<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(MARK ONE)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR QUARTERLY PERIOD ENDED DECEMBER 31, 1993
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)
DELAWARE C-74-1339132
----------------------------------------------------------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
P.O. BOX 4240, HOUSTON, TEXAS 77210
----------------------------------------------------------------------
(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 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 $.25,
ON FEBRUARY 10, 1994: 158,302,958.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Zapata Corporation
Balance Sheet
Income Statement
Divisional Revenues and Operating Income
Statement of Cash Flows
Notes to Financial Statements
2
<PAGE>
ZAPATA CORPORATION
BALANCE SHEET
ASSETS
(in thousands)
<TABLE>
<CAPTION>
December 31, September 30,
1993 1993
------------- --------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 22,040 $ 15,273
Restricted cash and temporary
investments --- 75,083
Receivables 33,809 28,321
Inventories
Fish products 31,370 33,504
Compressor equipment and
components 17,622 ---
Gas liquids products 1,023 1,271
Materials, parts and supplies 3,322 3,392
Prepaid expenses and other current
assets 2,842 2,280
-------- --------
Total current assets 112,028 159,124
-------- --------
Investments and other assets:
Investments in unconsolidated
affiliates 12,293 56,289
Goodwill 27,591 7,781
Deferred income taxes 6,821 ---
Other assets 17,833 21,686
-------- --------
64,538 85,756
-------- --------
Property and equipment 193,891 141,393
Less accumulated depreciation (44,519) (41,156)
-------- --------
149,372 100,237
-------- --------
Total assets $325,938 $345,117
======== ========
</TABLE>
(The accompanying notes are an integral part of the financial
statements.)
3
<PAGE>
ZAPATA CORPORATION
BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' INVESTMENT
(in thousands)
<TABLE>
<CAPTION>
December 31, September 30,
1993 1993
------------ -------------
<S> <C> <C>
Current liabilities:
Current maturities of
long-term debt $ 2,920 $ 2,714
Accounts payable and accrued
liabilities 35,582 36,550
Income taxes payable 5,818 783
-------- --------
Total current liabilities 44,320 40,047
-------- --------
Long-term debt 71,537 139,646
-------- --------
Deferred income taxes --- 3,686
-------- --------
Other liabilities 15,526 15,474
-------- --------
Stockholders' investment:
Preferred and preference stock 4,503 4,503
Common stock 39,576 36,176
Capital in excess of par value 120,570 92,906
Reinvested earnings from
October 1, 1990 29,906 12,679
-------- --------
194,555 146,264
-------- --------
Total liabilities and
stockholders' investment $325,938 $345,117
======== ========
</TABLE>
(The accompanying notes are an integral part of the financial
statements.)
4
<PAGE>
ZAPATA CORPORATION
INCOME STATEMENT
THREE MONTHS ENDED DECEMBER 31
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
1993 1992
-------- --------
<S> <C> <C>
Revenues $ 80,228 $ 70,925
-------- --------
Expenses:
Operating 70,124 61,826
Depreciation, depletion and amortization 3,529 3,738
Selling, general and administrative 4,421 2,865
-------- --------
78,074 68,429
-------- --------
Operating income 2,154 2,496
-------- --------
Interest income (expense):
Interest income 806 493
Interest expense (3,766) (3,857)
-------- --------
(2,960) (3,364)
-------- --------
Other income (expense):
Gain on sale of Tidewater common stock 33,852 ---
Other (6,270) 1,885
-------- --------
27,582 1,885
-------- --------
Income before income taxes 26,776 1,017
-------- --------
Provision (benefit) for income taxes
Federal and state 9,448 (21)
-------- --------
Net income 17,328 1,038
-------- --------
Preferred stock dividends 101 101
-------- --------
Net income available to common stock $ 17,227 $ 937
======== ========
Net income per common share $0.11 $0.01
======== ========
Average common shares and equivalents
outstanding 155,008 129,917
</TABLE>
(The accompanying notes are an integral part of the financial
statements.)
5
<PAGE>
ZAPATA CORPORATION
DIVISIONAL REVENUES AND OPERATING INCOME
THREE MONTHS ENDED DECEMBER 31
(in thousands)
<TABLE>
<CAPTION>
1993 1992
------- -------
<S> <C> <C>
Revenues
Natural gas compression $12,631 $ ---
Natural gas gathering/processing 43,471 50,754
Oil and gas 3,437 7,217
Marine protein 20,689 12,954
------- -------
$80,228 $70,925
======= =======
Operating income (loss)
Natural gas compression $ 987 $ ---
Natural gas gathering/processing 561 174
Oil and gas 208 3,051
Marine protein 1,816 513
Corporate (1,418) (1,242)
------- -------
$ 2,154 $ 2,496
======= =======
</TABLE>
(The accompanying notes are an integral part of the financial
statements.)
6
<PAGE>
ZAPATA CORPORATION
STATEMENT OF CASH FLOWS
THREE MONTHS ENDED DECEMBER 31
(in thousands)
<TABLE>
<CAPTION>
<S> <C> <C>
1993 1992
-------- -------
Operating activities:
Net income $ 17,328 $ 1,038
-------- -------
Adjustments to reconcile net income to net
cash provided from (used in) operating activities:
Depreciation, depletion and amortization 3,529 3,738
Gain on sale of Tidewater common stock (33,852) ---
Changes in assets and liabilities:
Receivables 1,168 5,309
Inventories 455 3,108
Accounts payable and accrued
liabilities (785) (9,130)
Other assets and liabilities 7,767 (2,342)
-------- -------
Total adjustments (21,718) 683
-------- -------
Net cash provided from (used in)
operating activities (4,390) 1,721
-------- -------
Investing activities:
Proceeds from dispositions 80,528 ---
Restricted cash investments 75,083 (3,719)
Proceeds from notes receivable 859 828
Business acquisitions (73,622) (2,325)
Capital expenditures (3,266) (276)
-------- -------
Net cash provided from (used in)
investing activities 79,582 (5,492)
-------- -------
Financing activities:
Interest obligations deferred 504 ---
Principal payments of long-term
obligations (68,727) (5,224)
Preferred stock dividend payments (202) ---
-------- -------
Net cash used in financing
activities (68,425) (5,224)
-------- -------
Net increase (decrease) in cash and cash
equivalents 6,767 (8,995)
Cash and cash equivalents at beginning of
period 15,273 35,544
-------- -------
Cash and cash equivalents at end of period $ 22,040 $26,549
======== =======
</TABLE>
(The accompanying notes are an integral part of the financial
statements.)
7
<PAGE>
ZAPATA CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 1. Financial Statements
- -----------------------------
The condensed consolidated financial statements included herein have been
prepared by Zapata, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. The financial statements reflect all
adjustments which 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 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. It is suggested that these condensed financial statements be read
in conjunction with the financial statements and the notes thereto included in
Zapata's latest annual report on Form 10-K.
In November 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 112, "Employers Accounting for Post-
employment Benefits," which will require the recognition of an obligation by
employers who provide benefits to former or inactive employees after employment
but before retirement. Adoption of the new standard by Zapata is required no
later than the fiscal year ending September 30, 1995. Based on existing
conditions and a preliminary review, management believes adoption of the new
standard will not have a material impact on Zapata's results of operations or
financial position as Zapata currently provides post-employment benefits on a
very limited basis.
In May 1993, the Financial Accounting Standards Board issued Statement of
financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" ("SFAS 115"), which addresses the accounting and
reporting for investments in equity securities that have readily determinable
fair values and for all investments in debt securities. Adoption by Zapata is
required no later than the fiscal year ending September 30, 1995. Zapata
currently owns approximately 1.0 million shares of Tidewater Inc. ("Tidewater")
common stock which has a book value of approximately $12.3 million. Upon
adoption of SFAS 115, this security would be reported at fair value and any
unrealized gain or loss recorded as a separate component of stockholders' equity
(net of deferred income taxes). If Zapata had implemented the new standard at
December 31, 1993, an adjustment would have been made to increase other assets
by $8.7 million, with a corresponding decrease of $3.0 million to the deferred
income tax asset and an increase of $5.7 million to stockholders' equity for the
unrealized appreciation.
8
<PAGE>
Note 2. Acquisition
- --------------------
In November 1993, Zapata purchased the natural gas compression business of
Energy Industries, Inc. and certain other affiliated companies ("Energy
Industries"), as well as certain real estate used by the business. 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
$90.9 million consisting of $75.2 million and 13.5 million shares of Zapata
common stock based on an assigned value of $1.16 per share which approximated
the average trading price prior to closing of the acquisition. The cash portion
of the purchase price was funded by the proceeds which Zapata received from the
June 1993 sale of 3.5 million shares of Tidewater common stock in an
underwritten public offering. Zapata accounted for the acquisition using the
purchase method of accounting and recorded $20.0 million of goodwill in
connection therewith. The goodwill is being amortized over 40 years. The
purchase price is subject to an adjustment upward or downward based on the net
working capital of Energy Industries on October 31, 1993.
Zapata has not completed the appraisals and evaluations necessary for the
final purchase price allocation related to the Energy Industries Acquisition;
accordingly, the assets and liabilities included in the accompanying financial
statements related to Energy Industries are presented using management's best
estimate and are subject to adjustment upon receiving necessary information.
The following assets and liabilities were acquired in connection with the
Energy Industries Acquisition effective November 1, 1993 (in millions):
<TABLE>
<S> <C>
Cash $ 3.5
Receivables 9.3
Inventory 15.6
-----
28.4
Goodwill & other assets 20.5
Property & equipment, net 49.5
-----
$98.4
=====
Current Liabilities $ 5.1
Long-term debt .2
-----
$ 5.3
=====
</TABLE>
The following pro forma information for Zapata for the three months ended
December 31, 1993 and December 31, 1992 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).
<TABLE>
<CAPTION>
Three Months Ended
December 31,
1993 1992
--------- -------
<S> <C> <C>
Revenues $86,242 $87,355
Income before taxes 27,194 3,580
Net income 17,600 2,730
Net income per share 0.11 0.02
</TABLE>
9
<PAGE>
The pro forma adjustments to Zapata's results for the three months ended
December 31, 1993 reflecting the Energy Industries Acquisition include revenues
of $6,014,000, as well as, income before tax and net income of $174,000.
Additionally, the pro forma adjustments for the first quarter of fiscal 1994
include the elimination of $124,000 of various operating and administrative
expenses that were charged to Energy Industries from an affiliate, amortization
of $41,000 of goodwill, a reduction in interest expense of $161,000 related to
notes receivable and payable that were not acquired by Zapata and a federal tax
provision of $146,000.
The pro forma adjustments to Zapata's results for the three months ended
December 31, 1992 reflecting the Energy Industries Acquisition include revenues
of $16,430,000, as well as, income before tax and net income of $1,497,000.
Additionally, the pro forma adjustments for the first quarter of fiscal 1993
include the elimination of $664,000 of various operating and administrative
expenses that were charged to Energy Industries from an affiliate, amortization
of $123,000 of goodwill, a reduction in interest expense of $525,000 related to
notes receivable and payable that were not acquired by Zapata, a federal tax
provision of $871,000 and the issuance of 13,500,000 shares of Zapata 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.
Note 3. Sale of Tidewater Common Stock and Senior Debt Prepayment
- ------------------------------------------------------------------
In November 1993, Zapata sold 3.75 million shares of its Tidewater common
stock for a net price of $20.75 per share or $77.8 million through an
underwritten public offering resulting in a pretax gain of $33.8 million. In
December 1993, $73.7 million of the proceeds were used to prepay $68.5 million
of the Company's 13% senior indebtedness to Norex Drilling Ltd., along with
accrued interest, and to pay a $3.5 million prepayment premium. The Company
currently owns approximately 1.0 million shares of Tidewater common stock. The
aggregate market value of Zapata's remaining shares of Tidewater common stock as
of December 31, 1993 was $21.0 million based on the closing price of $20.00 per
publicly-traded share on that date.
In connection with the debt prepayment, the Norex debt agreement was
amended to remove or lessen various restrictions on the Company. The Company
will no longer be required to maintain any financial ratios and will no longer
be subject to limitations on its ability to incur additional indebtedness or
contingent obligations, to make capital expenditures, to pay dividends or to
enter into merger or consolidation transactions, to liquidate, wind up or
dissolve or to make investments or loans. In addition, the Company will no
longer be subject to limitations on the creation of liens or the sale of assets,
except in connection with Energy Industries and certain related subsidiaries.
The Company will remain subject to a covenant in the Norex debt agreement which
requires it to maintain a consolidated tangible net worth of at least $100
million.
10
<PAGE>
Note 4. Accounting for Income Taxes
- ------------------------------------
In the first quarter of fiscal 1994, Zapata adopted Statement of Financial
Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes." The
adoption of SFAS 109 changes Zapata's method of accounting for income taxes to
the asset and liability approach. The asset and liability approach requires the
recognition of deferred tax liabilities and assets 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.
Temporary differences and tax credit carryforwards that gave rise to
significant portions of deferred tax assets and liabilities as of October 1,
1993 as adjusted for adoption of SFAS 109 and at December 31, 1993 are as
follows:
<TABLE>
<CAPTION>
October 1, December 31,
Deferred Tax Assets 1993 1993
- ------------------- ----------- -------------
<S> <C> <C>
Asset write-downs not yet deductible $ 8,554 $ 8,169
U.S. net operating loss carryforward 33 ---
Investment tax credit carryforwards 27,446 14,184
Alternative minimum tax credit
carryforwards 11,180 11,180
Other 2,208 2,200
-------- --------
Total deferred tax assets 49,421 35,733
Valuation allowance (5,596) (5,596)
-------- --------
Net deferred tax assets 43,825 30,137
-------- --------
Deferred Tax Liabilities
- ------------------------
Property and equipment (12,526) (14,287)
Investment in Tidewater (11,766) (1,112)
Pension (3,690) (3,707)
Other (4,210) (4,210)
-------- --------
Total deferred tax liabilities (32,192) (23,316)
-------- --------
Net deferred tax asset $ 11,633 $ 6,821
======== ========
</TABLE>
The valuation allowance required under SFAS 109 represents tax credits that
may not be ultimately utilized given current facts and circumstances.
Note 5. Restricted Cash
In accordance with terms of a debt covenant, $74.1 million from the sale of
Tidewater common stock was held in restricted short-term investments at
September 30, 1993; additionally, restricted cash included cash held in short-
term investments to collateralize letters of credit totalling $1.0 million that
would expire in one year or less. At December 31, 1993 Zapata had no
restricted cash balances.
11
<PAGE>
Note 6. Supplemental Cash Flow Information
- -------------------------------------------
The following cash transactions with respect to interest, including
interest obligations deferred and financed under the Norex debt agreement and
income taxes are included in the determination of net cash provided from (used
in) operating activities for the following fiscal periods:
<TABLE>
<CAPTION>
Three Months Ended
December 31,
------------------
1993 1992
------- -------
<S> <C> <C>
Interest expense $2,385 $ 3,716
Income tax refunds, net (56) (13)
</TABLE>
12
<PAGE>
I
TEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At December 31, 1993, Zapata's financial condition was stronger than that
of any time in recent history. Total debt of $74.5 million compares very
favorably to stockholders' equity of $194.6 million. Additionally, the Company
owns approximately 1.0 million shares of Tidewater Inc. ("Tidewater") common
stock.
In November 1993, Zapata purchased the natural gas compression business 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. Total consideration
paid for the purchase and for a related noncompetition agreement (collectively,
the "Energy Industries Acquisition") was $90.9 million. The purchase price
consisted of $75.2 million and 13.5 million shares of the Company's common stock
valued at $1.16 per share, which approximated the average trading price prior to
closing of the acquisition.
To fund the cash portion of the purchase price, Zapata used the proceeds
from the June 1993 sale of 3.5 million shares of its Tidewater common stock. In
November 1993, Zapata sold an additional 3.75 million shares of its Tidewater
common stock in an underwritten public offering for a net price of $20.75 per
share or $77.8 million. In December 1993, most of the proceeds from this sale
were used to prepay $68.5 million of the 13% senior indebtedness owed to Norex
Drilling Ltd., along with accrued interest, and to pay a negotiated prepayment
premium of $3.5 million.
While the Company considers its current liquidity position to be adequate,
it has entered into discussions with several financial institutions with the
intent of establishing committed lines of credit to fund future growth.
Following the acquisition of Energy Industries, Zapata believes that its cash
flow from operations will be sufficient to meet operating needs and its
financial commitments. In connection with the December debt prepayment, the
Norex debt agreement was amended to remove or lessen various restrictions on the
Company.
Reflecting the Energy Industries Acquisition, Zapata's working capital
decreased $51.4 million during the first quarter of fiscal 1994 and totalled
$67.7 million as of December 31, 1993. At the end of the first quarter, cash
and restricted cash components were $68.3 million lower than that as of
September 30, 1993.
13
<PAGE>
Net cash used in operating activities during the first quarter of fiscal
1994 totalled $4.4 million as compared to the $1.7 million provided from
operating activities in the corresponding period in fiscal 1993. The use of
cash was attributable to an increased investment in working capital and to the
Norex debt prepayment premium.
During the first quarter of fiscal 1994, net cash provided from investing
activities of $79.6 million was significantly better than the $5.5 million used
in investing activities in the first quarter of fiscal 1993. The improvement
was due to the sale of Tidewater common stock in November 1993.
Reflecting the Norex debt prepayment, net cash used in financing activities
totalled $68.4 million in the first quarter of fiscal 1994 compared to the $5.2
million net use of cash in the fiscal 1993 period. As of December 31, 1993, the
Company's weighted-average interest rate had been reduced to 9.8% as a result of
the Norex debt prepayment. Additionally, a portion of such interest is deferred
and added to principal in accordance with certain loan provisions. Mandatory
principal payments for the next twelve months totals $2.9 million; no
significant amount of debt matures prior to fiscal 1996. Depending upon certain
conditions, most of the principal payments due in 1996 may be either converted
into shares of Zapata common stock or exchanged for shares of Zapata's Tidewater
common stock as provided for in the Norex loan agreements.
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 from the deferred method to an asset and liability approach. The
impact of adopting SFAS 109 was to give recognition to previously generated tax
credit carryforward items by recording a net deferred tax asset of $11.6 million
and increasing capital in excess of par value by $15.3 million.
RESULTS OF OPERATIONS
- ---------------------
The Company's net income of $17.3 million for the first quarter of fiscal
1994 represented a significant improvement from net income of $1.0 million for
the same period in fiscal 1993. The improvement was attributable to a $33.8
million pretax gain from the sale of 3.75 million shares of Tidewater common
stock. This gain was partially offset by a $6.8 million expense comprised of
the $3.5 million debt prepayment premium and a $3.3 million write-off of
previously deferred expenses related to the origination of such indebtedness.
The Company's operating income of $2.2 million for the first quarter of
fiscal 1994 was slightly lower than the $2.5 million operating income reported
for the fiscal 1993 period. The shortfall was attributable to lower natural gas
production from Zapata's domestic oil and gas operations; other operations
reported improved results.
14
<PAGE>
Natural Gas Compression - In November 1993 Zapata purchased Energy Industries, a
participant in all segments of the natural gas compression industry. Energy
Industries operates the fifth largest rental fleet 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.
Energy Industries primarily supplies natural gas compressor packages in
natural gas production and processing applications. In natural gas production
applications, natural gas compression is used to increase the flow rate of gas
wells with low reservoir pressures. In natural gas processing applications,
natural gas compression is used in the process of separating the various
hydrocarbon components of the wellhead natural gas stream. In interstate
natural gas pipeline applications, natural gas compression is used to increase
the pressure of natural gas from reservoir levels to interstate pipeline
standards. Energy Industries maintains an inventory of compressor and engine
components to support the fabrication, service and repair of natural gas
compressor packages.
The major segments of Energy Industries' natural gas compression revenues
and operating results for the two-month period ended December 31, 1993, in
thousands, are identified below.
<TABLE>
<CAPTION>
<S> <C> <C>
Operating
Revenues Results
-------- ---------
Compressor Rental $2,914 $ 976
Fabrication and Sales 3,493 334
Parts and Service 4,166 777
Other 2,058 92
Selling and Administrative --- (1,192)
------ -------
$12,631 $ 987
======= =======
</TABLE>
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. Average rental rates are determined by the
demand for compressor packages and vary by size and horsepower of a compressor
package. Energy Industries' average utilization, rental rates and fleet size
during the two-month period ended December 31, 1993 are shown below.
Utilization of the Company's rental units was below the reported industry
average of approximately 83%.
<TABLE>
<CAPTION>
Average fleet utilization:
- ---------------------------
<S> <C>
Number of units 76.2%
Horsepower 76.8%
Average monthly rental rate, based on:
- --------------------------------------
Number of units $ 2,604
Horsepower $ 16.83
Average fleet size:
- -------------------
Number of units 684
Horsepower 106,139
</TABLE>
15
<PAGE>
In addition to operating a fleet of natural gas compressor packages for
rental purposes, Energy Industries designs, fabricates and sells natural gas
compressor packages to customer specifications. Energy Industries sells
compressor packages to natural gas producers, gatherers and transmission
companies which expect the long life of their associated reserves or pipeline to
justify the capital cost of acquiring, rather than renting, a natural gas
compressor package. Most of Energy Industries' natural gas compressor package
sales are for larger, high horsepower packages.
The natural gas compressor package sales and cost of sales for the two-
month period ended December 31, 1993, in thousands, except percentage amounts,
are shown below. Currently, fabrication backlog for the division is higher than
at any time in the past three years.
<TABLE>
<CAPTION>
<S> <C>
Fabrication and Sales $3,493
Cost of sales 2,757
------
Gross margin $ 736
======
Gross margin/percentage 21.1%
======
</TABLE>
NATURAL GAS GATHERING, PROCESSING AND MARKETING - Zapata's natural gas
gathering, processing and marketing operations are conducted through Cimarron
Gas Holding Company and its subsidiaries. Cimarron 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's).
Revenues and operating results for the first quarter of fiscal 1994 and
1993 are presented below by major category, in thousands. For the first quarter
of fiscal 1994, revenues were negatively impacted by lower prices for natural
gas liquids which resulted from the decline in crude oil prices. Operating
income, however, improved as a result of the expansion of the division's
gathering and processing operations during 1993.
<TABLE>
<CAPTION>
Revenues Operating Results
---------------- -----------------
1994 1993 1994 1993
------- ------- ------ ------
<S> <C> <C> <C> <C>
Gathering & Processing $ 6,080 $ 3,653 $ 672 $ 235
NGL Marketing 37,391 47,101 655 688
Selling & Administrative --- --- (766) (749)
------- ------- ----- -----
$43,471 $50,754 $ 561 $ 174
======= ======= ===== =====
</TABLE>
Gas gathering is the collection of natural gas from various individual
wells, combining it into a single gas stream and delivering it into a major
transmission line for transportation to market. A gathering system sometimes
includes an associated processing plant for the removal of gas liquids,
depending on the content of liquefiable hydrocarbons in the gas streams and the
capabilities of transmission lines.
16
<PAGE>
In September 1993, Cimarron significantly expanded its natural gas
gathering and processing activities by acquiring approximately 350 miles 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 the first
quarter of fiscal 1994 and 1993 are shown below.
<TABLE>
<CAPTION>
1994 1993
------ ------
<S> <C> <C>
Gathering 40,396 12,631
Processing 18,772 7,274
</TABLE>
OIL AND GAS - Revenues of $3.4 million and operating income of $208,000 for the
first quarter of fiscal 1994 were substantially below the fiscal 1993 period's
revenues of $7.2 million and operating income of $3.0 million. The shortfall
was due primarily to lower natural gas production in the Gulf of Mexico.
Additionally, the Bolivian operation contributed $1.1 million to operating
income in the 1994 period which was less than the $1.3 million in the
corresponding 1993 quarter.
Zapata's domestic natural gas production for the first three months of
fiscal 1994 was one-third 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.
Efforts to restore production commenced in February 1994 and may take up to
two months to complete. The workover/recompletion of the first well which is
estimated to cost approximately $2.5 million had been delayed because of the
lack of workover rig availability. Based upon the results of the initial
efforts, the Company may pursue a systematic workover/recompletion of additional
wells in the Wisdom gas field. The Company currently estimates that each
additional workover/recompletion will cost approximately $2.5 million.
Until such time that repairs to the wells in the Wisdom gas field can be
effected and production restored, revenues from domestic oil and gas operations
will be based on significantly lower production quantities than in prior years.
MARINE PROTEIN - Revenues of $20.7 million and operating income of $1.8 million
for the first quarter of fiscal 1994 compared favorably to the 1993 first
quarter revenues of $13.0 million and operating income of $513,000. The
improved operating results were achieved by increased sales volumes which
resulted from higher levels of inventories which were carried over from the
fiscal 1993 fishing season. Compared to the year-earlier period, sales volume
of fish meal during the first quarter of 1994 was 37% higher while the average
per ton price of $356 was 10% lower. Likewise, fish oil volumes more than
doubled while the average per ton price of $316 was 6% lower.
17
<PAGE>
During the second quarter of fiscal 1994, prices for marine protein
products are expected to increase modestly. As a result of higher levels of
remaining inventories, sales volumes of fish meal and fish oil will be higher
than those of the prior-year quarter.
RECENTLY ISSUED ACCOUNTING STANDARDS
In November 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 112, "Employers' Accounting for Post-
employment Benefits," which will require the recognition of an obligation by
employers who provide benefits to former or inactive employees after employment
but before retirement. Adoption of the new standard by the Company is required
no later than the fiscal year ending September 30, 1995. Based on existing
conditions and a preliminary review, management believes adoption of the new
standard will not have a material impact on the Company's results of operations
or financial position as the Company currently provides post-employment benefits
on a very limited basis.
In May 1993, the Financial Accounting Standards Board issued Statement of
financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" ("SFAS 115"), which addresses the accounting and
reporting for investments in equity securities that have readily determinable
fair values and for all investments in debt securities. Adoption by Zapata is
required no later than the fiscal year ending September 30, 1995. Zapata
currently owns approximately 1.0 million shares of Tidewater common stock which
has a book value of approximately $12.3 million. Upon adoption of SFAS 115,
this security would be reported at fair value and any unrealized gain or loss
recorded as a separate component of stockholders' equity (net of deferred income
taxes). If Zapata had implemented the new standard at December 31, 1993, an
adjustment would have been made to increase other assets by $8.7 million, with a
corresponding decrease of $3.0 million to the deferred income tax asset and an
increase of $5.7 million to stockholders' equity for the unrealized
appreciation.
18
<PAGE>
Part II
Other Information
Item 2. Changes in Securities.
Pursuant to the Second Amended and Restated Master Restructuring
Agreement (the "Norex Agreement") dated as of April 16, 1993 between Zapata
Corporation (the "Company") and Norex Drilling Ltd. ("Norex"), the Company was
subject to certain restrictions, including restrictions on the payment of
dividends.
In December 1993, the Company prepaid $68.5 million of the 13% senior
indebtedness under the Norex Agreement, along with accrued interest and a
prepayment premium of $3.5 million to Norex. In connection with this
prepayment, the Norex Agreement was amended to remove or lessen various
restrictions on the Company. The Company will no longer be required to maintain
any financial ratios and will no longer be subject to limitations on its ability
to incur additional indebtedness or contingent obligations, to make capital
expenditures, to pay dividends or to enter into merger or consolidation
transactions, to liquidate, wind up or dissolve or to make investments or loans.
In addition, the Company will no longer be subject to limitations on the
creation of liens or the sale of assets, except in connection with Energy
Industries and certain related subsidiaries. The Company will remain subject to
a covenant in the Norex Agreement which requires it to maintain a consolidated
tangible net worth of at least $100 million.
As part of the refinancing pursuant to the Norex Agreement, the Company
issued shares of its $1 Cumulative Exchangeable Preference Stock ("$1 Preference
Stock"). So long as any $1 Preference Stock remained outstanding, no dividend
could be declared or paid upon or set apart for the Company's Common Stock on
any other class of stock or series thereof ranking junior to the $1 Preference
Stock in payment of dividends.
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. Pursuant to the Certificate of Designations of the $1
Preference Stock, any shares of $1 Preference Stock which has been acquired by
the Company through redemption or otherwise shall assume the status of
authorized but unissued preference stock and shall not be reissued as shares of
the $1 Preference Stock.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4(a)* - Second Amendment to Second Amended and Restated Master
Restructuring Agreement, dated as of December 17, 1993 between
Zapata and Norex Drilling, Ltd. (Exhibit 4(c) to Zapata's Annual
Report on From 10-K for the fiscal year ended September 30, 1993
(File No. 1-4219))
19
<PAGE>
10(a) - Termination Agreement between Cimarron Gas Companies, Inc. and
James C. Jewett dated as of January 24, 1994.
(b) Reports on Form 8-K
(1) Current Report on Form 8-K dated November 9, 1993 (Item 2.
Acquisition or Disposition of Assets and Item 7. Exhibits)
___________________
*Incorporated by reference.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
ZAPATA CORPORATION
(Registrant)
Date: February 14, 1994
/s/ Thomas H. Bowersox
--------------------------------------
Thomas H. Bowersox
Executive Vice President
/s/ Marvin J. Migura
--------------------------------------
Marvin J. Migura
Senior Vice President and
Chief Financial Officer
21
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
No. Exhibit
- --- -------
<C> <S>
4(a)* Second Amendment to Second Amended and Restated Master Restructuring
Agreement dated as of December 17, 1993 between Zapata and Norex
Drilling, Ltd. (Exhibit 4(c) to Zapata's Annual Report on Form 10-K
for the fiscal year ended September 30, 1993 (File No. 1-4219))
10(a) Termination Agreement between Cimarron Gas Companies, Inc. and James C.
Jewett dated as of January 24, 1994.
</TABLE>
- -------------------
*Incorporated by reference.
22
<PAGE>
Exhibit 10(a)
TERMINATION AGREEMENT
This agreement made and entered into this 24th day of January, 1994 between
Cimarron Gas Companies, Inc., a Delaware corporation (the "Company") and James
C. Jewett (the "Employee");
W I T N E S S E T H:
--------------------
WHEREAS, the Company and the Employee entered into that certain
employment agreement dated the twelfth day of November, 1992; and
WHEREAS, both the Company and Employee wish to terminate the employment
agreement upon the terms and conditions herein set forth,
NOW, THEREFORE, in consideration of the mutual promises and agreement
set forth herein, the parties hereto agree as follows:
1) Immediately upon execution of this agreement, the Employee
shall have no further obligation to provide services to the Company. Employee
shall remain on the Company's payroll as an employee until the close of business
on the last day of January, 1994.
2) The Company shall pay to the Employee the sum of $10,416.67
per month commencing on the first day of February, 1994 and ending with the
payment made on the first day of July, 1994. The Company shall make such
deductions as are required by federal and state income tax laws, however, such
payments are made to Employee in consideration of the release of the Company
from any further liability to the Employee as set forth in paragraph 3 hereof.
3) It is mutually understood and agreed that the above
considerations are offered by the Company and accepted by Employee in exchange
for Employee's waiver and release, evidenced by Employee's signature below of
any and all claims and/or causes of action available to Employee under any
federal, state or local statute, including but not limited to, the Age
Discrimination and Employment Act of 1967 (as amended), Title VII of the Civil
Rights Act of 1964 (as amended), the Americans with Disabilities Act or any
theory at common law related to any alleged discrimination of any type
whatsoever, and also as full and final compensation for services rendered to the
Company and the termination of the Employee's contract agreement.
Employee acknowledges that this agreement will terminate any liability
on the part of the Company to Employee for any reason whatsoever. Employee
further acknowledges that the Company has informed the Employee that the
Employee may wish to have this agreement reviewed by an attorney of the
Employee's choice.
4) Company acknowledges that this agreement also terminates any
liability on the part of Employee to Company arising out of or related to the
services which Employee provided
1
<PAGE>
Exhibit 10(a)
to Company during Employee's term of employment. Company expressly releases
Employee from any liability for losses resulting to Company arising out of the
performance of Employee services to Company.
IN WITNESS WHEREOF the Company and the Employee have executed this
agreement on the date set forth herein above.
CIMARRON GAS COMPANIES, INC.
By: /s/ Robert W. Jackson
-------------------------------------------
Robert W. Jackson
Chief Executive Officer
By: /s/ James C. Jewett
----------------------------------------------
James C. Jewett
2
