sell its
marine protein operations had been reached. However, the acquisition group
failed to close the transaction. As a result, the marine protein net assets and
results of operations and cash flows for all periods have been reclassified
from discontinued operations to continuing operations. Additionally, the $8.9
million after-tax book loss that was recorded in fiscal 1994 was reversed in
fiscal 1995.
The following is a summary of certain selected financial data for the marine
protein operations for the periods presented herein in which these operations
were previously reported as a discontinued operation (amounts in millions):
YEARS ENDED
SEPTEMBER
30,
-----------
1994 1993
----- -----
FINANCIAL RESULTS
Revenues.................................................. $96.6 $58.6
Expenses.................................................. 94.3 59.2
----- -----
Income (loss) before taxes................................ 2.3 (.6)
Income tax provision...................................... 1.1 (.2)
----- -----
Net income (loss) *..................................... $ 1.2 $ (.4)
===== =====
33
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2. DISCONTINUED MARINE PROTEIN OPERATIONS SUBSEQUENTLY RETAINED--
(CONTINUED)
SEPTEMBER 30,
1994
-------------
FINANCIAL POSITION
Current assets............................................ $49.0
Investments and other..................................... 8.0
Property and equipment, net............................... 30.5
-----
87.5
-----
Debt...................................................... 9.7
Other liabilities and deferred income taxes............... 26.5
-----
36.2
-----
Net book value.......................................... $51.3
=====
- --------
* Net income (loss) includes allocations of interest expense on general
corporate debt of $2.5 million in 1994 and $3.9 million in 1993. Interest
expense was allocated to discontinued operations based on a ratio of net
assets to be sold to the sum of total net assets of the Company plus general
corporate debt.
NOTE 3. DISPOSITION OF DOMESTIC OIL & GAS ASSETS
In September 1994, the Board of Directors determined that the Company would
immediately undertake efforts to sell its U.S. natural gas producing
properties. Zapata's Bolivian oil and gas operations were not impacted by this
decision. The six properties in the Gulf of Mexico, representing Zapata's
domestic oil and gas producing operations, were sold during fiscal 1995. Zapata
received cash of $4.0 million and an $8.9 million production payment and other
receivable. No gain or loss was recorded from the sales.
The production payment and other receivable received in partial consideration
for the sale of the domestic oil and gas properties consists of a $6.1 million
production payment receivable and a $2.8 million receivable related to future
proceeds from a revenue sharing agreement. The Company will begin collecting
the production payment receivable only after certain cumulative production
volumes have been achieved; collection will cease upon the earlier of (i)
receipt of $13.5 million or (ii) when the designated oil and gas reserves have
been depleted. The $2.8 million receivable related to the revenue sharing
agreement will be collected based on payments made by a third party for the use
of a platform and related facilities. Receipts under the revenue sharing
agreement are expected to begin in 1996 and will cease at the earlier of (i)
the receipt of $6.0 million or (ii) the cessation of payments made by a third
party for usage of the platform and related facilities. The receivable's
estimated fair market value of $8.9 million is based on discounted expected
cash flows and approximates book value at September 30, 1995.
Following is a summary of the results of operations of the Company's domestic
oil and gas operations (amounts in millions):
YEAR ENDED
SEPTEMBER 30,
1995
-------------
Revenues.................................................... $ 5.4
Expenses.................................................... (9.2)
-----
Loss before income taxes.................................... $(3.8)
=====
34
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4. DISCONTINUED NATURAL GAS COMPRESSION OPERATIONS
Acquisition
In November 1993, Zapata purchased the natural gas compression business of
Energy Industries, Inc. and certain other affiliated companies ("Energy
Industries"), as well as certain real estate used by the business. Total
consideration paid for the purchase of Energy Industries and certain real
estate, and for a related noncompetition agreement (collectively, the "Energy
Industries Acquisition"), was $90.2 million, consisting of $74.5 million in
cash and 2.7 million shares of Common Stock based on an assigned value of $5.80
per share which approximated the average trading price prior to the closing of
the acquisition. Additionally, the Company incurred approximately $2.0 million
in fees associated with the Energy Industries Acquisition. Zapata accounted for
the acquisition using the purchase method of accounting and recorded $19.3
million of goodwill in connection therewith. The goodwill was being amortized
over 40 years.
The following assets and liabilities were acquired in connection with the
Energy Industries Acquisition effective November 1, 1993 (in millions):
Cash............................................................... $ 3.5
Receivables........................................................ 9.3
Inventory.......................................................... 16.2
-----
29.0
Goodwill & other assets............................................ 19.7
Property & equipment, net.......................................... 49.6
-----
$98.3
=====
Current liabilities................................................ $ 5.8
Long-term debt..................................................... .2
-----
$ 6.0
=====
Disposition
In late 1994 and early 1995, the Company began to develop a strategic plan
which involves repositioning the Company in the food packaging, food and food
service equipment and supply (collectively, "food services") businesses and
exiting the energy business. The strategic plan that was developed called for
the divestiture of most of the Company's remaining energy operations, including
Energy Industries, and the acquisition of, or joint ventures with, selected
companies in the food services industry.
In September 1995, Zapata entered into an agreement (the "Purchase
Agreement") to sell the assets of Energy Industries (the "Energy Industries
Sale") to Weatherford Enterra, Inc. and its wholly owned subsidiary, Enterra
Compression Company (collectively, "Weatherford Enterra"). Pursuant to the
Purchase Agreement, Weatherford Enterra purchased from the Company all of the
assets of Energy Industries for approximately $131 million in cash, and assumed
certain liabilities of Energy Industries, subject to final post closing
adjustments. The Energy Industries Sale closed in December 1995 after receiving
stockholder approval. The Energy Industries Sale resulted in an after-tax gain
of approximately $14.0 million, which will be reflected in the Company's fiscal
1996 financial results.
35
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4. DISCONTINUED NATURAL GAS COMPRESSION OPERATIONS--(CONTINUED)
The consolidated financial statements have been restated to report the net
assets and operating results of the Energy Industries operations as a
discontinued operation. Summarized results and financial position of the Energy
Industries discontinued operations are shown below (amounts in millions):
YEARS ENDED
SEPTEMBER 30,
-------------
1995 1994
------ ------
FINANCIAL RESULTS
Revenues................................................. $ 66.6 $ 72.5
Expenses................................................. 63.2 67.7
------ ------
Income before taxes...................................... 3.4 4.8
Income tax provision..................................... 1.4 1.9
------ ------
Net income*.............................................. $ 2.0 $ 2.9
====== ======
SEPTEMBER 30,
-------------
1995 1994
------ ------
FINANCIAL POSITION
Current assets........................................... $ 32.1 $ 30.7
Investments and other assets............................. 20.3 19.4
Property and equipment, net.............................. 61.5 52.5
------ ------
113.9 102.6
------ ------
Debt..................................................... 27.8 15.2
Other liabilities........................................ 5.6 6.7
------ ------
33.4 21.9
------ ------
Net book value......................................... $ 80.5 $ 80.7
====== ======
- --------
* Net income includes allocations of interest expense on general corporate
debt of $1.7 million in 1995, and $3.4 million in 1994. Interest expense was
allocated to discontinued operations based on a ratio of net assets to be
sold to the sum of total net assets of the Company plus general corporate
debt.
NOTE 5. DISCONTINUED NATURAL GAS GATHERING, PROCESSING AND MARKETING OPERATIONS
Acquisition
During the first quarter of fiscal 1993, Zapata acquired the common stock of
Cimarron Gas Holding Company ("Cimarron") for $3.8 million consisting of $2.5
million in cash and 437,333 shares of Common Stock. Zapata accounted for the
acquisition using the purchase method of accounting and recorded $2.0 million
of goodwill in connection therewith. The goodwill was being amortized over 20
years. The following assets and liabilities were acquired effective October 1,
1992 (in millions):
Current assets..................................................... $20.3
Property and equipment, net........................................ 2.0
-----
$22.3
=====
Current liabilities................................................ $19.6
Long-term debt..................................................... .7
-----
$20.3
=====
36
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5. DISCONTINUED NATURAL GAS GATHERING, PROCESSING AND MARKETING
OPERATIONS--(CONTINUED)
In September 1993, Cimarron acquired the natural gas gathering and processing
plant interests of Stellar Energy Corporation and three affiliated companies
(collectively, "Stellar") for approximately $16.4 million. The acquisition was
financed through the use of working capital cash and assumption of certain
indebtedness of Stellar. Zapata accounted for the acquisition using the
purchase method of accounting and recorded $5.5 million of goodwill in
connection therewith. The goodwill was being amortized over 20 years.
Proposed Disposition
In late 1994 and early 1995, the Company developed a strategic plan that
calls for the divesture of substantially all of the Company's remaining energy
operations including Cimarron. Although a sales price for Cimarron has not been
determined, the Company estimates that, based on preliminary indications of
interest from potential purchasers, the sales price for Cimarron should be at
least book value. The Company expects to complete the sale of Cimarron in
fiscal 1996.
The consolidated financial statements have been restated to report the net
assets and operating results of Cimarron's operations as a discontinued
operation. Summarized results and financial position of Cimarron's discontinued
operations are shown below (amounts in millions):
YEARS ENDED
SEPTEMBER 30,
---------------------
1995 1994 1993
----- ------ ------
FINANCIAL RESULTS
Revenues......................................... $67.8 $156.1 $186.3
Expenses......................................... 69.1 158.4 187.9
----- ------ ------
Loss before taxes................................ (1.3) (2.3) (1.6)
Income tax benefit............................... (0.5) (0.8) (0.5)
----- ------ ------
Net loss*...................................... $(0.8) $ (1.5) $ (1.1)
===== ====== ======
SEPTEMBER
30,
-----------
1995 1994
----- -----
FINANCIAL POSITION
Current assets............................................. $ 9.6 $13.2
Other assets............................................... 6.7 7.0
Property and equipment, net................................ 16.9 16.5
----- -----
33.2 36.7
----- -----
Debt....................................................... 2.2 3.8
Other liabilities.......................................... 9.6 10.5
----- -----
11.8 14.3
----- -----
Net book value............................................. $21.4 $22.4
===== =====
- --------
* Net loss includes allocations of interest expense on general corporate debt
of $452,000 in 1995, $932,000 in 1994 and $968,000 in 1993. Interest expense
was allocated to discontinued operations based on a ratio of net assets to
be sold to the sum of total net assets of the Company plus general corporate
debt.
37
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6. UNCONSOLIDATED AFFILIATES
In August 1995, Zapata acquired 4,189,298 common shares of Envirodyne,
representing 31% of the outstanding common stock of Envirodyne, for $18.8
million from a trust controlled by Malcolm Glazer, Chairman of the Board of
Zapata and a director of Envirodyne. Zapata paid the purchase price by issuing
to the seller a subordinated promissory note bearing interest at prime and
maturing in August 1997, subject to prepayment at the Company's option.
Subsequently, the Company prepaid approximately $15.6 million on the promissory
note. Zapata follows the equity method of accounting for its investment in
Envirodyne. The difference between Zapata's share of Envirodyne's equity and
Zapata's recorded investment in Envirodyne is being amortized over 15 years. At
September 30, 1995, the unamortized balance of this difference was $19.3
million. The aggregate market value of Zapata's shares of Envirodyne's common
stock as of September 30, 1995 was $18.9 million based on the closing price of
$4.50 per publicly traded share on that date.
Due to the significance of the Company's investment, the unaudited financial
position and results of operations of Envirodyne are summarized below. The
financial statement information presented below for Envirodyne is based upon
its interim report for the quarter ended September 28, 1995 (unaudited, in
millions, except per share amounts):
ENVIRODYNE INDUSTRIES, INC.
SEPTEMBER 28,
1995
-------------
BALANCE SHEET
Current assets.............................................. $255.3
Other....................................................... 190.0
Property and equipment, net................................. 467.4
------
Total assets.............................................. $912.7
======
Current liabilities......................................... $129.8
Long-term debt.............................................. 529.7
Deferred income taxes and other............................. 132.1
Stockholders' equity........................................ 121.1
------
Total liabilities and stockholders' equity................ $912.7
======
THREE MONTHS
ENDED
SEPTEMBER 28,
1995
-------------
INCOME STATEMENT
Revenues.................................................... $167.7
======
Loss before income taxes.................................... $ (7.5)
======
Net loss.................................................... $ (4.5)
======
Net loss per share.......................................... $(0.33)
======
In January 1992, Zapata exchanged its 34.7% interest in Zapata Gulf Marine
Corporation ("Zapata Gulf") for approximately 8.3 million shares of Tidewater
common stock. Zapata sold 673,077, 4.1 million and 3.5 million shares of its
Tidewater common stock in fiscal 1995, 1994 and 1993, respectively. Initially,
38
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6. UNCONSOLIDATED AFFILIATES--(CONTINUED)
Zapata followed the equity method of accounting for its investment in Tidewater
based on its percentage ownership and proxies that allowed the Company to have
voting control of 20% of the total shares of Tidewater common stock
outstanding.
Effective January 1, 1993, Zapata changed from the equity to the cost method
of accounting for its investment in Tidewater as a result of Zapata's decision
to sell 3.5 million of its shares of Tidewater common stock. Consequently,
Zapata has not reported its percentage of Tidewater's results since such time.
Instead, Tidewater's dividends of approximately $135,000, $719,000 and $1.3
million were included in other income in 1995, 1994 and 1993, respectively.
Zapata received dividends from Tidewater totalling $135,000, $719,000 and $2.5
million in fiscal 1995, 1994 and 1993, respectively.
The Company was also engaged directly in the offshore drilling business until
October 31, 1990, when its offshore drilling rigs were sold to Arethusa
(Offshore) Limited ("Arethusa"). In conjunction with the sale, the Company made
a $17.5 million investment in Arethusa. In fiscal 1993, the Company disposed of
its investment in Arethusa for $11.8 million, resulting in a pretax loss of
$5.7 million. The Company accounted for its investment in Arethusa using the
cost method of accounting.
A summary of equity in net income (loss) of and investments in unconsolidated
affiliates is shown below:
INVESTMENTS
EQUITY IN NET AS OF
INCOME (LOSS) SEPTEMBER 30
------------- ------------
(IN THOUSANDS)
1995
Envirodyne..................................... $ (719) $18,235
====== =======
1994
Tidewater...................................... $ ---- $14,471
====== =======
1993
Tidewater...................................... $1,125 $56,289
====== =======
In June 1993, Zapata completed a sale of 3.5 million shares of its Tidewater
stock through an underwritten public offering. The Tidewater shares were sold
at a net price of $21.25 per share, or $73.5 million, and the sale generated a
third-quarter 1993 pretax gain of $32.9 million. In November 1993, Zapata sold
3.75 million shares of its Tidewater common stock through an underwritten
public offering for a net price of $20.75 per share, or $77.8 million, and the
sale resulted in a pretax gain of $33.9 million. Additionally, in March 1994,
Zapata sold 375,175 shares of its Tidewater common stock for a net price of
$21.34 per share, or $8.0 million, resulting in a pretax gain of $3.6 million.
In March 1995, Zapata sold its remaining 673,077 shares of Tidewater common
stock for a net price of $18.87 per share, or $12.7 million, resulting in a
pretax gain of $4.8 million. These gains are reflected on the statement of
operations as other income.
39
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7. DEBT
At September 30, 1995 and 1994, Zapata's consolidated debt consisted of the
following:
1995 1994
------- -------
(IN THOUSANDS)
Senior debt:
Norex unsecured notes due in 1996 interest at 8.5%............ $ 4,796 $17,500
ING Bank revolving credit facility for marine protein due June
30, 1997 interest at prime plus 1%, 9.75% at September 30,
1995, collateralized by certain current assets............... 10,000 --
U.S. government-guaranteed obligations:
Amounts due in installments through 2009, interest from 6.63%
to 6.85%.................................................... 7,626 7,961
Amounts due in installments through 2014, interest at
Eurodollar rates plus .45%, 6.33% and 5.51% at September 30,
1995 and 1994, respectively................................. 1,528 1,588
Other debt at 8.1% and 7.7% at September 30, 1995 and 1994,
respectively................................................. 992 200
------- -------
24,942 27,249
------- -------
Subordinated debt:
10 1/4% debentures due 1997................................... 15,621 15,621
10 7/8% debentures due 2001................................... 9,872 10,242
Malcolm I. Glazer Trust unsecured subordinated promissory note
due in 1997 at prime, 8.75% at September 30, 1995............ 3,181 --
------- -------
28,674 25,863
------- -------
Total debt...................................................... 53,616 53,112
------- -------
Less current maturities......................................... 16,148 531
------- -------
Long-term debt.................................................. $37,468 $52,581
======= =======
The fair value of total long-term debt at September 30, 1995 and 1994
approximates book value.
On May 17, 1993, Zapata completed certain financial transactions with Norex
Drilling Ltd. ("Norex Drilling"), a wholly owned subsidiary of Norex America,
Inc. ("Norex America" and, collectively with Norex Drilling and other
affiliates, "Norex"), through which Zapata raised $111.4 million from the
issuance of debt and equity pursuant to a Second Amended and Restated Master
Restructuring Agreement dated as of April 16, 1993, as amended (the "Norex
Agreement"). The Norex Agreement enabled Zapata to refinance its then-
outstanding senior debt and substantially reduce the amount of required debt
service payments for the following two years.
Under the terms of the Norex Agreement, Zapata issued $50.0 million of senior
secured notes and $32.6 million of senior convertible notes to Norex, each
bearing interest at 13%. In addition, Norex purchased 3 million shares of
Common Stock for $11.25 million and 17.5 million shares of $1 Preference Stock
for $17.5 million. The $1 Preference Stock was to pay dividends at an annual
rate of 8.5% and was exchangeable into 673,077 shares of Zapata's Tidewater
common stock at the option of Norex. In August 1993, Norex exchanged all of its
$1 Preference Stock for $17.5 million aggregate principal amount of 8.5%
unsecured exchangeable note, maturing May 16, 1996. An officer of Norex was
elected to the Zapata Board of Directors in July 1993 and was an executive
officer of Zapata from July 1994 to December 1994.
In December 1993, $73.7 million of the proceeds from the sale of 3.75 million
shares of Zapata's Tidewater common stock were used to prepay $68.5 million of
the Company's 13% senior indebtedness to
40
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7. DEBT--(CONTINUED)
Norex, along with accrued interest, and to pay a $3.5 million prepayment
premium. Also, Zapata wrote off $3.3 million of previously deferred expenses
related to the origination of such indebtedness. In September 1994, Zapata
repaid the remaining balance of its 13% senior convertible indebtedness to
Norex and a required prepayment penalty of $655,000 with proceeds from the
initial drawdown of $15 million from a $30 million bank credit facility
provided by Texas Commerce Bank National Association (the "TCB Loan
Agreement").
In April 1995, Zapata used proceeds of $12.7 million from the sale of its
remaining 673,077 shares of Tidewater common stock to reduce the Company's
$17.5 million in notes due to Norex in May 1996.
In 1995, two of the Company's subsidiaries, Zapata Protein, Inc. and Zapata
Protein (USA), Inc. (collectively "Zapata Protein") entered into a loan
agreement with Internationale Nederlanden (U.S.) Capital Corporation ("ING Loan
Agreement"). The ING Loan Agreement provides Zapata Protein with a $15 million
revolving credit facility that is due June 30, 1997. The ING Loan Agreement
bears interest at a variable interest rate that is adjusted periodically based
on prime interest rate plus 1%. Pursuant to the ING Loan Agreement, Zapata
Protein agreed to maintain certain financial covenants and to limit additional
indebtedness, dividends, dispositions and acquisitions. Zapata Corporation has
guaranteed up to $10.0 million of the outstanding balance of debt related to
the ING Loan Agreement. The amount of restricted net assets for Zapata Protein
at September 30, 1995 was approximately $47.7 million. Pursuant to the ING Loan
Agreement, Zapata Protein's ability to transfer funds to Zapata Corporation is
limited to $10.0 million. As of September 30, 1995, Zapata Protein had already
transferred the maximum amount of $10.0 million to Zapata Corporation. The
Company remains subject to a covenant in the Norex debt agreement that requires
Zapata to maintain a consolidated tangible net worth as defined in such
agreement of at least $100 million. Effective September 30, 1995, the Company
was in compliance with all provisions governing its outstanding indebtedness.
In August 1995, Zapata acquired 31% of the outstanding common stock of
Envirodyne for $18.8 million from a trust controlled by Malcolm Glazer,
Chairman of the Board of Zapata and a director of Envirodyne. Zapata paid the
purchase price by issuing to the seller a subordinated promissory note bearing
interest at prime and maturing in August 1997, subject to prepayment at the
Company's option. The Company has since prepaid approximately $15.6 million on
the promissory note.
During 1993, the Company refinanced its U.S. government-guaranteed debt in
order to achieve lower interest rates; other significant terms were unchanged.
The U.S. government-guaranteed debt is collateralized by a first lien on all of
the vessels refurbished by the refinancing proceeds and certain plant assets.
Annual maturities
The annual maturities of long-term debt for the five years ending September
30, 2000 are as follows (in thousands):
1996 1997 1998 1999 2000
---- ------- ---- ---- ----
$16,148 $19,288 $514 $537 $555
41
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8. CASH FLOW INFORMATION
For purposes of the statement of cash flows, all highly liquid investments
with an original maturity of three months or less are considered to be cash
equivalents.
Net cash provided (used) by operating activities reflects cash payments of
interest and income taxes.
1995 1994 1993
------ ------ -------
(IN THOUSANDS)
Cash paid during the fiscal year for:
Interest......................................... $6,609 $7,142 $12,836
Income tax payments (refund)..................... 544 4,507 (10)
In fiscal 1994 and 1993, interest expense of $1.3 million and $1.7 million,
respectively, associated with the Norex senior secured and convertible notes,
was deferred to the maturity date of such notes. As discussed in Note 7, these
notes were prepaid in full in fiscal 1994.
During fiscal 1995, the Company exchanged certain other assets held for sale
for property and equipment and also exercised an option to purchase certain
real estate resulting in the reclassification of a deposit from other assets to
property and equipment. These transactions resulted in the reclassification of
approximately $2.0 million from other assets to property and equipment.
NOTE 9. PREFERRED, PREFERENCE AND COMMON STOCK
Preferred stock
Zapata has authorized two million shares of preferred stock issuable in one
or more series. In 1994, Zapata redeemed one-half of the approximately 45,000
outstanding shares of the Company's preferred stock and redeemed the balance of
its outstanding preferred stock in January 1995. The preferred stock was
redeemed at $100 a share. Quarterly dividends of $2.25 per share were declared
and paid in fiscal 1995 and 1994.
Preference stock
Zapata has authorized 18 million shares of preference stock issuable in one
or more series. The 2,627 outstanding shares are entitled to vote on all
matters submitted to stockholders, are redeemable at $80.00 per share and
$30.00 per share in liquidation. The stated quarterly dividend, which is
noncumulative, is $.50 per share. Dividends were paid July 1, 1994 and October
1, 1994, the first such quarterly dividends since the second quarter of 1986.
Each outstanding share is convertible at any time into 2.1 shares of Common
Stock. The Company announced in December 1994 that its Board of Directors had
determined to discontinue the payment of dividends on its preference stock.
Common stock
Zapata has authorized 165 million shares of Common Stock, of which 29,548,407
were issued and outstanding at September 30, 1995.
42
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9. PREFERRED, PREFERENCE AND COMMON STOCK--(CONTINUED)
In April 1995, Zapata repurchased 2.25 million shares of Common Stock from
Norex for $4.00 per share. The shares repurchased by Zapata represented 7% of
the Company's then-outstanding Common Stock. Following the repurchase of these
shares, Zapata had approximately 29.5 million shares of Common Stock
outstanding.
On April 27, 1994, Zapata's stockholders approved a one-for-five reverse
stock split of the Company's outstanding Common Stock effective May 3, 1994
that reduced the number of shares of Common Stock outstanding from
approximately 158.3 million to approximately 31.7 million. The number of
authorized shares remained at 165.0 million and par value of the Common Stock
was unchanged.
Under the Company's 1981 Stock Incentive Plan (the "1981 Plan"), options may
be granted at prices equivalent to the market value of the Company's Common
Stock at the date of the grant. Options become exercisable in annual
installments equal to one-third of the shares covered by the grant beginning
one year from the grant date. Options not exercised in the period they become
exercisable may be carried forward and exercised in subsequent periods.
During 1986, the Company amended and restated the 1981 Plan to provide for
the award of restricted shares of Common Stock. All shares of Common Stock
awarded to participants as restricted stock are subject to certain conditions.
At the time of each award, the Compensation Committee of the Board of Directors
(the "Committee") establishes a restricted period of not less than one and not
more than five years within which the shares covered by the award cannot be
sold, assigned, transferred, pledged or otherwise encumbered. Except for such
transfer restrictions, the participant as the owner of such shares has all the
rights of a holder of Common Stock, including the right to receive dividends
paid on such shares and the right to vote the shares. The total of restricted
shares issued and shares issued upon the exercise of options granted under the
1981 Plan cannot exceed 140,000, which was the number of shares authorized for
issuance prior to the amendment and restatement. No shares of Common Stock are
available for further grants of stock options or awards of restricted stock
under the 1981 Plan. During 1995, options to purchase 18,000 shares under the
1981 Plan were exercised at $3.13. At September 30, 1995, options to purchase
12,000 shares under the 1981 Plan at $3.13 were outstanding and exercisable.
Zapata's Special Incentive Plan (the "1987 Plan") provides for the granting
of stock options and the awarding of restricted stock. Under the 1987 Plan,
options may be granted at prices equivalent to the market value of the Common
Stock at the date of grant. Options become exercisable on dates as determined
by the Committee, provided that the earliest such date cannot occur before six
months after the date of grant. Unexercised options will expire on varying
dates, up to a maximum of ten years from the date of grant. The awards of
restricted stock have a restriction period of not less than six months and not
more than five years. The 1987 Plan provided for the issuance of up to 600,000
shares of the Common Stock. During 1992, the stockholders approved an amendment
to the 1987 Plan that provides for the automatic grant of a nonqualified stock
option to directors of Zapata who are not employees of Zapata or any subsidiary
of Zapata. At September 30, 1995, a total of 203,666 shares of Common Stock
were reserved for the future granting of stock options or the awarding of
restricted stock under the 1987 Plan. During 1995, options to purchase 80,000
shares under the 1987 Plan at prices ranging from $3.38 to $3.94 were granted
and options to purchase 120,000 shares at prices ranging from $3.94 to $4.22
were cancelled. At September 30, 1995, 132,000 options were outstanding under
the 1987 Plan at prices ranging from $3.13 to $7.19 and 58,667 options were
exercisable.
On December 6, 1990, the Company's stockholders approved a new stock option
plan (the "1990 Plan"). The 1990 Plan provides for the granting of nonqualified
stock options to key employees of the Company. Under the 1990 Plan, options may
be granted by the Committee at prices equivalent to the market value of
43
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9. PREFERRED, PREFERENCE AND COMMON STOCK--(CONTINUED)
the Common Stock on the date of grant. Options become exercisable in one or
more installments on such dates as the Committee may determine, provided that
such date cannot occur prior to the expiration of one year of continued
employment with the Company following the date of grant. Unexercised options
will expire on varying dates up to a maximum of ten years from the date of
grant. The 1990 Plan provides for the issuance of options to purchase up to
1,000,000 shares of Common Stock. At September 30, 1995, a total of 32,666
shares of Common Stock were reserved for the future granting of stock options
under the 1990 Plan. During 1995, options to purchase 621,900 shares under the
1990 Plan at $3.13 were exercised. At September 30, 1995, a total of 42,000
options at a price of $3.13 were outstanding and exercisable under the 1990
Plan. No options were granted in 1995 under the 1990 Plan.
NOTE 10. INCOME TAXES
Zapata adopted Statement of Financial Accounting Standards No. 109 ("SFAS
109"), "Accounting for Income Taxes" as of October 1, 1993. The adoption of
SFAS 109 changed Zapata's method of accounting for income taxes to the asset
and liability approach. This approach requires the recognition of deferred tax
assets and liabilities for the expected future tax consequences of existing
temporary differences between the financial reporting and tax reporting base of
assets and liabilities, and operating loss and tax credit carryforwards for tax
purposes. Due to the implementation of the quasi-reorganization as of October
1, 1990, the Company was required to adjust capital in excess of par value for
the recognition of deductible temporary differences and credit carryforward
items which existed at the date of the quasi-reorganization. Future reductions,
if any, in the deferred tax valuation allowance relating to tax attributes that
existed at the time of the quasi-reorganization will also be allocated to
capital in excess of par value.
Zapata and its domestic subsidiaries file a consolidated U.S. federal income
tax return. The provision for income tax expense (benefit) consisted of the
following:
1995 1994 1993
------- ------ ------
(IN THOUSANDS)
Current
State........................................... $ 268 $ 507 $ 75
U.S............................................. -- 5,403 619
Deferred
State........................................... (300) 150 --
U.S............................................. (3,147) (6,632) 3,516
------- ------ ------
$(3,179) $ (572) $4,210
======= ====== ======
Income tax expense (benefit) was allocated to operations as follows:
1995 1994 1993
------- ------- ------
(IN THOUSANDS)
Continuing Operations
Domestic operations........................... $(3,676) $(1,812) $3,135
Foreign operations............................ 497 1,240 1,075
------- ------- ------
Total....................................... (3,179) (572) 4,210
Discontinued Operations......................... 4,579 (2,564) (560)
------- ------- ------
Total....................................... $ 1,400 $(3,136) $3,650
======= ======= ======
44
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10. INCOME TAXES--(CONTINUED)
The provision for deferred taxes results from timing differences in the
recognition of revenues and expenses for tax and financial reporting purposes.
The sources and income tax effects of these differences were as follows:
1995 1994 1993
-------- -------- -------
(IN THOUSANDS)
Book depreciation in excess of tax depreciation... $ (4,292) $ (1,145) $(1,468)
Tax deduction related to oil and gas exploration
and production over (under) book expenses........ 2,825 (6,277) (163)
Tax gain in excess of book gain on stock sale..... (1,650) (10,116) (8,065)
Changes to tax carryforwards and other............ (330) 8,266 13,212
Charge off uncollectible note..................... -- 2,790 --
-------- -------- -------
$(3,447) $ (6,482) $ 3,516
======== ======== =======
For federal income tax purposes, Zapata has $12.1 million of net operating
losses expiring in 2010, $17.5 million of investment tax credit carryforwards
expiring in 1997 through 2001, and $10.9 million of alternative minimum tax
credit carryforwards. The use of some of the tax credits may be limited as a
result of a change of ownership as calculated for tax purposes. Investment tax
credit carryforwards are reflected in the balance sheet as a reduction of
deferred taxes using the flow-through method.
The following table reconciles the income tax provisions for fiscal 1995,
1994 and 1993 computed using the U.S. statutory rate of 35%, 35% and 34%,
respectively, to the provisions from continuing operations as reflected in the
financial statements.
1995 1994 1993
-------- ----- ------
(IN THOUSANDS)
Taxes at statutory rate............................... $ (3,158) $(500) $4,987
Recovery of nondeductible book losses................. -- -- (259)
Amortization of intangibles not deductible for tax.... 11 10 --
Other................................................. 33 (563) (26)
Equity/dividend income not recognized for tax
purposes............................................. (33) (176) (567)
State taxes........................................... (32) 657 75
-------- ----- ------
$(3,179) $(572) $4,210
======== ===== ======
45
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10. INCOME TAXES--(CONTINUED)
Temporary differences and tax credit carryforwards that gave rise to
significant portions of deferred tax assets and liabilities are as follows:
SEPTEMBER 30,
----------------
1995 1994
------- -------
(IN THOUSANDS)
Deferred Tax Assets:
Asset write-downs not yet
deductible............... $ 4,956 $ 5,150
Net operating loss
carryforwards............ 4,246 --
Investment tax credit
carryforwards............ 17,490 17,639
Alternative minimum tax
credit carryforwards..... 10,927 11,683
Other..................... 2,404 2,555
------- -------
Total deferred tax
assets................. 40,023 37,027
Valuation allowance....... (16,857) (19,429)
------- -------
Net deferred tax assets. 23,166 17,598
------- -------
Deferred Tax Liabilities:
Property and equipment.... (9,628) (3,477)
Basis difference on stock
investment............... -- (1,650)
Pension................... (3,554) (3,356)
Unrealized investment gain
on Tidewater common
stock.................... -- (2,302)
Other..................... (3,737) (3,898)
------- -------
Total deferred tax
liabilities............ (16,919) (14,683)
------- -------
Net deferred tax asset.. $ 6,247 $ 2,915
======= =======
The valuation allowance represents managements estimates of tax carryforwards
that may not be ultimately utilized given current facts and circumstances.
NOTE 11. COMMITMENTS AND CONTINGENCIES
Operating leases payable
Future minimum payments under non-cancelable operating lease obligations
aggregate $5.8 million. The total future minimum rental payments have not been
reduced by $4.1 million of sublease rentals to be received in the future under
noncancelable subleases. Future minimum payments, net of sublease rentals, for
the five years ending September 30, 2000 are:
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
(IN THOUSANDS)
Lease obligations................................ $348 $325 $310 $310 $303
Rental expenses for operating leases were $1.8 million, $2.3 million and $2.4
million in 1995, 1994 and 1993, respectively.
Litigation
On August 11, 1995, a purported derivative lawsuit was filed in a case styled
Harwin v. Glazer, et al., in the Court of Chancery of the State of Delaware in
and for New Castle County. The complaint names the Company and each of its
directors as defendants and generally alleges that the Company's directors
engaged
46
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 11. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
in conduct constituting breach of fiduciary duty and waste of the Company's
assets in connection with the Company's investment in Envirodyne. The complaint
alleges, among other things, that the purchase of the Envirodyne common stock
from Malcolm Glazer's affiliate was a wrongful expenditure of the Company's
funds and was designed to permit Malcolm Glazer to obtain substantial personal
financial advantages to the detriment of the Company. The complaint seeks
relief including, among other things, rescission of the Company's purchase of
the shares of Envirodyne common stock from the trust controlled by Malcolm
Glazer, voiding of the election of Robert V. Leffler, Jr. and W. George Loar
(both of whom were elected at the Company's Annual Meeting of Stockholders held
on July 27, 1995) and an award of unspecified compensatory damages and
expenses, including attorneys' fees. The compliant alleges, among other things,
that Messrs. Leffler and Loar (both of whom served on the special committee of
the Company's Board of Directors that approved the investment in Envirodyne)
lack independence from Malcolm Glazer because, in the case of Mr. Loar, he was
employed by a corporation indirectly controlled by Malcolm Glazer until his
retirement (which occurred more than five years ago), and in the case of Mr.
Leffler, that he has served as a paid consultant to Malcolm Glazer. The Company
believes that the complaint and allegations contained therein are without merit
and intends to defend the case vigorously.
On November 16, 1995, a petition was filed in the 148th Judicial District
Court of Nueces County, Texas by Peter M. Holt, a former director of the
Company, and certain of his affiliates who sold their interests in Energy
Industries to the Company in November 1993 (collectively, with Mr. Holt, the
"Holt Affiliates"). The petition lists the Company, Malcolm Glazer and Avram
Glazer as defendants and alleges several causes of action based on alleged
misrepresentations on the part of the Company and the other defendants
concerning the Company's intent to follow a long-term development strategy
focusing its efforts on the natural gas services business. The petition did not
allege a breach of any provision of the purchase agreement pursuant to which
the Company acquired Energy Industries from the Holt Affiliates, but alleged
that various representatives of Zapata and Malcolm Glazer made representations
to Mr. Holt regarding Zapata's intention to continue in the natural gas
services industry. Among the remedies sought by the petition are the following
requests: (i) the Company's repurchase of the approximately 2.8 million shares
of Zapata common stock owned by the Holt Affiliates for $15.6 million, an
amount that represents a premium of approximately $4.7 million, or more than
40%, over the market value of such number of shares based on the closing price
of Common Stock on November 16, 1995; (ii) the disgorgement to the Holt
Affiliates of Zapata's profit to be made on its sale of Energy Industries; or
(iii) money damages based on the alleged lower value of the Common Stock had
the alleged misrepresentations not been made. The Company believes that the
petition and the allegations made therein are without merit and intends to
defend the case vigorously.
Zapata is defending various claims and litigation arising from continuing and
discontinued operations. In the opinion of management, uninsured losses, if
any, resulting from these matters and from the matters discussed above will not
have a material adverse effect on Zapata's results of operations, cash flows or
financial position.
NOTE 12. FINANCIAL INSTRUMENTS
Concentrations of Credit Risk
As indicated in the industry segment information which appears in Note 16,
the market for the Company's services and products is primarily related to the
marine protein operations whose customers consist primarily of domestic feed
producers. The Company performs ongoing credit evaluations of its customers and
generally does not require material collateral. The Company maintains reserves
for potential credit losses, and such losses have been within management's
expectations.
47
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12. FINANCIAL INSTRUMENTS--(CONTINUED)
At September 30, 1995 and 1994 the Company had cash deposits concentrated
primarily in three major banks. In addition, the Company had certificates of
deposits, commercial paper and Eurodollar time deposits with a variety of
companies and financial institutions with strong credit ratings. As a result of
the foregoing, the Company believes that credit risk in such instruments is
minimal.
NOTE 13. BENEFIT PLANS
Qualified Defined Benefit Plans
Zapata has two noncontributory defined benefit pension plans covering certain
U.S. employees. Plan benefits are generally based on employees' years of
service and compensation level. All of the costs of these plans are borne by
Zapata. The plans have adopted an excess benefit formula integrated with
covered compensation. Participants are 100% vested in the accrued benefit after
five years of service.
Net pension credits for 1995, 1994 and 1993 included the following
components:
1995 1994 1993
------ ------ -------
(IN THOUSANDS)
Service cost--benefits earned during the year... $ 567 $ 692 $ 660
Interest cost on projected benefit obligations.. 2,354 2,278 1,982
Actual loss (gain) on plan assets............... (6,452) (2,730) 1,028
Amortization of transition assets and other
deferrals...................................... 2,864 (546) (5,445)
------ ------ -------
Net pension credit............................ $ (667) $ (306) $(1,775)
====== ====== =======
The Company's funding policy is to make contributions as required by
applicable regulations. No contributions to the plans have been required since
1984. The plans' funded status and amounts recognized in the Company's balance
sheet at September 30, 1995 and 1994 are presented below:
1995 1994
------- -------
(IN THOUSANDS)
Fair value of plan assets.............................. $43,242 $38,899
------- -------
Actuarial present value of benefit obligations:
Vested benefits...................................... 33,664 31,503
Nonvested benefits................................... 348 782
------- -------
Accumulated benefit obligation....................... 34,012 32,285
Additional benefits based on projected salary
increases........................................... 1,741 2,126
------- -------
Projected benefit obligations........................ 35,753 34,411
------- -------
Excess of plan assets over projected benefit
obligations........................................... 7,489 4,488
Unrecognized transition asset.......................... (5,861) (6,698)
Unrecognized prior service cost........................ 123 151
Unrecognized net loss.................................. 8,404 11,547
------- -------
Prepaid pension cost................................... $10,155 $ 9,488
======= =======
The unrecognized transition assets at October 1, 1987, was $10.6 million,
which is being amortized over 15 years. For 1995 and 1994 the actuarial present
value of the projected benefit obligation was based on a 4.75% weighted average
annual increase in salary levels and a 7.5% discount rate. Pension plan assets
are
48
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 13. BENEFIT PLANS--(CONTINUED)
invested in cash, common and preferred stocks, short-term investments and
insurance contracts. The projected long-term rate of return on plan assets was
9.0% in 1995 and 1994. The unrecognized net loss of $8.4 million at September
30, 1995 is expected to be reduced by future returns on plan assets and through
decreases in future net pension credits.
In 1986, Zapata terminated the Dredging Pension Plan (the "Dredging Plan") in
connection with the sale of the assets of its dredging operations. Annuities
were purchased with Executive Life Insurance Co. ("Executive Life") for
terminated participants of the Dredging Plan. Subsequently Executive Life
experienced financial difficulties resulting in a reduction of payments to the
former participants of the Dredging Plan. The Company has negotiated a
settlement with the U.S. Department of Labor that the Zapata Corporation
Pension Plan would assume the liability associated with the reduction in
benefits of the Dredging Plan participants. The settlement is subject to
approval of the Internal Revenue Service. The accumulated benefit obligation at
September 30, 1995 that would be assumed by the plan is estimated to be $2.3
million, of which $1.4 million has been expensed in the 1994 income statement
as other expense.
Supplemental Retirement Plan
Effective April 1, 1992, Zapata adopted a supplemental pension plan, which
provides supplemental retirement payments to senior executives of Zapata. The
amounts of such payments will be equal to the difference between the amounts
received under the applicable pension plan, and the amounts that would
otherwise be received if pension plan payments were not reduced as the result
of the limitations upon compensation and benefits imposed by federal law.
Effective December 1994, the supplemental pension plan was frozen.
For 1994 and 1993, the actuarial present value of the projected benefit
obligations was based on weighted-average annual increase in salary levels of
2.1%. For 1995, 1994 and 1993 the discount rate was 7.5%.
Net pension expense for 1995, 1994 and 1993 included the following
components:
1995 1994 1993
---- ---- ----
(IN THOUSANDS)
Service cost--benefits earned during the year............. $-- $ 68 $ 86
Interest cost on projected benefit obligations............ 67 72 53
Amortization of prior service cost........................ -- 487 87
--- ---- ----
Net pension expense..................................... $67 $627 $226
=== ==== ====
49
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 13. BENEFIT PLANS--(CONTINUED)
No contributions to the plan have been required since the plan is unfunded.
The plan's funded status and amounts recognized in the Company's balance sheet
at September 30, 1995 and 1994 are presented below:
1995 1994
----- -----
(IN
THOUSANDS)
Fair value of plan assets................................... $ -- $ --
----- -----
Actuarial present value of benefit obligations:
Vested benefits........................................... 950 935
Nonvested benefits........................................ -- --
----- -----
Accumulated benefit obligation............................ 950 935
Additional benefits based on projected salary increases... -- --
----- -----
Projected benefit obligation.............................. 950 935
----- -----
Excess of projected benefit obligations over plan assets.... (950) (935)
Unrecognized net loss....................................... -- --
Unrecognized prior service costs............................ -- --
Additional minimum liability................................ -- --
----- -----
Unfunded accrued liability.................................. $(950) $(935)
===== =====
Qualified Defined Contribution Plan
The Company sponsors a defined contribution plan, the Zapata Profit Sharing
Plan (the "Plan"), for certain eligible employees of the Company. Effective
October 1, 1994, the Company merged a defined contribution plan of Zapata
Protein with and into the Plan. The Company's combined contributions to these
plans totalled $573,225, $577,903 and $473,034 in 1995, 1994 and 1993,
respectively. The Company's contributions are based on employee earnings and
contributions.
NOTE 14. RELATED PARTY TRANSACTIONS
In August 1995, Zapata acquired 31% of the outstanding common stock of
Envirodyne for $18.8 million from a trust controlled by Malcolm Glazer,
Chairman of the Board of Zapata and a director of Envirodyne. Zapata paid the
purchase price by issuing to the seller a subordinated promissory note bearing
interest at prime and maturing in August 1997, subject to prepayment at the
Company's option. The Company has since prepaid approximately $15.6 million on
the promissory note.
During 1995 and 1994, Zapata made purchases totalling $10.4 million and $7.3
million from a company owned by a shareholder and former director of Zapata. At
September 30, 1995, Zapata owed $326,000 related to these purchases.
Zapata received $7,000, $317,000 and $249,000 in 1995, 1994 and 1993,
respectively, from a former director of the Company for use of the Company's
executive aircraft under an arrangement which provided for full recovery of
expenses associated with such use.
During 1995, 1994 and 1993, Zapata received $24,000, $104,000 and $31,000,
respectively, from Norex associated with an administrative services arrangement
pursuant to which Zapata provided office space and certain administrative
services to Norex. See Note 7 and Note 9 for discussions of additional
transactions with Norex.
50
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 15. OIL AND GAS OPERATIONS (UNAUDITED)
The following information concerning Zapata's oil and gas operations has been
prepared in accordance with Statement of Financial Accounting Standards No. 69,
"Disclosures about Oil and Gas Producing Activities" ("SFAS No. 69"), and
applicable Securities and Exchange Commission (the "SEC") regulations.
In September 1994, Zapata's Board of Directors announced that the Company
would immediately undertake efforts to sell its U.S. natural gas producing
properties. The six properties in the Gulf of Mexico, representing Zapata's
domestic oil and gas producing operations, were sold during fiscal 1995. The
Company completed the sale of its domestic properties in August 1995. Zapata
received cash of $4.0 million and recorded an $8.9 million receivable
representing (i) a production payment entitling Zapata to a share of revenues
from certain properties and (ii) a share of future proceeds from a revenue
sharing agreement. No gain or loss was recorded from the sales. The decision to
sell its U.S. natural gas producing properties did not impact Zapata's Bolivian
oil and gas operations.
The information concerning capitalized costs of oil and gas properties, costs
incurred in property acquisition, exploration and development, and operating
results from oil and gas producing activities is taken from Zapata's accounting
records with the exception of income taxes. Income tax provisions are
calculated using statutory tax rates and reflect permanent differences and tax
credits and allowances relating to oil and gas operations that are reflected in
the Company's consolidated income tax provision for each period. The pretax
income from oil and gas producing activities does not agree with the oil and
gas operations operating income in the industry segment information in Note 16
due to the exclusion of certain nonoperating expenses from the information
shown as required by SFAS No. 69.
51
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 15. OIL AND GAS OPERATIONS (UNAUDITED)--(CONTINUED)
CAPITALIZED COSTS OF OIL AND GAS PROPERTIES
UNITED
STATES BOLIVIA TOTAL
-------- ------- --------
(IN THOUSANDS)
1995
Capitalized costs
Evaluated properties............................. $ -- $3,359 $ 3,359
Accumulated depreciation, depletion and
amortization...................................... -- (245) (245)
-------- ------ --------
Net capitalized costs.............................. $ -- $3,114 $ 3,114
======== ====== ========
1994
Capitalized costs
Evaluated properties............................. $ 74,872 $2,194 $ 77,066
Accumulated depreciation, depletion and
amortization...................................... (60,794) (55) (60,849)
-------- ------ --------
Net capitalized costs.............................. $ 14,078 $2,139 $ 16,217
======== ====== ========
COSTS INCURRED IN PROPERTY ACQUISITION,
EXPLORATION AND DEVELOPMENT ACTIVITIES
UNITED
STATES BOLIVIA TOTAL
-------- ------- --------
(IN THOUSANDS)
1995
Expenditures:
Acquisition of unproved properties............... $ -- $ 103 $ 103
Development...................................... 335 1,061 1,396
Sale of proved properties........................ (11,732) -- (11,732)
-------- ------ --------
$(11,397) $1,164 $(10,233)
======== ====== ========
1994
Expenditures:
Development...................................... $ 9,598 $2,194 $ 11,792
======== ====== ========
1993
Expenditures:
Acquisition of unproved properties............... $ 12 $ -- $ 12
Development...................................... (466) -- (466)
-------- ------ --------
$ (454) $ -- $ (454)
======== ====== ========
52
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 15. OIL AND GAS OPERATIONS (UNAUDITED)--(CONTINUED)
RESULTS OF OPERATIONS FOR OIL AND GAS PRODUCING ACTIVITIES
UNITED
STATES BOLIVIA TOTAL
-------- ------- --------
(IN THOUSANDS)
1995
Revenues........................................... $ 5,400 $2,709 $ 8,109
Production costs................................... 3,156 1,097 4,253
Depreciation, depletion and amortization........... 2,666 190 2,856
-------- ------ --------
Income before income taxes*........................ (422) 1,422 1,000
Income taxes....................................... (143) 483 340
-------- ------ --------
Net income (loss)*................................. $ (279) $ 939 $ 660
======== ====== ========
1994
Revenues........................................... $ 8,432 $4,117 $ 12,549
Production costs................................... 5,750 518 6,268
Depreciation, depletion and amortization........... 33,715 55 33,770
-------- ------ --------
Income before income taxes*........................ (31,033) 3,544 (27,489)
Income taxes....................................... (10,551) 1,205 (9,346)
-------- ------ --------
Net income (loss)*................................. $(20,482) $2,339 $(18,143)
======== ====== ========
1993
Revenues........................................... $ 17,011 $3,178 $ 20,189
Production costs................................... 5,642 107 5,749
Depreciation, depletion and amortization........... 7,688 -- 7,688
-------- ------ --------
Income before income taxes*........................ 3,681 3,071 6,752
Income taxes....................................... 1,252 1,044 2,296
-------- ------ --------
Net income*........................................ $ 2,429 $2,027 $ 4,456
======== ====== ========
- --------
* Before deducting selling, general, administrative and interest expenses.
Oil and gas reserves
During fiscal 1995, the Company sold its U.S. oil and gas properties in the
Gulf of Mexico for $12.9 million which equalled the net book values of the
properties.
The following table contains estimates of proved oil and gas reserves
attributable to Zapata's interest in oil and gas properties, which were
prepared primarily by independent petroleum reserve engineers (Huddleston &
Co., Inc.). Proved reserves are the estimated quantities of natural gas and
liquids (crude oil and condensate) which, based on analysis of geological and
engineering data, appear with reasonable certainty to be recoverable in future
years from known reservoirs under existing economic and operating conditions,
i.e., prices and costs as of the date the estimate is made. Reservoirs are
considered proved if economic productivity is supported by actual production or
conclusive formation testing. Proved developed reserves are reserves that can
be expected to be recovered through existing wells with existing equipment and
operating methods.
It should be stressed that these reserve quantities are estimates and may be
subject to substantial upward or downward revisions as indicated by past
experience. The estimates are based on the most current and reliable
information available; however, additional information obtained through future
production
53
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 15. OIL AND GAS OPERATIONS (UNAUDITED)--(CONTINUED)
experience and additional development of existing reservoirs may significantly
alter previous estimates of proved reserves. Future changes in the level of
hydrocarbon prices relative to the costs to develop and produce reserves can
also result in substantial revisions to proved reserve estimates.
These estimates relate only to those reserves which meet the SEC's definition
of proved reserves and do not consider probable reserves and the likelihood of
their recovery which, if considered, could result in substantial increases in
reported reserves. Future secondary recovery efforts could also yield
additional reserves.
NATURAL GAS AND LIQUIDS RESERVES
UNITED STATES BOLIVIA TOTAL
------------- ------------ -------------
LIQUIDS GAS LIQUIDS GAS LIQUIDS GAS
------- ----- ------- ---- ------- -----
(LIQUIDS IN MILLIONS OF BARRELS, GAS IN
BILLIONS OF CUBIC FEET)
Proved reserves as of
September 30, 1992................ .4 48.5 .7 21.2 1.1 69.7
Revisions of previous estimates... -- (1.1) -- 3.0 -- 1.9
Production........................ -- (7.0) -- (1.7) -- (8.7)
Purchase of reserves in place..... -- .4 -- -- -- .4
--- ----- --- ---- --- -----
Proved reserves as of
September 30, 1993................ .4 40.8 .7 22.5 1.1 63.3
Revisions of previous estimates... .1 (2.8) .1 6.7 .2 3.9
Production........................ (.1) (3.3) (.1) (1.9) (.2) (5.2)
--- ----- --- ---- --- -----
Proved reserves as of
September 30, 1994................ .4 34.7 .7 27.3 1.1 62.0
Revisions of previous estimates... -- -- -- 3.9 -- 3.9
Production........................ (.1) (3.0) -- (1.7) (.1) (4.7)
Sale of reserves in place......... (.3) (31.7) -- -- (.3) (31.7)
--- ----- --- ---- --- -----
Proved reserves as of
September 30, 1995................ -- -- .7 29.5 .7 29.5
=== ===== === ==== === =====
Proved developed reserves as of
September 30, 1993................ .2 28.2 .7 22.5 .9 50.7
September 30, 1994................ .2 27.4 .7 27.3 .9 54.7
September 30, 1995................ -- -- .7 29.5 .7 29.5
Standardized measure of discounted future net cash flows
The information presented below concerning the net present value of after-tax
cash flows for Zapata's oil and gas producing operations is required by SFAS
No. 69 in an attempt to make comparable information concerning oil and gas
producing operations available for financial statement users. The information
is based on proved reserves as of September 30 for each fiscal year and has
been prepared in the following manner:
1. Estimates were made of the future periods in which proved reserves
would be produced based on year-end economic conditions.
2. The estimated future production streams of proved reserves have been
priced using year-end prices with the exception that future prices of gas
have been increased for fixed and determinable escalation provisions in
existing contracts.
54
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 15. OIL AND GAS OPERATIONS (UNAUDITED)--(CONTINUED)
3. The resulting future gross cash inflows have been reduced by the
estimated future costs to develop and produce the proved reserves at year-
end cost levels.
4. Income tax payments have been computed at statutory rates based on the
net future cash inflows, the remaining tax basis in oil and gas properties
and permanent differences between book and tax income and tax credits or
other tax benefits available related to the oil and gas operations.
5. The resulting after-tax future net cash flows are discounted to
present value amounts by applying a 10% annual discount factor.
Effective April 1, 1984, the Company changed from accrual to cash basis
revenue recognition for sales from its Bolivia properties in light of economic
and political conditions in Bolivia. Based on the Bolivian oil and gas
company's performance under renegotiated contracts and improved operating
conditions, Zapata returned to the accrual method of accounting for its
Bolivian oil and gas operations in fiscal 1994. In 1994 Zapata participated in
drilling two exploratory wells in its Bolivian operation. In 1995, Zapata
participated in drilling an additional exploratory well. The standardized
measure information below excludes cash flow information relating to the
Bolivian properties prior to 1994.
The net present value of future cash flows, computed as prescribed by SFAS
No. 69, should not be construed as the fair value of Zapata's oil and gas
operations. The computation is based on assumptions that in some cases may not
be realistic and estimates that are subject to substantial uncertainties. Since
the discounted cash flows are based on proved reserves as defined by the SEC,
they are subject to the same uncertainties and limitations inherent in the
reserve estimates, which include among others, no consideration of probable
reserves and stable hydrocarbon prices at year-end levels. The use of a 10%
discount factor by all companies does not provide a basis for quantifying
differences in risk with respect to oil and gas operations among different
companies. The computations also ignore the impact future exploration and
development activities may have on profitability.
55
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 15. OIL AND GAS OPERATIONS (UNAUDITED)--(CONTINUED)
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
RELATING TO PROVED RESERVES
UNITED
STATES BOLIVIA TOTAL
-------- ------- --------
(IN THOUSANDS)
1995
Estimated future cash flows
Revenues from hydrocarbon sales.................. $ -- $46,512 $ 46,512
Production costs................................. -- 18,621 18,621
Development costs................................ -- 775 775
-------- ------- --------
Future net cash flows before income taxes.......... -- 27,116 27,116
Estimated income tax payments...................... -- 8,356 8,356
-------- ------- --------
Future net cash flows.............................. -- 18,760 18,760
10% discount....................................... -- 8,359 8,359
-------- ------- --------
Standardized measure of discounted future net cash
flows............................................. $ -- $10,401 $ 10,401
======== ======= ========
1994
Estimated future cash flows
Revenues from hydrocarbon sales.................. $ 51,380 $44,473 $ 95,853
Production costs................................. 19,132 12,010 31,142
Development costs................................ 7,899 825 8,724
Dismantlement and abandonment.................... 7,924 7,924
-------- ------- --------
Future net cash flows before income taxes.......... 16,425 31,638 48,063
Estimated income tax payments...................... 941 10,165 11,106
-------- ------- --------
Future net cash flows.............................. 15,484 21,473 36,957
10% discount....................................... 1,570 10,142 11,712
-------- ------- --------
Standardized measure of discounted future net cash
flows............................................. $ 13,914 $11,331 $ 25,245
======== ======= ========
1993
Estimated future cash flows
Revenues from hydrocarbon sales.................. $104,889 $ -- $104,889
Production costs................................. 28,399 -- 28,399
Development costs................................ 14,960 -- 14,960
-------- ------- --------
Future net cash flows before income taxes.......... 61,530 -- 61,530
Estimated income tax payments...................... 11,283 -- 11,283
-------- ------- --------
Future net cash flows.............................. 50,247 -- 50,247
10% discount....................................... 12,345 -- 12,345
-------- ------- --------
Standardized measure of discounted future net cash
flows............................................. $ 37,902 $ -- $ 37,902
======== ======= ========
56
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 15. OIL AND GAS OPERATIONS (UNAUDITED)--(CONTINUED)
CHANGES IN STANDARDIZED MEASURE OF DISCOUNTED FUTURE
NET CASH FLOWS RELATING TO PROVED RESERVES
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
Standardized measure, beginning of year--U.S..... $ 13,914 $ 37,902 $ 47,002
Standardized measure, beginning of year--Bolivia. 11,331 10,312 --
Change in sales prices, net of production
costs......................................... (4,267) (24,990) 8,163
Costs incurred or transferred into the
amortization pool during the period that
reduced estimated future development costs.... 825 4,975 --
Changes in estimated future development and
abandonment costs............................. 9,493 (4,638) (4,679)
Sales, net of production costs................. (3,856) (6,281) (11,369)
Revisions of quantity estimates................ 2,020 3,243 (1,800)
Purchase (sales) of reserves in-place.......... (29,399) 1,098
Accretion of discount.......................... 3,032 4,283 5,397
Net change in income taxes..................... 1,023 (149) 2,048
Changes in production rates and other.......... 6,285 588 (7,958)
-------- -------- --------
Standardized measure, end of year................ $ 10,401 $ 25,245 $ 37,902
======== ======== ========
NOTE 16. INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION (UNAUDITED)
Zapata's continuing businesses are comprised of two industry segments
operating in the U.S. and one foreign country. The marine protein segment is
engaged in menhaden fishing for the production of fish meal and fish oil in the
U.S. The oil and gas segment was engaged in the production of crude oil and
natural gas in the U.S. and Bolivia. In 1995, the Company sold its domestic oil
and gas properties; the Bolivian operations were retained. Export sales of fish
oil and fish meal were approximately $26.7 million, $25.8 million and $12.8
million in 1995, 1994 and 1993, respectively. Such sales were made primarily to
European markets. In 1995, net sales to one customer by the marine protein
segment were approximately $12.3 million.
57
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 16. INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION (UNAUDITED)--(CONTINUED)
INDUSTRY SEGMENT INFORMATION
OPERATING DEPRECIATION,
INCOME IDENTIFIABLE DEPLETION AND CAPITAL
YEAR ENDED SEPTEMBER 30, REVENUES (LOSS) ASSETS AMORTIZATION EXPENDITURES
- ------------------------ -------- --------- ------------ ------------- ------------
(IN THOUSANDS)
1995
Marine protein.......... $ 94,959 $ (6,437)(1) $ 85,012 $14,977(1) $ 5,573
Oil and gas............. 8,109 658 13,571 2,856 1,767
Corporate............... -- (3,441) 38,914 115 1
-------- -------- -------- ------- -------
$103,068 $ (9,220) $137,497 $17,948 $ 7,341
======== ======== ======== ======= =======
1994
Marine protein.......... $ 96,614 $ 5,445 $ 87,565 $ 4,535 $ 3,671
Oil and gas............. 12,549 (28,285)(3) 20,062 33,770(3) 11,792
Corporate............... -- (8,767) 44,044(2) 2,321 67
-------- -------- -------- ------- -------
$109,163 $(31,607) $151,671 $40,626 $15,530
======== ======== ======== ======= =======
1993
Marine protein.......... $ 58,565 $ 4,296 $ 92,728 $ 4,510 $ 1,477
Oil and gas............. 20,189 6,032 41,630 7,688 1,327
Corporate............... -- (6,769) 169,888(2) 378 8
-------- -------- -------- ------- -------
$ 78,754 $ 3,559 $304,246 $12,576 $ 2,812
======== ======== ======== ======= =======
- --------
(1) Includes a $12.3 million provision for asset impairment to reduce the
marine protein assets to their fair market value as a result of adopting
SFAS 121.
(2) Includes Zapata's investment in Tidewater. See Note 6.
(3) Includes a $29.2 million provision for oil and gas property valuation
required as a result of low gas prices and a revision of estimated future
costs.
58
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 17. QUARTERLY FINANCIAL DATA (UNAUDITED)
CONSOLIDATED QUARTERLY INFORMATION
THREE MONTHS ENDED
--------------------------------------------
DEC. 31 MAR. 31 JUN. 30 SEP. 30
------- ------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
FISCAL 1995
Revenues...................... $22,357 $22,237 $ 24,199 $ 34,275
======= ======= ======== ========
Operating income (loss)....... $ 311 $ (202) $(11,129)(2) $ 1,800
Other income (expense), net... 145 4,434 (1) (382) (4,000)(4)
Provision (benefit) for income
taxes........................ 181 1,518 (3,964) (914)
------- ------- -------- --------
Income (loss) from continuing
operations................... 275 2,714 (7,547) (1,286)
Income (loss) from
discontinued operations...... 473 217 405 56
Reversal of reserve for loss
on disposition, net of income
taxes........................ -- -- 8,897 (3) --
------- ------- -------- --------
Net income (loss)............. $ 748 $ 2,931 $ 1,755 $ (1,230)
======= ======= ======== ========
Per share:
Income (loss) from continuing
operations................... $ 0.01 $ 0.08 $ (0.25) $ (0.04)
Income from discontinued
operations................... 0.01 0.01 0.31 --
------- ------- -------- --------
Net income (loss)............. $ 0.02 $ 0.09 $ 0.06 $ (0.04)
======= ======= ======== ========
FISCAL 1994
Revenues...................... $24,126 $24,739 $ 22,729 $ 37,569
======= ======= ======== ========
Operating income (loss)....... $ 606 $ 692 $(18,045)(7) $(14,860)(8)
Other income (expense), net... 26,445(5) 3,382 (6) 2,437 (2,086)
Provision (benefit) for income
taxes........................ 9,526 1,668 (5,393) (6,373)
------- ------- -------- --------
Income (loss) from continuing
operations................... 17,525 2,406 (10,215) (10,573)
Income (loss) from
discontinued operations...... (197) (134) 641 1,125
Loss on disposition, net of
income taxes................. -- -- -- (8,897)(9)
------- ------- -------- --------
Net income (loss)............. $17,328 $ 2,272 $ (9,574) $(18,345)
======= ======= ======== ========
Per share:
Income (loss) from continuing
operations................... $ 0.56 $ 0.07 $ (0.33) $ (0.34)
Income (loss) from
discontinued operations...... -- -- 0.02 (0.24)
------- ------- -------- --------
Net income (loss)............. $ 0.56 $ 0.07 $ (0.31) $ (0.58)
======= ======= ======== ========
- --------
(1) Includes a pretax gain of $4.8 million from the sale of 673,077 shares of
Tidewater common stock.
(2) Includes a $12.3 million pretax provision for asset impairment to reduce
the marine protein assets to their estimated fair market value that was
recorded in the third and fourth fiscal quarters.
(3) Includes the reversal of an $8.9 million after-tax loss due to the decision
to retain Zapata Protein.
(4) Includes a $2.8 million write-down of an investment in Wherehouse
Entertainment, Inc. debentures.
(5) Includes a pretax gain of $33.9 million from the sale of 3.75 million
shares of Tidewater common stock and a $6.8 million prepayment penalty in
connection with the partial prepayment of Zapata's indebtedness to Norex.
(6) Includes a pretax gain of $3.6 million from the sale of 375,175 shares of
Tidewater common stock.
(7) Includes an $18.8 million valuation provision for oil and gas property
valuation.
(8) Includes a $10.4 million valuation provision for oil and gas property
valuation.
(9) Includes the estimated loss to be realized on disposal of the marine
protein operations.
59
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 18. SUBSEQUENT EVENT
On December 15, 1995, Zapata completed the Energy Industries Sale after
receiving stockholder approval. Pursuant to the Purchase Agreement, Weatherford
Enterra purchased from the Company all of the assets of Energy Industries.
Consideration received by the Company was approximately $131 million in cash
and the assumption of certain current liabilities of Energy Industries by
Weatherford Enterra, subject to final post-closing adjustments. The cash
portion of the consideration represented a purchase price of $130 million, as
adjusted by a closing date net adjustment provided for in the Purchase
Agreement. The Energy Industries Sale will result in an after-tax book gain of
approximately $14.0 million which will be recognized by the Company in fiscal
1996.
60
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
On February 23, 1994, the Board of Directors of Zapata Corporation decided to
change the Company's principal independent accountants from Arthur Andersen &
Co. ("Arthur Andersen") to Coopers & Lybrand L.L.P. During the Company's two
most recently-completed fiscal years and the subsequent interim period
preceding such change there were no disagreements with Arthur Andersen on any
matters of accounting principles or practice, financial statement disclosure,
or auditing scope or procedure, which, if not resolved to the satisfaction of
Arthur Andersen, would have caused it to make a reference to the subject matter
of the disagreement in connection with its report. Arthur Andersen's report on
the Company's financial statements for the two years prior to dismissal did not
contain an adverse opinion or a disclaimer of opinion, nor was it qualified or
modified as to uncertainty, audit scope or accounting principles.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Pursuant to General Instruction G of Form 10-K, the information called for by
Item 10 of Part III of Form 10-K is incorporated by reference to the
information set forth in the Company's definitive proxy statement relating to
the 1996 Annual Meeting of Stockholders of the Company (the "1996 Proxy
Statement") to be filed pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), in response to Items 401
and 405 of Regulation S-K under the Securities Act of 1933, as amended, and the
Exchange Act ("Regulation S-K"), or if the 1996 Proxy Statement is not so filed
within 120 days after September 30, 1995 such information will be included in
an amendment to this report filed not later than the end of such period.
Reference is also made to the information appearing in Item 1 of Part I of this
Annual Report on Form 10-K under the caption "Business and Properties--
Executive Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION.
Pursuant to General Instruction G of Form 10-K, the information called for by
Item 11 of Part III of Form 10-K is incorporated by reference to the
information set forth in the 1996 Proxy Statement in response to Item 402 of
Regulation S-K, or if the 1996 Proxy Statement is not so filed within 120 days
after September 30, 1995 such information will be included in an amendment to
this report filed not later than the end of such period.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Pursuant to General Instruction G of Form 10-K, the information called for by
Item 12 of Part III of Form 10-K is incorporated by reference to the
information set forth in the 1996 Proxy Statement in response to Item 403 of
Regulation S-K, or if the 1996 Proxy Statement is not so filed within 120 days
after September 30, 1995 such information will be included in an amendment to
this report filed not later than the end of such period.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Pursuant to General Instruction G of Form 10-K, the information called for by
Item 13 of Part III of Form 10-K is incorporated by reference to the
information set forth in the 1996 Proxy Statement in response to Item 404 of
Regulation S-K, or if the 1996 Proxy Statement is not so filed within 120 days
after September 30, 1995 such information will be included in an amendment to
this report filed not later than the end of such period.
61
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(A) LIST OF DOCUMENTS FILED.
PAGE
----
(1) Consolidated financial statements, Zapata Corporation and
subsidiary companies--
Report of Coopers & Lybrand L.L.P., independent public accountants... 23
Report of Arthur Andersen LLP independent public accountants, dated
December 17, 1993................................................... 24
Consolidated balance sheet--September 30, 1995 and 1994.............. 25
Consolidated statement of operations for the years ended September
30, 1995, 1994 and 1993............................................. 27
Consolidated statement of cash flows for the years ended September
30, 1995, 1994 and 1993............................................. 28
Consolidated statement of stockholders' equity for the years ended
September 30, 1995, 1994 and 1993................................... 29
Notes to consolidated financial statements........................... 30
(2) Supplemental Schedule:
Report of Coopers & Lybrand L.L.P., independent public accountants... 65
I--Zapata Corporation (parent company financial statements)
as of and for the years ended September 30, 1995 and 1994........... 66
All schedules, except those listed above, have been omitted since the
information required to be submitted has been included in the financial
statements or notes or has been omitted as not applicable or not required.
(3) Exhibits
The exhibits indicated by an asterisk (*) are incorporated by reference.
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
2(a)* --Agreement dated as of September 20, 1995 by and among Zapata
Corporation, Energy Industries, Inc., Zapata Energy Industries, L.
P., Enterra Corporation and Enterra Compression Company (Exhibit 2
to Current Report on Form 8-K dated September 20, 1995 (File No.
1-4219)).
3(a)* --Restated Certificate of Incorporation of Zapata filed with
Secretary of State of Delaware May 3, 1994 (Exhibit 3(a) to Current
Report on Form 8-K dated April 27, 1994 (File No. 1-4219)).
3(b)* --Certificate of Designation, Preferences and Rights of $1 Preference
Stock (Exhibit 3(c) to Zapata's Quarterly Report on Form 10-Q for
the fiscal quarter ended March 31, 1993 (File No. 1-4219)).
3(c)* --Certificate of Designation, Preferences and Rights of $100
Preference Stock (Exhibit 3(d) to Zapata's Quarterly Report on Form
10-Q for the fiscal quarter ended March 31, 1993 (File
No. 1-4219)).
3(d) --By-laws of Zapata, as amended effective November 21, 1995.
4(a)* --Second Amended and Restated Master Restructuring Agreement, dated
as of April 16, 1993, between Zapata and Norex Drilling Ltd.
(Exhibit 12 to Zapata's Amendment No. 3 to Schedule 13D dated April
30, 1993).
4(b)* --First Amendment to Second Amended and Restated Master Restructuring
Agreement dated as of May 17, 1993 between Zapata and Norex
Drilling Ltd. (Exhibit 4(c) to Zapata's Registration Statement on
Form S-1 (File No. 33-68034)).
62
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
4(c)* --Second Amendment to Second Amended and Restated Master
Restructuring Agreement, dated as of December 17, 1993, between
Zapata and Norex Drilling Ltd. (Exhibit 4(c) to Zapata's Annual
Report on Form 10-K for the fiscal year ended September 30, 1993
(File No. 1-4219)).
4(d)* --Securities Liquidity Agreement, dated as of December 19, 1990, by
and among Zapata and each of the securities holders party thereto
(Exhibit 4(b) to Zapata's Annual Report on Form 10-K for the fiscal
year ended September 30, 1990 (File No. 1-4219)).
4(e)* --Consent Letter and Waiver dated as of March 7, 1995, by and between
Norex America, Inc. and Zapata (Exhibit 4(e) to Zapata's Quarterly
Report on Form 10-Q for the fiscal quarter ended March 31, 1995
(File No. 1-4219)).
Certain instruments respecting long-term debt of Zapata and its subsidiaries
have been omitted pursuant to Regulation S-K, Item 601. Zapata hereby agrees to
furnish a copy of any such instrument to the Commission upon request.
10(a)*+ --Zapata 1990 Stock Option Plan (Exhibit 10(b) to Zapata's Annual
Report on Form 10-K for the fiscal year ended September 30, 1990
(File No. 1-4219)).
10(b)*+ --First Amendment to Zapata 1990 Stock Option Plan (Exhibit 10(c) to
Zapata's Registration Statement on Form S-1 (Registration No. 33-
40286)).
10(c)*+ --Zapata Special Incentive Plan, as amended and restated effective
February 6, 1992 (Exhibit 10(a) to Zapata's Quarterly Report on Form
10-Q for the quarter ended March 31, 1992 (File No. 1-4219)).
10(d)*+ --Zapata 1981 Stock Incentive Plan, as amended and restated effective
February 12, 1986 (Exhibit 19(a) to Zapata's Quarterly Report on
Form 10-Q for the fiscal quarter ended March 31, 1986 (File
No. 1-4219)).
10(e)*+ --Zapata Supplemental Pension Plan effective as of April 1, 1992
(Exhibit 10(b) to Zapata's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1992 (File No. 1-4219)).
10(f)*+ --Zapata Annual Incentive Plan effective January 1, 1991 (Exhibit
10(h) to Zapata's Registration Statement on Form S-1 (Registration
No. 33-40286)).
10(g)*+ --Cimarron Gas Companies, Inc. Incentive Appreciation Plan, effective
as of September 30, 1992 (Exhibit 2(c) to Zapata's Current Report on
Form 8-K dated November 24, 1992 (File No. 1-4219)).
10(h)*+ --Noncompetition Agreement dated as of November 9, 1993 by and among
Zapata and Peter M. Holt and Benjamin D. Holt, Jr. (Exhibit 10(q) to
Zapata's Annual Report on form 10-K for the fiscal year ended
September 30, 1994 (File No. 1-4219)).
10(i)*+ --Termination Agreement between Cimarron Gas Companies, Inc. and James
C. Jewett dated as of January 24, 1994 (Exhibit 10(a) to Zapata's
Quarterly Report on Form 10-Q for the fiscal quarter ended December
31, 1993 (File No. 1-4219)).
10(j)*+ --Consulting Agreement dated as of July 1, 1994 between Zapata
Corporation and Thomas H. Bowersox (Exhibit 10(w) to Zapata's Annual
Report on Form 10-K for the fiscal year ended September 30, 1994
(File No. 1-4219)).
10(k)*+ --Consulting Agreement between Ronald C. Lassiter and Zapata dated as
of July 15, 1994 (Exhibit 10(a) to Zapata's Quarterly Report on Form
10-Q for the fiscal quarter ended June 30, 1994 (File No. 1-4219)).
10(l)*+ --Employment Agreement between Lamar C. McIntyre and Zapata dated as
of October 1, 1994 (Exhibit 10(v) to Zapata's Annual Report on Form
10-K for the fiscal year ended September 30, 1994 (File
No. 1-4219)).
63
10(m)*+ --Purchase Agreement dated as of April 10, 1995 by and between Norex
America, Inc. and Zapata relating to 2,250,000 shares of Zapata
Common Stock (Exhibit 10(c) to Zapata's Quarterly Report on Form 10-
Q for the fiscal quarter ended March 31, 1995 (File No. 1-4219)).
10(n)*+ --Assignment and Assumption of Consulting Agreement effective as of
July 1, 1995 by and between Zapata and Zapata Protein, Inc. (Exhibit
10(b) to Zapata's Quarterly Report on Form 10-Q for the fiscal
quarter ended June 30, 1995 (File No. 1-4219)).
10(o) --Stock Purchase Agreement dated as of August 7, 1995 between Zapata
Corporation and Malcolm I. Glazer.
10(p)+ --Mutual Release Agreement dated as of December 1, 1995 by and among
Zapata Corporation, Cimarron Gas Holding Company, Robert W. Jackson
and the Robert W. Jackson Trust.
21 --Subsidiaries of the Registrant.
23(a) --Consent of Huddleston & Co., Inc.
23(b) --Consent of Coopers & Lybrand L.L.P.
23(c) --Consent of Arthur Andersen LLP.
24 --Powers of attorney.
27 --Financial Data Schedule.
- --------
+ Management contract or compensatory plan or arrangement required to be filed
as an exhibit pursuant to the requirements of Item 14(c) of Form 10-K.
(B) REPORTS ON FORM 8-K.
Current Report on Form 8-K dated September 20, 1995 announcing (1) that
Zapata, Energy Industries, Inc. and Zapata Energy Industries, L. P.
(collectively "Energy Industries") had entered into an agreement with Enterra
Corporation and Enterra Compression Company (collectively "Enterra") pursuant
to which Enterra agreed to purchase substantially all of the assets, and assume
certain liabilities, of Energy Industries; and (2) that the Malcolm I. Glazer
Trust ("Trust") executed a letter to Enterra Corporation agreeing to vote the
shares owned by the Trust in accordance with the recommendation of the
Company's Board of Directors.
(C) FINANCIAL STATEMENT SCHEDULE.
Filed herewith as a financial statement schedule is the schedule supporting
Zapata's consolidated financial statements listed under paragraph (a) of this
Item, and the Independent Public Accountants' Report with respect thereto.
64
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors,
Zapata Corporation
Our report on the consolidated financial statements of Zapata Corporation and
subsidiaries as of and for the years ended September 30, 1995 and 1994, is
included on page 23 of this Form 10-K. In connection with our audits of such
financial statements, we have also audited the related financial statement
schedule for the year ended September 30, 1995 listed in Item 14(a)(2) of this
Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included herein.
Coopers & Lybrand L.L.P.
Houston, Texas
December 15, 1995
65
SCHEDULE I
ZAPATA CORPORATION
(PARENT COMPANY ONLY)
CONDENSED BALANCE SHEET
SEPTEMBER 30,
------------------
1995 1994
-------- --------
(IN THOUSANDS)
Current assets:
Cash and cash equivalents................................ $ 1,418 $ 11,096
Receivables.............................................. 1,361 700
Prepaid expenses and other current assets................ 1,961 1,918
-------- --------
Total current assets................................... 4,740 13,714
-------- --------
Investments and other assets:
Investments in and advances to subsidiaries*............. 155,135 175,029
Investments in unconsolidated affiliates and equity
securities.............................................. 18,235 14,471
Other assets............................................. 14,881 5,626
-------- --------
Total investments and other assets..................... 188,251 195,126
-------- --------
Property and equipment:
Cost..................................................... 3,363 5,213
Accumulated depreciation, depletion and amortization..... (3,080) (3,316)
-------- --------
283 1,897
-------- --------
Total assets........................................... $193,274 $210,737
======== ========
Current liabilities:
Notes payable............................................ $ 792 $ --
Current maturities of long-term debt..................... 4,795 --
Accrued liabilities...................................... 1,597 2,871
Accrued interest......................................... 513 533
Income taxes payable..................................... 16 268
-------- --------
Total current liabilities.............................. 7,713 3,672
-------- --------
Long-term debt............................................. 28,674 43,363
-------- --------
Other liabilities.......................................... 11,597 9,160
-------- --------
Stockholders' equity....................................... 145,290 154,542
-------- --------
Total liabilities and stockholders' equity............. $193,274 $210,737
======== ========
- --------
* Eliminated in consolidation.
This condensed statement should be read in conjunction with the Consolidated
Financial Statements and Notes thereto which are included in Item 8 herein.
66
SCHEDULE I
(continued)
ZAPATA CORPORATION
(PARENT COMPANY ONLY)
CONDENSED STATEMENT OF OPERATIONS
SEPTEMBER 30,
-----------------
1995 1994
------- --------
(IN THOUSANDS)
Expenses:
Depreciation.............................................. $ 115 $ 2,321
General and administrative................................ 1,693 4,127
------- --------
1,808 6,448
------- --------
Operating loss.............................................. (1,808) (6,448)
------- --------
Other income (expense):
Interest income........................................... 468 841
Interest expense.......................................... (1,586) (3,949)
Gain on sale of Tidewater common stock.................... 4,811 37,457
Equity in income (loss) of subsidiaries................... 1,967 (23,897)
Other..................................................... 1,584 (4,429)
------- --------
7,244 6,023
------- --------
Income (loss) before income taxes........................... 5,436 (425)
Provision (benefit) for income taxes........................ 1,232 7,894
------- --------
Net income (loss)........................................... $ 4,204 $ (8,319)
======= ========
This condensed statement should be read in conjunction with the
Consolidated Financial Statements and Notes thereto which are included in Item
8 herein.
67
SCHEDULE I
(continued)
ZAPATA CORPORATION
(PARENT COMPANY ONLY)
CONDENSED STATEMENT OF CASH FLOWS
SEPTEMBER 30,
------------------
1995 1994
-------- --------
(IN THOUSANDS)
Cash flow used by operating activities:
Net income (loss)........................................ $ 4,204 $ (8,319)
-------- --------
Adjustments to reconcile net income (loss) to net cash
used by operating activities:
Depreciation........................................... 115 2,321
Gain on sale of assets................................. (5,268) (37,457)
Equity in loss of subsidiaries......................... 2,686 23,897
Changes in assets and liabilities:
Receivables.......................................... (661) (700)
Accounts payable and accrued liabilities............. (444) (991)
Deferred income taxes................................ 1,443 (4,137)
Other assets and liabilities......................... (5,388) 5,844
-------- --------
Total adjustments.................................. (7,517) (11,223)
-------- --------
Net cash provided (used) by operating activities... (3,313) (19,542)
-------- --------
Cash flow provided by investing activities:
Proceeds from sale of assets............................. 14,481 85,853
Restricted cash investments.............................. -- 74,083
Advances from subsidiaries............................... 20,127 23,137
Business acquisitions, net of cash acquired.............. -- (73,222)
Capital expenditures..................................... (1) (67)
-------- --------
Net cash provided by investing activities.......... 34,607 109,784
-------- --------
Cash flow used by financing activities:
Borrowings............................................... 1,419 --
Principal payments of long-term obligations.............. (29,475) (85,524)
Common stock buyback..................................... (9,508) --
Preferred stock redemption............................... (2,255) (2,245)
Dividend payments........................................ (1,153) (1,566)
-------- --------
Net cash used by financing activities.............. (40,972) (89,335)
-------- --------
Net increase (decrease) in cash and cash equivalents....... (9,678) 907
Cash and cash equivalents at beginning of year............. 11,096 10,189
-------- --------
Cash and cash equivalents at end of year................... $ 1,418 $ 11,096
======== ========
This condensed statement should be read in conjunction with the
Consolidated Financial Statements and Notes thereto which are included in Item
8 herein.
68
SCHEDULE I
(concluded)
ZAPATA CORPORATION
(PARENT COMPANY ONLY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1. LONG-TERM OBLIGATION
Zapata Corporation leases office space in accordance with an agreement that
expires in August 2002. Such office space has been fully subleased. In
accordance with the lease agreement annual payments are approximately $480,000
until August 31, 1997 and approximately $629,000 thereafter, however, the lease
payments are fully offset by the sublease receipts.
NOTE 2. ANNUAL MATURITIES OF LONG-TERM DEBT
The annual maturities of long-term debt for the five years ending September
30, 2000 are as follows (in thousands):
1996 1997 1998 1999 2000
---- ------- ---- ---- ----
$5,587 $18,802 $-- $-- $--
NOTE 3. RECLASSIFICATIONS
Certain reclassifications of prior year information have been made to conform
with current year presentation. These reclassifications had no effect on net
income (loss), total assets or stockholders' equity.
This condensed statement should be read in conjunction with the
Consolidated Financial Statements and Notes thereto which are included in Item
8 herein.
69
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.
Zapata Corporation
(Registrant)
By Lamar C. McIntyre
----------------------------------
(Lamar C. McIntyre
Vice President, Chief Financial
Officer, Treasurer and Assistant
Secretary)
December 20, 1995
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 DATES INDICATED.
SIGNATURE TITLE DATE
--------- ----- ----
Avram A. Glazer* President and Chief December 20, 1995
- ------------------------------------ Executive Officer (Principal
(Avram A. Glazer) Executive Officer)
Lamar C. McIntyre Vice President, Chief December 20, 1995
- ------------------------------------ Financial Officer,
(Lamar C. McIntyre) Treasurer and Assistant
Secretary (Principal
Financial and Accounting
Officer)
Malcolm I. Glazer* +++
- ------------------------------------ +
(Malcolm I. Glazer) +
+
Ronald C. Lassiter* +
- ------------------------------------ +
(Ronald C. Lassiter) ++ Directors of the Registrant December 20, 1995
+
Robert V. Leffler, Jr.* +
- ------------------------------------ +
(Robert V. Leffler, Jr.) +
+
W. George Loar* +++
- ------------------------------------
(W. George Loar)
*By: Lamar C. McIntyre
---------------------------------
(Lamar C. McIntyre,
Attorney-in-Fact)
70