<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For Quarterly period ended March 31, 1994
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-4219
ZAPATA CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE C-74-1339132
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 4240, Houston, Texas 77210
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (713) 940-6100
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Number of shares outstanding of the registrant's Common Stock, par value $.25,
on May 11, 1994: 31,669,348.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Zapata Corporation
Balance Sheet
Income Statement
Divisional Revenues and Operating Income
Statement of Cash Flows
Notes to Financial Statements
2
<PAGE>
ZAPATA CORPORATION
BALANCE SHEET
ASSETS
(in thousands)
<TABLE>
<CAPTION>
March 31, September 30,
1994 1993
-------- -------------
<S> <C> <C>
Current assets:
Cash and cash
equivalents $ 27,799 $ 15,273
Restricted cash and
temporary investments 350 75,083
Receivables 32,887 28,321
Inventories
Fish products 24,294 33,504
Compressor
equipment and
components 21,375 ---
Gas liquids
products 539 1,271
Materials, parts
and supplies 3,627 3,392
Prepaid expenses and
other current
assets 3,170 2,280
-------- --------
Total current assets 114,041 159,124
-------- --------
Investments and other assets:
Investments in
unconsolidated
affiliates 7,893 56,289
Goodwill 27,376 7,781
Deferred income taxes 4,587 ---
Other assets 18,128 21,686
-------- --------
57,984 85,756
-------- --------
Property and equipment 201,300 141,393
Less accumulated
depreciation (48,141) (41,156)
-------- --------
153,159 100,237
-------- --------
Total assets $325,184 $345,117
======== ========
</TABLE>
3
<PAGE>
ZAPATA CORPORATION
BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' INVESTMENT
(in thousands)
<TABLE>
<CAPTION>
March 31, September 30,
1994 1993
-------- ------------
<S> <C> <C>
Current liabilities:
Current maturities of
long-term debt $ 3,912 $ 2,714
Accounts payable and
accrued
liabilities 36,282 36,550
Income taxes payable 2,141 783
-------- --------
Total current
liabilities 42,335 40,047
-------- --------
Long-term debt 70,841 139,646
-------- --------
Deferred income taxes --- 3,686
-------- --------
Other liabilities 15,528 15,474
-------- --------
Stockholders' investment:
Preferred and
preference stock 4,503 4,503
Common stock 7,915 7,235
Capital in excess of
par value 151,985 121,847
Reinvested earnings
from October 1, 1990 32,077 12,679
-------- --------
196,480 146,264
-------- --------
Total liabilities and
stockholders'
investment $325,184 $345,117
========= ========
</TABLE>
(The accompanying notes are an integral part of the financial statements.)
4
<PAGE>
ZAPATA CORPORATION
INCOME STATEMENT
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
-------------------- --------------------
1994 1993 1994 1993
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues $75,200 $ 71,854 $155,428 $142,779
--------- --------- --------- ---------
Expenses
Operating 64,877 64,907 135,001 126,733
Depreciation, depletion
and amortization 3,965 3,548 7,494 7,286
Selling, general and
administrative 5,055 3,690 9,476 6,555
------- -------- -------- --------
73,897 72,145 151,971 140,574
------- -------- -------- --------
Operating income (loss) 1,303 (291) 3,457 2,205
------- -------- -------- --------
Interest income (expense)
Interest income 391 464 1,197 957
Interest expense (1,847) (3,665) (5,613) (7,522)
------- -------- -------- --------
(1,456) (3,201) (4,416) (6,565)
------- -------- -------- --------
Other income
Gain on sale of Tidewater
stock 3,605 --- 37,457 ---
Other 395 745 (5,875) 2,630
------- -------- -------- --------
4,000 745 31,582 2,630
------- -------- -------- --------
Income (loss) before income
taxes 3,847 (2,747) 30,623 (1,730)
------- -------- -------- --------
Provision (benefit) for
income taxes 1,575 (1,205) 11,023 (1,226)
------- -------- -------- --------
Net income (loss) 2,272 (1,542) 19,600 (504)
------- -------- -------- --------
Preferred and preference
stock dividends 101 101 202 202
------- -------- -------- --------
Net income (loss) to common
stock $ 2,171 ($1,643) $ 19,398 ($706)
------- -------- -------- --------
Net income (loss) per common
share $0.07 ($0.06) $0.61 ($0.03)
Average common shares and
equivalents
outstanding 32,140 25,815 31,565 25,714
</TABLE>
(The accompanying notes are an integral part of the financial statements.)
5
<PAGE>
ZAPATA CORPORATION
DIVISIONAL REVENUES AND OPERATING INCOME
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
-------------------- --------------------
1994 1993 1994 1993
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues
Natural gas compression $15,433 $ --- $ 28,064 $ ---
Natural gas gathering
and processing 35,028 56,989 78,499 107,743
Oil and gas 2,824 5,148 6,261 12,365
Marine protein 21,915 9,717 42,604 22,671
------- ------- -------- --------
$75,200 $71,854 $155,428 $142,779
======= ======= ======== ========
Operating income (loss)
Natural gas compression $ 1,395 $ --- $ 2,382 $ ---
Natural gas gathering
and processing (784) 8 (223) 182
Oil and gas 432 1,312 640 4,363
Marine protein 2,078 434 3,894 947
Corporate (1,818) (2,045) (3,236) (3,287)
------- ------- -------- --------
$ 1,303 ($291) $ 3,457 $ 2,205
======= ======= ======== ========
</TABLE>
(The accompanying notes are an integral part of the financial statements.)
6
<PAGE>
ZAPATA CORPORATION
STATEMENT OF CASH FLOWS
SIX MONTHS ENDED MARCH 31
(in thousands)
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Operating activities:
Net income (loss) $ 19,600 $ (504)
-------- --------
Adjustments to reconcile net income to net
cash provided from operating activities:
Depreciation, depletion and amortization 7,494 7,286
Gain on sale of Tidewater common stock (37,457) ---
Changes in assets and liabilities:
Receivables 1,982 8,259
Inventories 3,957 3,138
Accounts payable and accrued
liabilities (3,762) (11,443)
Other assets and liabilities 8,790 (2,613)
-------- --------
Total adjustments (18,996) 4,627
-------- --------
Net cash provided from
operating activities 604 4,123
-------- --------
Investing activities:
Proceeds from dispositions 88,533 686
Restricted cash investments 74,733 (2,271)
Proceeds from notes receivable 967 932
Business acquisitions (73,622) (2,491)
Capital expenditures (10,459) (2,115)
-------- --------
Net cash provided from (used in)
investing activities 80,152 (5,259)
-------- --------
Financing activities:
Interest obligations deferred 1,025 ---
Borrowings 170 1,250
Principal payments of long-term obligations (69,122) (10,215)
Preferred stock dividend payments (303) ---
-------- --------
Net cash used in financing
activities (68,230) (8,965)
-------- --------
Net increase (decrease) in cash and cash
equivalents 12,526 (10,101)
Cash and cash equivalents at beginning of
period 15,273 35,544
-------- --------
Cash and cash equivalents at end of period $ 27,799 $ 25,443
======== ========
</TABLE>
(The accompanying notes are an integral part of the financial statements.)
7
<PAGE>
ZAPATA CORPORATION NOTES TO FINANCIAL STATEMENTS
Note 1. Financial Statements
The condensed consolidated financial statements included herein have been
prepared by Zapata, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. The financial statements reflect all
adjustments which are, in the opinion of management, necessary to fairly present
such information. All such adjustments are of a normal recurring nature.
Although Zapata believes that the disclosures are adequate to make the
information presented not misleading, certain information and footnote
disclosures, including significant accounting policies, normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. It is suggested that these condensed financial statements be read
in conjunction with the financial statements and the notes thereto included in
Zapata's latest annual report on Form 10-K.
In November 1992, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 112, "Employers Accounting for Post-
employment Benefits," which will require the recognition of an obligation by
employers who provide benefits to former or inactive employees after employment
but before retirement. Adoption of the new standard by Zapata is required no
later than the fiscal year ending September 30, 1995. Based on existing
conditions and a preliminary review, management believes adoption of the new
standard will not have a material impact on Zapata's results of operations or
financial position as Zapata currently provides post-employment benefits on a
very limited basis.
In May 1993, the Financial Accounting Standards Board issued Statement of
financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" ("SFAS 115"), which addresses the accounting and
reporting for investments in equity securities that have readily determinable
fair values and for all investments in debt securities. Adoption by Zapata is
required no later than the fiscal year ending September 30, 1995. Zapata
currently owns approximately 673,000 shares of Tidewater Inc. ("Tidewater")
common stock which has a book value of approximately $7.9 million. Upon
adoption of SFAS 115, this security would be reported at fair value and any
unrealized gain or loss recorded as a separate component of stockholders' equity
(net of deferred income taxes). If Zapata had implemented the new standard at
March 31, 1994, an adjustment would have been made to increase other assets by
$5.2 million, with a corresponding decrease of $1.8 million to the deferred
income tax asset and an increase of $3.4 million to stockholders' equity for the
unrealized appreciation.
On April 27, 1994, Zapata's stockholders approved a one-for-five reverse stock
split of the Company's outstanding common stock effective May 3, 1994 that
reduced the number of common shares outstanding from approximately 158.3 million
to approximately 31.7 million. The number of authorized shares remained at
165.0 million and par value of the common stock was unchanged. All references
to earnings per share and average number of shares outstanding have been
restated to reflect the reverse stock split. Additionally Zapata's Board of
Directors declared a common stock dividend of $0.035 per share totalling
approximately $1.1 million to be paid in July 1994 to stockholders of record on
June 30, 1994.
8
<PAGE>
Note 2. Acquisition
In November 1993, Zapata purchased the natural gas compression business of
Energy Industries, Inc. and certain other affiliated companies ("Energy
Industries"), as well as certain real estate used by the business. Energy
Industries is in the business of renting, fabricating, selling, installing and
servicing natural gas compressor packages. Total consideration paid for the
purchase of Energy Industries and certain real estate, and for a related
noncompetition agreement (collectively, the "Energy Industries Acquisition") was
$90.9 million consisting of $75.2 million and 2.7 million shares of Zapata
common stock based on an assigned value of $5.80 per share which approximated
the average trading price prior to closing of the acquisition (number of shares
and per share value have been adjusted to reflect May 1994 one-for-five reverse
stock split). Additionally, the Company incurred approximately $2.0 million in
fees associated with the Energy Industries Acquisition. The cash portion of the
purchase price was funded by the proceeds which Zapata received from the June
1993 sale of 3.5 million shares of Tidewater common stock in an underwritten
public offering. Zapata accounted for the acquisition using the purchase method
of accounting and recorded $20.0 million of goodwill in connection therewith.
The goodwill is being amortized over 40 years. The purchase price is subject to
an adjustment upward or downward based on the net working capital of Energy
Industries on October 31, 1993.
The following assets and liabilities were acquired in connection with the
Energy Industries Acquisition effective November 1, 1993 (in millions):
<TABLE>
<CAPTION>
<S> <C>
Cash $ 3.5
Receivables 9.3
Inventory 15.6
-----
28.4
Goodwill & other assets 20.5
Property & equipment, net 49.5
-----
$98.4
=====
Current Liabilities $ 5.1
Long-term debt .2
-----
$ 5.3
=====
</TABLE>
The following pro forma information for Zapata for the six months ended March
31, 1994 and March 31, 1993 includes the historical results of Zapata, adjusted
for the results of Energy Industries as if the Energy Industries Acquisition had
been consummated on October 1, 1992 (unaudited) (in thousands, except per share
amounts).
<TABLE>
<CAPTION>
Six Months Ended
March 31,
--------------------------
1994 1993
--------- --------
<S> <C> <C>
Revenues $161,442 $170,697
Income before taxes 30,921 1,410
Net income 19,794 1,568
Net income per share 0.62 0.05
</TABLE>
9
<PAGE>
The pro forma adjustments to Zapata's results for the six months ended March
31, 1994 reflecting the Energy Industries Acquisition include revenues of
$6,014,000, as well as income before tax and net income of $174,000.
Additionally, the pro forma adjustments for the first six months of fiscal 1994
include the elimination of $124,000 of various operating and administrative
expenses that were charged to Energy Industries from an affiliate, additional
depreciation of $120,000 and $41,000 of goodwill amortization, a reduction in
net interest expense of $161,000 related to notes receivable and payable that
were not acquired by Zapata and a federal tax provision of $104,000.
The pro forma adjustments to Zapata's results for the six months ended March
31, 1993 reflecting the Energy Industries Acquisition include revenues of
$27,918,000, as well as income before tax and net income of $1,945,000.
Additionally, the pro forma adjustments for the first six months of fiscal 1993
include the elimination of $1,140,000 of various operating and administrative
expenses that were charged to Energy Industries from an affiliate, additional
depreciation of $720,000 and $246,000 of goodwill amortization, a reduction in
net interest expense of $1,021,000 related to notes receivable and payable that
were not acquired by Zapata, a federal tax provision of $1,068,000 and the
issuance of 2.7 million shares of Zapata common stock.
The pro forma amounts presented above may not be indicative of the results
that would have actually resulted if the transactions had occurred on the date
indicated or which may be obtained in the future.
Note 3. Sales of Tidewater Common Stock and Senior Debt Prepayment
In November 1993, Zapata sold 3.75 million shares of its Tidewater common
stock for a net price of $20.75 per share or $77.8 million through an
underwritten public offering; the sale resulted in a pretax gain of $33.8
million. In December 1993, $73.7 million of the proceeds were used to prepay
$68.5 million of the Company's 13% senior indebtedness to Norex Drilling Ltd.,
along with accrued interest, and to pay a $3.5 million prepayment premium.
In connection with the debt prepayment, the Norex debt agreement was amended
to remove or lessen various restrictions on the Company. The Company will no
longer be required to maintain any financial ratios and will no longer be
subject to limitations on its ability to incur additional indebtedness or
contingent obligations, to make capital expenditures, to pay dividends or to
enter into merger or consolidation transactions, to liquidate, wind up or
dissolve or to make investments or loans. In addition, the Company will no
longer be subject to limitations on the creation of liens or the sale of assets,
except in connection with Energy Industries and certain related subsidiaries.
The Company will remain subject to a covenant in the Norex debt agreement which
requires it to maintain a consolidated tangible net worth as defined in such
agreement of at least $100 million.
In March 1994, Zapata sold 375,175 additional shares of its Tidewater common
stock for a net price of $21.34 per share or $8.0 million resulting in a pretax
gain of $3.6 million. The Company currently owns approximately 673,000 shares
of Tidewater common stock. The aggregate market value of Zapata's remaining
shares of Tidewater common stock as of March 31, 1994 was $13.1 million based on
the closing price of $19.50 per publicly-traded share on that date.
10
<PAGE>
Note 4. Accounting for Income Taxes
In the first quarter of fiscal 1994, Zapata adopted Statement of Financial
Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes." The
adoption of SFAS 109 changes 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. The impact of adopting SFAS 109 was to record an increase to
capital in excess of par value of $15.3 million and a net deferred tax asset of
$11.6 million arising from the recognition of previously existing credit
carryforward items.
Temporary differences and tax credit carryforwards that gave rise to
significant portions of deferred tax assets and liabilities as of October 1,
1993 as adjusted for adoption of SFAS 109 and at December 31, 1993 are as
follows:
<TABLE>
<CAPTION>
October 1, December 31,
Deferred Tax Assets 1993 1993
- - ------------------- ----------- -------------
<S> <C> <C>
Asset write-downs not yet deductible $ 8,554 $ 8,169
U.S. net operating loss carryforward 33 ---
Investment tax credit carryforwards 27,446 14,184
Alternative minimum tax credit
carryforwards 11,180 11,180
Other 2,208 2,200
-------- --------
Total deferred tax assets 49,421 35,733
Valuation allowance (5,596) (5,596)
-------- --------
Net deferred tax assets 43,825 30,137
-------- --------
Deferred Tax Liabilities
- - ------------------------
Property and equipment (12,526) (14,287)
Investment in Tidewater (11,766) (1,112)
Pension (3,690) (3,707)
Other (4,210) (4,210)
-------- --------
Total deferred tax liabilities (32,192) (23,316)
-------- --------
Net deferred tax asset $ 11,633 $ 6,821
======== --------
</TABLE>
The valuation allowance required under SFAS 109 represents tax credits that
may not be ultimately utilized given current facts and circumstances.
Note 5. Restricted Cash
In accordance with terms of a debt covenant, $74.1 million from the sale of
Tidewater common stock was held in restricted short-term investments at
September 30, 1993; additionally, restricted cash included cash held in short-
term investments to collateralize letters of credit totalling $1.0 million that
would expire in one year or less. At March 31, 1994 Zapata's restricted cash
totalling $350,000 was held in short-term investments to collateralize letters
of credit.
11
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
At March 31, 1994, Zapata's financial condition remained stronger than that
of any time in recent history. Total debt of $74.8 million compares very
favorably to stockholders' investment of $196.5 million. Additionally, the
Company owns approximately 673,000 shares of Tidewater Inc. ("Tidewater") common
stock.
In November 1993, Zapata purchased the natural gas compression business of
Energy Industries, Inc. and certain other affiliated companies as well as
certain real estate used by the business (collectively, "Energy Industries").
Energy Industries is engaged in the business of renting, fabricating, selling,
installing and servicing natural gas compressor packages. Total consideration
paid for the purchase and for a related noncompetition agreement (collectively,
the "Energy Industries Acquisition") was $90.9 million. The purchase price
consisted of $75.2 million and 2.7 million shares of the Company's common stock
valued at $5.80 per share, which approximated the average trading price prior to
closing of the acquisition (number of shares and per share value have been
adjusted to reflect the May 1994 one-for-five reverse stock split of Zapata's
outstanding common stock).
To fund the cash portion of the purchase price, Zapata used the proceeds
from the June 1993 sale of 3.5 million shares of its Tidewater common stock. In
November 1993, Zapata sold an additional 3.75 million shares of its Tidewater
common stock in an underwritten public offering for a net price of $20.75 per
share or $77.8 million. In December 1993, most of the proceeds from this sale
were used to prepay $68.5 million of the Company's 13% senior indebtedness owed
to Norex Drilling Ltd., along with accrued interest, and to pay a negotiated
prepayment premium of $3.5 million. In March 1994, Zapata sold 375,175
additional shares of Tidewater stock for a net price of $21.34 per share
generating $8.0 million.
While the Company considers its current liquidity position to be adequate,
it has entered into discussions with several financial institutions with the
intent of establishing committed lines of credit to fund future growth.
Following the acquisition of Energy Industries, Zapata believes that its cash
flow from operations will be sufficient to meet operating needs and its
financial commitments. In connection with the December debt prepayment, the
Norex debt agreement was amended to remove or lessen various restrictions on the
Company.
Zapata's working capital increased $4.0 million during the second quarter
of fiscal 1994 and totalled $71.7 million as of March 31, 1994. At the end of
the second quarter, cash and restricted cash components were $6.1 million higher
than that as of December 31, 1993.
Net cash provided from operating activities during the first six months of
fiscal 1994 totalled $604,000 as compared to $4.1 million provided in the
corresponding period in fiscal 1993. The lower contribution in 1994 was
attributable to an increase in required tax payments and to the Norex debt
prepayment premium.
12
<PAGE>
During the first two quarters of fiscal 1994, net cash provided from
investing activities of $80.2 million was significantly better than the $5.3
million used in investing activities in the comparable fiscal 1993 period. The
improvement was due to the sales of Tidewater common stock in November 1993 and
March 1994.
Reflecting the December 1993 Norex debt prepayment, net cash used in
financing activities totalled $68.2 million in the first six months of fiscal
1994 compared to the $9.0 million net use of cash in the fiscal 1993 period. As
of March 31, 1994, the Company's weighted-average interest rate had been reduced
to 9.8% as a result of the Norex debt prepayment. Additionally, a portion of
such interest is deferred and added to principal in accordance with certain loan
provisions. Mandatory principal payments for the next twelve months total $3.9
million; no significant amount of debt matures prior to fiscal 1996. Depending
upon certain conditions, most of the principal payments due in 1996 may be
either converted into shares of Zapata common stock or exchanged for shares of
Zapata's Tidewater common stock as provided for in the Norex loan agreements.
In the first quarter of fiscal 1994, Zapata was required to adopt Statement
of Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income
Taxes." The adoption of SFAS 109 changed Zapata's method of accounting for
income taxes from the deferred method to an asset and liability approach. The
impact of adopting SFAS 109 was to give recognition to previously generated tax
credit carryforward items by recording a net deferred tax asset of $11.6 million
and increasing capital in excess of par value by $15.3 million.
On April 27, 1994, Zapata's stockholders approved a one-for-five reverse
stock split of the Company's outstanding common stock effective May 3, 1994 that
reduced the number of common shares outstanding from approximately 158.3 million
to approximately 31.7 million. The number of authorized shares remained at
165.0 million and par value of the common stock was unchanged. All references
to earnings per share and average number of shares outstanding have been
restated to reflect the reverse stock split. Additionally Zapata's Board of
Directors declared a common stock dividend of $0.035 per share totalling
approximately $1.1 million to be paid in July to stockholder's of record on June
30, 1994.
Results of Operations
The Company's net income of $2.3 million for the second quarter of fiscal
1994 represented a significant improvement from the net loss of $1.5 million for
the same period in fiscal 1993. The improvement was attributable to the
combination of a $3.6 million pretax gain from the sale of 375,175 shares of
Tidewater common stock, higher operating income and lower interest expense.
The Company's operating income improved to $1.3 million on revenues of
$75.2 million for the second quarter of fiscal 1994 as compared to the $291,000
operating loss on revenues of $71.9 million reported for the corresponding
fiscal 1993 period. The improvement was attributable to increased marine
protein results and the contribution from Zapata's natural gas compression
operations; other operations reported lower results.
13
<PAGE>
For the first six months of fiscal 1994, Zapata's net income of $19.6
million improved significantly from the net loss of $504,000 for the
corresponding 1993 period as a result of the gains realized from the sales of
Tidewater common stock, higher operating income and lower interest expense.
Revenues of $155.4 million and operating income of $3.5 million for the 1994
period compared favorably to the 1993 period revenues of $142.8 million and
operating income of $2.2 million.
Natural Gas Compression - In November 1993 Zapata purchased Energy Industries, a
participant in all segments of the natural gas compression industry. Energy
Industries operates the fifth largest rental fleet of natural gas compressor
packages in the United States. Its compressor fleet is located in Texas,
Louisiana, Arkansas, Oklahoma and New Mexico, as well as offshore in the Gulf of
Mexico.
Energy Industries primarily supplies natural gas compressor packages in
natural gas production and processing applications. In natural gas production
applications, natural gas compression is used to increase the flow rate of gas
wells with low reservoir pressures. In natural gas processing applications,
natural gas compression is used in the process of separating the various
hydrocarbon components of the wellhead natural gas stream. In interstate
natural gas pipeline applications, natural gas compression is used to increase
the pressure of natural gas from reservoir levels to interstate pipeline
standards. Energy Industries maintains an inventory of compressor and engine
components to support the fabrication, service and repair of natural gas
compressor packages.
The major segments of Energy Industries' natural gas compression revenues
and operating results for the quarter ended March 31, 1994, in thousands, are
identified below.
<TABLE>
<CAPTION>
Operating
Revenues Results
-------- ----------
<S> <C> <C>
Compressor Rental $ 3,989 $ 1,405
Fabrication and Sales 4,385 813
Parts and Service 4,770 941
Other 2,289 433
Selling and Administrative --- (2,197)
------- -------
$15,433 $ 1,395
======= =======
</TABLE>
Natural gas compressor package rental utilization is affected by the
number and age of producing oil and gas wells, the volume of natural gas
consumed and natural gas prices. Average rental rates are determined by the
demand for compressor packages and vary by size and horsepower of a compressor
package. Energy Industries' average utilization, rental rates and fleet size
during the quarter ended March 31, 1994 are in the following table. Although
utilization of the Company's rental units was below the industry average,
efforts are being undertaken to increase the Company's utilization rate.
14
<PAGE>
<TABLE>
<S> <C>
Average fleet utilization:
--------------------------
Horsepower 76.2%
Average monthly rental rate, based on:
--------------------------------------
Horsepower $ 17.26
Average fleet size:
-------------------
Number of units 662
Horsepower 108,316
</TABLE>
In addition to operating a fleet of natural gas compressor packages
for rental purposes, Energy Industries designs, fabricates and sells natural gas
compressor packages to customer specifications. Energy Industries sells
compressor packages to natural gas producers, gatherers and transmission
companies which expect the long life of their associated reserves or pipeline to
justify the capital cost of acquiring, rather than renting, a natural gas
compressor package. Most of Energy Industries' natural gas compressor package
sales are for larger, high horsepower packages.
The natural gas compressor package sales and cost of sales for the
three months ended March 31, 1994, in thousands, except percentage amounts, are
shown below. Currently, fabrication backlog for the division is higher than at
any time in the past three years.
<TABLE>
<CAPTION>
<S> <C>
Fabrication and Sales $4,385
Cost of sales 2,972
------
Gross margin $1,413
======
Gross margin/percentage 32.2%
======
</TABLE>
Natural Gas Gathering, Processing and Marketing - Zapata's natural gas
gathering, processing and marketing operations are conducted through Cimarron
Gas Holding Company and its subsidiaries. Cimarron was acquired early in fiscal
1993 to serve as the vehicle for the Company's expansion into the natural gas
services market. As a division of Zapata, Cimarron's operations involve two
major categories of business activities: the gathering and processing of natural
gas and its constituent products and the marketing and trading of natural gas
liquids (NGL's).
Revenues and operating results for the second quarter of fiscal 1994
and 1993 are presented in the following table by major category, in thousands.
For the second quarter of fiscal 1994, marketing revenues declined primarily due
to the Company's decision to reduce its natural gas trading activities while
gathering and processing revenues increased as a result of the expansion of the
division's gathering and processing operations during 1993. The gathering and
processing operation however, incurred an operating loss for the second quarter
as low world oil prices depressed prices for natural gas liquids while the cost
of natural gas feedstock increased resulting in reduced processing margins.
Selling and administrative expenses also increased as a result of the expansion.
15
<PAGE>
<TABLE>
<CAPTION>
Revenues Operating Results
---------------- -------------------
1994 1993 1994 1993
------- ------- --------- --------
<S> <C> <C> <C> <C>
Gathering & Processing $ 5,123 $ 2,836 $(252) $ 172
NGL Marketing 29,905 54,153 8 163
Selling & Administrative --- --- (540) (327)
------- ------- ----- -----
$35,028 $56,989 $(784) $ 8
======= ======= ===== =====
</TABLE>
Gas gathering is the collection of natural gas from various individual
wells, combining it into a single gas stream and delivering it into a major
transmission line for transportation to market. A gathering system sometimes
includes an associated processing plant for the removal of gas liquids,
depending on the content of liquefiable hydrocarbons in the gas streams and the
capabilities of transmission lines.
In September 1993, Cimarron significantly expanded its natural gas
gathering and processing activities by acquiring approximately 350 miles of
natural gas gathering systems in West Texas and Oklahoma and a gas processing
plant in Sutton County, Texas. A comparison of average daily volumes of gas,
measured in thousands of cubic feet, gathered and processed during the second
quarter of fiscal 1994 and 1993 is shown below.
<TABLE>
<CAPTION>
1994 1993
------ ------
<S> <C> <C>
Gathering 46,400 9,994
Processing 21,200 10,054
</TABLE>
For the six months ended March 31, 1994, revenues totalled $78.5 million
with an operating loss of $223,000 as compared to revenues of $107.7 million and
operating income of $182,000 in the corresponding fiscal 1993 period reflecting
a decrease in marketing activity and the effect of lower prices for natural gas
liquids on processing margins.
Oil and Gas - Revenues of $2.8 million and operating income of $432,000 for the
second quarter of fiscal 1994 compared unfavorably to the fiscal 1993 second
quarter revenues of $5.1 million and operating income of $1.3 million. Despite
higher current prices for U.S. natural gas, the division's 1994 results declined
due to lower U.S. natural gas production.
The Bolivian operation contributed $876,000 to operating income in the
second quarter of 1994 compared to $647,000 in the prior-year period; year-to-
date, fiscal 1994 and 1993 Bolivian operations contributed approximately $2.0
million in each period.
Zapata's domestic natural gas production for the second quarter of fiscal
1994 was one-third of the fiscal 1993 period's level of production. The decline
in production was due to production difficulties encountered during 1993 at the
Wisdom gas field, the Company's most significant oil and gas property.
Efforts to restore production commenced in February 1994 after a delay
because of the lack of a suitable workover rig. The workover/recompletion of
the first well successfully restored production of this well to acceptable
levels. The Company has undertaken the workover/recompletion of an additional
well in the Wisdom gas field which the Company currently estimates will cost
approximately $2.5 million. Plans for the workover/recompletion of additional
wells will be evaluated upon recompletion of the second well.
16
<PAGE>
Until such time that repairs to additional wells in the Wisdom gas field
can be effected and production restored, revenues from domestic oil and gas
operations will be based on significantly lower production quantities than in
prior years.
Year-to-date fiscal 1994 revenues of $6.3 million and operating income of
$640,000 compared unfavorably to the 1993 revenues of $12.4 million and
operating income of $4.4 million as a result of the lower natural gas
production.
Marine Protein - Revenues of $21.9 million and operating income of $2.1 million
for the second quarter of fiscal 1994 compared favorably to the 1993 second
quarter revenues of $9.7 million and operating income of $434,000. The improved
results were achieved by increased sales volumes which resulted from higher
levels of inventories which were carried over from the fiscal 1993 fishing
season. Compared to the year-earlier period, sales volume of fish meal during
the second quarter of 1994 was 64% higher while the average per ton price of
$359 was 9% lower. Likewise, fish oil volumes increased significantly although
the average per ton price of $322 was 27% lower.
As a result of increased sales volumes, year-to-date fiscal 1994 revenues
of $42.6 million and operating income of $3.9 million compared favorably to the
1993 revenues of $22.7 million and operating income of $947,000.
Recently Issued Accounting Standards
In November 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 112, "Employers' Accounting for Post-
employment Benefits," which will require the recognition of an obligation by
employers who provide benefits to former or inactive employees after employment
but before retirement. Adoption of the new standard by the Company is required
no later than the fiscal year ending September 30, 1995. Based on existing
conditions and a preliminary review, management believes adoption of the new
standard will not have a material impact on the Company's results of operations
or financial position as the Company currently provides post-employment benefits
on a very limited basis.
In May 1993, the Financial Accounting Standards Board issued Statement of
financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" ("SFAS 115"), which addresses the accounting and
reporting for investments in equity securities that have readily determinable
fair values and for all investments in debt securities. Adoption by Zapata is
required no later than the fiscal year ending September 30, 1995. Zapata
currently owns approximately 673,000 shares of Tidewater common stock which has
a book value of approximately $7.9 million. Upon adoption of SFAS 115, this
security would be reported at fair value and any unrealized gain or loss
recorded as a separate component of stockholders' equity (net of deferred income
taxes). If Zapata had implemented the new standard at March 31, 1994, an
adjustment would have been made to increase other assets by $5.2 million, with a
corresponding decrease of $1.8 million to the deferred income tax asset and an
increase of $3.4 million to stockholders' investment for the unrealized
appreciation.
17
<PAGE>
PART II . OTHER INFORMATION
Item 1. Legal Proceedings.
On March 25, 1994 in Armand A. Vari, et al. v. Zapata Corporation, et al.,
the United States District Court for the Southern District of Texas (the
"Court") in Houston, Texas granted the motion for summary judgment for Zapata
Corporation, its directors, two of its executive officers, and IBJ Schroeder
Bank & Trust Company (collectively, the "Zapata Defendants"). On April 20,
1994, the Court entered its final judgment dismissing the plaintiffs' federal
claims against the Zapata Defendants.
For a description of the legal proceedings in Armand A. Vari, et al. v.
Zapata Corporation, et al. reference is made to the information set forth in
Item 3 of Zapata Corporation's 1993 Form 10-K, which information is incorporated
herein by reference.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
4(a)* Restated Certificate of Incorporation filed with Secretary of
State of the State of Delaware (Exhibit 3(a) to Current Report
on Form 8-K dated April 27, 1994 (File No. 1-4219))
(b) Reports on Form 8-K.
Current Report on Form 8-K dated January 31, 1994 (Item 5. Other Events).
Current Report on Form 8-K dated February 23, 1994 (Item 4. Changes in
Registrant's Certifying Accountant; Item 5. Other Events).
Current Report on Form 8-K dated March 9, 1994 (Item 5. Other Events).
* The exhibits indicated by an asterisk (*) are incorporated by reference.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ZAPATA CORPORATION
(Registrant)
Date: May 12, 1994 By: /s/ Thomas H. Bowersox
------------------------------
Thomas H. Bowersox
Executive Vice President
/s/ M. J. Migura
------------------------------
Marvin J. Migura
Senior Vice President and
Chief Financial Officer
