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ITEM 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
several years. The Company was previously engaged in the operation of offshore
drilling rigs and marine service and supply vessels and oil and gas operations.
All of these operations have been divested in the last few years, with the
exception of the Company's remaining interest in a Bolivian oil and gas
operation.
 
  In fiscal 1993, the Company began to narrow the focus of its operations to
the natural gas services market. In connection with that strategy, the Company
acquired Cimarron Gas Holding Company and its subsidiaries (collectively,
"Cimarron") early in fiscal 1993 for $3.8 million, consisting of $2.5 million
in cash and 437,333 shares of the Company's Common Stock ("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
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 in cash, 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 portions of the purchase
prices were financed with working capital.
 
  Zapata completed a refinancing of its senior debt in fiscal 1993 which
enabled the Company to move forward with its 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 an agreement (the "Norex
Agreement") with 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. Such refinancing is
collectively referred to as the "Norex Refinancing."
 
  The Company sold 3.5 million shares of its Tidewater Inc. ("Tidewater")
common stock in June 1993 in an underwritten public offering for net proceeds
of $73.5 million. In November 1993, Zapata used the proceeds to purchase the
natural gas compression businesses of Energy Industries, Inc. and certain other
affiliated companies (collectively, "Energy Industries") as well as certain
real estate used by the business. Total consideration paid for the purchase of
Energy Industries, the related real estate and for a related noncompetition
agreement (collectively, the "Energy Industries Acquisition") was $90.2
million. The purchase price consisted of $74.5 million in cash and 2.7 million
shares of the Common Stock valued at $5.80 per share, which approximated the
average trading price prior to closing of the acquisition.
 
  In late 1994 and early 1995, the Company began to develop a strategic plan
involving the repositioning of the Company into the food packaging, food and
food service equipment and supply (collectively, "food services") businesses
and exiting the energy business. The strategic plan that was developed called
for the divestiture of most of the Company's remaining energy operations,
including Energy Industries, Cimarron and the Company's remaining domestic oil
and gas assets, and the acquisition of, or joint ventures with, selected
companies in the food services industry.
 
  In September 1994, Zapata's Board of Directors announced that the Company
would immediately undertake efforts to sell its U.S. natural gas producing
properties. The six properties in the Gulf of Mexico, representing Zapata's
domestic oil and gas producing operations, were sold in fiscal 1995. Zapata
received cash of $4.0 million and recorded an $8.9 million receivable
representing (i) a production payment entitling Zapata to a share of revenues
from certain properties and (ii) a share of future proceeds from a revenue
sharing agreement. No gain or loss resulted from the sales. The decision to
sell its U.S. natural gas producing properties did not impact Zapata's Bolivian
oil and gas operations.
 
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