<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.
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