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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
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)
STATE OF DELAWARE C-74-1339132
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1717 ST. JAMES PLACE, SUITE 550
HOUSTON, TEXAS 77056
(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 FOR 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 $0.25 PER SHARE, ON AUGUST 13, 1997: 22,884,878.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Zapata Corporation
<S> <C>
Condensed Consolidated Balance Sheet . . . . . . . . . . . 3
Condensed Consolidated Statement of Operations . . . . . 4
Condensed Consolidated Statement of Cash Flows . . . . . . 5
Notes to Condensed Consolidated Financial Statements . . . 6
</TABLE>
2
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ZAPATA CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
ASSETS 1997 1996
--------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 53,578 $ 99,601
Restricted cash 337 337
Receivables 9,305 10,942
Inventories:
Fish products 30,671 26,522
Materials, parts and supplies 3,657 3,397
Prepaid expenses and other current assets 2,149 2,552
Net assets of discontinued operations 9,947 6,473
--------- ---------
Total current assets 109,644 149,824
--------- ---------
Investments and other assets:
Investments in unconsolidated affiliates 20,664 22,061
Production payment receivable 2,780 3,237
Deferred income taxes 1,805 5,641
Other assets 15,274 15,501
--------- ---------
40,523 46,440
--------- ---------
Property and equipment 79,513 72,648
Accumulated depreciation (38,679) (35,946)
--------- ---------
40,834 36,702
--------- ---------
Total assets $ 191,001 $ 232,966
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 10,475 $ 16,108
Accounts payable and accrued liabilities 22,696 28,936
--------- ---------
Total current liabilities 33,171 45,044
--------- ---------
Long-term debt 9,761 18,159
--------- ---------
Other liabilities 16,462 17,450
--------- ---------
Stockholders' equity:
Preference stock 3 3
Common stock 7,388 7,387
Capital in excess of par value 131,961 131,963
Reinvested earnings from October 1, 1990 22,426 12,960
Treasury stock, at cost (30,171) --
--------- ---------
131,607 152,313
--------- ---------
Total liabilities and stockholders' equity $ 191,001 $ 232,966
========= =========
</TABLE>
The accompanying notes are an integral part of the condensed
consolidated financial statements.
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ZAPATA CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- --------------------
1997 1996 1997 1996
--------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues $ 31,025 $ 20,920 $ 79,612 $ 58,769
-------- -------- -------- --------
Expenses:
Operating 21,916 15,132 59,153 44,481
Depreciation and amortization 928 819 2,783 2,266
Selling, general and administrative 3,229 1,771 7,094 5,185
-------- -------- -------- --------
26,073 17,722 69,030 51,932
-------- -------- -------- --------
Operating income 4,952 3,198 10,582 6,837
-------- -------- -------- --------
Other income (expense):
Interest income 940 1,383 3,391 2,985
Interest expense (420) (949) (2,004) (2,847)
Equity in loss of unconsolidated affiliates (544) (1,403) (1,382) (3,560)
Other (312) (595) 802 (613)
-------- -------- -------- --------
(336) (1,564) 807 (4,035)
-------- -------- -------- --------
Income from continuing operations before income taxes 4,616 1,634 11,389 2,802
-------- -------- -------- --------
Provision for income taxes
State 203 91 410 265
Federal 1,545 540 3,843 888
-------- -------- -------- --------
1,748 631 4,253 1,153
-------- -------- -------- --------
Income from continuing operations 2,868 1,003 7,136 1,649
-------- -------- -------- --------
Discontinued operations:
Income from discontinued operations,
net of income taxes 1,962 178 2,330 235
Gain on disposition of discontinued operations,
net of income taxes -- -- -- 9,118
-------- -------- -------- --------
1,962 178 2,330 9,353
-------- -------- -------- --------
Income before cumulative effect of change in
accounting principle 4,830 1,181 9,466 11,002
Cumulative effect of change in accounting
principle, net of income taxes -- -- -- 467
-------- -------- -------- --------
Net income to common stockholders $ 4,830 $ 1,181 $ 9,466 $ 11,469
======== ======== ======== ========
Per share data:
Income from continuing operations $ 0.11 $ 0.03 $ 0.25 $ 0.05
Income from discontinued operations 0.07 0.01 0.08 0.32
Cumulative effect of change in accounting principle -- -- -- 0.02
-------- -------- -------- --------
Net income per share $ 0.18 $ 0.04 $ 0.33 $ 0.39
======== ======== ======== ========
Average common shares and equivalents
outstanding 27,231 29,562 28,791 29,562
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the
condensed consolidated financial statements.
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ZAPATA CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JUNE 30,
---------------------
1997 1996
-------- ---------
<S> <C> <C>
Cash flows provided (used) by operating activities:
Net income $ 9,466 $ 11,469
-------- ---------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 2,783 2,266
Equity in loss of unconsolidated affiliates 1,382 3,560
Gain on sales of assets (750) --
Cumulative effect of change in accounting principle,
net of income taxes -- (467)
Gain on sale of discontinued assets, net of income taxes -- (9,118)
Changes in other assets and liabilities (9,939) (12,797)
-------- ---------
Total adjustments (6,524) (16,556)
-------- ---------
Net cash provided (used) by operating activities 2,942 (5,087)
-------- ---------
Cash flows provided (used) by investing activities:
Proceeds from dispositions 1,661 124,437
Proceeds from production payment receivable 457 --
Capital expenditures (6,761) (2,314)
Investment in unconsolidated affiliate -- (3,407)
Restricted cash investment -- (260)
-------- ---------
Net cash provided (used) by investing activities (4,643) 118,456
-------- ---------
Cash flows provided (used) by financing activities:
Borrowings 1,849 6,500
Repayments of long-term obligations (16,000) (19,231)
Common stock repurchase (30,171) --
-------- ---------
Net cash used by financing activities (44,322) (12,731)
-------- ---------
Net increase (decrease) in cash and cash equivalents (46,023) 100,638
Cash and cash equivalents at beginning of period 99,601 2,745
-------- ---------
Cash and cash equivalents at end of period $ 53,578 $ 103,383
======== =========
</TABLE>
The accompanying notes are an integral part of the condensed
consolidated financial statements.
5
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ZAPATA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. FINANCIAL STATEMENTS
The condensed consolidated financial statements included herein have
been prepared by Zapata Corporation ("Zapata" or the "Company"), without audit,
pursuant to the rules and regulations of the Securities and Exchange
Commission. The financial statements reflect all adjustments that 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 a description of
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. These condensed
financial statements should be read in conjunction with the financial
statements and the notes thereto included in Zapata's latest Annual Report on
Form 10-K.
In October 1995, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"). The Company did not adopt the
recognition provisions of SFAS 123, but adopted its disclosure requirements
October 1, 1996.
In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" ("SFAS 128") which established
standards for computing and presenting earnings per share. The Company will
adopt the provisions of the statement in fiscal 1998 and does not expect that
adoption of SFAS 128 will have a significant effect on the Company's earnings
per share.
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130") which is
effective for fiscal years beginning after December 15, 1997. SFAS 130
establishes standards for reporting and display of comprehensive income and its
components (revenues, expenses, gains and losses) in a full set of
general-purpose financial statements. It requires (a) classification of items
of other comprehensive income by their nature in a financial statement and (b)
display of the accumulated balance of other comprehensive income separate from
retained earnings and additional paid-in capital in the equity section of a
statement of financial position. The Company will adopt the provisions of the
statement in fiscal 1999.
In June 1997, the FASB also issued Statement of Financial Accounting
Standards No. 131, "Disclosure about Segments of an Enterprise and Related
Information" ("SFAS 131") which is effective for periods beginning after
December 15, 1997. SFAS 131 establishes standards for reporting information
about operating segments in annual financial statements and requires selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. This Statement
supersedes SFAS 14, Financial Reporting for Segments of a Business Enterprise,
but retains the requirement to report information about major customers. The
Company will adopt the provisions of the statement in fiscal 1999.
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NOTE 2. UNCONSOLIDATED AFFILIATES
In August 1995, Zapata acquired 4,189,298 shares of Envirodyne
Industries, Inc. ("Envirodyne") common stock, representing 31% of the then
outstanding common stock of Envirodyne, for $18.8 million from a trust
controlled by Malcolm I. Glazer, Chairman of the Board of Zapata and a director
of Envirodyne at the time of such acquisition. In June and July 1996, Zapata
purchased 1,688,006 additional shares of Envirodyne common stock in brokerage
and privately negotiated transactions for aggregate consideration of
approximately $7.0 million. As a result of these transactions, Zapata
currently owns approximately 40% of the outstanding shares of Envirodyne common
stock.
Effective October 1, 1995, Zapata changed its method of accounting for
its equity interest in Envirodyne. Zapata began reporting its equity in
Envirodyne's results of operations on a three-month delayed basis since
Envirodyne's financial statements are not available to the Company on a basis
that would permit concurrent reporting. The financial statement information
presented below for Envirodyne is based upon its December 26, 1996 annual
report and its interim report for the quarter ended March 27, 1997 (in
millions, except per share amount):
ENVIRODYNE INDUSTRIES, INC.
<TABLE>
<CAPTION>
MARCH 27,
1997
-------
<S> <C>
BALANCE SHEET
Current assets . . . . . . . . . . . . . . . . . . $234.7
Other assets . . . . . . . . . . . . . . . . . . . 169.5
Property and equipment, net . . . . . . . . . . . 445.7
------
Total assets . . . . . . . . . . . . . . . $849.9
======
Current liabilities . . . . . . . . . . . . . . . $132.6
Long-term debt . . . . . . . . . . . . . . . . . . 511.0
Deferred income taxes and other . . . . . . . . . 110.8
Stockholders' equity . . . . . . . . . . . . . . . 95.5
------
Total liabilities and stockholders'
equity . . . . . . . . . . . . . . . $849.9
======
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
MARCH 27, MARCH 27,
1997 1997
-------- --------
<S> <C> <C>
INCOME STATEMENT
Revenues . . . . . . . . . . . . . $ 154.5 $ 480.3
======== ========
Loss before income taxes . . . . . $ (6.0) $ (13.0)
======== ========
Net loss . . . . . . . . . . . . . $ (2.6) $ (6.1)
======== ========
Net loss per share . . . . . . . . $ (0.18) $ (0.43)
======== ========
</TABLE>
7
<PAGE> 8
NOTE 3. DISCONTINUED OIL AND GAS OPERATIONS
On July 11, 1997, Zapata completed the sale of its Bolivian oil and
gas interests ("Bolivian Interest") to Tesoro Bolivia Petroleum Company
("Tesoro") for $18.8 million cash and the assumption by Tesoro of certain
liabilities (collectively, the "Bolivian Sale"). The Bolivian Sale completes
Zapata's exit from the oil and gas business. As a result, Zapata has restated
its financial statements to reflect its oil and gas operations as discontinued
operations. The terms of the Bolivian Sale were determined by negotiations
between Zapata and Tesoro, Zapata's co-venturer with respect to the Bolivian
operations. In connection with the Bolivian Sale, Zapata established a $4.0
million letter of credit in favor of Tesoro as security against the possibility
of a Bolivian income tax liability incurred by Zapata as a result of the
Bolivian Sale. Zapata's obligations with respect to the letter of credit will
terminate on the first business day following the first to occur of the
recording of the assignment of Zapata's interest by Tesoro as a public deed in
Bolivia or the receipt by Tesoro of evidence of payment by Zapata of all taxes
due in Bolivia, if any. The Bolivian Sale will result in an after-tax gain of
approximately $5.0 million that will be recorded in Zapata's fiscal 1997 fourth
quarter which ends September 30, 1997.
The condensed consolidated financial statements reflect the net assets
and operating results of Zapata's oil and gas operations as a discontinued
operation. Summarized results of Zapata's oil and gas discontinued operations
are shown below (amounts in millions):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996 1997 1996
------ ------- ----- -----
<S> <C> <C> <C> <C>
FINANCIAL RESULTS
Revenue . . . . . . . . . . . . . . . . . $ 3.1 $ .6 $ 4.3 $ 1.5
Expenses . . . . . . . . . . . . . . . . . .1 .3 .7 1.1
----- ---- ----- ----
Incomes before taxes . . . . . . . . . . . 3.0 .3 3.6 .4
Income Tax provision . . . . . . . . . . . 1.0 .1 1.3 .1
----- ---- ----- ----
Net income . . . . . . . . . . . . . . . . $ 2.0 $ .2 $ 2.3 $ .3
===== ==== ===== ====
</TABLE>
The fiscal 1997 financial results included a $3.0 million cash receipt
from the Bolivian government for certain past-due receivables that were
accounted for on the cash basis as their collection was uncertain.
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1997 1996
--------- -------------
<S> <C> <C>
FINANCIAL POSITION
Current Assets . . . . . . . . . . . . . . . . . . $ 2.3 $1.2
Property and equipment, net . . . . . . . . . . . 8.3 5.5
----- ----
10.6 6.7
Liabilities . . . . . . . . . . . . . . . . . . . .7 .2
----- ----
Net book value . . . . . . . . . . . . . . . . . . $ 9.9 $6.5
===== ====
</TABLE>
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NOTE 4. LITIGATION
Zapata has been named as a defendant in various derivative and
stockholder class actions alleging, among other things, that Zapata's Board of
Directors engaged in conduct constituting breach of fiduciary duty and waste of
Zapata's assets in connection with Zapata's investment in Envirodyne, the
decision to shift Zapata's focus from energy to food services and a proposed,
but subsequently abandoned, merger with Houlihan's Restaurant Group, Inc.
("Houlihan's). The complaints variously allege that Zapata's purchase of
Envirodyne common stock was designed to permit Malcolm I. Glazer to obtain
personal financial advantage to the detriment of Zapata and that the merger
consideration in the transaction with Houlihan's was excessive and would result
in voting power dilution, unfairly benefitting Malcolm I. Glazer. The
complaints seek injunctive and various forms of monetary relief. Zapata denies
the substantive allegations of the complaints and intends to defend these cases
vigorously. In one of the actions, the plaintiff sought an injunction to
prevent consummation of the merger with Houlihan's based on the contention that
it would violate a supermajority vote requirement in Zapata's Restated
Certificate of Incorporation. On September 24, 1996, the Court of Chancery
decided that the supermajority vote requirement applied to the merger. Zapata
filed a notice of appeal with the Supreme Court of the State of Delaware
regarding the decision of the Court of Chancery. On May 5, 1997, the Delaware
Supreme Court issued its opinion finding that the matter was moot since the
proposed transaction had been abandoned and vacating the opinion of the Court
of Chancery.
On November 9, 1995, a petition was filed in the 148th Judicial
District Court of Nueces County, Texas by Peter M. Holt, a former director of
the Company, and certain of his affiliates who sold their interests in Energy
Industries, Inc. and other natural gas compression companies ("Energy
Industries") to the Company in November 1993. The petition names the Company,
Malcolm I. Glazer and Avram A. Glazer as defendants and alleges several causes
of action based on alleged misrepresentations on the part of the Company and
the other defendants concerning the Company's intent to follow a long-term
development strategy focusing its efforts on the natural gas services business.
The petition does not allege a breach of any provision of the purchase
agreement pursuant to which the Company acquired Energy Industries from the
plaintiffs. The remedies sought by the plaintiffs include: (i) the
disgorgement to the plaintiffs of the Company's profit made on its sale of
Energy Industries, plus the cash profit the Company made from the operations of
Energy Industries, which the plaintiffs contend equals approximately $54
million; (ii) money damages based on the alleged lower value of the Company's
Common Stock had the alleged misrepresentations not been made, which the
plaintiffs contend is approximately $6 million; (iii) money damages based on
the plaintiffs' assumption that the Company's Common Stock price would have
increased if it had remained in natural gas services industry after 1995, which
the plaintiffs contend equals approximately $23 million; or (iv) money damages
if the plaintiffs had not sold Energy Industries and had taken it public in
January 1997, which the plaintiffs contend amounts to more then $100 million.
The Company, Malcolm I. Glazer, and Avram A. Glazer filed counterclaims against
the plaintiffs for breach of the purchase agreement, breach of fiduciary duty,
and material misrepresentations and omissions by Mr. Holt. Trial is currently
set for November 1997. The Company believes that the petition and the
allegations made therein are without merit and intends to defend the case
vigorously.
On January 24, 1997, the Company announced that a lawsuit had been
filed against the Company and its directors in the Court of Chancery of
Delaware seeking injunctive relief against the Company's offer to purchase up
to 15 million shares of its Common Stock (the "Offer"). The Offer was
terminated without
9
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the purchase of any shares in February 1997. The lawsuit, filed by Hawley
Opportunity Fund ("Hawley"), alleges, among other things, that the Offer was
unfair and that the Offer documents failed to disclose material facts
concerning the Company. The Company believes that the Offer documents properly
disclosed all material information required to be disclosed concerning the
matters referred to in Hawley's complaint and that Hawley's allegations as to
the unfairness of the Offer are unfounded. Since the Offer was terminated in
February 1997, the complaint is now moot. Hawley has filed a petition for
attorney fees, which the Company has contested.
The Company is defending various claims and litigation arising from
continuing and discontinued operations. In the opinion of management,
uninsured losses, if any, resulting from these matters and from the matters
discussed above will not have a material adverse effect on Zapata's results of
operations, cash flows or financial position.
NOTE 5. REPURCHASE OF COMMON STOCK
On May 30, 1997, Zapata repurchased approximately 6.7 million shares
of its common stock in a privately negotiated transaction at a price of $4.52
per share, including commissions. As it is the Company's intent to use these
shares for general corporate purposes, such shares are reflected in the
condensed consolidated financial statements as treasury stock, at cost. Zapata
had previously announced its intention to purchase up to 7.5 million shares of
its common stock in open-market purchases and in privately negotiated
transactions.
NOTE 6. SUBSEQUENT EVENTS
Zapata announced on July 11, 1997 that its board of directors had
voted to institute a quarterly cash dividend of $0.07 per share on the
Company's common stock. A dividend was paid on August 1, 1997 to stockholders
of record on July 25, 1997.
On July 25, 1997, the Company redeemed the entire $9.9 million
principal amount of its 10 7/8% subordinated debentures due May 1, 2001, at the
redemption price of 100% of the principal amount thereof, together with accrued
and unpaid interest.
10
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Forward-looking statements in this Form 10-Q, future filings by the
Company with the Securities and Exchange Commission, the Company's press
releases and oral statements by authorized officers of the Company are intended
to be subject to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Investors are cautioned that all
forward-looking statements involve risks and uncertainty, including without
limitation, the risk of a significant natural disaster, the inability of the
Company to insure against certain risks, the adequacy of its loss reserves,
fluctuations in commodity prices that affect the prices for fish meal and fish
oil, weather and other factors affecting fish catch levels, changing government
regulations, political risks of operations in foreign countries, as well as
general market conditions, competition and pricing. The Company believes that
forward-looking statements made by it are based on reasonable expectations.
However, no assurances can be given that actual results will not differ
materially from those contained in such forward-looking statements. The words
"estimate," "project," "anticipate," "expect," "predict," "believe" and similar
expressions are intended to identify forward-looking statements.
BUSINESS
On July 11, 1997, Zapata completed the sale of its Bolivian oil and
gas interests ("Bolivian Interest") to Tesoro Bolivia Petroleum Company
("Tesoro") for $18.8 million cash and the assumption by Tesoro of certain
liabilities (collectively, the "Bolivian Sale"). The Bolivian Sale completes
Zapata's exit from the oil and gas business. As a result, Zapata has restated
its financial statements to reflect its oil and gas operations as discontinued
operations. The terms of the Bolivian Sale were determined by negotiations
between Zapata and Tesoro, Zapata's co-venturer with respect to the Bolivian
operations. In connection with the Bolivian Sale, Zapata established a $4.0
million letter of credit in favor of Tesoro as security against the possibility
of a Bolivian income tax liability incurred by Zapata as a result of the
Bolivian Sale. Zapata's obligations with respect to the letter of credit will
terminate on the first business day following the first to occur of the
recording of the assignment of Zapata's interest by Tesoro as a public deed in
Bolivia or the receipt by Tesoro of evidence of payment by Zapata of all taxes
due in Bolivia, if any. The Bolivian Sale will result in an after-tax gain of
approximately $5.0 million that will be recorded in Zapata's fiscal 1997 fourth
quarter which ends September 30, 1997.
Zapata's board of directors has authorized purchases of up to 7.5
million shares of the Company's common stock from time to time, depending on
market conditions. The repurchase program may include privately negotiated
transactions in addition to purchases in the open market. Pursuant to the
repurchase program, Zapata repurchased 6.7 million shares of Zapata's common
stock on May 30, 1997 in a privately negotiated transaction at a price of $4.52
per share, including commissions. As it is the Company's intent to use these
shares for general corporate purposes, such shares are reflected in the
financial statements as treasury stock, at cost. Malcolm I. Glazer has informed
the board of directors that he does not intend to sell to the Company any of the
approximately 10.4 million shares of common stock beneficially owned by him
(currently approximately 45.5% of that outstanding) under the stock repurchase
program. The Company has entered into an agreement with Malcolm I. Glazer under
which he has represented that he does not intend to take any action or cause the
Company to take any action to "go private" or otherwise cause its stock to cease
to be publicly traded, and that should that intent change in the future, no such
transaction will be undertaken (with certain exceptions) except on terms
approved by a special committee of independent directors and determined to be
fair to the
11
<PAGE> 12
Company's stockholders from a financial point of view by a nationally
recognized investment banking firm. On July 10, 1997, Zapata declared a
quarterly cash dividend of $0.07 per share that was paid on August 1, 1997 to
stockholders of record on July 25, 1997.
On May 14, 1997, Zapata announced that it had proposed a transaction
to acquire all of the remaining common stock of Envirodyne Industries, Inc.
("Envirodyne") not owned by Zapata for a combination of Zapata common stock and
cash valued at $8 per share. Zapata currently owns approximately 40% of
Envirodyne's common stock. On May 22, 1997, Zapata announced that this
proposal had terminated in accordance with the terms of the proposal.
On July 25, 1997, the Company redeemed the entire $9.9 million
principal amount of its 10 7/8% subordinated debentures due May 1, 2001, at the
redemption price of 100% of the principal amount thereof, together with accrued
and unpaid interest. As a result, the $9.9 million was included in current
maturities of long-term debt at June 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
Zapata's cash and cash equivalents balance decreased $46.0 million
during the first nine months of fiscal 1997 and totaled $53.6 million at June
30, 1997. Likewise, the Company's working capital decreased $28.3 million
during the same period to $76.5 million as of June 30, 1997.
The Company's cash flows from operating activities provided $2.9
million for the first nine months of fiscal 1997 compared to a $5.1 million use
in the corresponding prior-year period reflecting an increase in the marine
protein division's operating income and a reduction in the Company's cash
taxes. Zapata's investing activities used $4.6 million during the first three
quarters of fiscal 1997 while providing $118.5 million during the first three
quarters of fiscal 1996 when the Company received $124.4 million from the sale
of its natural gas compression and natural gas gathering and processing
operations assets. Additionally, capital expenditures increased in the current
period due to the construction of a vessel dry-dock facility. Reflecting the
$30.2 million acquisition of treasury stock, cash flows used by financing
activities increased to $44.3 million during the first nine months of fiscal
1997 from $12.7 million during the first nine months of fiscal 1996.
RESULTS OF OPERATIONS
Reflecting the Bolivian Sale, Zapata's financial statements have been
restated to reflect its oil and gas operations as discontinued operations. As
a result, Zapata's continuing operations include its marine protein commercial
fishing operation, corporate administrative expenses and Zapata's 40.4% equity
interest in Envirodyne.
Zapata reported revenues of $31.0 million and net income of $4.8
million for the third quarter of fiscal 1997 compared to revenues of $20.9
million and net income of $1.2 million for the third quarter of fiscal 1996.
Zapata's third quarter results included after-tax income from the Company's
discontinued oil and gas operations of $2.0 million and $200,000 in the fiscal
1997 and 1996 periods, respectively. The third
12
<PAGE> 13
quarter fiscal 1997 discontinued oil and gas operating results included a $3.0
million cash receipt from the Bolivian government for certain past-due
receivables.
Zapata's net income from continuing operations for the third quarter
of fiscal 1997 increased to $2.9 million from $1.0 million reported a year
earlier. The improvement was attributable to an increase in the Company's
operating income and to a reduced equity loss from its investment in
Envirodyne. Zapata's operating income for the current quarter of fiscal 1997
increased to $5.0 million from $3.2 million in the corresponding prior-year
quarter due to an increase in the Company's marine protein operating results
that was partially offset by higher administrative expenses related primarily
to legal and severance costs. Net income from continuing operations included
equity losses of $544,000 in the current quarter compared to $1.4 million in
the prior-year quarter. The equity losses resulted primarily from Zapata's
equity interest in Envirodyne in which Zapata currently owns approximately 40%
of Envirodyne's outstanding common stock.
For the first nine months of fiscal 1997, Zapata reported revenues of
$79.6 million and net income of $9.5 million compared to revenues of $58.8
million and net income of $11.5 million for the first nine months of fiscal
1996. Net income included $2.3 million and $9.4 million in fiscal 1997 and
1996, respectively, related to the Company's discontinued operations. The
fiscal 1996 discontinued operations included the Company's discontinued natural
gas compression and natural gas gathering and marketing operations in addition
to the discontinued oil and gas operations. Zapata's year-to-date operating
income improved to $10.6 million in fiscal 1997 compared to $6.8 million in the
corresponding prior-year period. Zapata's net income included an equity loss
of $1.4 million in the fiscal 1997 period compared to an equity loss of $3.6
million in the corresponding fiscal 1996 period.
Marine Protein
Revenues of $31.0 million and operating income of $6.5 million for the
third quarter of fiscal 1997 compared favorably to revenues of $20.9 million
and operating income of $3.8 million for the third quarter of fiscal 1996. The
improvement was attributable to higher prices and sales volumes for the
Company's fish meal and fish oil products. The average per ton price for fish
meal, the division's primary product, increased to $507 in the third quarter of
fiscal 1997 from $443 in the third quarter of fiscal 1996, and the average per
ton price of fish oil increased to $423 in the 1997 period from $335 in the
1996 period. Sales volumes of fish meal and fish oil increased by
approximately 10% and 5%, respectively, in the current quarter as compared to
the prior-year quarter.
Similarly, year-to-date revenues of $79.6 million and operating income
of $13.7 million for fiscal 1997 compared to revenues of $58.8 million and
operating income of $8.8 million for the corresponding fiscal 1996 period. For
the first nine months of fiscal 1997, fish meal prices have averaged $506 per
ton versus $419 per ton in fiscal 1996, while fish oil prices have averaged
$417 per ton in the fiscal 1997 period versus $422 per ton in fiscal 1996.
Year-to-date, sales volumes of fish meal in fiscal 1997 are approximately 5%
higher than the prior-year period sales volumes while sales volumes of fish oil
in fiscal 1997 were approximately 6% lower than the corresponding fiscal 1996
period sales volumes.
The price for fish meal generally bears a relationship to prevailing
soybean meal prices, while prices for fish oil are usually based on prices for
vegetable fats and oils, such as soybean and palm oils. Thus, the
13
<PAGE> 14
prices for the Company's products are significantly influenced by worldwide
supply and demand relationships over which the Company has no control and which
tend to fluctuate to a significant extent over the course of a year and from
year to year.
Discontinued Oil and Gas
As a result of the Bolivian Sale, Zapata's financial statements have
been restated to reflect its oil and gas operations as discontinued operations.
Revenues of $3.1 million and operating income of $2.8 million in the
third quarter of fiscal 1997 compared favorably to revenues of $611,000 and
operating income of $273,000 in the comparable fiscal 1996 quarter. The
improvement in the fiscal 1997 period was attributable to a $3.0 million cash
receipt from the Bolivian government in May 1997 for certain unrecorded
past-due receivables. The Company accounted for such receivables on the cash
basis as their collection was uncertain. For the same reason, year-to-date
fiscal 1997 revenues of $4.3 million and operating income of $3.3 million
compared favorably to fiscal 1996 revenues of $1.5 million and operating income
of $426,000.
14
<PAGE> 15
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
The exhibits indicated by an asterisk (*) are incorporated by reference.
<S> <C>
3(a)* -- Restated Certificate of Incorporation of Zapata filed with Secretary of State of Delaware on May
3, 1994 (Exhibit 3(a) to Zapata's Current Report on Form 8-K dated April 27, 1994 (File No. 1-
4219)).
3(b)* -- Certificate of Designation, Preferences and Rights of $1 Preference Stock (Exhibit 3(c) to
Zapata's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1993 (File No. 1-
4219)).
3(c)* -- Certificate of Designation, Preferences and Rights of $100 Preference Stock (Exhibit 3(d) to
Zapata's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1993 (File No. 1-
4219)).
3(d)* -- By-laws of Zapata, as amended effective November 11, 1996 (Exhibit 3(d) to Zapata's Annual Report
on Form 10-K for the fiscal year ended September 30, 1996 (File No. 1-4219)).
10(y)* -- Purchase and Sale Agreement for Contract Rights an Assets Blocks XVIII and XX, Department of
Tarija, Bolivaia dated as of July 11, 1997 by and between Tesoro Bolivia Petroleum Company and
Zapata Exploration Company and Zapata Corporation (Exhibit 10(y) to Zapata's Current Report on
Form 8-K dated July 11, 1997 (File No. 1-4219)).
10(z) -- Shareholders' Agreement dated May 30, 1997 by Malcolm I. Glazer and the Malcolm I. Glazer Family
Limited Partnership in favor of Zapata.
27 -- Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K:
During the quarter ended June 30, 1997, Zapata filed the following
Current Reports on Form 8-K with the Securities and Exchange
Commission:
<TABLE>
<CAPTION>
Date of Earliest Financial
Event Reported Item Reported Statements Filed
-------------- ------------- ----------------
<S> <C> <C>
May 14, 1997 Item 5. Zapata announced on May 14, 1997 None
a proposal to acquire all of the common stock
of Envirodyne Industries, Inc. that its does not
already own. Additionally, on May 15, 1997,
Zapata's Board of Directors authorized the
repurchase of up to 2.5 million additional shares
of Zapata's common stock.
May 30, 1997 Item 5. Zapata repurchased 6.7 million shares None
of its common stock
</TABLE>
15
<PAGE> 16
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)
August 14, 1997 By: /s/ ERIC T. FUREY
------------------------------------
(Eric T. Furey,
Vice President, General Counsel and
Corporate Secretary)
August 14, 1997 By: /s/ ROBERT A. GARDINER
------------------------------------
(Robert A. Gardiner,
Senior Vice President and Chief
Financial Officer)
16
<PAGE> 17
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<S> <C>
3(a)* -- Restated Certificate of Incorporation of Zapata filed with Secretary of State of Delaware on
May 3, 1994 (Exhibit 3(a) to Zapata's Current Report on Form 8-K dated April 27, 1994 (File No.
1-4219)).
3(b)* -- Certificate of Designation, Preferences and Rights of $1 Preference Stock (Exhibit 3(c) to
Zapata's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1993 (File No. 1-
4219)).
3(c)* -- Certificate of Designation, Preferences and Rights of $100 Preference Stock (Exhibit 3(d) to
Zapata's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1993 (File No. 1-
4219)).
3(d)* -- By-laws of Zapata, as amended effective November 11, 1996 (Exhibit 3(d) to Zapata's Annual
Report on Form 10-K for the fiscal year ended September 30, 1996 (File No. 1-4219)).
10(y)* -- Purchase and Sale Agreement for Contract Rights an Assets Blocks XVIII and XX, Department of
Tarija, Bolivaia dated as of July 11, 1997 by and between Tesoro Bolivia Petroleum Company and
Zapata Exploration Company and Zapata Corporation (Exhibit 10(y) to Zapata's Current Report on
Form 8-K dated July 11, 1997 (File No. 1-4219)).
10(z) -- Shareholders' Agreement dated May 30, 1997 by Malcolm I. Glazer and the Malcolm I. Glazer
Family Limited Partnership in favor of Zapata.
27 -- Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10(z)
SHAREHOLDERS' AGREEMENT
This Shareholders' Agreement is made as of this 30th day of
May, 1997 by MALCOLM I. GLAZER, individually ("Glazer") and THE MALCOLM I.
GLAZER FAMILY LIMITED PARTNERSHIP (the "Partnership" and together with Glazer,
the "Glazers") in favor of ZAPATA CORPORATION, a Delaware corporation (the
"Company").
R E C I T A L S:
WHEREAS, as of the date of this Agreement, the Partnership
owns of record and beneficially 10,408,717 shares of the Company's common
stock, par value of $.25 per share ("Common Stock"), representing approximately
35.2% of the outstanding Common Stock; and
WHEREAS, the Company's Board of Directors approved a stock
repurchase program under which the Company may acquire up to 7.5 million of its
issued and outstanding shares of Common Stock provided that prior to commencing
any such purchases, the Company enters into an agreement with the Glazers
whereby the Glazers make certain representations and covenants with respect to
any "going private transaction" involving the Company;
P R O V I S I O N S:
NOW, THEREFORE, in consideration of the foregoing recitals and
other good and valid consideration, the Glazers, intending to be legally bound,
hereby agree in favor of the Company as follows:
1. DEFINED TERMS. As used herein, the following terms
shall have the definitions given thereto:
a. "Glazer Group" means the Glazers and any corporation,
person, partnership, trust or other entity in which the Glazers and/or their
affiliates (as defined in Rule 12b-2 under the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) own 50% or more of the equity securities that
are entitled to vote in the election of directors or persons holding similar
positions.
b. "Going Private Transaction" means any "Rule 13e-3
Transaction" as defined in Rule 13e-3 under the Exchange Act (or any successor
regulation) with respect to the Company or any other action which causes the
Common Stock to cease to be public traded.
-1-
<PAGE> 2
c. "Independent Investment Banker" means a nationally
recognized investment banking firm which neither (i) has an existing or
proposed client relationship with any member of the Glazer Group, nor had such
a relationship during the one-year period prior to the retention of such firm
by the Special Committee to render an opinion as contemplated by Paragraph 3,
nor (ii) has received fees aggregating more than $200,000 in the five years
immediately prior to such retention from any one or more members of the Glazer
Group.
2. NO CURRENT INTENTION TO ENGAGE IN GOING PRIVATE
TRANSACTION. The Glazers each represent and warrant that neither they nor any
other member of the Glazer Group intends or contemplates engaging or causing
the Company to engage in a Going Private Transaction.
3. RESTRICTIONS ON FUTURE GOING PRIVATE TRANSACTIONS.
Except as permitted under Paragraph 4 below, the Glazers each agree that they
will not, and they will cause each other member of the Glazer Group not to,
engage, directly or indirectly, or cause the Company to engage, directly or
indirectly, in any Going Private Transaction, except on terms approved, prior
to the initiation of such transaction, by a special committee (the "Special
Committee") of disinterested directors of the Company who are not affiliates or
associates (as defined in Rule 12b-2 under the Exchange Act) of, and are
otherwise independent of, any member of the Glazer Group, and determined by an
Independent Investment Banker engaged by the Special Committee to be fair to the
Company's stockholders (other than the Glazers) from a financial point of view.
4. CERTAIN EXCEPTIONS. Notwithstanding any other
provision of this Agreement, the restrictions of Section 3 shall not apply to:
a. any all-cash tender offer by any member of the Glazer
Group for any and all shares of the Common Stock not already owned by members
of the Glazer Group made in response to a tender offer (a "Third-Party Offer")
by any person, entity or group (other than a member of and without any
solicitation, promotion, arrangement or assistance by any member of the Glazer
Group) for any outstanding equity securities of the Company if after
consummation of such Third-Party Offer, such person, entity or group, together
with all persons and entities controlling, controlled by or under common
control or in a group with it, would, if shares are purchased pursuant to such
Third-Party Offer, own 35% or more of the Company's outstanding voting
securities, provided that (i) the member of the Glazer Group making such tender
offer determines in good faith that the person, entity or group making the
Third-Party Offer has the capability to consummate such offer and that the
Third-Party Offer is likely to be successful unless there is an offer that is
financially more favorable to the holders of Common Stock, (ii) the price per
share under the tender offer made by the member of the Glazer Group is higher
than the price per share under the Third-Party Offer and (iii) there is not in
effect any recommendation by the Board of Directors of the Company that the
stockholders of the Company accept the Third-Party Offer; or
(b) a merger of the Company with or into a member of the
Glazer Group occurring within one year following the consummation of a tender
offer by a member of the Glazer Group referred to in, and permitted by, clause
(a) of this Paragraph 4 as a result of which members
-2-
<PAGE> 3
of the Glazer Group become the beneficial owner of not less than 75% of the
outstanding shares of Common Stock, provided that (i) the consideration offered
to unaffiliated stockholders in such merger is all cash and is at least equal
to the highest consideration offered in such tender offer, and (ii) the
intention to effect such a merger was appropriately disclosed in such tender
offer.
5. TERMINATION. This Agreement shall terminate and be
of no further effect at such time (if any) as members of the Glazer Group
beneficially own less than 14.9% of the Company's outstanding voting
securities.
6. JURISDICTION. The Glazers and Company irrevocably
agree that any legal action or proceeding against him or it, as the case may
be, with respect to this Agreement and any transactions contemplated hereby may
be brought in the courts of the State of Delaware, or of the United States of
America for the District of Delaware, and by execution and delivery of this
Agreement, the Glazers and Company each irrevocably submits to the jurisdiction
of each such court and irrevocably designates, appoints and empowers the
Secretary of State of the State of Delaware to receive for and on its behalf
service of process in the State of Delaware, and further irrevocably consents
to the service of process outside of the territorial jurisdiction of such
courts by mailing copies by registered United States mail, postage prepaid, to
its address specified in this Agreement.
7. ENTIRE AGREEMENT; AMENDMENT. This Agreement
constitutes the entire agreement between the parties hereto with respect to the
subject matter hereof and may be amended only by an instrument in writing
executed by each of the parties hereto. Any right of a party to this Agreement
may be waived only by a written waiver duly executed by such party. The
failure of any party to this Agreement to assert any of its rights under this
Agreement or otherwise shall not constitute a waiver of such rights.
8. BINDING EFFECT. This Agreement shall be binding upon
and inure to the benefit of the heirs, executors, administrators, successors
and permitted assigns of the Glazers and Company. To the extent that this
Agreement imposes obligations on affiliates of the Glazers that are not parties
hereto, the Glazers shall cause such affiliates to comply with each such
obligation. This Agreement is not assignable by any party hereto without the
prior written consent of the other party.
9. NO THIRD-PARTY BENEFICIARIES. Nothing contained in
this Agreement is intended or shall be deemed to create any benefit for any
person who is not a party to this Agreement.
10. SEVERABILITY. This invalidity or unenforceability of
any term or provisions of this Agreement, or of this Agreement as to any
affiliate of the Glazers, shall not affect the validity or enforceability of
this remaining provisions of this Agreement or the validity or enforceability
of this Agreement against the Glazers or any other affiliate of the Glazers.
-3-
<PAGE> 4
11. HEADINGS. Section headings are inserted solely for
convenience of reference, do not form part of this Agreement, are not intended
to limit the subject matter of any section hereof, and are to be disregarded in
interpreting this Agreement.
12. GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the laws of the State of Delaware, excluding
such laws that direct the application of the laws of any other jurisdiction.
13. NOTICES. Any notices, demands, requests or other
communications required or permitted under this Agreement shall be in writing
and shall be deemed to have been sufficiently given if sent by telecopy or by
registered or certified mail, postage prepaid, addressed as follows:
If to Company, to:
Joseph Von Rosenberg
Executive Vice President and
General Counsel
Zapata Corporation
1717 St. James Place
Suite 550
P.O. Box 4240
Houston, Texas 77210-4240
If to the Glazers, to:
Malcolm I. Glazer
1428 South Ocean Boulevard
Palm Beach, Florida 33480
and
Avram Glazer
18 Stony Clover Lane
Pittsford, New York 14534
or to such other addresses as shall be furnished by like notice by such party.
14. COUNTERPARTS. This Agreement may be executed in two
or more counterparts, each of which shall be deemed to be an original, but all
of which together shall constitute one and the same instrument.
-4-
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective
as of the date first written above.
/s/ Malcolm I. Glazer
-------------------------------------
MALCOLM I. GLAZER
THE MALCOLM I. GLAZER FAMILY LIMITED
PARTNERSHIP
By: General Partner
By: /s/ Malcolm I. Glazer
----------------------------------
Name: Malcolm I. Glazer
Title: President
ZAPATA CORPORATION
By: /s/ Joseph L. von Rosenberg III
----------------------------------
Joseph L. von Rosenberg III
Executive Vice President and
General Counsel
-5-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 53,915
<SECURITIES> 0
<RECEIVABLES> 9,305
<ALLOWANCES> 0
<INVENTORY> 34,328
<CURRENT-ASSETS> 109,644
<PP&E> 79,513
<DEPRECIATION> 38,679
<TOTAL-ASSETS> 191,001
<CURRENT-LIABILITIES> 33,171
<BONDS> 9,761
0
3
<COMMON> 7,388
<OTHER-SE> 124,216
<TOTAL-LIABILITY-AND-EQUITY> 191,001
<SALES> 79,612
<TOTAL-REVENUES> 79,612
<CGS> 59,153
<TOTAL-COSTS> 59,153
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,004
<INCOME-PRETAX> 11,389
<INCOME-TAX> 4,253
<INCOME-CONTINUING> 7,136
<DISCONTINUED> 2,330
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,466
<EPS-PRIMARY> 0.33
<EPS-DILUTED> 0.33
</TABLE>
