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                               ZAPATA CORPORATION
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
 
  Revenue recognition
 
  The Company utilizes the sales method of accounting for sales of natural gas
whereby revenues are recognized based on the amount of gas sold to purchasers.
The amount of natural gas sold may differ from
the amount to which the Company is entitled based on its working interests in
the properties. The Company's reserve estimates are adjusted accordingly to
reflect any imbalance positions. The gas imbalance position was not significant
to the Company's financial position at September 30, 1995.
 
  All of the Company's oil and gas production from its Bolivian properties is
sold to Yacimientos Petroliferos Fiscales Bolivianos ("YPFB"), Bolivia's state-
owned oil company. Because of YPFB's improved performance under renegotiated
contracts and improved operating conditions in Bolivia, Zapata returned to the
accrual method of accounting for its Bolivian oil and gas operations in fiscal
1994. Prior to 1994, the Company used cash-basis revenue recognition for sales
from its Bolivian oil and gas properties. The effect of changing to accrual
accounting in 1994 increased revenues by $1.8 million. The Bolivian oil and gas
properties contributed revenues and operating income as follows (in millions):
 

<TABLE>
<CAPTION>
                                                                  1995 1994 1993
                                                                  ---- ---- ----
      <S>                                                         <C>  <C>  <C>
      Revenues................................................... $2.7 $4.1 $3.2
      Operating income...........................................  1.4  3.5  3.1
</TABLE>

 
 Income taxes
 
  Zapata adopted Statement of Financial Accounting Standards No. 109 ("SFAS
109"), "Accounting for Income Taxes," as of October 1, 1993. The adoption of
SFAS 109 changed Zapata's method of accounting for income taxes to the asset
and liability approach. This approach requires the recognition of deferred tax
assets and liabilities for the expected future tax consequences of existing
temporary differences between the financial reporting and tax reporting basis
of assets and liabilities, and operating loss and tax credit carryforwards for
tax purposes.
 
 Earnings per share
 
  Income per share is based on the weighted average number of common shares and
common share equivalents outstanding during each year. Common share equivalents
include the average shares issuable for convertible preference stock and stock
options. Income used for purposes of this calculation has been reduced by
accruals for preferred and preference stock dividends.
 
  Loss per share is based on the weighted average number of common shares
outstanding during each year. No common share equivalents are incorporated in
fiscal 1994 calculations because to do so would be antidilutive. Preferred
stock dividends are considered as their effect is to increase the loss per
share.
 
  The average shares used in the per share calculations were 30,706,256 in
fiscal 1995, 31,377,498 in fiscal 1994 and 27,324,993 in fiscal 1993.
 
 Quasi-reorganization
 
  In connection with the comprehensive restructuring accomplished in 1991, the
Company implemented, for accounting purposes, a "quasi-reorganization," an
elective accounting procedure that permits a company that has emerged from
previous financial difficulty to restate its accounts and establish a fresh
start in an accounting sense. After implementation of the accounting quasi-
reorganization, the Company's assets and
 
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