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ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Property, equipment and depreciation
Property and equipment are recorded at cost except as adjusted by the quasi-
reorganization as of October 1, 1990. As a result of the quasi-reorganization
the carrying value of the assets utilized in the marine protein operations was
reduced to estimated fair value.
In April 1995, Zapata adopted Statement of Financial Accounting Standards No.
121 ("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," which established accounting standards
for the impairment of long-lived assets, certain identifiable intangibles, and
goodwill related to those assets to be held and used or to be disposed of. As a
result of adopting SFAS 121, in April 1995 the Company recorded a $12.3 million
pretax provision for asset impairment to reduce its marine protein assets to
their estimated fair market value. The fair market value of the marine protein
assets was determined based upon the highest third-party competitive bid which
had been received by the Company in connection with a contemplated sale of the
marine protein operations in 1995. In accordance with SFAS 121, the Company
periodically evaluates its long-lived assets, except for its oil and gas
properties, for impairment if events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. Oil and gas properties
are evaluated in accordance with the full cost ceiling test as described below.
Depreciation of property and equipment, other than that related to oil and
gas operations, is provided using the straight-line method over the estimated
useful lives of the assets. Estimated useful lives of assets acquired new,
determined as of the date of acquisition, are as follows:
<TABLE>
<CAPTION>
USEFUL LIVES
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(YEARS)
<S> <C>
Fishing vessels and fish processing plants................... 15-20
Furniture and fixtures....................................... 3-10
</TABLE>
Losses resulting from sales and retirements of property and equipment are
included in operating income while gains are included in other income. Property
and equipment no longer in service pending disposition are classified as other
assets and recorded at estimated net realizable value.
Oil and gas operations
Under the full cost accounting method all costs associated with property
acquisition and exploration for, and development of, oil and gas reserves are
capitalized within cost centers established on a country-by-country basis.
Capitalized costs within a cost center as well as the estimated future
expenditures to develop proved reserves and estimated net costs of
dismantlement and abandonment are amortized using the unit-of-production method
based on estimated proved oil and gas reserves. All costs relating to
production activities are charged to expense as incurred.
Capitalized oil and gas property costs, less accumulated depreciation,
depletion and amortization and related deferred income taxes, are limited to an
amount (the ceiling limitation) equal to the sum of (a) the present value
(discounted at 10%) of estimated future net revenues from the projected
production of proved oil and gas reserves, calculated at prices in effect as of
the balance sheet date (with consideration of price changes only to the extent
provided by fixed and determinable contractual arrangements), and (b) the lower
of cost or estimated fair value of unproved and unevaluated properties, less
(c) income tax effects related to differences in the book and tax basis of the
oil and gas properties.
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