throughout the fishing season ratably based on Omega's monthly fish catch and
the expected total fish catch for the season.
As mentioned previously, Omega Protein carries insurance for certain losses
relating to its vessels and Jones Act liabilities for employees aboard its
vessels (collectively, "Vessel Claims Insurance"). The typical Vessel Claims
Insurance policy contains an annual aggregate deductible ("AAD") for which Omega
remains responsible, while the insurance carrier is responsible for all
applicable amounts which exceed the AAD. Omega Protein provides reserves for
those portions of the AAD for which Omega remains responsible by using an
estimation process that considers Omega Protein, Inc. specific and industry data
as well as Omega Protein management's experience assumptions and consultation
with outside counsel. Omega Protein management's current estimated range of
liabilities related to such cases is based on claims for which Omega's
management can estimate the amount and range of loss. Omega Protein has recorded
the minimum estimated liability related to those claims, where there is a range
of loss. As additional information becomes available, Omega will assess the
potential liability related to its pending litigation and revise its estimates.
Such revisions in estimates of the potential liability could materially impact
Omega Protein's results of operation and financial position.
TEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's investment policy is designed to continue to meet Zapata's
liquidity needs by purchasing investment grade securities.
Zapata's investment grade securities include obligations of the U.S. Government
or agencies thereof guaranteed by the U.S. Government, certificates of deposit
and money market deposits. In addition, Omega Protein holds commercial paper
with a rating of A-2 or P-2.
As of March 31, 2002, Zapata held $43.7 million in investment grade securities.
Changes in interest rates affect the investment income the Company earns on its
investment grade securities and, therefore, impacts its cash flows and results
of operations. Due to the short duration and conservative nature of these
instruments, the Company does not believe that the value of these instruments
have a material exposure to interest rate risk.
In the normal course of business, the financial condition of the Company is
exposed to minimal market risk associated with interest rate movements on Omega
Protein's borrowings. A one percent increase or decrease in the levels of
interest rates on variable rate debt would not result in a material change to
the Company's results of operations.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
A non-operating wholly-owned subsidiary of Zapata, Energy Industries, Inc., was
named as a defendant in three cases commenced in 1996 and 1997 pending in the
83rd Judicial District Court of Upton County, Texas involving the death of one
individual and personal injuries to two others. The cases resulted from an
explosion and fire at a gas processing plant in Upton County caused by the
failure of a valve cover. Zapata was named as a defendant in one of the cases.
The owners of the plant have also filed a cross-claim against Energy Industries
for property damage and lost profits resulting from the explosion and fire.
Plaintiffs and the cross-plaintiff owners base their claim on a theory of
manufacturing or design defect of the valve cover. Plaintiffs seek compensatory
damages. Zapata and Energy Industries deny liability in each of the lawsuits,
and have vigorously contested these matters and intend to vigorously defend
against these actions. In January 2002, Zapata's primary insurance carrier for
these lawsuits, for the first time, notified it that it did not believe that
Zapata and Energy Industries had primary insurance coverage for the losses
arising out of these incidents. The insurance carrier had been providing for the
defense of these actions and had not reserved its rights with respect to that
defense. Although the insurance carrier has disclaimed any obligation to
indemnify Zapata or Energy Industries, it has agreed to continue providing a
defense. Zapata has disputed the assertion that there is no primary insurance
coverage. A loss of primary insurance coverage could jeopardize excess coverage
that Zapata or Energy Industries has for these claims. These cases involve
plaintiffs with very serious injuries, including death. While the results of any
ultimate resolution of these lawsuits cannot be predicted, in the opinion of the
Company's management, based upon discussions with defense counsel, any losses
resulting from these matters will not have a material adverse effect on Zapata's
results of operations, cash flow or financial position.