operations will not be impacted by this decision. Zapata's domestic natural
gas reserves have been declining for a number of years as no exploratory
efforts have been undertaken to offset gas production. The Board's decision to
sell the properties is simply an acceleration of the liquidation of the gas
reserves currently occurring through production. Sales proceeds were estimated
to equal or exceed the net book value of the properties.
LIQUIDITY AND CAPITAL RESOURCES
In September 1994, the Company prepaid the remaining $17.3 million of its
13% senior convertible indebtedness to Norex that was due in 1996, along with
accrued interest, and paid a prepayment premium of $655,000. The prepayment
was facilitated by the initial drawdown of $15 million from a $30 million bank
credit facility with Texas Commerce Bank Association (the "TCB Loan
Agreement") that Zapata arranged for its natural gas compression operations,
Energy Industries, in September 1994.
At September 30, 1994, Zapata's financial condition is stronger than that of
any time in recent history. Long-term debt of $69.1 million compares favorably
to working capital of $60.6 million and stockholders' equity of $154.5
million. Additionally, the Company owns 673,077 shares of Tidewater common
As of September 30, 1994, the Company's weighted-average interest rate had
been reduced to 8.8% as a result of the Norex debt prepayments. Mandatory
principal payments for the next twelve months total $3.0 million. Depending
upon certain conditions, the principal payments due in 1996 may be exchanged
for shares of Zapata's Tidewater common stock as provided for in the Norex
The Company considers its current liquidity position to be adequate. The TCB
Loan Agreement provides Energy Industries with financial flexibility.
Additionally, with the acquisition of Energy Industries, Zapata believes that
its cash flow from operations will be sufficient to meet operating needs and
its financial commitments.
The TCB Loan Agreement provides Energy Industries with a revolving credit
facility that converts after two years to a three-year amortizing term loan.
The TCB Loan Agreement bears interest at a variable interest rate that may be
adjusted periodically. Pursuant to the TCB Loan Agreement, Energy Industries
has agreed to maintain certain financial covenants and to limit additional
indebtedness, dividends, dispositions and acquisitions. The amount of
restricted net assets for Energy Industries at September 30, 1994 was
approximately $65.0 million. Additionally, Energy Industries' ability to
transfer funds to Zapata Corporation was limited to $5.0 million at September
30, 1994. The Company remains subject to a covenant in the Norex Agreement
which requires it to maintain a consolidated tangible net worth of at least
Reflecting the effects of the Norex Refinancing and the sale in June 1993 of
the Tidewater common stock, Zapata's working capital improved $88.8 million
during fiscal 1993 and totalled $119.1 million as of September 30, 1993. In
fiscal 1993, cash and restricted cash components increased $54.8 million and
current maturities of long-term debt were reduced by $16.9 million to $2.7
Net cash provided by operating activities during fiscal 1994 totalled $11.1
million as compared to $15.6 million used by operating activities in fiscal
1993. The improvement in 1994 was attributable to the positive contribution
from the Company's compression operations, reduced interest expense, lower
fees associated with Zapata's senior debt and an increase in fish meal and
fish oil inventories in 1993.
Net cash used by operating activities in fiscal 1993 totalled $15.6 million
and compared unfavorably to the $11.5 million provided by operating activities
in 1992. The use of cash was attributable to lower operating income, an
increase in fish meal and fish oil inventories and the prepayment penalty
associated with the Norex Refinancing.
Due to the significant transactions which occurred during fiscal years 1994
and 1993, cash flow from investing activities is combined with financing
activities for the following analysis. On a combined basis, these activities
used $13.3 million during fiscal 1994 and $4.7 million during fiscal 1993.
This difference can be attributed to increased capital expenditures and to the
redemption of preferred stock. Capital expenditures increased in 1994 due to
the combination of the following: workover projects at the Wisdom gas field,
the expansion of the natural gas gathering and processing operations and the
expansion of the compressor rental fleet.