Harbinger Group Inc.
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SEC Filings

DEF 14A
HRG GROUP, INC. filed this Form DEF 14A on 11/15/1995
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I
TEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
 
  The following is a discussion of the Company's financial condition and
results of operations. This discussion should be read in conjunction with the
Consolidated Financial Statements of the Company appearing under Item 8 herein.
 
BACKGROUND
 
  Zapata Corporation has undergone a significant transformation during the last
four years and the Company's new identity is still in the process of evolving.
 
  In fiscal 1991, the Company sold its offshore drilling business in which it
historically had a significant presence to Arethusa (Offshore) Limited
("Arethusa"). The cash proceeds from the sale was the catalyst for a
comprehensive financial restructuring which resulted in a significant reduction
in Zapata's debt and an increase in the number of outstanding shares of the
Company's common stock ("Common Stock").
 
  In fiscal 1992, Zapata Gulf Marine Corporation ("Zapata Gulf") of which
Zapata owned 34.7% was merged into Tidewater Inc. ("Tidewater"). As a result,
Zapata's investment in the marine services sector was represented by 8.3
million shares of Tidewater common stock.
 
  Zapata acquired Cimarron Gas Holding Company and its subsidiaries
(collectively, "Cimarron") early in fiscal 1993 for $3.8 million consisting of
$2.5 million and 437,333 shares of Common Stock. Cimarron was purchased to
serve as the vehicle for the Company's expansion into the gathering and
processing segments of the natural gas services markets.
 
  In May 1993, Zapata completed a refinancing of its senior debt which enabled
the Company to move forward with its strategic plan to redirect its focus into
the natural gas services market. Zapata raised a total of $111.4 million from
the issuance of debt and equity pursuant to a Second Amended and Restated
Master Restructuring Agreement dated as of April 16, 1993, as amended (the
"Norex Agreement"), between Zapata and Norex Drilling Ltd. ("Norex Drilling"),
a wholly owned subsidiary of Norex America, Inc. ("Norex America" and
collectively with Norex Drilling and other affiliates, "Norex"). The Norex
Agreement enabled the Company to refinance its then outstanding senior debt and
substantially reduced the amount of required debt service payments for fiscal
years 1994 and 1995.
 
  Under the terms of the Norex Agreement, Zapata issued $82.6 million in
principal amount of senior notes to Norex, maturing in three years and bearing
interest at 13%. In addition, Norex purchased 3 million shares of Common Stock
for $11.25 million and 17.5 million shares of $1 Preference Stock for $17.5
million. The $1 Preference Stock was to pay dividends at an annual rate of 8.5%
and was exchangeable into 673,077 shares of Zapata's Tidewater common stock at
the option of Norex. 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. Such notes are also exchangeable into
673,077 shares of Tidewater common stock. Such refinancing transactions are
collectively referred to as the "Norex Refinancing."
 
  In June 1993, the Company sold 3.5 million shares of its Tidewater common
stock in an underwritten public offering for net proceeds of $73.5 million.
Zapata used the proceeds to invest in the natural gas compression sector.
 
  In September 1993, the Company, through Cimarron, acquired the interests of
Stellar Energy Corporation and three affiliated companies (collectively,
"Stellar") engaged in natural gas gathering and processing for $16.4 million.
The purchase price included $6.3 million, the redemption of $3.7 million of
notes payable to former Stellar shareholders and the assumption of $6.4 million
of indebtedness of Stellar. The cash portion of the purchase price was financed
with working capital. The acquisition of Stellar significantly expanded the
Company's gas gathering and processing capability by adding 350 miles of
gathering systems in Texas and Oklahoma as well as a processing plant in West
Texas.
 
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