<PAGE>
 
 
                               ENERGY INDUSTRIES
 

                   NOTES TO THE COMBINED FINANCIAL STATEMENTS
 
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 Organization
 
  The combined financial statements of Energy Industries ("Energy Industries")
are comprised of Zapata Rentals, Inc. (sole general partner of Zapata Energy
Industries L.P.), Zapata Compression Investments, Inc. (sole limited partner of
Zapata Energy Industries L.P.) and Energy Industries, Inc., three wholly-owned
subsidiaries of Zapata Corporation (the "Company"). The financial statements
are presented on a combined basis because their business activities are
performed as one entity. Energy Industries is engaged in the business of
renting, fabricating, selling, and servicing natural gas compressor packages
used in the oil and gas industry. Energy Industries is headquartered in Corpus
Christi, Texas and maintains a network of fifteen sales and service offices in
the surrounding four state area. In 1993, Energy Industries was formed and
acquired certain natural gas compression businesses (See Note 2).
 
 Basis of Presentation
 
  The combined financial statements of Energy Industries include the results
for the nine months ended June 30, 1995, the eight months ended June 30, 1994
and the eleven months ended September 30, 1994. All significant intercompany
transactions and account balances have been eliminated.
 
 Property and Equipment
 
  Depreciation of property and equipment is provided using the straight-line
method over the estimated useful lives of the assets. Estimated useful lives of
assets, determined as of the date of acquisition, are as follows:
 

<TABLE>
<CAPTION>
                                                                    USEFUL LIVES
                                                                      (YEARS)
                                                                    ------------
      <S>                                                           <C>
      Natural gas compressors......................................      15
      Building and leasehold improvements..........................      20
      Furniture, machinery and compressor casting molds............       7
      Computers and transportation equipment.......................       5
</TABLE>

 
  Repairs and maintenance are charged to expense as incurred and major renewals
and betterments are capitalized. Upon the sale or retirement of equipment, the
cost of the equipment disposed and the related accumulated depreciation are
removed from the accounts and any resulting gain or loss is reflected in
results from operations.
 
 Inventories
 
  Inventories are stated at the lower of cost or market. Cost is determined
using the moving average method for parts inventories. The cost of major
component inventories is determined by using specific identification.
 
 Goodwill
 
  Goodwill represents the excess of the cost of an acquisition over fair value
of net assets acquired. Goodwill is evaluated annually for impairment based
upon undiscounted cash flows and reduced to net realizable value if necessary.
Goodwill is amortized using the straight-line method over the estimated benefit
period of 40 years.
 
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