SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
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DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): NONE
ZAPATA CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 1-4219 C-74-1339132
(STATE OR OTHER (COMMISSION FILE NO.) (I.R.S. EMPLOYEE
JURISDICTION IDENTIFICATION NO.)
OF INCORPORATION)
1717 ST. JAMES PLACE, SUITE 550
HOUSTON, TEXAS 77056
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
(713) 940-6100
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
FORMER ADDRESS: P.O. BOX 4240, HOUSTON, TEXAS 77210-4240
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
Item 5.Other Events
In connection with its decision to retain its marine protein operations which
had previously been reported as a discontinued operation, Zapata Corporation
(the "Company") has reclassified its consolidated financial statements for the
fiscal years ended September 30, 1992, 1993 and 1994 as set forth herein to
reflect those marine protein operations as continuing operations for those
periods.
1
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS AS PRESENTED HEREIN HAVE BEEN UPDATED SOLELY AS IT RELATES TO THE
RECLASSIFICATION OF THE COMPANY'S MARINE PROTEIN OPERATIONS TO CONTINUING
OPERATIONS ON MAY 5, 1995. SEE NOTE 14 TO THE CONSOLIDATED FINANCIAL STATEMENTS
INCLUDED HEREIN FOR FURTHER INFORMATION REGARDING SUCH RECLASSIFICATION.
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 herein and the
Company's Form 10-Q's for the periods ended December 31, 1994 and March 31,
1995 and Form 10-Q/A for the period ended June 30, 1995.
BACKGROUND
Zapata Corporation has undergone a significant transformation during the last
four years and the Company's new identity is still in the process of evolving.
In fiscal 1991, the Company sold its offshore drilling business in which it
historically had a significant presence to Arethusa (Offshore) Limited
("Arethusa"). The cash proceeds from the sale was the catalyst for a
comprehensive financial restructuring which resulted in a significant reduction
in Zapata's debt and an increase in the number of outstanding shares of the
Company's common stock ("Common Stock").
In fiscal 1992, Zapata Gulf Marine Corporation ("Zapata Gulf") of which
Zapata owned 34.7% was merged into Tidewater Inc. ("Tidewater"). As a result,
Zapata's investment in the marine services sector was represented by 8.3
million shares of Tidewater common stock.
Zapata acquired Cimarron Gas Holding Company and its subsidiaries
(collectively, "Cimarron") early in fiscal 1993 for $3.8 million consisting of
$2.5 million and 437,333 shares of 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 May 1993, Zapata completed a refinancing of its senior debt which enabled
the Company to move forward with its strategic 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 a Second Amended and Restated
Master Restructuring Agreement dated as of April 16, 1993, as amended (the
"Norex Agreement"), between Zapata and 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 and
substantially reduced the amount of required debt service payments for fiscal
years 1994 and 1995.
Under the terms of the Norex Agreement, Zapata issued $82.6 million in
principal amount of senior notes to Norex, maturing in three years and 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 notes, maturing in 1996. Such notes are also exchangeable into
673,077 shares of Tidewater common stock. Such refinancing transactions are
collectively referred to as the "Norex Refinancing."
In June 1993, the Company sold 3.5 million shares of its Tidewater common
stock in an underwritten public offering for net proceeds of $73.5 million.
Zapata used the proceeds to invest in the natural gas compression sector.
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, 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 portion of the purchase price was financed
with working capital. The acquisition of Stellar significantly expanded the
Company's gas gathering and processing capability by adding 350 miles of
gathering systems in Texas and Oklahoma as well as a processing plant in West
Texas.
2
In November 1993, Zapata purchased the natural gas compression businesses of
Energy Industries, Inc. and certain other affiliated companies as well as
certain real estate used by the business (collectively, "Energy Industries").
Energy Industries is engaged in the business of renting, fabricating, selling,
installing and servicing natural gas compressor packages. Energy Industries
operates the one of the ten largest rental fleets of natural gas compressor
packages in the United States. Its compressor fleet is located in Texas,
Louisiana, Arkansas, Oklahoma and New Mexico, as well as offshore in the Gulf
of Mexico. Total consideration paid for the purchase of Energy Industries and
for a related noncompetition agreement (collectively, the "Energy Industries
Acquisition") was $90.2 million. The purchase price consisted of $74.5 million
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.
Additionally, in November 1993 Zapata sold 3.75 million shares of its
Tidewater common stock for $77.8 million. In December 1993, $73.7 million of
the proceeds from the November sale of Tidewater common stock was used to
prepay $68.5 million of the 13% senior indebtedness to Norex, along with
accrued interest, and to pay a $3.5 million prepayment premium.
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
currently owns 673,077 shares of Tidewater common stock all of which are
reserved for the possible exchange, at the election of Norex, for the $17.5
million aggregate principal amount of 8.5% unsecured exchangeable notes of the
Company held by Norex.
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 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. Zapata's
Board of Directors declared two quarterly Common Stock dividends in fiscal 1994
of $0.035 per share totalling approximately $1.1 million each that were paid in
July 1994 and October 1994.
As of June 30, 1994, Zapata redeemed one-half of the approximately 45,000
outstanding shares of the Company's $6 Cumulative Preferred Stock (Preferred
Stock) at $100 per share. The Company will redeem the balance of its
outstanding Preferred Stock in January 1995. Under terms of the Preferred
Stock, Zapata can redeem a maximum of 22,500 shares of the stock in a calendar
year.
In July 1994, Zapata announced that it intended to separate its marine
protein operations from its energy-related businesses. Alternatives for a sale
of the marine protein operations or a spin-off of the business to the
stockholders of Zapata were considered. 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. Based on preliminary offers
to purchase the marine protein operations, the Company has recorded an $8.9
million after tax book loss. As a result of the decision to sell, the Company's
financial statements were restated to reflect the marine protein operations as
a discontinued operation. On May 5, 1995, Zapata decided to retain the marine
protein operations which had previously been reported as a discontinued
operation. 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 concluded that the value of its marine
protein operations could be more effectively realized by retaining these
operations as part of Zapata's ongoing operations, rather than pursuing another
sale transaction.
In September 1994, Zapata announced that its Board of Directors had
determined that the Company should 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, may be
sold individually or as a package depending upon the interest expressed by
prospective buyers. Zapata's Bolivian oil and gas
3
operations will not be impacted by this decision. Zapata's domestic natural
gas reserves have been declining for a number of years as no exploratory
efforts have been undertaken to offset gas production. The Board's decision to
sell the properties is simply an acceleration of the liquidation of the gas
reserves currently occurring through production. Sales proceeds were estimated
to equal or exceed the net book value of the properties.
LIQUIDITY AND CAPITAL RESOURCES
In September 1994, the Company prepaid the remaining $17.3 million of its
13% senior convertible indebtedness to Norex that was due in 1996, along with
accrued interest, and paid a prepayment premium of $655,000. 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 its natural gas compression operations,
Energy Industries, in September 1994.
At September 30, 1994, Zapata's financial condition is stronger than that of
any time in recent history. Long-term debt of $69.1 million compares favorably
to working capital of $60.6 million and stockholders' equity of $154.5
million. Additionally, the Company owns 673,077 shares of Tidewater common
stock.
As of September 30, 1994, the Company's weighted-average interest rate had
been reduced to 8.8% as a result of the Norex debt prepayments. Mandatory
principal payments for the next twelve months total $3.0 million. Depending
upon certain conditions, the principal payments due in 1996 may be exchanged
for shares of Zapata's Tidewater common stock as provided for in the Norex
Agreement.
The Company considers its current liquidity position to be adequate. The TCB
Loan Agreement provides Energy Industries with financial flexibility.
Additionally, with the acquisition of Energy Industries, Zapata believes that
its cash flow from operations will be sufficient to meet operating needs and
its financial commitments.
The TCB Loan Agreement provides Energy Industries with a revolving credit
facility that converts after two years to a three-year amortizing term loan.
The TCB Loan Agreement bears interest at a variable interest rate that may be
adjusted periodically. Pursuant to the TCB Loan Agreement, Energy Industries
has agreed to maintain certain financial covenants and to limit additional
indebtedness, dividends, dispositions and acquisitions. The amount of
restricted net assets for Energy Industries at September 30, 1994 was
approximately $65.0 million. Additionally, Energy Industries' ability to
transfer funds to Zapata Corporation was limited to $5.0 million at September
30, 1994. The Company remains subject to a covenant in the Norex Agreement
which requires it to maintain a consolidated tangible net worth of at least
$100 million.
Reflecting the effects of the Norex Refinancing and the sale in June 1993 of
the Tidewater common stock, Zapata's working capital improved $88.8 million
during fiscal 1993 and totalled $119.1 million as of September 30, 1993. In
fiscal 1993, cash and restricted cash components increased $54.8 million and
current maturities of long-term debt were reduced by $16.9 million to $2.7
million.
Net cash provided by operating activities during fiscal 1994 totalled $11.1
million as compared to $15.6 million used by operating activities in fiscal
1993. The improvement in 1994 was attributable to the positive contribution
from the Company's compression operations, reduced interest expense, lower
fees associated with Zapata's senior debt and an increase in fish meal and
fish oil inventories in 1993.
Net cash used by operating activities in fiscal 1993 totalled $15.6 million
and compared unfavorably to the $11.5 million provided by operating activities
in 1992. The use of cash was attributable to lower operating income, an
increase in fish meal and fish oil inventories and the prepayment penalty
associated with the Norex Refinancing.
Due to the significant transactions which 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 $13.3 million during fiscal 1994 and $4.7 million during fiscal 1993.
This difference can be attributed to increased capital expenditures and to the
redemption of preferred stock. Capital expenditures increased in 1994 due to
the combination of the following: workover projects at the Wisdom gas field,
the expansion of the natural gas gathering and processing operations and the
expansion of the compressor rental fleet.
4
Net cash used by investing activities of $6.0 million in fiscal 1993 compared
to the $9.1 million use of cash in 1992. Investing activities in 1993 consisted
of the cash received from the disposition of the Company's investment in
Arethusa, the cash used in the acquisitions of Cimarron and Stellar and capital
expenditures. Capital expenditures were lower in 1993 as a result of the
completion of major oil and gas production and marine protein capital projects
in 1992. Reflecting the Norex Refinancing, net cash provided by financing
activities of $1.4 million in fiscal 1993 compared favorably to the net use of
cash in fiscal 1992 of $10.7 million.
RESULTS OF OPERATIONS
General
The results of operations have been reclassified to reflect the marine
protein operations as a continuing operation.
Fiscal 1994--1993
Zapata's net loss of $8.3 million for fiscal 1994 compared unfavorably to the
net income of $9.4 million in fiscal 1993. The fiscal 1994 loss from
discontinued operations reflects the estimated loss on disposition of the
marine protein operations of $8.9 million. The fiscal 1994 loss also includes a
$29.2 million pretax write-down of the Company's oil and gas properties in the
Gulf of Mexico as a result of low gas prices and a revision of estimated future
costs. 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. 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 $337.8 million and an operating loss of $24.7 million in fiscal
1994 compared to revenues of $265.0 million and operating income of $3.0
million in fiscal 1993. The oil and gas valuation provision in fiscal 1994 more
than offset the contribution from the newly-acquired natural gas compression
operations. The 1994 operating loss also included a $2.4 million expense
related to a reduction in staff at the Company's corporate headquarters and
write-off of leasehold improvements.
Fiscal 1993--1992
The Company's net income of $9.4 million for fiscal 1993 represented a
significant improvement from net income of $2.4 million for fiscal 1992. The
improvement was due to the $32.9 million pretax gain from the sale of Tidewater
common stock in June 1993.
The Company's operating income of $3.0 million for fiscal 1993 compared
unfavorably to the fiscal 1992 operating income of $10.9 million. The shortfall
was primarily attributable to reduced receipts from Bolivian oil and gas
operations. Fiscal 1993 income included equity income of $1.1 million from
Zapata's investment in Tidewater compared to equity income of $1.5 million in
fiscal 1992.
As a result of Zapata's decision to sell 3.5 million shares of its Tidewater
common stock, Zapata changed the method of accounting for its investment in
Tidewater from the equity to the cost method of accounting, effective January
1, 1993. Consequently, Zapata's equity interest in Tidewater's results has not
been included as equity income since December 31, 1992. Instead, Tidewater's
dividends to Zapata have been included in other income when declared.
During 1993, revenues and expenses were significantly higher than those
reported for the corresponding 1992 period. The increase resulted from the
inclusion of the activities of Cimarron which was acquired during the first
quarter of fiscal 1993. Cimarron's natural gas liquids trading business
typically generates high
5
revenues, high expenses and low margins. Revenues of $265.0 million for fiscal
1993 (including $186.3 million in revenues from Cimarron) were significantly
higher than the $106.4 million of revenues reported for fiscal 1992.
Marine Protein
In July 1994, Zapata announced that it intended to separate its marine
protein operations from its energy-related businesses. Alternatives for a sale
of the marine protein operations or a spin-off of the business to the
stockholders of Zapata were considered. 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. Based on preliminary offers
to purchase the marine protein operations, the Company has recorded an $8.9
million after tax book loss. As a result of the decision to sell, the operating
results related to the marine protein operations were originally reported under
the discontinued operations classification in the Company's 1994 Form 10-K.
However, on May 5, 1995, the Company decided to retain the marine protein
operation and as a result these operations have been reclassified to continuing
operations. See Note 14.
Revenues of $96.6 million and operating income of $5.4 million for fiscal
1994 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 which 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.
Although fish catch improved in fiscal 1993, the marine protein division's
operating results for 1993 were slightly lower than fiscal 1992 results.
Revenues of $58.6 million and operating income of $4.3 million for fiscal 1993
compared unfavorably to the fiscal 1992 revenues of $76.3 million and operating
income of $4.7 million. The shortfall was attributable to the combination of
lower sales volumes for fish meal and fish oil, and lower prices for fish meal
that offset the positive effects from the improved fish catch.
During 1993, fish meal prices averaged $376 per ton, down slightly from the
1992 average price of $380 per ton. However, because of an oversupply of fish
meal from South America, prices for prime fish meal (the marine protein
division's primary product) temporarily dropped precipitously during 1993. When
prices fell, management intentionally stopped selling product until prices
recovered later in the year. This decision contributed to lower meal sales
volumes during the year and higher inventories at year-end. The average price
at which fish oil was sold during fiscal 1993 increased from $295 per ton in
1992 to $320 per ton.
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 for fiscal 1994 improved for the second
consecutive year after dropping in fiscal 1992. The fish catch for fiscal 1994
improved approximately 37% from the 1993 level; the fiscal 1993 catch improved
approximately 10% from the catch in fiscal 1992. 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.
6
Natural Gas Services Operations--Compression
In November 1993, Zapata purchased Energy Industries, a participant in all
segments of the natural gas compression industry. Additionally, in April 1994
Energy Industries acquired 41 additional compressors for $2.0 million. Energy
Industries operates one of the ten largest rental fleets of natural gas
compressor packages in the United States. Its compressor fleet is located in
Texas, Louisiana, Arkansas, Oklahoma and New Mexico, as well as offshore in the
Gulf of Mexico.
The major segments of Energy Industries' natural gas compression revenues and
operating results for the eleven-month period ended September 30, 1994, in
thousands, are identified below.
ELEVEN MONTHS
ENDED SEPTEMBER
30, 1994
------------------
OPERATING
REVENUES RESULTS
-------- ---------
Compressor Rental...................................... $16,252 $4,866
Fabrication and Sales.................................. 27,560 5,384
Parts and Service ..................................... 19,608 3,958
Other.................................................. 9,102 1,492
Selling and Administrative............................. -- (7,730)
------- ------
$72,522 $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 has improved during fiscal 1994 to a level that
now exceeds the reported industry average 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. Energy Industries' utilization, rental
rates and fleet size as of September 30, 1994 are set forth in the following
table.
SEPTEMBER 30,
1994
-------------
FLEET UTILIZATION:
Horsepower................................................ 82.6%
MONTHLY RENTAL RATE, BASED ON:
Horsepower................................................ $16.61
FLEET SIZE:
Number of units........................................... 706
Horsepower................................................ 113,786
The Company expects to dispose of its heat exchanger manufacturing operation
in fiscal 1995. The sale of the heat exchanger operation will not have a
material impact on the Company's results of operations or financial position.
Natural Gas Services Operations -- Gathering, Processing and Marketing
Zapata's natural gas gathering, processing and marketing operations are
conducted through Cimarron which was acquired early in fiscal 1993 to serve as
the vehicle for the Company's expansion into the natural gas services market.
As a division of Zapata, Cimarron's operations involve two major categories of
business activities: the gathering and processing of natural gas and its
constituent products and the marketing and trading of natural gas liquids
(NGL).
7
Revenues and operating results for fiscal 1994 and 1993 are presented in the
following table by major category, in thousands.
OPERATING
REVENUES RESULTS
----------------- ---------------
1994 1993 1994 1993
-------- -------- ------- ------
Gathering and Processing.............. $ 22,867 $ 11,671 $ 718 $ 427
NGL Marketing......................... 133,274 174,620 703 1,345
Selling and Administrative............ (2,484) (2,324)
-------- -------- ------- ------
$156,141 $186,291 $(1,063) $ (552)
======== ======== ======= ======
For fiscal 1994, gathering and processing revenues increased as a result of
the expansion of the division's gathering and processing operations during
fiscal 1994 and 1993 while marketing revenues declined primarily due to the
Company's decision to reduce its natural gas trading activities. The gathering
and processing operations, however, incurred operating losses in the second and
third quarters of fiscal 1994 as processing margins were negatively impacted by
an uncharacteristic imbalance in the prices of natural gas and NGL. Subsequent
to the end of the third fiscal quarter, liquids prices increased resulting in
improved operating results from the gathering and processing operation.
In fiscal 1993, Zapata's natural gas gathering, processing and marketing
division incurred an operating loss that was attributable to weak demand for
refinery feedstocks, a soft liquids trading market and a write-off of a liquids
trading receivable. Additionally, the division undertook a substantial business
development effort in 1993 as prospective acquisition candidates and expansion
opportunities were examined. These efforts resulted in increased administrative
expenses.
In fiscal 1994 and 1993, Cimarron significantly expanded its natural gas
gathering and processing activities through the acquisition and expansion of
natural gas gathering systems in West Texas and Oklahoma and a gas processing
plant in Sutton County, Texas. A comparison of average daily volumes of gas,
measured in thousands of cubic feet, gathered and processed during fiscal 1994
and 1993 is shown below.
1994 1993
------ ------
Gathering................................................... 45,500 14,382
Processing.................................................. 22,200 10,063
Oil and Gas Operations
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
$12.6 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 recently in
connection with several workover wells at the Company's Wisdom gas field and an
increase in estimated future costs.
In September 1994, Zapata announced that its Board of Directors had
determined that the Company should 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, may be
sold individually or as a package depending upon the interest expressed by
prospective buyers. Zapata's Bolivian oil and gas operations will not be
impacted by this decision. Zapata's domestic natural gas reserves have been
declining for a number of years as no exploratory efforts have been undertaken
to offset gas production. The Board's decision to sell the properties is simply
an acceleration of the liquidation of the gas reserves currently occurring
through production. Sales proceeds are estimated to equal or exceed the net
book value of the properties.
8
The Bolivian operations contributed approximately $3.5 million and $3.2
million to operating income in fiscal 1994 and 1993, respectively. 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 fiscal 1994.
Zapata's domestic natural gas production for fiscal 1994 was approximately
one-half of the fiscal 1993 period's level of production. The decline in
production was due to production difficulties encountered during 1993 at the
Wisdom gas field, the Company's most significant oil and gas property. U.S.
spot gas prices declined during the second half of fiscal 1994 and compared
unfavorably to prices in the corresponding fiscal 1993 period. The decline was
due primarily to an oversupply of natural gas that resulted from mild weather
conditions during the summer and early fall.
In late April 1993 one of the oil and gas division's wells in the Wisdom gas
field was shut-in when such well started producing sand. Prior to the failure,
this well was capable of producing 6.5 MMcf per day. After some minor repairs,
the well was returned to production at a significantly reduced level. Efforts
to restore production from this well have been deferred.
In early September 1993 an additional well in the Wisdom gas field ceased
production as a result of an influx of sand and water. Immediately prior to the
time the well ceased producing, this well was capable of producing
approximately 5.5 MMcf per day. After some minor repairs, the well was returned
to production at a significantly reduced level. Efforts to restore production
commenced in February 1994 and the workover/recompletion of this well and one
additional well successfully restored production of these wells to acceptable
levels. The Company undertook the recompletion of a third well in the Wisdom
gas field which was abandoned after a series of mechanical failures. The Wisdom
gas field was producing 10.8 MMcf per day in August 1994 before curtailing
production in September due to low gas prices.
Revenues of $20.2 million and operating income of $6.0 million for fiscal
1993 were substantially below the fiscal 1992 revenues of $30.1 million and
operating income of $11.2 million. Despite higher prices for U.S. natural gas
and the absence of workover expenses of the Wisdom gas field, the division's
1993 results declined due to the combination of reduced revenues from the
Bolivian oil and gas operations and lower U.S. natural gas production. Cash
receipts from the Bolivian operation totalled $3.2 million in 1993 versus $10.1
million in 1992. Bolivian receipts, recognized as revenues, included
collections of certain past-due receivables in fiscal 1992. Results for the
fiscal 1992 period included $3.0 million of Wisdom gas field workover expenses.
U.S. spot gas prices improved during fiscal 1993 and remained substantially
higher than the extremely low levels experienced during fiscal 1992. However,
Zapata's natural gas production for fiscal 1993 was 31% lower than the fiscal
1992 level of production. A major contributing factor to the decline in
production was due to the production difficulties at the Wisdom gas field.
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. The gain is reflected on the
statement of operations as other income. In November 1993, Zapata sold an
additional 3.75 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; the gains are recorded in other income. As of September 1994, the
Company owns 673,077 shares of Tidewater common stock.
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, as and if declared.
9
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. For fiscal
1992, the Company's equity income of $1.5 million was based on the combination
of 34.7% of Zapata Gulf's results for the three months ended December 31, 1991
and 15.7% of Tidewater's results for the nine months ended September 30, 1992.
OTHER INCOME (EXPENSE)
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 $700,000 dividend income from Zapata's Tidewater common
stock. Also, fiscal 1994 includes a $1.4 million expense related to a
terminated pension plan.
Other expense of $10.6 million incurred during fiscal 1993 included 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.
Other income in 1992 of $4.4 million was attributable to a $1.7 million
pension plan curtailment and settlement gain associated with the termination of
management agreements with Arethusa, and to the receipt of $2.7 million from
notes written down in previous years.
TAXES
The provisions for U.S. income tax for 1994, 1993 and 1992 reflect expenses
resulting from pretax consolidated income.
RECENTLY ISSUED ACCOUNTING STANDARDS
In the first quarter of fiscal 1994, Zapata was required to adopt Statement
of Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income
Taxes." The adoption of SFAS 109 changed Zapata's method of accounting for
income taxes to an asset and liability approach. The impact of adopting SFAS
109 was to record an increase to capital in excess of par value of $15.3
million and a net deferred tax asset of $11.6 million arising from the
recognition of previously existing credit carryforward items.
Additionally, 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. Zapata currently owns 673,077
shares of Tidewater common stock which had a book value of approximately $7.9
million. As a result of adopting SFAS 115, this security is reported at fair
value at September 30, 1994 and any unrealized gain or loss recorded as a
separate component of stockholders' equity (net of deferred income taxes). At
September 30, 1994 an adjustment was made to increase investments in equity
securities by $6.6 million and increase stockholders equity by $4.3 million for
the unrealized appreciation (net of deferred taxes).
10
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, 1994 and the related
consolidated statements of operations, cash flows and stockholders' equity for
the year 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 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 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 consolidated financial position of Zapata
Corporation and subsidiaries as of September 30, 1994 and the consolidated
results of their operations and their cash flows for the year then ended, in
conformity with generally accepted accounting principles.
As described in Notes 1 and 9, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" and Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" in 1994.
Coopers & Lybrand L.L.P.
Houston, Texas
December 16, 1994, except for Note 14,
as to which the date is May 5, 1995
11
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors,
Zapata Corporation:
We have audited the accompanying balance sheet of Zapata Corporation (a
Delaware corporation) and subsidiary companies as of September 30, 1993, and
the related income statement, statement of cash flows and reinvested earnings
(deficit) and capital in excess of par value for each of the two years in the
period ended September 30, 1993. 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 the 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 financial position of Zapata Corporation and
subsidiary companies as of September 30, 1993, and the results of their
operations and their cash flows for each of the two years in the period ended
September 30, 1993, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Houston, Texas
December 17, 1993
12
ZAPATA CORPORATION
CONSOLIDATED BALANCE SHEET(1)
A S S E T S
SEPTEMBER 30, SEPTEMBER 30,
1994 1993
------------- -------------
(IN THOUSANDS)
Current assets:
Cash and cash equivalents........................ $ 13,094 $ 15,273
Restricted cash.................................. 779 75,083
Receivables...................................... 39,595 28,321
Inventories:
Fish products.................................. 34,143 33,504
Compressor equipment and components............ 17,629 --
Gas liquids products........................... 414 1,271
Materials, parts and supplies.................. 3,601 3,392
Prepaid expenses and other current assets........ 2,609 2,280
-------- --------
Total current assets......................... 111,864 159,124
-------- --------
Investments and other assets:
Notes receivable (net of a $4.3 million allowance
in 1994 and 1993)............................... 1,925 2,844
Investments in equity securities................. 14,471 56,289
Goodwill......................................... 26,105 7,781
Deferred income taxes............................ 2,915 --
Other assets..................................... 16,149 18,842
-------- --------
Total investments and other assets........... 61,565 85,756
-------- --------
Property and equipment:
Marine protein................................... 60,188 56,611
Natural gas services--compression................ 56,661 --
Natural gas services--gathering and processing... 18,395 14,324
Oil and gas, full cost method.................... 77,066 65,274
Corporate........................................ 5,213 5,184
-------- --------
217,523 141,393
Accumulated depreciation, depletion and
amortization.................................... (99,913) (41,156)
-------- --------
117,610 100,237
-------- --------
Total assets................................. $291,039 $345,117
======== ========
- --------
(1) The Consolidated Balance Sheet has been reclassified to present the marine
protein operations as continuing operations. See Note 14.
The accompanying notes are an integral part of the financial statements.
13
ZAPATA CORPORATION
CONSOLIDATED BALANCE SHEET(1)
LIABILITIES AND STOCKHOLDERS' EQUITY
SEPTEMBER 30, SEPTEMBER 30,
1994 1993
------------- -------------
(IN THOUSANDS)
Current liabilities:
Current maturities of long-term debt............. $ 3,009 $ 2,714
Accounts payable................................. 16,882 20,674
Accrued liabilities:
Compensation and employee benefits............. 11,148 6,181
Other.......................................... 19,165 9,695
Income taxes payable............................. 1,076 783
-------- --------
Total current liabilities.................... 51,280 40,047
-------- --------
Long-term debt..................................... 69,078 139,646
-------- --------
Deferred income taxes.............................. 3,686
-------- --------
Other liabilities.................................. 16,139 15,474
-------- --------
Commitments and contingencies (Note 10)
Stockholders' equity:
$6.00 cumulative preferred stock (no par),
outstanding: 22,498 shares (1994) and 44,943
shares (1993)................................... 2,255 4,500
$2.00 noncumulative convertible preference stock
($1.00 par), outstanding: 2,627 shares (1994)
and 2,637 shares (1993)......................... 3 3
Common Stock ($0.25 par), outstanding: 31,716,991
shares (1994) and 28,940,592 shares (1993)...... 7,930 36,176
Capital in excess of par value................... 138,293 92,906
Reinvested earnings, from October 1, 1990
(deficit balance prior to quasi-reorganization
at September 30, 1990: $296,850,000)............ 1,785 12,679
Investment in equity securities-unrealized gain,
net of taxes.................................... 4,276 --
-------- --------
154,542 146,264
-------- --------
Total liabilities and stockholders' equity... $291,039 $345,117
======== ========
- --------
(1) The Consolidated Balance Sheet has been reclassified to present the marine
protein operations as continuing operations. See Note 14.
The accompanying notes are an integral part of the financial statements.
14
ZAPATA CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS(1)
YEARS ENDED SEPTEMBER 30,
----------------------------
1994 1993 1992
-------- -------- --------
(IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
Revenues........................................ $337,826 $265,045 $106,413
-------- -------- --------
Expenses:
Operating..................................... 294,330 235,069 70,385
Provision for oil & gas property valuation.... 29,152 -- --
Depreciation, depletion and amortization...... 18,196 13,036 14,923
Selling, general and administrative........... 20,848 13,934 10,204
-------- -------- --------
362,526 262,039 95,512
-------- -------- --------
Operating income (loss)......................... (24,700) 3,006 10,901
-------- -------- --------
Other income (expense):
Interest income............................... 2,043 2,404 2,644
Interest expense.............................. (9,356) (15,811) (16,270)
Gain on sale of Tidewater common stock........ 37,457 32,928 --
Equity in income of unconsolidated affiliates. -- 1,125 1,497
Other......................................... (4,292) (10,629) 4,419
-------- -------- --------
25,852 10,017 (7,710)
-------- -------- --------
Income from continuing operations before income
taxes.......................................... 1,152 13,023 3,191
Provision for income taxes...................... 574 3,650 760
-------- -------- --------
Income (loss) from continuing operations........ 578 9,373 2,431
-------- -------- --------
Discontinued marine protein operations (Notes 2
and 14):
Loss on disposition, net of income taxes...... (8,897) -- --
-------- -------- --------
(8,897) -- --
-------- -------- --------
Net income (loss)............................... (8,319) 9,373 2,431
Preferred and preference stock dividends........ 356 404 404
-------- -------- --------
Net income (loss) to Common Stockholders........ $ (8,675) $ 8,969 $ 2,027
======== ======== ========
Per share data:
Income (loss) from continuing operations...... $ 0.01 $ 0.33 $ 0.08
Loss from discontinued operations............. (0.29) -- --
-------- -------- --------
Net income (loss) per share................... $ (0.28) $ 0.33 $ 0.08
======== ======== ========
- --------
(1) The Consolidated Statement of Operations has been reclassified to present
the marine protein operations as continuing operations. See Note 14.
The accompanying notes are an integral part of the financial statements.
15
ZAPATA CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS(1)
YEARS ENDED SEPTEMBER 30,
-----------------------------
1994 1993 1992
-------- --------- --------
(IN THOUSANDS)
Cash flow provided (used) by operating
activities:
Continuing operations:
Net income (loss) from continuing
operations................................. $ 578 $ 9,373 $ 2,431
-------- --------- --------
Adjustments to reconcile net income (loss)
to net cash provided (used) by operating
activities:
Depreciation, amortization and valuation
provision................................ 47,348 13,036 14,923
Gain on sale of assets, net............... (37,457) (27,303) (46)
Equity in income of unconsolidated
affiliates............................... -- (1,125) (1,497)
Cash dividends received................... -- 1,238 620
Changes in assets and liabilities:
Receivables............................. (4,771) 8,330 569
Inventories............................. (38) (10,883) 5,369
Accounts payable and accrued
liabilities............................ 5,505 (6,189) (5,659)
Deferred income taxes................... (3,608) 3,006 680
Other assets and liabilities............ 3,533 (5,099) (5,852)
-------- --------- --------
Total adjustments..................... 10,512 (24,989) 9,107
-------- --------- --------
Net cash provided (used) by continuing
operations............................. 11,090 (15,616) 11,538
-------- --------- --------
Cash flow provided (used) by investing
activities:
Proceeds from disposition of investments and
other........................................ 88,533 85,244 106
Restricted cash investments................... 74,304 (75,083) --
Proceeds from notes receivable................ 1,061 994 2,359
Business acquisitions, net of cash acquired... (73,222) (12,600) --
Capital expenditures.......................... (28,251) (4,569) (11,595)
-------- --------- --------
Net cash provided (used) by investing
activities............................. 62,425 (6,014) (9,130)
-------- --------- --------
Cash flow provided (used) by financing
activities:
Borrowings.................................... 16,873 101,375 --
Proceeds from issuance of Common Stock........ -- 11,250 --
Principal payments of long-term obligations... (88,756) (108,333) (10,672)
Preferred stock redemption.................... (2,245) -- --
Dividend payments............................. (1,566) (2,933) --
-------- --------- --------
Net cash provided (used) by financing
activities............................. (75,694) 1,359 (10,672)
-------- --------- --------
Net decrease in cash and cash equivalents....... (2,179) (20,271) (8,264)
Cash and cash equivalents at beginning of year.. 15,273 35,544 43,808
-------- --------- --------
Cash and cash equivalents at end of year........ $ 13,094 $ 15,273 $ 35,544
======== ========= ========
- --------
(1) The Consolidated Statement of Cash Flows has been reclassified to present
the marine protein operations as continuing operations. See Note 14.
The accompanying notes are an integral part of the financial statements.
16
ZAPATA CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
CAPITAL
IN
EXCESS INVESTMENTS
PREFERRED PREFERENCE COMMON OF PAR REINVESTED IN EQUITY
STOCK STOCK STOCK VALUE EARNINGS SECURITIES
--------- ---------- -------- -------- ---------- -----------
(IN THOUSANDS)
Balance at September 30,
1991................... $ 4,500 $ 3 $ 31,698 $ 84,969 $1,683
Net income.............. 2,431
Preferred stock
dividends declared..... (404)
Other................... (1) 1
------- --- -------- -------- ------ ------
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................... 36 (140)
------- --- -------- -------- ------ ------
Balance at September 30,
1994................... $ 2,255 $ 3 $ 7,930 $138,293 $1,785 $4,276
======= === ======== ======== ====== ======
The accompanying notes are an integral part of the financial statements.
17
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. THE CONSOLIDATED FINANCIAL STATEMENTS PRESENTED
HEREIN HAVE BEEN UPDATED SOLELY AS IT RELATES TO THE RECLASSIFICATION OF THE
COMPANY'S MARINE PROTEIN OPERATIONS TO CONTINUING OPERATIONS ON MAY 5, 1995.
SEE NOTE 14 TO THE CONSOLIDATED FINANCIAL STATEMENTS INCLUDED HEREIN FOR
FURTHER INFORMATION REGARDING SUCH RECLASSIFICATION.
Restricted Cash
Restricted cash includes cash held in short-term investments to collateralize
letters of credit totalling $779,000 and $1.0 million in fiscal 1994 and 1993,
respectively, that will expire in one year or less. Additionally, in fiscal
1993, $74.1 million from the sale of Tidewater Inc. ("Tidewater") common stock
was held in restricted short-term investments for the purpose of consummating
the Energy Industries, Inc. acquisition as discussed in Note 4.
Inventories
Materials, parts and supplies are stated at average cost. Compressor, fish
product and gas liquids inventories are stated at the lower of average cost or
market.
The marine protein division allocates costs to production from its fish catch
using a standard cost that is based on the 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 months of December to April
are deferred to the next fishing season (April to December) and then allocated
to production as the fish catch is processed. The offseason deferred cost was
approximately $1.9 million at September 30, 1994 and 1993.
Investments in 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. Zapata currently owns 673,077 shares of
Tidewater common stock. As a result of adopting SFAS 115, these securities are
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 is determined on the
average cost method. At September 30, 1994 an adjustment has been made to
increase investments in equity securities by $6.6 million to $14.5 million
based on the value of such shares at the close of trading on September 30, 1994
of $21.50 per share, with an increase of $4.3 million to stockholders' equity
for the unrealized appreciation (net of deferred taxes).
Goodwill
Goodwill represents the excess of the cost of an acquisition over fair value
of net assets acquired. Management assesses whether there has been a permanent
impairment in the value of goodwill and the amount of such impairment by
comparing anticipated undiscounted future cash flows with the carrying value of
goodwill. Goodwill associated with the acquisition of Energy Industries, Inc.
in fiscal 1994 totalled $19.3 million and is being amortized over 40 years
using the straight-line method. Goodwill related to the
18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
acquisitions of Cimarron Gas Holding Company ("Cimarron") and the Stellar
Companies ("Stellar") in fiscal 1993 totalled $7.5 million and is being
amortized over 20 years using the straight-line method. Accumulated goodwill
amortization totalled $949,000 and $124,000 as of September 30, 1994 and 1993.
Property, equipment and depreciation
Property and equipment are recorded at cost. However, the Company effected an
accounting quasi-reorganization as of October 1, 1990 at which time the
historical cost basis of the Company's property and equipment was adjusted to
the fair value of such property and equipment. The carrying value of the assets
utilized in the marine protein operations was reduced to estimated fair value.
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)
Natural gas compressors...................................... 15
Gas gathering systems and gas processing plants.............. 15
Fishing vessels and fish processing plants................... 15-20
Furniture and fixtures....................................... 3-10
Gains and losses resulting from sales and retirements of property and
equipment are included in operating income. Property and equipment no longer in
service pending disposition is classified as other assets and is 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.
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, 1994.
19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
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. Fiscal 1994, 1993 and
1992 revenues include $4.1 million, $3.2 million and $10.1 million,
respectively, related to the Bolivian oil and gas properties.
Revenues related to the natural gas services marketing activities are
recognized when all obligations to deliver products are satisfied. Revenues
related to natural gas processing activities are recognized when products are
produced and sold, while revenues related to the gathering activities are
recognized as gas flows through the Company's pipelines.
The Company's natural gas compression operation sells, leases and rents gas
compressors in the oil and gas industry. Leases are accounted for as either
sales-type or operating. Revenue from sales-type leases is recognized at the
inception of the lease, whereas, revenue from operating leases is recognized
over the lease term.
Futures Contracts
The Company's natural gas gathering and processing operation periodically
enters into futures contracts to hedge its exposure to price fluctuations on
natural gas and natural gas liquids transactions. Recognized gains and losses
on hedge contracts are reported as a component of the related transaction. In
fiscal 1994 and 1993, the Company recognized a loss of $34,000 and a gain of
$178,000, respectively, related to such hedge transactions. At September 30,
1994, such unrealized losses on open hedge transactions were insignificant.
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 31,377,498 in
1994, 27,324,993 in 1993 and 25,723,048 in 1992.
20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
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 which 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 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.
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 shares outstanding have been restated to
reflect the reverse stock split.
NOTE 2. DISCONTINUED OPERATIONS OF MARINE PROTEIN
In July 1994, Zapata announced that it intended to separate its marine
protein operations from its energy-related businesses. Alternatives for a sale
of the marine protein operations or a spin-off of the business to the
stockholders of Zapata were considered. 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 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 to purchase the marine
protein operations, the Company has recorded an $8.9 million after tax book
loss to reflect the estimated loss on disposition of the marine protein
operations. In the third quarter of fiscal 1995, the Company announced its
decision to retain the marine protein operations. See Note 14 of Notes to the
Consolidated Financial Statements.
21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3. DISPOSITION OF OIL & GAS ASSETS
In September 1994, Zapata announced that its Board of Directors had
determined that the Company should 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, may be
sold individually or as a package depending upon the interest expressed by
prospective buyers. Zapata's Bolivian oil and gas operations will not be
impacted by this decision. Management of the Company estimates the sales
proceeds from the disposition of these assets will equal or exceed the net book
value of these properties.
The net book value of the domestic properties to be sold totalled $14.1
million at September 30, 1994. Following is a summary of the results of
operations of the Company's domestic oil and gas operations (amounts in
thousands):
YEAR ENDED
SEPTEMBER 30, 1994
------------------
Revenues............................................... $ 8,432
Expenses *............................................. (40,260)
--------
Loss before income taxes............................... $(31,828)
========
- --------
* Expenses include a $29.2 million valuation provision.
NOTE 4. ACQUISITIONS
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. Energy
Industries is in the business of renting, fabricating, selling, installing and
servicing natural gas compressor packages. 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 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 is 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
=====
22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4. ACQUISITIONS--(CONTINUED)
The following pro forma information for Zapata for the twelve months ended
September 30, 1994 and September 30, 1993 includes the historical results of
Zapata, adjusted for the results of Energy Industries as if the Energy
Industries Acquisition had been consummated on October 1, 1992 (unaudited) (in
thousands, except per share amounts).
TWELVE MONTHS
ENDED
SEPTEMBER 30,
-----------------
1994 1993
-------- --------
Revenues............................................... $343,840 $328,317
Income from continuing operations before taxes......... 1,450 19,594
Income from continuing operations...................... 772 13,564
Income per share from continuing operations............ 0.01 0.44
The pro forma adjustments to Zapata's results for fiscal 1994 to reflect the
Energy Industries Acquisition increased revenues by $6,014,000, as well as
increasing income from continuing operations before taxes by $174,000.
Additional pro forma adjustments for fiscal 1994 included the elimination of
$124,000 of various operating and administrative expenses that were charged to
Energy Industries from an affiliate, additional depreciation of $120,000 and
$41,000 of goodwill amortization, a reduction in net interest expense of
$161,000 related to notes receivable and payable that were not acquired by
Zapata and a federal tax provision of $104,000.
The pro forma adjustments to Zapata's results for fiscal 1993 to reflect the
Energy Industries Acquisition increased revenues by $63,272,000, as well as
income before tax by $3,737,000. Additional pro forma adjustments for fiscal
1993 included the elimination of $2,696,000 of various operating and
administrative expenses that were charged to Energy Industries from an
affiliate, additional depreciation of $1,440,000 and $429,000 of goodwill
amortization, a reduction in net interest expense of $2,007,000 related to
notes receivable and payable that were not acquired by Zapata, a federal tax
provision of $2,380,000 and the issuance of 2.7 million shares of Common Stock.
The pro forma amounts presented above may not be indicative of the results
that would have actually resulted if the transactions had occurred on the date
indicated or which may be obtained in the future.
The Company expects to dispose of its heat exchanger manufacturing operation
in fiscal 1995. These operations were acquired as part of the Energy Industries
acquisition. The sale of the heat exchanger operation is not expected to have a
material impact on the Company's results of operations or financial position.
During the first quarter of fiscal 1993, Zapata acquired the common stock of
Cimarron for $3.8 million consisting of $2.5 million and 437,333 shares of
Common Stock. Cimarron through its subsidiaries is involved in natural gas and
natural gas liquids related businesses. Zapata accounted for the acquisition
using the purchase method of accounting and recorded $2.0 million of goodwill
in connection therewith. The goodwill is 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
=====
23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4. ACQUISITIONS--(CONTINUED)
In September 1993, Cimarron acquired the natural gas gathering and processing
plant interests of Stellar for approximately $16.4 million. The purchase price
reflects an upward adjustment of $200,000 related to the net working capital of
Stellar as of August 31, 1993. The acquisition was financed through the use of
working capital cash and assumption of certain existing indebtedness of
Stellar. The acquisition of Stellar is not significant to the Company's results
of operations or financial position. Zapata accounted for the acquisition using
the purchase method of accounting and recorded $5.5 million of goodwill in
connection therewith. The goodwill is being amortized over 20 years.
NOTE 5. UNCONSOLIDATED AFFILIATES
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 4.1 million and 3.5 million shares of its Tidewater
common stock in fiscal 1994 and 1993, respectively. Initially, Zapata followed
the equity method of accounting for its investment in Tidewater based on its
percent 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 8,258,220 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 $826,000 and
$480,000 that were declared in March 1993 and July 1993, respectively, were
included in other income. Zapata received dividends from Tidewater totalling
$719,000, $2.5 million and $620,000 in fiscal 1994, 1993 and 1992,
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 of and investments in unconsolidated
affiliates is shown below:
EQUITY IN INVESTMENTS
NET AS OF
INCOME SEPTEMBER 30
--------- ------------
(IN THOUSANDS)
1994
Tidewater.......................................... $ -- $ 14,471
====== ========
1993
Tidewater.......................................... $1,125 $ 56,289
====== ========
1992
Zapata Gulf and Tidewater.......................... $1,497 $ 96,957
Arethusa........................................... 17,500
------ --------
$1,497 $114,457
====== ========
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
24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5. UNCONSOLIDATED AFFILIATES--(CONTINUED)
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; the sale
resulted in a pretax gain of $33.8 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. These gains
are reflected on the statement of operations as other income. The Company now
owns 673,077 shares of Tidewater common stock all of which are reserved for the
possible exchange for $17.5 million of senior indebtedness held by Norex. See
Note 6.
NOTE 6. DEBT
At September 30, 1994 and 1993, Zapata's consolidated debt consisted of the
following:
1994 1993
------- --------
(IN THOUSANDS)
Senior debt:
Norex senior secured notes due in 1996 at 13%................ $ $ 50,000
Norex senior convertible notes due in 1996 at 13%............ 34,234
Norex unsecured exchangeable notes due in 1996 at 8.5%....... 17,500 17,500
Texas Commerce Bank revolving/term credit facility for Energy
Industries, interest at prime or Eurodollar rates, 7.75% at
September 30, 1994, due in quarterly installments beginning
in 1997 through 1999, collateralized by certain compression
assets...................................................... 15,000
U.S. government guaranteed obligations:
Amounts due in installments through 2009, interest from
6.63% to 6.85%............................................ 7,961 8,276
Amounts due in installments through 2014, interest at
Eurodollar rates plus .45%, 5.51% at September 30, 1994... 1,588 --
Debt due in monthly installments through 1996, collateralized
by certain gas gathering systems, average interest at prime
plus 0.5% (8.25% and 6.5% at September 30, 1994 and 1993,
respectively)............................................... 3,775 6,371
Other debt at 7.7%........................................... 400 116
------- --------
46,224 116,497
------- --------
Subordinated debt:
10 1/4% debentures due 1997.................................... 15,621 15,621
10 7/8% debentures due 2001.................................... 10,242 10,242
------- --------
25,863 25,863
------- --------
Total Debt..................................................... 72,087 142,360
------- --------
Less current maturities........................................ 3,009 2,714
------- --------
Long-term debt................................................. $69,078 $139,646
======= ========
The fair value of total long term debt at September 30, 1994 approximates
book value and at September 30, 1993 was estimated to be $144.7 million.
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.
25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6. DEBT--(CONTINUED)
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. 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. Such notes are also exchangeable into 673,077
shares of Tidewater common stock. 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 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 premium of
$655,000 with proceeds from the initial drawdown of $15 million from a $30
million bank credit facility that Zapata arranged with Texas Commerce Bank
National Association (the "TCB Loan Agreement") for its natural gas compression
operations, Energy Industries.
The TCB Loan Agreement provides Energy Industries with a $30 million
revolving credit facility that converts after two years to a three year
amortizing term loan. The TCB Loan Agreement bears interest at a variable
interest rate that may be adjusted periodically based upon prime or Eurodollar
interest rates. Pursuant to the TCB Loan Agreement, Energy Industries agreed to
maintain certain financial covenants and to limit additional indebtedness,
dividends, dispositions and acquisitions. The amount of restricted net assets
for Energy Industries at September 30, 1994 was approximately $65.0 million.
Additionally, Energy Industries' ability to transfer funds to Zapata
Corporation was limited to $5.0 million at September 30, 1994. 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. As of September 30, 1994, the Company was in compliance
with all provisions governing its outstanding indebtedness.
During 1993, marine protein refinanced its U.S. government guaranteed debt in
order to achieve lower interest rates; other significant terms were unchanged.
Interest rates ranged from 10.0% to 10.2% prior to the refinancing and ranged
from 6.6% to 6.8% afterwards. The U.S. government guaranteed debt is
collateralized by a first lien on all of the vessels refurbished by the
financing proceeds and certain plant assets.
Annual maturities
The annual maturities of long-term debt for the five years ending September
30, 1999 are as follows (in thousands):
1995 1996 1997 1998 1999
------ ------- ------- ------ ------
$3,009 $19,451 $21,104 $5,509 $5,538
NOTE 7. 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.
1994 1993 1992
------ ------- -------
(IN THOUSANDS)
Cash paid during the fiscal year for:
Interest....................................... $7,719 $13,680 $16,190
Income tax payments (refund)................... 5,960 37 204
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 6, these
notes were prepaid in full in fiscal 1994.
26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8. PREFERRED, PREFERENCE AND COMMON STOCK
Preferred stock
Zapata has authorized two million shares of preferred stock issuable in one
or more series. On June 7, 1994, Zapata announced that it would redeem one-half
of the approximately 45,000 outstanding shares of the Company's preferred
stock. The preferred stock was redeemed at $100 a share. The Company will
redeem the balance of its outstanding preferred stock in January 1995. The
22,498 outstanding shares are entitled to vote on all matters submitted to
stockholders, are recorded at the involuntary liquidation preference of $100
per share, and are redeemable at $100 per share. The stated quarterly dividend
is $2.25 per share. On September 30, 1993, Zapata paid the accumulated and
unpaid balance of preferred dividends totalling $2.9 million. Quarterly
dividends were declared and paid in fiscal 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 per share and $30.00
per share in liquidation. The stated quarterly dividend, which is non-
cumulative, 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 Common Stock and
preference stock.
Common stock
Zapata has authorized 165 million shares of Common Stock, of which 31,716,991
were issued and outstanding at September 30, 1994.
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 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.
Under the 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 1994, options to purchase 24,000 shares under the
1981 Plan were exercised at $3.13. At September 30, 1994, options to purchase
30,000 shares under the 1981 Plan at $3.13 were outstanding and exercisable.
27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8. PREFERRED, PREFERENCE AND COMMON STOCK--(CONTINUED)
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 10 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, 1994, a total of 163,666 shares of Common Stock
were reserved for the future granting of stock options or the awarding of
restricted stock under the 1987 Plan. During 1994, options to purchase 20,000
shares under the 1987 Plan at $7.19 were granted and an option to purchase
20,000 shares at $4.22 was exercised. At September 30, 1994, 172,000 options
were outstanding under the 1987 Plan at prices ranging from $3.13 to $7.19 and
98,667 options were exercisable.
On December 6, 1990, the stockholders approved a new stock option plan (the
"1990 Plan"). The 1990 Plan provides for the granting of non-qualified 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 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 10 years from the date of grant. The 1990
Plan provides for the issuance of options to purchase up to 1,000,000 shares of
the Company's Common Stock. At September 30, 1994, a total of 32,666 shares of
Common Stock were reserved for the future granting of stock options under the
1990 Plan. During 1994, options to purchase 35,622 shares under the 1990 Plan
at $3.13 were exercised and options to purchase 104,478 shares at $3.13 were
cancelled. At September 30, 1994, a total of 663,900 options at a price of
$3.13 were outstanding and exercisable under the 1990 Plan. No options were
granted in 1994 under the 1990 Plan.
NOTE 9. 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. The impact of adopting SFAS 109 was to record an increase to
capital in excess of par value of $15.3 million and a net deferred tax asset of
$11.6 million arising from the recognition of previously existing credit
carryforward items. Subsequently, the Company announced its decision to sell
its marine protein operation, which reduced the amount of tax credit
carryforward items that are expected to be utilized, resulting in an adjustment
that reduced capital in excess of par and the deferred tax asset by $13.7
million. 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 in the
deferred tax valuation allowance, if any, will be allocated to capital in
excess of par value.
28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9. INCOME TAXES--(CONTINUED)
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:
1994 1993 1992
------ ------ ----
(IN THOUSANDS)
Current:
State............................................... $ 882 $ 75 $280
U.S. ............................................... 3,902 619 --
Deferred:
State............................................... 150 -- --
U.S. ............................................... (4,360) 2,956 480
------ ------ ----
$ 574 $3,650 $760
====== ====== ====
Income tax expense (benefit) was allocated to operations as follows:
1994 1993 1992
------- ------ ----
(IN THOUSANDS)
Continuing Operations................................ $ 574 $3,650 $760
Discontinued Operations.............................. (3,710) -- --
------- ------ ----
Total............................................ $(3,136) $3,650 $760
======= ====== ====
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:
1994 1993 1992
-------- ------- -------
(IN THOUSANDS)
Book depreciation in excess of tax
depreciation................................ $ 897 $(1,344) $(2,452)
Tax deduction related to oil and gas
exploration and production over (under) book
expenses.................................... (6,277) (163) 1,254
Tax gain in excess of book gain on stock
sale........................................ (10,116) (8,065)
Changes to tax carryforwards and other....... 8,044 12,528 1,678
Amortization of intangibles.................. 452 -- --
Charge off uncollectible note................ 2,790 -- --
-------- ------- -------
$ (4,210) $ 2,956 $ 480
======== ======= =======
For federal income tax purposes, Zapata has $17.6 million of investment tax
credit carryforwards expiring in 1995 through 2001, and has $11.7 million of
alternative minimum tax credit carryforwards. The use of 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 continuing
operations for 1994, 1993 and 1992 computed using the U.S. statutory rate of
35%, 34% and 34%, respectively, to the provisions reflected in the financial
statements.
1994 1993 1992
----- ------ ------
(IN THOUSANDS)
Taxes at statutory rate........................... $ 403 $4,427 $1,085
Recovery of nondeductible book losses............. -- (259) --
Amortization of intangibles not deductible for
tax.............................................. 196 -- --
Other............................................. (881) (26) (159)
Equity/dividend income not recognized for tax pur-
poses............................................ (176) (567) (446)
State taxes....................................... 1,032 75 280
----- ------ ------
$ 574 $3,650 $ 760
===== ====== ======
29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9. INCOME TAXES--(CONTINUED)
Temporary differences and tax credit carryforwards that gave rise to
significant portions of deferred tax assets and liabilities as of September 30,
1994 are as follows:
SEPTEMBER 30, 1994
------------------
(IN THOUSANDS)
Deferred Tax Assets:
Asset write-downs not yet deductible................ $ 5,150
Investment tax credit carryforwards................. 17,639
Alternative minimum tax credit carryforwards........ 11,683
Other............................................... 2,555
-------
Total deferred tax assets......................... 37,027
Valuation allowance................................. (19,429)
-------
Net deferred tax assets........................... 17,598
-------
Deferred Tax Liabilities:
Property and equipment.............................. (3,477)
Basis difference on stock investment................ (1,650)
Pension............................................. (3,356)
Unrealized investment gain on Tidewater common
stock.............................................. (2,302)
Other............................................... (3,898)
-------
Total deferred tax liabilities.................... (14,683)
-------
Net deferred tax asset............................ $ 2,915
=======
The valuation allowance represents managements estimates of tax credit
carryforwards that may not be ultimately utilized given current facts and
circumstances. Management believes that the net deferred tax asset will be
realized through future taxable income.
NOTE 10. COMMITMENTS AND CONTINGENCIES
Sales-type leases receivable
Energy Industries provides a capital lease financing option to its customers.
Future minimum lease payments receivable resulting from the sale of compression
packages under sales-type leases are due to Zapata as follows: $3,769,000 in
1995, $241,000 in 1996 and $77,000 in 1997; deferred interest totalling $51,000
is included in such amounts. Energy Industries periodically sells a portion of
its lease receivables. Certain lease receivables are sold with partial recourse
to Energy Industries. At September 30, 1994 the total amount of recourse to
Energy Industries on the unpaid balance of all previously sold lease
receivables was $1.7 million. During 1994, Energy Industries sold a total of
$8.3 million of lease receivables.
Operating leases receivable
Energy Industries maintains a fleet of natural gas compressor packages for
rental under operating leases. At September 30, 1994 the net book value of such
property was $46.3 million (accumulated depreciation totalled $3.5 million).
Future minimum lease payments receivable under remaining noncancellable
operating leases as of September 30, 1994 are as follows: $3,256,000 in 1995,
$782,000 in 1996 and $190,000 in 1997.
Operating leases payable
Future minimum payments under operating lease obligations aggregate $10.7
million, and for the five years ending September 30, 1999 are:
1995 1996 1997 1998 1999
------ ------ ------ ------ ----
(IN THOUSANDS)
Lease obligations........................ $3,292 $1,567 $1,353 $1,194 $992
30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
The Company has an operating lease agreement with a purchase option that
totals $2.1 million. The purchase option price includes a nonrefundable deposit
of $1.2 million that is currently classified with other assets. The Company
intends to exercise this purchase option during 1995, therefore, operating
lease payments totalling $3.7 million related to this lease have not been
included in the future minimum payments under operating lease obligations noted
above.
Rental expenses for operating leases were $4.5 million, $2.7 million and $1.9
million in 1994, 1993 and 1992, respectively.
Litigation
On July 9, 1991, a purported class action lawsuit styled Armand A. Vari, et
al. v. Zapata Corporation, et al. was filed in the U.S. District Court for the
Southern District of Florida, Miami Division (Civil Action No. 91-1455), naming
as defendants Zapata, each of its directors and two of its executive officers,
and IBJ Schroder Bank & Trust Company. The lawsuit was dismissed on summary
judgment in 1994.
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 matter discussed above will not
have a material adverse effect on Zapata's results of operations or financial
position.
NOTE 11. 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 the natural gas
industry. The Company's customers consist primarily of major integrated
international oil companies and independent natural gas marketers and
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.
At September 30, 1994 and 1993 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 12. PENSION PLANS
Qualified Pension Plans
Zapata has two noncontributory 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. Each
plan has 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 1994, 1993 and 1992 included the following
components:
1994 1993 1992
------ ------- -------
(IN THOUSANDS)
Service cost--benefits earned during the year.. $ 692 $ 660 $ 945
Interest cost on projected benefit obligations. 2,278 1,982 2,395
Actual loss (gain) on plan assets.............. (2,730) 1,028 (4,950)
Amortization of transition asset and other
deferrals..................................... (546) (5,445) 22
------ ------- -------
Net pension credit........................... $ (306) $(1,775) $(1,588)
====== ======= =======
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12. PENSION PLANS--(CONTINUED)
The Company's funding policy is to make contributions as required by
applicable regulations. No contributions to the plan have been required since
1984. The plans' funded status and amounts recognized in the Company's balance
sheet at September 30, 1994 and 1993 is presented below:
1994 1993
------- -------
(IN THOUSANDS)
Fair value of plan assets.............................. $38,899 $38,053
------- -------
Actuarial present value of benefit obligations:
Vested benefits...................................... 31,503 28,362
Nonvested benefits................................... 782 903
------- -------
Accumulated benefit obligation....................... 32,285 29,265
Additional benefits based on projected salary
increases........................................... 2,126 1,943
------- -------
Projected benefit obligations........................ 34,411 31,208
------- -------
Excess of plan assets over projected benefit
obligations........................................... 4,488 6,845
Unrecognized transition asset.......................... (6,698) (7,535)
Unrecognized prior service cost........................ 151 179
Unrecognized net loss.................................. 11,547 11,054
------- -------
Prepaid pension cost................................... $ 9,488 $10,543
======= =======
The unrecognized transition asset at October 1, 1987 was $15.8 million, which
is being amortized over 15 years. For 1994 and 1993 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. For 1992 the
actuarial present value of the projected benefit obligations was based on a
5.5% annual increase in salary levels and an 8.0% discount rate. Pension plan
assets are 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 1994, 1993 and 1992.
The effect of the assumption changes in 1993 resulted in an increase in the
projected benefit obligation and a corresponding increase in the unrecognized
net loss. The combined unrecognized net loss of $11.5 million at September 30,
1994 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 is currently negotiating
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 accumulated benefit obligation
at September 30, 1994 that would be assumed by the plan is estimated to be $2.1
million, of which $1.4 million has been expensed in the 1994 statement of
operations as other expense.
During 1992, Zapata terminated agreements with Arethusa and its subsidiaries,
pursuant to which Zapata managed the operation of Arethusa's rigs. In
connection therewith, Arethusa agreed to establish a pension plan into which
Zapata transferred its pension obligation with respect to certain employees who
terminated their employment with Zapata and became employees of Arethusa. A
gain of $1.7 million associated with this curtailment and settlement is
included in the 1992 statement of operations as other income.
32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12. PENSION PLANS--(CONTINUED)
Supplemental Pension 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 terminated.
For 1994, 1993 and 1992 the actuarial present value of the projected benefit
obligations was based on weighted-average annual increase in salary levels of
2.1%, 2.1% and 5.5%, respectively, and discount rates of 7.5%, 7.5% and 8.0%,
respectively.
Net pension expense for 1994, 1993 and 1992 included the following
components:
1994 1993 1992
---- ---- ----
(IN THOUSANDS)
Service cost--benefits earned during the year.............. $ 68 $ 86 $28
Interest cost on projected benefit obligations............. 72 53 25
Amortization of prior service cost......................... 487 87 44
---- ---- ---
Net pension expense...................................... $627 $226 $97
==== ==== ===
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, 1994 and 1993 are presented below:
1994 1993
------- -------
(IN THOUSANDS)
Fair value of plan assets.............................. $ -- $ --
------- -------
Actuarial present value of benefit obligations:
Vested benefits........................................ 935 831
Nonvested benefits..................................... 34
------- -------
Accumulated benefit obligation....................... 935 865
Additional benefits based on projected salary
increases........................................... 90
------- -------
Projected benefit obligation......................... 935 955
------- -------
Excess of projected benefit obligations over plan
assets................................................ (935) (955)
Unrecognized net loss.................................. 154
Unrecognized prior service costs....................... 479
Additional minimum liability........................... (543)
------- -------
Unfunded accrued liability............................. $ (935) $ (865)
======= =======
NOTE 13. RELATED PARTY TRANSACTIONS
During 1994, Zapata made purchases totalling $7.3 million from a company
owned by a director and shareholder of Zapata. At September 30, 1994, Zapata
owed $663,000 related to these purchases.
Zapata received $317,000, $249,000 and $187,000 in 1994, 1993 and 1992,
respectively, from a 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.
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 13. RELATED PARTY TRANSACTIONS--(CONTINUED)
During 1994 and 1993, Zapata received $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 6 for additional transactions with Norex.
NOTE 14. DISCONTINUED MARINE PROTEIN OPERATIONS SUBSEQUENTLY RETAINED
On May 5, 1995, the Company decided to retain the marine protein operations
which had previously been reported as a discontinued operation. 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 concluded that the value of its marine protein operations could
be more effectively realized by retaining these operations as part of Zapata's
ongoing operations, rather than pursuing another sale transaction. As a result,
marine protein's net assets and results of operations and cash flows for all
periods have been reclassified from discontinued operations to continuing
operations.
The following is a summary of certain selected financial data for the marine
protein operations for the periods in which these operations were reported as a
discontinued operation:
YEARS ENDED SEPTEMBER
30,
------------------------
1994 1993 1992
------- ------- -------
FINANCIAL RESULTS
Revenues............................................. $96,614 $58,565 $76,319
Expenses............................................. 94,273 59,151 76,621
------- ------- -------
Income (loss) before taxes........................... 2,341 (586) (302)
Income tax provision................................. 1,068 (150) 82
------- ------- -------
Net income (loss) *.................................. $ 1,273 $ (436) $ (384)
======= ======= =======
SEPTEMBER 30,
----------------
1994 1993
-------- -------
FINANCIAL POSITION
Current assets................................................ $ 49,016 $42,775
Investments and other......................................... 8,022 5,938
Property and equipment, net................................... 30,527 44,010
-------- -------
87,565 92,723
-------- -------
Debt.......................................................... 9,749 8,392
Other liabilities and deferred income taxes................... 26,526 15,633
-------- -------
36,275 24,025
-------- -------
Net book value................................................ 51,290 68,698
======== =======
- --------
* Net income (loss) includes allocations of interest expense on general
corporate debt of $2.5 million in 1994, $3.9 million in 1993 and $3.7 million
in 1992. 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.
34
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.
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.
CAPITALIZED COSTS OF OIL AND GAS PROPERTIES
UNITED
STATES BOLIVIA TOTAL
------- ------- -------
(IN THOUSANDS)
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
======= ====== =======
1993
Capitalized costs
Evaluated properties................................... $65,274 $65,274
Accumulated depreciation, depletion and amortization.... 27,078 27,078
------- -------
Net capitalized costs................................... $38,196 $38,196
======= =======
COSTS INCURRED IN PROPERTY ACQUISITION,
EXPLORATION AND DEVELOPMENT ACTIVITIES
UNITED
STATES BOLIVIA TOTAL
------ ------- -------
(IN THOUSANDS)
1994
Expenditures:
Development......................................... $9,598 $2,195 $11,793
====== ====== =======
1993
Expenditures:
Acquisition of unproved properties.................. $ 12 $ 12
Development......................................... (466) (466)
------ -------
$ (454) $ (454)
====== =======
1992
Expenditures:
Acquisition of unproved properties.................. $ 18 $ 18
Development......................................... 3,945 3,945
------ -------
$3,963 $ 3,963
====== =======
35
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)
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 *....................................... $(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
======== ======= ========
1992
Revenues........................................... $ 19,984 $10,110 $ 30,094
Production costs................................... 7,877 56 7,933
Depreciation, depletion and amortization........... 10,303 10,303
-------- ------- --------
Income before income taxes*........................ 1,804 10,054 11,858
Income taxes....................................... 613 3,419 4,032
-------- ------- --------
Net income *....................................... $ 1,191 $ 6,635 $ 7,826
======== ======= ========
- --------
* Before deducting selling, general, administrative and interest expenses.
Oil and gas reserves
During fiscal 1994, the Company recorded a $29.2 million pretax writedown of
its oil and gas properties in the Gulf of Mexico. The writedown was the result
of several factors: lower natural gas prices, additional capitalized costs
incurred recently in connection with several workover wells at the Company's
Wisdom gas field and an increase in estimated future costs.
Zapata's domestic natural gas production for fiscal 1994 was approximately
one half of the fiscal 1993 period's level of production which was 31% lower
than the fiscal 1992 level of production. The decline in production was due to
production difficulties encountered during 1993 at the Wisdom gas field, the
Company's most significant oil and gas property.
In late April 1993, one of the oil and gas division's wells in the Wisdom gas
field was shut-in when the well began producing sand. Prior to the failure,
this well was capable of producing 6.5 MMcf per day. After some minor repairs,
the well was returned to production at a significantly reduced level. Efforts
to restore production from this well have been deferred.
36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 15. OIL AND GAS OPERATIONS (UNAUDITED)--(CONTINUED)
In early September 1993 an additional well in the Wisdom gas field ceased
production as a result of an influx of sand and water. Immediately prior to the
time the well ceased producing, this well was capable of producing
approximately 5.5 MMcf per day. After some minor repairs, the well was returned
to production at a significantly reduced level. Efforts to restore production
commenced in February 1994 and the workover/recompletion of this well and one
additional well successfully restored production of these wells to acceptable
levels. The Company undertook the recompletion of an additional well in the
Wisdom gas field which was abandoned after a series of mechanical failures. The
Wisdom gas field was producing 10.8 MMcf per day in August 1994 before
curtailing production in September due to low gas prices.
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 upon 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.
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 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.
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 15. OIL AND GAS OPERATIONS (UNAUDITED)--(CONTINUED)
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, 1991... .6 61.8 .7 23.7 1.3 85.5
Revisions of previous
estimates............ (.1) (3.1) (.8) (.1) (3.9)
Production............ (.1) (10.2) (1.7) (.1) (11.9)
--------- ----------- --------- ---------- --------- -----------
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
========= =========== ========= ========== ========= ===========
Proved developed re-
serves as of
September 30, 1991... .4 53.5 .7 23.7 1.1 77.2
September 30, 1992.... .3 41.0 .7 21.2 1.0 62.2
September 30, 1993.... .2 28.2 .7 22.5 .9 50.7
September 30, 1994.... .2 27.4 .7 27.3 .9 54.7
Standardized measure of discounted future net cash flows
The information presented below concerning the net present value of aftertax
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.
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.
38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 15. OIL AND GAS OPERATIONS (UNAUDITED)--(CONTINUED)
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. On September 30, 1987, the Company wrote
off its remaining $17.2 million investment in its oil and gas properties in
Bolivia. However, 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. Additionally, in 1994 Zapata participated in drilling two
exploratory wells in its Bolivian operation. 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. Additionally, the
timing of future production and cash flows, given the current state of the U.S.
natural gas market, is subject to significant uncertainty. 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.
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
RELATING TO PROVED RESERVES
UNITED
STATES BOLIVIA TOTAL
-------- ------- --------
(IN THOUSANDS)
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
======== ========
39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 15. OIL AND GAS OPERATIONS (UNAUDITED)--(CONTINUED)
UNITED
STATES BOLIVIA TOTAL
-------- ------- --------
(IN THOUSANDS)
1992
Estimated future cash flows Revenues from
hydrocarbon sales................................. $106,284 $106,284
Production costs................................. 27,059 27,059
Development costs................................ 8,860 8,860
-------- --- --------
Future net cash flows before income taxes.......... 70,365 70,365
Estimated income tax payments...................... 12,545 12,545
-------- --- --------
Future net cash flows.............................. 57,820 57,820
10% discount....................................... 10,818 10,818
-------- --- --------
Standardized measure of discounted future net cash
flows............................................. $ 47,002 $ 47,002
======== === ========
CHANGES IN STANDARDIZED MEASURE OF DISCOUNTED FUTURE
NET CASH FLOWS RELATING TO PROVED RESERVES
1994 1993 1992
------- ------- -------
(IN THOUSANDS)
Standardized measure, beginning of year--U.S........ $37,902 $47,002 $58,780
Standardized measure, beginning of year--Bolivia.... 10,312
Change in sales prices, net of production costs... (24,990) 8,163 (3,038)
Costs incurred or transferred into the
amortization pool during the period that reduced
estimated future development costs............... 4,975 2,188
Changes in estimated future development and
abandonment costs................................ (4,638) (4,679) (660)
Sales, net of production costs.................... (6,281) (11,369) (12,107)
Revisions of quantity estimates................... 3,243 (1,800) (4,260)
Purchase of reserves in-place..................... 1,098
Accretion of discount............................. 4,283 5,397 7,004
Net change in income taxes........................ (149) 2,048 4,291
Changes in production rates and other............. 588 (7,958) (5,196)
------- ------- -------
Standardized measure, end of year................... $25,245 $37,902 $47,002
======= ======= =======
NOTE 16. INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION (UNAUDITED)
Zapata's continuing businesses are comprised of four 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 natural gas compression segment rents, fabricates, sells, installs and
services natural gas compressor packages. The natural gas gathering, processing
and marketing segment gathers and processes natural gas and its constituent
products, and markets and trades in natural gas liquids in the U.S. The oil and
gas segment is engaged in the production of crude oil and natural gas in the
U.S. and Bolivia. Export sales of fish oil and fish meal were approximately
$25.8 million, $12.8 million and $16.2 million in 1994, 1993 and 1992,
respectively. Such sales were made primarily to European markets. In 1992 net
sales to one customer by the marine protein segment were approximately $12.4
million. Export sales of compressors and related equipment in 1994 totalled
$9.9 million. Such sales were made primarily to Canadian markets.
40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 16. INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION (UNAUDITED)--(CONTINUED)
INDUSTRY SEGMENT INFORMATION
DEPRECIATION,
OPERATING DEPLETION
INCOME IDENTIFIABLE AND CAPITAL
YEAR ENDED SEPTEMBER 30, REVENUES (LOSS) ASSETS AMORTIZATION EXPENDITURES
- ------------------------ -------- --------- ------------ ------------- ------------
(IN THOUSANDS)
1994
Marine protein.......... $ 96,614 $ 5,445 $ 87,565 $ 4,535 $ 3,671
Natural gas services--
compression............ 72,522 7,970 102,626 4,867 8,638
Natural gas services--
gathering, processing
and marketing.......... 156,141 (1,063) 36,742 1,855 4,083
Oil and gas............. 12,549 (28,285)(2) 20,062 33,770(2) 11,792
Corporate............... (8,767) 44,044(1) 2,321 67
-------- -------- -------- ------- -------
$337,826 $(24,700) $291,039 $47,348 $28,251
======== ======== ======== ======= =======
1993
Marine protein.......... $ 58,565 $ 4,295 $ 92,728 $ 4,510 $ 1,477
Natural gas services--
gathering, processing
and marketing.......... 186,291 (552) 40,871 460 1,757
Oil and gas............. 20,189 6,032 41,630 7,688 1,327
Corporate............... (6,769) 169,888(1) 378 8
-------- -------- -------- ------- -------
$265,045 $ 3,006 $345,117 $13,036 $ 4,569
======== ======== ======== ======= =======
1992
Marine protein.......... $ 76,319 $ 4,729 $ 84,082 $ 4,248 $ 4,614
Oil and gas............. 30,094 11,248 50,191 10,303 3,963
Corporate............... (5,076) 170,066(1) 372 3,018
-------- -------- -------- ------- -------
$106,413 $ 10,901 $304,339 $14,923 $11,595
======== ======== ======== ======= =======
- --------
(1) Includes Zapata's investment in Tidewater, a substantial portion of which
was sold in fiscal 1994 and 1993.
(2) Includes a $29,152,000 provision for oil and gas property valuation as a
result of low gas prices and a revision of estimated future costs.
41
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 1994
Revenues................. $80,228 $75,200 $ 86,496 $ 95,902
======= ======= ======== ========
Operating income (loss).. $ 2,154 $ 1,303 $(16,058)(3) $(12,099)(4)
Other income (expense),
net..................... 24,622 (1) 2,544 (2) 1,578 (2,892)
Provision (benefit) for
income taxes............ 9,448 1,575 (4,906) (5,543)
------- ------- -------- --------
Income (loss) from con-
tinuing operations...... 17,328 2,272 (9,574) (9,448)
Loss on disposition, net
of income taxes......... -- -- -- (8,897)(5)
------- ------- -------- --------
Net income (loss)........ $17,328 $ 2,272 $ (9,574) $(18,345)
======= ======= ======== ========
Per share:
Income (loss) from con-
tinuing operations...... $ 0.56 $ 0.05 $ (0.31) $ (0.29)
Loss on disposition, net
of income taxes......... -- -- -- (0.29)
------- ------- -------- --------
Net income (loss)........ $ 0.56 $ 0.05 $ (0.31) $ (0.58)
======= ======= ======== ========
FISCAL 1993
Revenues................. $70,925 $71,854 $ 58,173 $ 64,093
======= ======= ======== ========
Operating income (loss).. $ 2,496 $ (291) $ (569) $ 1,370
Other income (expense),
net..................... (1,479) (2,456) 16,482 (6) (2,530)
Provision (benefit) for
income taxes............ (21) (1,205) 5,423 (547)
------- ------- -------- --------
Net income (loss)........ $ 1,038 $(1,542) $ 10,490 $ (613)
======= ======= ======== ========
Net income (loss) per
share................... $ 0.04 $ (0.06) $ 0.37 $ (0.02)
======= ======= ======== ========
- --------
(1) 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 Norex indebtedness.
(2) Includes a pretax gain of $3.6 million from the sale of 375,175 shares of
Tidewater common stock.
(3) Includes an $18.8 million valuation provision for oil and gas property
valuation.
(4) Includes a $10.4 million valuation provision for oil and gas property
valuation.
(5) Includes the estimated loss to be realized on disposal of the marine
protein operations, net of taxes.
(6) Includes a pretax gain of $32.9 million from the sale of 3.5 million shares
of Tidewater common stock, a $6.4 million prepayment penalty in connection
with the refinancing of Zapata's senior indebtedness and a $6.0 million
write-down of Zapata's investment in Arethusa to approximate estimated
market value. A $300,000 gain was recorded in the fourth quarter when
Zapata disposed of its investment in Arethusa.
42
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED HEREUNTO DULY AUTHORIZED.
ZAPATA CORPORATION
/s/ Joseph L. von Rosenberg III
By: _________________________________
Joseph L. von Rosenberg III
Vice President, General Counsel and
Corporate Secretary
Date: November 13, 1995
43
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) EXHIBITS:
27 --Financial Data Schedule.
44
5
1,000
YEAR
SEP-30-1994
OCT-01-1993
SEP-30-1994
13,873
0
39,595
0
55,787
111,864
217,523
99,913
291,039
51,280
69,078
7,930
0
2,258
144,354
291,039
337,826
337,826
294,330
362,526
(35,208)
0
9,356
1,152
574
578
(8,897)
0
0
(8,319)
(.28)
(.28)
