1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
COMMISSION FILE NUMBER: 1-4219
ZAPATA CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
STATE OF DELAWARE C-74-1339132
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1717 ST. JAMES PLACE, SUITE 550
HOUSTON, TEXAS 77056
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 940-6100
---------------
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL
REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO
--- ---
NUMBER OF SHARES OUTSTANDING OF THE REGISTRANT'S COMMON STOCK, PAR
VALUE $0.25 PER SHARE, ON AUGUST 9, 1996: 29,548,707.
================================================================================
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Zapata Corporation
Condensed Consolidated Balance Sheet . . . . . . . . . . . . 3
Condensed Consolidated Income Statement . . . . . . . . . . 4
Condensed Consolidated Statement of Cash Flows . . . . . . . 5
Notes to Financial Statements . . . . . . . . . . . . . . . 6
2
3
ZAPATA CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)
JUNE 30, SEPTEMBER 30,
ASSETS 1996 1995
-------- -------------
Current assets:
Cash and cash equivalents $103,378 $ 2,488
Restricted cash 260 ---
Receivables 8,295 17,550
Inventories:
Fish products 28,904 22,947
Materials, parts and supplies 3,454 3,358
Prepaid expenses and other current assets 3,478 2,400
Net assets of discontinued operations --- 101,894
-------- --------
Total current assets 147,769 150,637
-------- --------
Investments and other assets:
Notes receivable 8,864 8,864
Investments in unconsolidated affiliates 18,837 18,235
Deferred income taxes 2,338 6,247
Other assets 15,556 16,170
-------- --------
45,595 49,516
-------- --------
Property and Equipment 76,661 74,275
Accumulated depreciation (35,218) (35,037)
-------- --------
41,443 39,238
-------- --------
Total assets $234,807 $239,391
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 22,602 $ 16,148
Accounts payable and accrued liabilities 19,513 20,953
-------- --------
Total current liabilities 42,115 37,101
-------- --------
Long-term debt 18,283 37,468
-------- --------
Other liabilities 17,649 19,532
-------- --------
Stockholders' equity:
Preference stock ($1.00 par); 2,627 issued and outstanding 3 3
Common stock ($0.25 par); 165,000,000 shares
authorized; 29,548,707 shares issued and out-
standing at June 30, 1996; 29,548,407 shares
issued and outstanding at September 30, 1995 7,387 7,387
Capital in excess of par value 131,963 131,962
Reinvested earnings from October 1, 1990 17,407 5,938
-------- --------
156,760 145,290
-------- --------
Total liabilities and stockholders' equity $234,807 $239,391
======== ========
The accompanying notes are an integral part of the financial statements.
3
4
ZAPATA CORPORATION
CONDENSED CONSOLIDATED INCOME STATEMENT
(in thousands, except per share amounts)
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ --------------------------
1996 1995 1996 1995
-------- -------- ---------- ----------
Revenues $ 21,531 $ 24,199 $ 60,273 $ 68,793
-------- -------- ---------- ----------
Expenses:
Operating 15,369 19,050 45,336 56,391
Provision for asset write-down --- 12,607 --- 12,607
Depreciation, depletion and amortization 889 1,660 2,442 4,978
Selling, general and administrative 1,802 2,011 5,232 5,837
-------- -------- ---------- ----------
18,060 35,328 53,010 79,813
-------- -------- ---------- ----------
Operating income (loss) 3,471 (11,129) 7,263 (11,020)
-------- -------- ---------- ----------
Other income (expense):
Interest income 1,383 286 2,985 756
Interest expense (949) (553) (2,847) (1,823)
Gain on sale of Tidewater common stock --- --- --- 4,811
Equity in loss of unconsolidated affiliate (1,403) --- (2,841) ---
Other (595) (115) (613) 453
-------- -------- ---------- ----------
(1,564) (382) (3,316) 4,197
-------- -------- ---------- ----------
Income (loss) from continuing operations
before taxes 1,907 (11,511) 3,947 (6,823)
-------- -------- ---------- ----------
Provision for income taxes
State 91 97 265 186
Federal 635 (4,061) 1,289 (2,451)
-------- -------- ---------- ----------
726 (3,964) 1,554 (2,265)
-------- -------- ---------- ----------
Income (loss) from continuing operations 1,181 (7,547) 2,393 (4,558)
Discontinued operations:
Income (loss) from discontinued operations,
net of income taxes --- 405 (42) 1,095
Gain on disposition of Energy Industries,
net of income taxes --- --- 12,618 ---
Loss on sale of Cimarron, net of income taxes (3,500)
Reversal of loss on disposition,
net of income taxes --- 8,897 --- 8,897
-------- -------- ---------- ----------
Net income 1,181 1,755 11,469 5,434
-------- -------- ---------- ----------
Preferred stock dividends --- --- --- 51
-------- -------- ---------- ----------
Net income to common stockholders $ 1,181 $ 1,755 $ 11,469 $ 5,383
======== ======== ========== ==========
Per share data:
Income (loss) from continuing operations $ 0.04 $ (0.25) $ 0.08 $ (0.15)
Income from discontinued operations --- 0.31 0.31 0.32
-------- -------- ---------- ----------
Net income per share $ 0.04 $ 0.06 $ 0.39 $ 0.17
======== ======== ========== ==========
Average common shares and
equivalents outstanding 29,562 29,824 29,562 31,120
======== ======== ========== ==========
The accompanying notes are an integral part of the financial statements.
4
5
ZAPATA CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
NINE MONTHS ENDED
JUNE 30,
---------------------------
1996 1995
---------- ----------
Cash flow provided (used) by operating activities:
Continuing operations:
Net income (loss) from continuing operations $ 2,393 $ (4,558)
---------- ----------
Adjustments to reconcile net income to net cash provided
(used) by operating activities:
Depreciation and amortization and valuation provision 2,442 17,585
Gain on sale of assets --- (5,268)
Equity in loss of unconsolidated affiliate 2,841 ---
Changes in other assets and liabilities (9,060) (8,355)
---------- ----------
Total adjustments (3,777) 3,962
---------- ----------
Cash flow used by continuing operations (1,384) (596)
---------- ----------
Discontinued operations:
Income from discontinued operations 9,076 1,095
Net gain on sales of assets, net of taxes (9,118) ---
Change in net assets of discontinued operations (1,312) 1,319
---------- ----------
Cash flow provided (used) by discontinued operations (1,354) 2,414
---------- ----------
Net cash provided (used) by operating activities (2,738) 1,818
---------- ----------
Cash flow provided (used) by investing activities:
Proceeds from dispositions 124,437 14,481
Proceeds from notes receivable --- 5,495
Capital expenditures (4,411) (5,153)
Investment in unconsolidated affiliate (3,407) ---
Restricted cash investment (260) ---
---------- ----------
Net cash provided by investing activities 116,359 14,823
---------- ----------
Cash flow provided (used) by financing activities:
Borrowings 6,500 ---
Repayments of long-term obligations (19,231) (12,277)
Preferred stock redemption --- (2,250)
Common stock buybacks --- (9,508)
Dividend payments --- (1,153)
---------- ----------
Net cash used by financing activities (12,731) (25,188)
---------- ----------
Net increase (decrease) in cash and cash equivalents 100,890 (8,547)
Cash and cash equivalents at beginning of period 2,488 9,717
---------- ----------
Cash and cash equivalents at end of period $ 103,378 $ 1,170
========== ==========
The accompanying notes are an integral part of the financial statements.
5
6
ZAPATA CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1. FINANCIAL STATEMENTS
The condensed consolidated financial statements included herein have
been prepared by Zapata Corporation ("Zapata" or the "Company"), without audit,
pursuant to the rules and regulations of the Securities and Exchange
Commission. The financial statements reflect all adjustments that are, in the
opinion of management, necessary to fairly present such information. All such
adjustments are of a normal recurring nature. Although Zapata believes that
the disclosures are adequate to make the information presented not misleading,
certain information and footnote disclosures, including a description of
significant accounting policies, normally included in financial statements
prepared in accordance with generally accepted accounting principles, have been
condensed or omitted pursuant to such rules and regulations. These condensed
financial statements should be read in conjunction with the financial
statements and the notes thereto included in Zapata's latest annual report on
Form 10-K.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"). The Company does not intend to adopt
the recognition provisions of SFAS 123, but will adopt its disclosure
requirements in fiscal year 1997.
NOTE 2. DISCONTINUED NATURAL GAS COMPRESSION OPERATIONS
In September 1995, Zapata entered into an agreement (the "Purchase
Agreement") to sell the assets of its subsidiaries engaged in natural gas
compression operations (collectively "Energy Industries") to Weatherford
Enterra, Inc. and its wholly owned subsidiary, Enterra Compression Company
(collectively, "Weatherford Enterra"). Pursuant to the Purchase Agreement,
Weatherford Enterra purchased from the Company all of the assets of its natural
gas compression operations, and assumed certain liabilities relating to those
operations, for approximately $131 million in cash including a post-closing
adjustment of $300,000, which was finalized in April 1996. A portion of the
proceeds from the sale was used to repay indebtedness of Energy Industries
totaling approximately $26 million and to pay expenses of approximately $1.4
million incurred in connection with the sale. The sale closed on December 15,
1995, after receiving stockholder approval, and resulted in a pre-tax gain of
approximately $20.8 million, or an after-tax gain of approximately $12.6
million.
The Company's consolidated financial statements reflect the natural
gas compression operations as a discontinued operation. Summarized results of
the discontinued natural gas compression operations are shown below (amounts in
millions):
6
7
NINE MONTHS ENDED JUNE 30,
--------------------------
1996 1995
------- ------
FINANCIAL RESULTS
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13.1 $ 53.1
Expenses * . . . . . . . . . . . . . . . . . . . . . . . . . 13.0 50.0
------- ------
Income before taxes . . . . . . . . . . . . . . . . . . . . .1 3.1
Income tax provision . . . . . . . . . . . . . . . . . . . . .1 1.3
------- ------
Net income (loss) . . . . . . . . . . . . . . . . . . . . . $ --- $ 1.8
======= ======
- ------------------
* Expenses include allocations of interest expense on general corporate debt
of $260,000 and $1.2 million in the nine- month periods ending June 30,
1996 and 1995, respectively. Interest expense was allocated to
discontinued operations based on a ratio of net assets to be sold to the
sum of total net assets of the Company plus general corporate debt.
NOTE 3. DISCONTINUED NATURAL GAS GATHERING, PROCESSING AND MARKETING
OPERATIONS
During fiscal 1995, the Company determined to dispose of its natural
gas gathering, processing and marketing operations, which were conducted
through a wholly owned subsidiary of the Company, Cimarron Gas Holding Company
(together with its subsidiaries, "Cimarron"). On April 9, 1996, Zapata sold
substantially all of the assets of Cimarron in two separate transactions with
Conoco Inc. ("Conoco") and Enogex Products Corporation ("Enogex"); Conoco
purchased certain of the Texas-based assets and Enogex purchased certain of the
Oklahoma-based assets. The aggregate cash consideration paid by Conoco and
Enogex totaled approximately $23 million, subject to final post-closing
adjustments. Subsequently, the Company sold Cimarron's remaining assets for an
additional $900,000. A portion of the proceeds from the sales was used to
repay $1.0 million of Cimarron's debt and to pay approximately $1.8 million for
commissions, fees and other expenses associated with the sales. The sales
resulted in an after-tax loss of approximately $3 million. Additionally,
Cimarron recognized an after-tax loss of approximately $500,000 from operations
for fiscal 1996 that had previously been deferred against a reserve for
discontinued operations.
7
8
NOTE 4. DIVISIONAL REVENUES AND OPERATING RESULTS
The Company's divisional revenues and operating results for the three-
and nine-month periods ended June 30, 1996 and 1995 are as follows (in
thousands):
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- -------------------------
1996 1995 1996 1995
-------- -------- -------- --------
Revenues:
Marine protein $ 20,920 $ 21,737 $ 58,769 $ 61,311
Oil and gas 611 2,462 1,504 7,482
-------- -------- -------- --------
$ 21,531 $ 24,199 $ 60,273 $ 68,793
======== ======== ======== ========
Operating income (loss):
Marine protein $ 3,771 $(10,428) $ 8,814 $ (8,599)
Oil and gas 273 310 426 528
Corporate (573) (1,011) (1,977) (2,949)
-------- -------- -------- --------
$ 3,471 $(11,129) $ 7,263 $(11,020)
======== ======== ======== ========
8
9
NOTE 5. UNCONSOLIDATED AFFILIATES
The Company's financial statements for the nine-month period ending
June 30, 1996 include Zapata's equity interest in Envirodyne Industries, Inc.
("Envirodyne") for Envirodyne's six-month period ending March 28, 1996.
Effective October 1, 1995, Zapata began reporting its equity in Envirodyne's
results of operations on a three-month delayed basis since Envirodyne's
financial statements are not available to the Company on a timely basis.
Zapata's investment in Envirodyne is accounted for under the equity method of
accounting.
Zapata's investment in Envirodyne began with an initial acquisition of
4,189,298 shares of Envirodyne common stock in August 1995 at a price of
approximately $4.48 per share. On June 19, 1996, Zapata purchased an
additional 818,006 shares of Envirodyne common stock in a brokerage transaction
at a purchase price (including commissions) of $4.165 per share. On July 1,
1996 Zapata completed the purchase of an additional 870,000 shares of
Envirodyne common stock at a purchase price of $4.125 per share, increasing
Zapata's ownership of outstanding Envirodyne common stock to approximately
40.6% as of that date.
Due to the significance of the Company's investment, the unaudited
financial position and results of operations of Envirodyne are summarized
below. The financial statement information presented below for Envirodyne is
based upon its annual report for the year ended December 28, 1995 and interim
report for the quarter ended March 28, 1996 (unaudited, in millions, except per
share amounts):
ENVIRODYNE INDUSTRIES, INC.
MARCH 28,
1996
----------
BALANCE SHEET
Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $246.7
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 184.7
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . 463.0
------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . $894.4
======
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . $132.3
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 523.1
Deferred income taxes and other . . . . . . . . . . . . . . . . . . . . 129.1
Stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . 109.9
------
Total liabilities and stockholders' equity . . . . . . . . . . . $894.4
======
SIX MONTHS
ENDED
MARCH 28,
1996
-------
INCOME STATEMENT
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 322.2
=======
Loss before income taxes . . . . . . . . . . . . . . . . . . . . . . . . $ (13.7)
=======
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (11.5)
=======
Net loss per share . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.85)
=======
9
10
NOTE 6. LITIGATION
Zapata has been named as a defendant in various derivative and
stockholder class actions alleging, among other things, that Zapata's board of
directors engaged in conduct constituting a breach of fiduciary duty and waste
of Zapata's assets in connection with Zapata's investment in Envirodyne, the
decision to shift Zapata's business focus from energy to food services and the
proposed merger with Houlihan's. The complaints variously allege that Zapata's
purchase of Envirodyne common stock was designed to permit Malcolm I. Glazer to
obtain personal financial advantage to the detriment of Zapata and that the
merger consideration in the transaction with Houlihan's is excessive and will
result in voting power dilution, unfairly benefitting Malcolm I. Glazer. The
complaints seek injunctive and various forms of monetary relief. In one of the
actions the plaintiff seeks an injunction to prevent consummation of the merger
based on the contention that it would violate a supermajority vote requirement
in Zapata's certificate of incorporation, and a hearing on this issue is
scheduled for September 6, 1996. Zapata denies the substantive allegations of
the complaints and intends to defend these cases vigorously.
On November 16, 1995, a petition was filed in the 148th Judicial
District Court of Nueces County, Texas by Peter M. Holt, a former director of
the Company, and certain of his affiliates who sold their interests in Energy
Industries to the Company in November 1993 (collectively, with Mr. Holt, the
"Holt Affiliates"). The petition lists the Company, Malcolm Glazer and Avram
Glazer as defendants and alleges several causes of action based on alleged
misrepresentations on the part of the Company and the other defendants
concerning the Company's intent to follow a long-term development strategy
focusing its efforts on the natural gas services business. The petition did
not allege a breach of any provision of the purchase agreement pursuant to
which the Company acquired Energy Industries from the Holt Affiliates, but
alleged that various representatives of Zapata and Malcolm I. Glazer made
representations to Mr. Holt regarding Zapata's intention to continue in the
natural gas services industry. Among the remedies sought by the petition are
the following requests: (i) the Company's repurchase of the approximately 2.8
million shares of Zapata common stock owned by the Holt Affiliates for $15.6
million, an amount that represents a premium of approximately $4.7 million, or
more than 40%, over the market value of such number of shares based on the
closing price of Common Stock on November 16, 1995; (ii) the disgorgement to
the Holt Affiliates of Zapata's profit to be made on its sale of Energy
Industries; or (iii) money damages based on the alleged lower value of the
Common Stock had the alleged misrepresentations not been made. The Company
believes that the petition and the allegations made therein are without merit
and intends to defend the case vigorously.
Zapata is defending various claims and litigation arising from
continuing and discontinued operations. In the opinion of management, uninsured
losses, if any, resulting from these matters and from the matters discussed
above will not have a material adverse effect on Zapata's results of
operations, cash flows or financial position.
NOTE 7. CASH FLOW INFORMATION
In connection with the sale of the Company's discontinued operations,
Zapata has retained certain assets and liabilities related to those operations.
As a result, the Company reclassified approximately $1.9 million from net
assets of discontinued operations to continuing operations.
NOTE 8. HOULIHAN'S ACQUISITION
On May 2, 1996, Zapata and Houlihan's Restaurant Group, Inc.
("Houlihan's") announced that they had entered into a letter of intent relating
to Zapata's proposed acquisition of Houlihan's for a combination of cash and
stock having a value of $8.00 per share, equally divided between cash and
stock. Zapata and Houlihan's subsequently entered into an Agreement and Plan
of Merger dated as of June 4, 1996 relating to the proposed acquisition. In
view of Malcolm I. Glazer's significant ownership of common stock of both
Zapata and Houlihan's, the transaction was negotiated by representatives of
special committees of the respective boards of directors of Zapata and
Houlihan's. The proposed transaction is subject to, among other things, the
approval of the transaction by the stockholders of both companies, registration
of the Zapata shares issuable in the merger under the Securities Act of 1933
and receipt of a consent from Houlihan's primary lending bank or the
refinancing of Houlihan's outstanding bank debt. There can be no assurance
that the proposed transaction will be consummated.
Zapata also announced that Malcolm I. Glazer has entered into a
standstill agreement with Zapata. Under the standstill agreement, Mr. Glazer
has agreed on behalf of himself, his family and entities controlled by him not
to increase his or their ownership of voting securities in Zapata above 49.9%
on either an outstanding or fully diluted share basis, unless, among other
things, the increase is approved by a majority of the directors on the Zapata
board who are not members of the Glazer family or is in response to a tender
offer or other proposal by others to acquire more than 14.9% of Zapata's voting
securities. The Standstill Agreement terminates upon, among other events, the
first to occur of 18 months after Zapata's acquisition of Houlihan's, Zapata's
announcement that it does not intend to acquire Houlihan's, the acquisition by
another party of securities representing 20% or more of the voting power
attributable to Zapata's outstanding capital stock, a breach of the Standstill
Agreement by Zapata, or Malcolm I. Glazer's acquisition of more than 50% of
Zapata's outstanding voting securities in accordance with the terms of the
Standstill Agreement. In the event that Zapata announces its intention to
acquire another entity controlled by Malcolm I. Glazer prior to the expiration
of the Standstill Agreement, the term of the Standstill Agreement will be
automatically extended until the first to occur of 18 months after the
acquisition of such entity or Zapata's announcement that it does not intend to
acquire such entity.
10
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Forward-looking statements in this Form 10-Q, future filings by the
Company with the Securities and Exchange Commission, the Company's press
releases and oral statements by authorized officers of the Company are intended
to be subject to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Investors are cautioned that all
forward-looking statements involve risks and uncertainty, including without
limitation, the risk of a significant natural disaster, the inability of the
Company to insure against certain risks, the adequacy of its loss reserves,
fluctuations in commodity prices that affect the prices for fish meal and fish
oil, weather and other factors affecting fish catch levels, the inherent
limitations in the ability to estimate oil and gas reserves, changing
government regulations, political risks of operations in foreign countries, as
well as general market conditions, competition and pricing. The Company
believes that forward looking statements made by it are based on reasonable
expectations. However, no assurances can be given that actual results will not
differ materially from those contained in such forward looking statements. The
words "estimate," "project," "anticipate," "expect," "predict," "believe" and
similar expressions are intended to identify forward looking statements.
BUSINESS
In late 1994 and early 1995, the Company began to develop a strategic
plan involving the repositioning of the Company in the food packaging, food and
food service equipment and supply (collectively, "food services") businesses
and exiting the energy business. The strategic plan that was developed called
for the divestiture of most of the Company's remaining energy operations,
including its natural gas compression operations, its natural gas gathering,
processing and marketing operations and the Company's remaining domestic oil
and gas assets, and the acquisition of, or joint ventures with, selected
companies in the food services industry.
In December 1995, Zapata sold the assets of its subsidiaries engaged
in natural gas compression operations (collectively, "Energy Industries") to
Weatherford Enterra, Inc. and its wholly owned subsidiary, Enterra Compression
Company (collectively, "Weatherford Enterra"). In that transaction,
Weatherford Enterra purchased from the Company all of the assets of Energy
Industries for $131 million in cash, and assumed certain liabilities of Energy
Industries, based on the net asset value of Energy Industries on the closing
date (the "Energy Industries Sale"). The Energy Industries Sale resulted in an
after-tax gain of approximately $12.6 million. Of the approximately $131
million in cash proceeds received from the Energy Industries Sale, the Company
used approximately $26 million to repay bank debt of Energy Industries.
Additionally, approximately $1.4 million was used to pay expenses associated
with the sale.
On April 9, 1996, Zapata sold substantially all of the assets of its
subsidiaries engaged in natural gas gathering and processing operations
(collectively, "Cimarron") in two separate transactions with Conoco Inc.
("Conoco") and Enogex Products Corporation ("Enogex"); Conoco purchased certain
of the Texas-based assets and Enogex purchased certain of the Oklahoma-based
assets. The aggregate cash consideration paid by Conoco and Enogex totaled
approximately $23 million, subject to final post-closing adjustments.
Subsequently, the Company sold Cimarron's
11
12
remaining assets for an additional $900,000. A portion of the proceeds from
the sales was used to repay $1.0 million of Cimarron's debt and to pay
approximately $1.8 million in expenses associated with the sales. The sales
resulted in an after-tax loss of approximately $3 million. Additionally,
Cimarron recognized an after-tax loss of approximately $500,000 from operations
for fiscal 1996 that had previously been deferred against a reserve for
discontinued operations.
The sale of Cimarron's assets substantially completes the
transformation of Zapata away from the energy business. The Company intends to
use the remaining net proceeds from the Energy Industries and Cimarron
dispositions for general corporate purposes, which may include further
repayment of debt, and for future expansion into the food services industry.
On May 2, 1996, Zapata and Houlihan's Restaurant Group, Inc.
("Houlihan's") announced that they had entered into a letter of intent relating
to Zapata's proposed acquisition of Houlihan's for a combination of cash and
stock amounting to $8.00 per share, equally divided between cash and stock.
Zapata and Houlihan's subsequently entered into an Agreement and Plan of Merger
dated as of June 4, 1996 relating to the proposed acquisition. In view of
Malcolm I. Glazer's significant ownership of common stock of both Zapata and
Houlihan's, the transaction was negotiated by representatives of special
committees of the respective boards of directors of both Zapata and Houlihan's.
Zapata's special committee is comprised of Board members Ronald C. Lassiter,
Robert V. Leffler, Jr. and W. George Loar. The proposed transaction is subject
to, among other things, the approval of the transaction by the stockholders of
both companies, registration of the Zapata shares issuable in the merger under
the Securities Act of 1933 and receipt of a consent from Houlihan's primary
lending bank or the refinancing of Houlihan's outstanding bank debt. There can
be no assurance that the proposed transaction will be consummated.
Zapata also announced that Malcolm I. Glazer has entered into a
standstill agreement with Zapata. Under the standstill agreement, Mr. Glazer
has agreed on behalf of himself, his family and entities controlled by him not
to increase his or their ownership of voting securities in Zapata above 49.9%
on either an outstanding or fully diluted share basis, unless, among other
things, the increase is approved by a majority of the directors on the Zapata
board who are not members of the Glazer family or is in response to a tender
offer or other proposal by others to acquire more than 14.9% of Zapata's voting
securities. The Standstill Agreement terminates upon, among other events, the
first to occur of 18 months after Zapata's acquisition of Houlihan's, Zapata's
announcement that it does not intend to acquire Houlihan's, the acquisition by
another party of securities representing 20% or more of the voting power
attributable to Zapata's outstanding capital stock, a breach of the Standstill
Agreement by Zapata, or Malcolm I. Glazer's acquisition of more than 50% of
Zapata's outstanding voting securities in accordance with the terms of the
Standstill Agreement. In the event that Zapata announces its intention to
acquire another entity controlled by Malcolm I. Glazer prior to the expiration
of the Standstill Agreement, the term of the Standstill Agreement will be
automatically extended until the first to occur of 18 months after the
acquisition of such entity or Zapata's announcement that it does not intend to
acquire such entity.
On June 19, 1996, Zapata purchased an additional 818,006 shares of
Envirodyne Industries, Inc. ("Envirodyne") common stock in a brokerage
transaction at a purchase price (including commission) of $4.165 per share.
Also, on July 1, 1996 Zapata completed the purchase of an
12
13
additional 870,000 shares of Envirodyne common stock at a purchase price of
$4.125 per share, increasing Zapata's ownership of outstanding Envirodyne
common stock to approximately 40.6% as of that date.
LIQUIDITY AND CAPITAL RESOURCES
As a result of the Energy Industries and Cimarron dispositions,
Zapata's cash increased to $103.4 million at June 30, 1996 compared to $2.5
million at September 30, 1995. Additionally, Zapata's long-term debt was
reduced to $18.3 million at June 30, 1996 compared to $37.5 million at
September 30, 1995.
Operating activities used cash of $2.7 million during the first nine
months of fiscal 1996 as compared to the corresponding fiscal 1995 period, in
which operating activities provided cash of $1.8 million. The increased use of
cash in fiscal 1996 was primarily attributable to increased tax expenses
associated with the Company's asset sales.
Investing activities provided $116.4 million of cash during the fiscal
1996 year-to-date period compared to $14.8 million in the corresponding fiscal
1995 period. Fiscal 1996 investing activities included proceeds totaling
$124.4 million from the Energy Industries and Cimarron dispositions, capital
expenditures of $4.4 million and the $3.4 million acquisition of 818,006 shares
of Envirodyne common stock, while the fiscal 1995 period included proceeds of
$12.7 million from the sale of the Company's remaining shares of Tidewater Inc.
("Tidewater") common stock, proceeds totaling $5.5 million from notes
receivable collections and capital expenditures of $5.2 million.
Financing activities used cash of $12.7 million and $25.2 million in
the fiscal 1996 and 1995 nine-month periods, respectively. The use of cash in
the fiscal 1996 period included a $3.2 million prepayment of indebtedness owing
to the Malcolm I. Glazer Trust incurred in connection with the Company's August
1995 purchase of Envirodyne common stock, a $4.8 repayment of the Company's
remaining indebtedness owed to Norex America, Inc. and a $3.5 million net
repayment of a revolving credit facility for the Company's marine protein
division. The fiscal 1995 period included payments for debt repayment totaling
$12.3 million, repurchases of the Company's preferred and common stock totaling
$11.8 million and dividend payments of $1.2 million.
RESULTS OF OPERATIONS
General
Zapata reported net income of $1.2 million for the third quarter of
fiscal 1996 as compared to net income of $1.8 million for the third quarter of
fiscal 1995. Net income for the fiscal 1995 period included income from
discontinued operating activities of $405,000 and income of $8.9 million from
discontinued operations as a result of the reversal of an estimated loss on
disposition of the Company's marine protein operations, which was recorded in
fiscal 1994.
Revenues of $21.5 million and operating income of $3.5 million for the
third quarter of fiscal 1996 compared to revenues of $24.2 million and an
operating loss of $11.1 million for the
13
14
corresponding fiscal 1995 period. The improvement in operating income in the
fiscal 1996 period was attributable to improved operating results from the
Company's marine protein operations and to reduced corporate administrative
expenses. The fiscal 1995 period operating income included a $12.6 million
pretax provision for asset impairment of the Company's marine protein assets as
a result of adopting Statement of Financial Accounting Standards No. 121 ("SFAS
121").
The Company's net income from continuing operations of $1.2 million
for the three months ended June 30, 1996 compared favorably to a net loss of
$7.5 million for the three months ended June 30, 1995. The fiscal 1995 results
included the $12.6 million pretax provision for asset impairment as a result of
adopting SFAS 121. Zapata's fiscal 1996 period included a $1.4 million equity
loss from Zapata's interest in the net loss of Envirodyne for the three months
ended March 28, 1996 and a $490,000 pretax loss related to an investment in
subordinated debentures of Wherehouse Entertainment, Inc.
For the first nine months of fiscal 1996, Zapata's net income
increased to $11.5 million from $5.4 million for the corresponding fiscal 1995
period due primarily to the $12.6 million after-tax gain from the Energy
Industries Sale. Revenues of $60.3 million and operating income of $7.3
million for the 1996 period compared to the 1995 period revenues of $68.8
million and an operating loss of $11.0 million.
Marine Protein
Revenues of $20.9 million and operating income of $3.8 million for the
third quarter of fiscal 1996 compared favorably to revenues of $21.7 million
and an operating loss of $10.4 million for the third quarter of fiscal 1995.
The improvement in the current period is primarily attributable to higher
prices for fish meal and to the $12.6 million provision for asset impairment
recorded in the fiscal 1995 period. The average price for fish meal, the
division's primary product, increased to $443 per ton in the third quarter of
fiscal 1996 from $355 per ton in the third quarter of fiscal 1995, while the
average price of fish oil declined to $335 per ton in the 1996 period from $349
per ton in the 1995 period. Reflecting a lower carryover inventory from the
prior year, sales volumes of fish meal and fish oil were lower by approximately
19% and 46%, respectively, in the current quarter as compared to the prior-year
quarter.
Similarly, year-to-date revenues of $58.8 million and operating income
of $8.8 million for fiscal 1996 compared to revenues of $61.3 million and an
operating loss of $8.6 million for the corresponding fiscal 1995 period.
Year-to- date fiscal 1996 fish meal prices have averaged $419 per ton versus
$347 per ton in fiscal 1995. Likewise, fish oil prices have averaged $422 per
ton in the fiscal 1996 period versus $301 per ton in the fiscal 1995 period.
Sales volumes of fish meal and fish oil for the first nine months of fiscal
1996 were lower by approximately 31% and 41%, respectively, than the
corresponding fiscal 1995 sales volumes.
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. Accordingly, the
prices for the Company's products are significantly influenced by worldwide
supply and demand relationships over which the Company has no control and which
tend to fluctuate
14
15
to a significant extent over the course of a year and from year to year.
The Company's fish catch for the first nine months of fiscal 1996 was
approximately 6% higher than the fish catch for the first nine months of fiscal
1995. 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 levels.
Oil and Gas
In fiscal 1995, the Company sold its U.S. natural gas producing
properties. As a result, the Company's only significant remaining oil and gas
activity is the production of natural gas through a joint venture in Bolivia in
which the Company has a 25% interest. Revenues of $611,000 and operating
income of $273,000 in the third quarter of fiscal 1996 compared to revenues of
$2.5 million and operating income of $310,000 in the comparable fiscal 1995
quarter, which included revenues of $599,000 and operating income of $399,000
from the Bolivian operations.
Year-to-date fiscal 1996 revenues of $1.5 million and operating income
of $426,000 compared to fiscal 1995 revenues of $7.5 million and operating
income of $528,000. The fiscal 1995 results include Bolivian revenues of $2.1
million and operating income of $1.2 million.
15
16
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
The exhibits indicated by an asterisk (*) are incorporated by
reference.
3(a)* -- Restated Certificate of Incorporation of Zapata filed
with Secretary of State of Delaware on May 3, 1994
(Exhibit 3(a) to Zapata's Current Report on Form 8-K
dated April 27, 1994 (File No. 1-4219)).
3(b)* -- Certificate of Designation, Preferences and Rights of
$1 Preference Stock (Exhibit 3(c) to Zapata's
Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 1993 (File No. 1- 4219)).
3(c)* -- Certificate of Designation, Preferences and Rights of
$100 Preference Stock (Exhibit 3(d) to Zapata's
Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 1993 (File No. 1- 4219)).
3(d)* -- By-laws of Zapata, as amended effective November 21,
1995 (Exhibit 3(d) to Zapata's Annual Report on Form
10-K for the fiscal year ended September 30, 1995
(File No. 1-4219)).
10(a)* -- Purchase and Sale Agreement dated March 26, 1996 by
and among Cimarron Gas Holding Company, Conoco Inc.
and Enogex Products Corporation (Exhibit 2.1 to
Zapata's Current Report on Form 8-K dated April 9,
1996 (File No. 1-4219)).
10(b)* -- Amendment and Clarification of Purchase and Sale
Agreement, Waiver and Closing Agreement dated April
9, 1996 (Exhibit 2.2 to Zapata's Current Report on
Form 8-K dated April 9, 1996 (File No. 1-4219)).
10(c)* -- Agreement and Plan of Merger dated as of June 4, 1996
among Zapata, Zapata Acquisition Corp. and
Houlihan's (Exhibit 2.1 to Zapata's Registration
Statement on Form S-4 (Reg. No. 333- 06729)).
10(d)* -- Standstill Agreement dated April 30, 1996 between
Zapata and Malcolm I. Glazer (Exhibit 10.18 to
Zapata's Registration Statement on Form S-4 (Reg. No.
333-06729)).
10(e)* -- Irrevocable proxy dated June 4, 1996 granted by
Malcolm I. Glazer to members of a Special Committee
of the Board of Directors of Zapata (Exhibit 10.19 to
Zapata's Registration Statement on Form S-4 (Reg. No.
333-06729)).
10(f)* -- Supplemental Agreement dated June 4, 1996 between
Malcolm I. Glazer and Zapata (Exhibit 10.20 to
Zapata's Registration Statement on Form S-4 (Reg. No.
333-06729)).
10(g)* -- 1996 Long-Term Incentive Plan of Zapata (Exhibit
10.21 to Zapata's Registration Statement on Form S-4
(Reg. No. 333-06729)).
27 -- Financial Data Schedule.
16
17
(b) Reports on Form 8-K:
During the quarter ended June 30, 1996, Zapata filed the following
Current Reports on Form 8-K with the Securities and Exchange
Commission:
Date of Earliest
Event Reported Items Reported Financial Statements Filed
-------------- -------------- --------------------------
April 9, 1996 Sale by Zapata of substantially Unaudited Pro Forma Condensed Balance
all the assets of Cimarron. Sheet of Zapata as of December 31, 1995.
April 30, 1996 Execution of Letter of Intent None.
between Zapata and Houlihan's'
relating to the proposed
acquisition of Houlihan's by
Zapata.
June 4, 1996 Execution of Agreement and Plan None.
of Merger among Zapata, Zapata
Acquisition Corp. and
Houlihan's' relating to the
proposed acquisition of
Houlihan's by Zapata.
June 19, 1996 Additional acquisitions of (a) Audited Consolidated Financial
shares of common stock of Statements of Envirodyne and
Envirodyne. Subsidiaries as of December 28, 1995 and
December 29, 1994 and for the periods
December 30, 1994 to December 28, 1995,
January 1, 1994 to December 29, 1994 and
January 1, 1993 to December 31, 1993,
(b) Audited Consolidated Financial
Statements of Viskase Holding
Corporation and Subsidiaries as of
December 28, 1995 and December 29, 1994
and for the periods December 30, 1994 to
December 28, 1995, January 1, 1994 to
December 29, 1994 and January 1, 1993 to
December 31, 1993, (c) Unaudited
Consolidated
17
18
Financial Statements of Envirodyne and
Subsidiaries as of March 28, 1996 and
for the three month periods ended
March 28, 1996 and March 30, 1995 and
(d) Unaudited Consolidated Financial
Statements of Viskase Holding
Corporation and and Subsidiaries as of
March 28, 1996 and for the three month
periods ended March 28, 1996 and
March 30, 1995.
18
19
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, thereunto duly authorized.
ZAPATA CORPORATION
(Registrant)
August 12, 1996 By: /s/ JOSEPH L. VON ROSENBERG III
-------------------------------------------
(Joseph L. von Rosenberg III,
Executive Vice President, General Counsel
and Corporate Secretary)
August 12, 1996 By: /s/ ROBERT A. GARDINER
-------------------------------------------
(Robert A. Gardiner,
Vice President and Chief Financial Officer)
19
20
INDEX TO EXHIBITS
Exhibit
No. Description
------- -----------
3(a)* -- Restated Certificate of Incorporation of Zapata filed
with Secretary of State of Delaware on May 3, 1994
(Exhibit 3(a) to Zapata's Current Report on Form 8-K
dated April 27, 1994 (File No. 1-4219)).
3(b)* -- Certificate of Designation, Preferences and Rights of
$1 Preference Stock (Exhibit 3(c) to Zapata's
Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 1993 (File No. 1- 4219)).
3(c)* -- Certificate of Designation, Preferences and Rights of
$100 Preference Stock (Exhibit 3(d) to Zapata's
Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 1993 (File No. 1- 4219)).
3(d)* -- By-laws of Zapata, as amended effective November 21,
1995 (Exhibit 3(d) to Zapata's Annual Report on Form
10-K for the fiscal year ended September 30, 1995
(File No. 1-4219)).
10(a)* -- Purchase and Sale Agreement dated March 26, 1996 by
and among Cimarron Gas Holding Company, Conoco Inc.
and Enogex Products Corporation (Exhibit 2.1 to
Zapata's Current Report on Form 8-K dated April 9,
1996 (File No. 1-4219)).
10(b)* -- Amendment and Clarification of Purchase and Sale
Agreement, Waiver and Closing Agreement dated April
9, 1996 (Exhibit 2.2 to Zapata's Current Report on
Form 8-K dated April 9, 1996 (File No. 1-4219)).
10(c)* -- Agreement and Plan of Merger dated as of June 4, 1996
among Zapata, Zapata Acquisition Corp. and
Houlihan's (Exhibit 2.1 to Zapata's Registration
Statement on Form S-4 (Reg. No. 333- 06729)).
10(d)* -- Standstill Agreement dated April 30, 1996 between
Zapata and Malcolm I. Glazer (Exhibit 10.18 to
Zapata's Registration Statement on Form S-4 (Reg. No.
333-06729)).
10(e)* -- Irrevocable proxy dated June 4, 1996 granted by
Malcolm I. Glazer to members of a Special Committee
of the Board of Directors of Zapata (Exhibit 10.19 to
Zapata's Registration Statement on Form S-4 (Reg. No.
333-06729)).
10(f)* -- Supplemental Agreement dated June 4, 1996 between
Malcolm I. Glazer and Zapata (Exhibit 10.20 to
Zapata's Registration Statement on Form S-4 (Reg. No.
333-06729)).
10(g)* -- 1996 Long-Term Incentive Plan of Zapata (Exhibit
10.21 to Zapata's Registration Statement on Form S-4
(Reg. No. 333-06729)).
27 -- Financial Data Schedule.
5
1,000
9-MOS
SEP-30-1996
OCT-01-1995
JUN-30-1996
103,638
0
8,295
0
32,358
147,769
76,661
35,218
234,807
42,115
18,283
7,387
0
3
149,370
234,807
60,273
60,273
45,336
53,010
469
0
2,847
3,947
1,554
2,393
9,076
0
0
11,469
0.39
0.39
