<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 28, 1995
---------------
ENTERRA CORPORATION
- -----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 1-8153 23-2154837
- -------------- ---------------- -------------------
(State or other (Commission File (I.R.S. Employer
jurisdiction of Number) Identification No.)
incorporation)
13100 Northwest Freeway, Sixth Floor
Houston, Texas 77040-6310
- ----------------------------------------- ---------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 462-7300
--------------
(not applicable)
-----------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
ITEM 5. OTHER EVENTS.
On June 29, 1995, Enterra Corporation, a Delaware corporation (the
"Company"), and Zapata Corporation, a Delaware corporation ("Zapata"),
entered into a contract providing for the Company's acquisition of Zapata's
natural gas compression businesses ("Zapata Energy Industries") for $130
million. The contract is subject to expiration or termination of the waiting
period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and to signing of a definitive asset purchase agreement containing
customary and reasonable representations and warranties and indemnification
provisions. A dispute has arisen regarding the transaction. While the
Company and Zapata are currently engaged in discussions with respect thereto,
the Company intends to pursue appropriate legal remedies, if necessary, to
complete the transaction. However, there can be no assurance that the Zapata
Energy Industries acquisition will be consummated or that, if consummated,
the final terms will be consistent with the June 29 contract. If any
additional consideration is paid or if any liabilities are assumed, such will
result in an increase in goodwill and the expected amortization over its
40-year life.
Zapata Energy Industries is engaged in the business of renting,
fabricating, selling, installing and servicing natural gas compressor
packages used in the oil and gas industry. Natural gas compression is used in
the production, processing and delivery of natural gas. Zapata Energy
Industries is headquartered in Corpus Christi, Texas and maintains a network
of 15 sales and services offices in Texas, Louisiana, Oklahoma, Arkansas and New
Mexico. While Zapata Energy Industries' operations are primarily domestic, it
sells natural gas compressor packages in several international natural gas
producing regions. Its customers include natural gas companies which are
involved in the production, processing and transmission of natural gas.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits.
(1) Audited combined financial statements of
Zapata Energy Industries as of and for the
eleven months ended September 30, 1994.
(2) Unaudited combined financial statements of
Zapata Energy Industries as of and for the
nine months ended June 30, 1995, for the
eight months ended June 30, 1994 and the condensed
combined balance sheet as of September 30, 1994.
(3) Pro forma financial information (unaudited).
(a) Pro forma combined balance sheet as of
June 30, 1995.
(b) Pro forma combined statements of earnings
for the six-month period ended June 30,
1995 and for the year ended December 31,
1994.
(4) Consent of Coopers & Lybrand L.L.P.
-2-
<PAGE>
SIGNATURE
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 hereunto duly authorized.
ENTERRA CORPORATION
By: /s/ Steven W. Krablin
___________________________________
Steven W. Krablin
Vice President and
Chief Financial Officer
Dated: August 28, 1995
-3-
<PAGE>
EXHIBIT INDEX
Exhibit
- -------
99.1 Audited combined financial statements of
Zapata Energy Industries as of and for the
eleven months ended September 30, 1994.
99.2 Unaudited combined financial statements of
Zapata Energy Industries as of and for the
nine months ended June 30, 1995, for the eight
months ended June 30, 1994 and the condensed
combined balance sheet as of September 30, 1994.
99.3 Pro forma financial information (unaudited).
(a) Pro forma combined balance sheet as of
June 30, 1995.
(b) Pro forma combined statements of earnings
for the six-month period ended June 30,
1995 and for the year ended December 31,
1994.
99.4 Consent of Coopers & Lybrand L.L.P.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors,
Zapata Corporation:
We have audited the accompanying combined balance sheet
of Zapata Energy Industries, a wholly-owned group of
subsidiaries of Zapata Corporation (See Note 1), as of
September 30, 1994 and the related combined statements of
income, cash flows and stockholder's equity for the eleven
months then ended. These financial statements are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally
accepted auditing standards. Those standards require
that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free
of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also
includes assessing the accounting principles used and
significant estimates made by management, as well as
evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for
our opinion.
In our opinion, the financial statements referred to
above present fairly, in all material respects, the
combined financial position of Zapata Energy Industries
as of September 30, 1994 and the combined results of
their operations and their cash flows for the eleven
months then ended, in conformity with generally accepted
accounting principles.
Coopers & Lybrand L.L.P.
Houston, Texas
December 16, 1994, except as to Note 13,
as to which the date is August 24, 1995
<PAGE>
ZAPATA ENERGY INDUSTRIES
COMBINED BALANCE SHEET
SEPTEMBER 30, 1994 (IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
<S> <C>
Current assets:
Cash $ 1,678
Receivables, net of allowance of $50 11,389
Inventories 17,629
--------
Total current assets 30,696
--------
Goodwill, net 18,885
--------
Other assets 549
--------
Property and equipment, net 52,496
--------
Total assets $102,626
--------
--------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 2,745
Accrued liabilities 3,995
Current maturities of long-term debt 94
--------
Total current liabilities 6,834
--------
Long-term debt 15,106
--------
Deferred income taxes 1,422
--------
Due to parent 55,677
--------
Commitments and contingencies (Note 10)
Stockholder's equity:
Common stock ($1.00 par value) authorized, issued and
outstanding: 3,000 shares 3
Capital in excess of par value 20,787
Reinvested earnings 2,797
--------
23,587
--------
Total liabilities and stockholder's equity $102,626
--------
--------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
2
<PAGE>
ZAPATA ENERGY INDUSTRIES
COMBINED INCOME STATEMENT
ELEVEN MONTHS ENDED SEPTEMBER 30, 1994 (IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C>
Revenues $72,522
-------
Expenses:
Operating 52,768
Depreciation and amortization 4,867
Selling, general and administrative 6,917
-------
64,552
-------
Operating income 7,970
Interest expense, net (3,124)
-------
Income before income taxes 4,846
Provision for income taxes 2,049
-------
Net income $ 2,797
-------
-------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
3
<PAGE>
ZAPATA ENERGY INDUSTRIES
COMBINED STATEMENT OF CASH FLOWS
ELEVEN MONTHS ENDED SEPTEMBER 30, 1994 (IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C>
Cash flow provided (used) by operating activities:
Net income $ 2,797
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 4,867
Deferred taxes 1,363
Changes in assets and liabilities:
Receivables (2,064)
Inventories 175
Accounts payable and accrued liabilities 1,026
Other assets and liabilities (313)
--------
Total adjustments 5,054
--------
Net cash provided by operating activities 7,851
--------
Cash flow used by investing activities:
Capital expenditures (8,638)
Business acquisitions, net of cash acquired (73,222)
--------
Net cash used by investing activities (81,860)
--------
Cash flow used by financing activities:
Borrowings 15,000
Principal payments of long-term obligations (120)
Proceeds from issuance of common stock
to Parent 20,790
Repayments to Parent (15,886)
Advances from Parent 55,903
--------
Net cash used by financing activities 75,687
--------
Net decrease in cash and cash equivalents 1,678
Cash and cash equivalents at beginning of period 0
--------
Cash and cash equivalents at end of period $ 1,678
--------
--------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
4
<PAGE>
ZAPATA ENERGY INDUSTRIES
COMBINED STATEMENT OF STOCKHOLDER'S EQUITY
IN THOUSANDS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
CAPITAL IN
COMMON EXCESS OF PAR REINVESTED
STOCK VALUE EARNINGS
Balance at November 1, 1993:
Zapata Rentals, Inc. $1 $ 1,787 -
Zapata Compression Investments, Inc. 1 10,500 -
Energy Industries, Inc. 1 8,500 -
-- ------- ------
$3 $20,787 -
-- ------- ------
Net income - - $2,797
-- ------- ------
Balance at September 30, 1994 $3 $20,787 $2,797
-- ------- ------
-- ------- ------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
5
<PAGE>
ZAPATA ENERGY INDUSTRIES
NOTES TO THE COMBINED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
The combined financial statements of Zapata Energy Industries ("Zapata Energy
Industries" or the "Company") are comprised of Zapata Rentals, Inc.,
Zapata Compression Investments, Inc. and Energy Industries, Inc., three
wholly-owned subsidiaries of Zapata Corporation ("Zapata"). The
financial statements are presented on a combined basis because their
business activities are performed as one entity. The Company is engaged
in the business of renting, fabricating, selling, and servicing natural
gas compressor packages used in the oil and gas industry. The Company is
headquartered in Corpus Christi, Texas and maintains a network of fifteen
sales and service offices in the surrounding four state area. In 1993,
Zapata Energy Industries was formed and acquired certain natural gas
compression businesses (See Note 2).
BASIS OF PRESENTATION
The combined financial statements of Zapata Energy Industries include the
results for the eleven months ended September 30, 1994. All significant
intercompany transactions and account balances have been eliminated.
PROPERTY AND EQUIPMENT
Depreciation of property and equipment is provided using the straight-line
method over the estimated useful lives of the assets. Estimated useful
lives of assets, determined as of the date of acquisition, are as follows:
<TABLE>
<CAPTION>
<S> <C>
USEFUL LIVES
(YEARS)
Natural gas compressors 15
Building and leasehold improvements 20
Furniture, machinery and compressor casting molds 7
Computers and transportation equipment 5
</TABLE>
Repairs and maintenance are charged to expense as incurred and major
renewals and betterments are capitalized. Upon the sale or retirement of
equipment, the cost of the equipment disposed and the related accumulated
depreciation are removed from the accounts and any resulting gain or loss
is reflected in results from operations.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
using the moving average method for parts inventories. The cost of major
component inventories is determined by using specific identification.
6
<PAGE>
NOTES TO THE COMBINED FINANCIAL STATEMENTS, CONTINUED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
GOODWILL
Goodwill represents the excess of the cost of an acquisition
over fair value of net assets acquired. Goodwill is evaluated
annually for impairment based upon undiscounted cash flows and
reduced to net realizable value if necessary. Goodwill is amortized
using the straight-line method over the estimated benefit period of
40 years.
EQUIPMENT UNDER OPERATING LEASES AND HELD FOR LEASE
The Company leases certain equipment to customers under agreements that
contain an option to purchase the equipment at any time. The option
amount is computed based on the original purchase price, less payments
received, plus interest and insurance during the period from the inception
of the lease to the date the option is exercised. The lease payments are
generally computed to pay-out the original purchase price plus interest
over approximately 36 months. Leases with noncancelable lease terms
greater than 18 months are considered sales-type leases because by the end
of the original lease term, the option price is expected to be lower than
the equipment's fair market value. Equipment leased under agreements with
noncancelable lease terms of less than 18 months and those which do not
include a purchase option are accounted for as operating leases and
included in the rental fleet in property and equipment. Rental equipment
is depreciated over its estimated useful life.
CONCENTRATION OF CREDIT RISK
The Company sells, leases, and rents gas compressors to customers in the
oil and gas industry. The Company generally does not require collateral.
However, cash prepayments and security deposits are required for accounts
with indicated credit risks. The Company also bills for progress payments
from time to time on large long-term construction projects. The
Company maintains reserves for potential losses, and credit losses have
been within management's expectations.
At September 30, 1994, the Company had cash deposits concentrated
primarily in one bank.
REVENUE
Revenues are recognized as services are performed, or as parts or equipment
deliveries are made. In some cases, revenue is recognized on large
compressor equipment construction when the project is completed, but before
the equipment is actually shipped. This practice occurs when a customer
agrees to take delivery and pay for the equipment, but is not yet ready
to take possession of the equipment. Zapata Energy Industries provides a
limited warranty on certain equipment and services. The warranty period
varies depending on the equipment sold or service performed. A liability
for performance under warranty obligations is accrued based upon the nature
of the warranty and historical experience.
Revenues are recognized on rental contracts as rental equipment is
provided. Most rental contracts have an initial contract term of six to
twelve months and then continue on a month-to-month basis.
7
<PAGE>
NOTES TO THE COMBINED FINANCIAL STATEMENTS, CONTINUED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
INCOME TAXES
The Company is included in Zapata's consolidated U.S. federal income tax
return, however, income tax effects are reflected on a separate company
basis for financial reporting purposes. The Company's method of
accounting for income taxes recognizes deferred tax liabilities and assets
based on the expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this method,
deferred tax assets and liabilities are determined based on the difference
between the financial statement carrying amounts and the tax basis of
assets and liabilities using currently enacted tax rates.
2. ACQUISITION
In November 1993, Zapata Energy Industries purchased the natual gas
compression business of Energy Industries, Inc. and Zapata Energy Industries
L.P. (the "Acquisition"). Total consideration paid was $90.2 million
consisting of $74.5 million in cash and 2.7 million shares of Zapata's Common
Stock. Additionally, the Company incurred approximately $2.0 million
in fees associated with the Acquisition. Zapata Energy Industries
accounted for the acquisition using the purchase method of accounting and
recorded $19.3 million of goodwill in connection therewith.
The following assets and liabilities were acquired in connection with the
Acquisition effective November 1, 1993 (in millions):
<TABLE>
<CAPTION>
<S> <C>
Cash.................................................. $ 3.5
Receivables........................................... 9.3
Inventory............................................. 16.2
-----
29.0
Goodwill & other assets............................... 19.7
Property & equipment, net............................. 49.6
-----
$98.3
-----
-----
Current liabilities................................... $ 5.8
Long-term debt........................................ .2
-----
$ 6.0
-----
-----
</TABLE>
3. INVENTORIES
The Company maintains inventories to support package fabrication in the
Corpus Christi, Texas headquarters, as well as repair and maintenance
operations in the branch offices. Inventories as of September 30, 1994
are comprised of the following components (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Major fabrication components $ 3,908
Parts to support fabrication 7,422
Parts to support field service 4,291
Used parts and equipment 1,809
Labor in process 199
-------
$17,629
-------
-------
</TABLE>
8
<PAGE>
NOTES TO THE COMBINED FINANCIAL STATEMENTS, CONTINUED
4. PROPERTY, PLANT AND EQUIPMENT
Upon the Acquisition, the Company increased the net book value of property,
plant and equipment by $22.5 million to reflect the estimated fair market
value of the rental fleet and land and facilities at the date of the
Acquisition. Property, plant and equipment as of September 30, 1994 are
comprised as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Rental fleet $49,760
Patterns and forms 145
Leasehold Improvements 899
Furniture and fixtures 212
Computer equipment 942
Machinery and equipment 1,303
Buildings 2,376
Land 1,024
-------
56,661
Less accumulated depreciation (4,165)
-------
$52,496
-------
-------
</TABLE>
Depreciation expense for the eleven months ended September 30, 1994 was
$4,201,000.
5. GOODWILL
Goodwill as of September 30, 1994 is summarized as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Goodwill $19,328
Accumulated amortization (443)
-------
$18,885
-------
-------
</TABLE>
Amortization expense for goodwill totaled $443,000 for the eleven months
ended September 30, 1994.
9
<PAGE>
NOTES TO THE COMBINED FINANCIAL STATEMENTS, CONTINUED
6. ACCRUED LIABILITIES
Accrued liabilities as of September 30, 1994 are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
<S> <C>
State Income Taxes $ 425
Accrued Payroll 1,279
Ad Valorem Taxes 375
Accrued Warranty 250
Other Accrued Liabilities 1,666
-------
$3,995
-------
-------
</TABLE>
7. DEBT
At September 30, 1994, the Company's debt consisted of the following (in
thousands):
<TABLE>
<CAPTION>
<S> <C>
Texas Commerce Bank revolving/term credit facility,
interest at prime or Eurodollar rates, 7.75% at
September 30, 1994, due in quarterly installments
beginning in 1997 through 1999, collateralized by
certain compression assets $15,000
Other debt at 7.7% 200
-------
Total debt 15,200
Less current maturities 94
-------
Long-term debt $15,106
-------
-------
</TABLE>
At September 30, 1994, the Company maintained a line of credit with Texas
Commerce Bank. This credit agreement provides the Company with a $30
million revolving credit facility that converts after two years to a three
year amortizing term loan. The debt bears interest at a variable rate,
adjusted periodically based on prime or Eurodollar interest rate.
Pursuant to the credit agreement, the Company has agreed
to maintain certain financial covenants and to limit additional
indebtedness, dividends, dispositions and acquisitions. The amount of
restricted net assets for the Company at September 30, 1994 was
approximately $65.0 million. Additionally, the Company's ability to
transfer funds to Zapata was limited to $5.0 million at
September 30, 1994.
The estimated fair value of total long term debt at September 30, 1994
approximates book value.
10
<PAGE>
NOTES TO THE COMBINED FINANCIAL STATEMENTS, CONTINUED
7. DEBT, CONTINUED:
ANNUAL MATURITIES
The annual maturities of long-term debt for the five years ending
September 30, 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1995 1996 1997 1998 1999
$94 $105 $5,001 $5,000 $5,000
</TABLE>
8. CASH FLOW INFORMATION
For purposes of the statement of cash flows, all highly liquid investments
with an original maturity of three months or less are considered to be
cash equivalents.
Net cash provided by operating activities reflects cash payments of
interest and income taxes.
<TABLE>
<CAPTION>
<S> <C>
Cash paid during the eleven months ended September 30,
1994 for interest was $70,000.
</TABLE>
9. INCOME TAXES
The Company's method of accounting for income taxes recognizes deferred
tax assets and liabilities based on 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 Company's provision for income tax expense, computed on a
separate company basis, consisted of the following (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Current
State $ 375
U.S. 311
Deferred
U.S. 1,363
------
$2,049
------
------
</TABLE>
11
<PAGE>
NOTES TO THE COMBINED FINANCIAL STATEMENTS, CONTINUED
9. INCOME TAXES, CONTINUED
The provision for deferred taxes results from temporary differences in the
recognition of revenues and expenses for tax and financial reporting
purposes. The sources and income tax effects of these differences for the
eleven months ended September 30, 1994 were as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Book depreciation less than tax depreciation $1,545
Book reserves not deductible for tax purposes (24)
Changes to tax carryforwards and other (158)
------
$1,363
------
------
</TABLE>
The following table reconciles the income tax provisions computed
using the U.S. statutory rate of 34% to the provisions reflected in the
financial statements (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Taxes at statutory rate $1,647
State taxes, net of federal benefit 247
Other 155
------
$2,049
------
------
</TABLE>
Temporary differences and tax credit carryforwards that gave rise to
significant portions of deferred tax assets and liabilities as of
September 30, 1994 are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Deferred tax assets:
Book reserves not yet deductible $ 215
Other 97
-------
Total deferred tax assets 312
-------
Deferred tax liabilities:
Property and equipment (1,601)
Other (133)
-------
Total deferred tax liabilities 1,734
-------
Net deferred tax liability $(1,422)
-------
-------
</TABLE>
12
<PAGE>
NOTES TO THE COMBINED FINANCIAL STATEMENTS, CONTINUED
10. COMMITMENTS AND CONTINGENCIES
SALES-TYPE LEASE RECEIVABLES
Zapata Energy Industries provides a capital lease financing option to its
customers. Future minimum lease payments receivable under sales-type leases
are due as follows: $3,769,000 in 1995, $241,000 in 1996 and $77,000 in 1997;
deferred interest totaling $51,000 is included in these amounts. Zapata
Energy Industries periodically sells a portion of its lease receivables to
third party financiers. Certain of these receivables are sold with partial
recourse to the Company. At September 30, 1994, the total amount of
recourse to the Company on the unpaid balance of all previously sold
receivables was $1.7 million. During the eleven months ended September 30,
1994, the Company sold a total of $8.3 million of these receivables. To
date, the Company has not experienced any significant recourse losses.
OPERATING LEASES RECEIVABLE
The Company maintains a fleet of natural gas compressor packages for
rental under operating leases. At September 30, 1994, the net book value
of such property was $46.3 million (accumulated depreciation totaled $3.5
million). Future minimum lease payments receivable under remaining
noncancelable operating leases as of September 30, 1994 are as follows:
$3,256,000 in 1995, $782,000 in 1996 and $190,000 in 1997.
OPERATING LEASES PAYABLE
The Company leases certain buildings and equipment under noncancelable
operating leases. Future minimum payments under these operating lease
obligations aggregate $1.3 million, and for the four years ending
September 30, 1998 are:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1995 1996 1997 1998
Lease obligations $487 $414 $309 $102
</TABLE>
Rental expenses for operating leases were $ 533,000 for the eleven months
ending September 30, 1994.
CLAIMS AND LITIGATION
The Company is defending various claims and litigation arising from
operations. In the opinion of management, uninsured losses, if any,
resulting from these matters will not have a material adverse effect on
the Company's results of operations or financial position.
13
<PAGE>
NOTES TO THE COMBINED FINANCIAL STATEMENTS, CONTINUED
10. COMMITMENTS AND CONTINGENCIES, CONTINUED
FOREIGN REPRESENTATION
The Company entered into a contract with Atlas Copco to represent Zapata
Energy Industries in countries and markets where the Company did not have
sales contracts or convenient access. Atlas Copco receives a commission on
sales that Energy Industries makes internationally, whether they made the
initial sales contact or not. The contract specifically excludes sales to
Canada or Mexico. The contract is in effect until July 15, 1998 and
renews automatically for successive one year terms unless terminated by
one of the parties in advance.
Zapata Energy Industries is also under contract with a former affiliate
company, Energy Industries LTD, located in Calgary, Alberta, Canada.
Pursuant to this agreement, Zapata Energy Industries is required to supply
Energy Industries LTD with proprietary compressor components used in the
fabrication of gas compressor packages. Also, according to this agreement,
Energy Industries LTD cannot buy similar components from other manufacturers.
The companies also are bound by non-compete agreements in each other's
respective country. This agreement remains in effect through 1996, after
which time, Zapata Energy Industries will be obligated to sell compressor
components to Energy Industries LTD until 2002, but not on an exclusive
basis in Canada. In addition, after 1996 either company may compete in the
other's country for sales of new compressor packages or any other product
or service.
11. RELATED PARTY TRANSACTIONS
Zapata Energy Industries purchases Caterpillar engines and parts from Holt
Company of Texas, a corporation owned by the CEO of Zapata Energy
Industries, and a major stockholder and a director of Zapata. During 1994,
Zapata Energy Industries purchased $7.3 million of parts and engines from
Holt Company of Texas. At September 30, 1994, Zapata Energy Industries owed
the Holt Company $663,000 related to these purchases.
The Company's interest expense includes an allocation of interest expense
from Zapata totaling $3,384,000 for the eleven months ended September 30,
1994. Interest expense of Zapata that was not directly attributable to or
related to other operations of Zapata was allocated to the Company based on
net assets. Additionally, Zapata performs certain administrative functions
for Zapata Energy Industries including insurance policy placement, income
tax and legal support. These costs are charged to Zapata Energy Industries
based upon costs incurred in support of these activities.
12. PROFIT SHARING PLAN
All qualified employees of the Company are covered under the Energy
Industries, Inc. Profit Sharing Plan. The Company matches an employee's
voluntary contribution on a dollar-for-dollar basis, up to 2% of the
employee's gross payroll. The Company can also elect to make an annual
contribution to the plan based on profits. These contributions are
allocated to the participants based on gross payroll. Contributions of
$163,512 were made under this discretionary profit sharing feature of the
plan for the eleven months ended September 30, 1994.
14
<PAGE>
NOTES TO THE COMBINED FINANCIAL STATEMENTS, CONTINUED
13. SUBSEQUENT EVENTS
In January 1995, Zapata Energy Industries sold its heat exchanger division,
located in Garland, Texas. The heat exchanger division manufactured one of
the integral components of the gas compressor package, the "cooler" or "heat
exchanger". The Company received $1,470,000, and entered into an alliance
agreement structured to provide Zapata Energy Industries with the heat
exchangers necessary to perform its fabrication operations. As part of the
consideration of the sale, Zapata Energy Industries received a $725,000
credit to be used against future purchases over the next five years at a
rate of 10% off of normal invoice price. Approximately $5.5 million in
revenues and approximately $471,000 in operating income, included in the
Company's results for the eleven months ended September 30, 1994, was
attributable to the heat exchanger division.
During February 1995, the Company acquired the rental fleet of J-Brex
Company for $725,000. Fourteen active rental units were acquired in
this transaction, and the Company entered into a three-year agreement
which affords the Company the right of first refusal on these and any
future compressors J-Brex may need.
In April 1995, Zapata Energy Industries acquired the forty-four unit rental
fleet of Mountain Front Pipeline Company, Inc. Zapata Energy Industries
purchased these units for $2.7 million, and entered into an agreement with
Mountain Front, which affords the Company exclusive rights for these and
any future compressors for a period of up to thirty months.
On June 30, 1995, Zapata announced that it had entered into an agreement
to sell the assets of Zapata Energy Industries for $130 million to Enterra
Corporation. The agreement is subject to the signing of a definitive
agreement containing customary representations and warranties and
indemnification provisions and certain government approvals.
As of June 1995, the Company was not in compliance with certain cash flow
loan covenants related to long term debt. The Company has requested and
expects to receive a waiver related to this incident of non-compliance.
15
<PAGE>
ZAPATA ENERGY INDUSTRIES
CONDENSED COMBINED BALANCE SHEETS
(unaudited, in thousands)
<TABLE>
<CAPTION>
<S> <C> <C>
June 30, September 30,
1995 1994
-------- -------------
ASSETS
Current assets:
Cash $ 2,202 $ 1,678
Receivables 10,198 11,389
Inventories 24,173 17,629
-------- --------
Total current assets 36,573 30,696
-------- --------
Intangible and other assets 20,015 19,434
-------- --------
Property and equipment, net 59,497 52,496
-------- --------
Total assets $116,085 $102,626
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current maturities of long-term debt $ 27,228 $ 94
Accounts payable 3,558 2,745
Accrued liabilities 4,743 3,995
-------- --------
Total current liabilities 35,529 6,834
-------- --------
Long-term debt 763 15,106
-------- --------
Deferred income taxes 1,651 1,422
-------- --------
Due to parent 52,842 55,677
-------- --------
Stockholder's equity:
Common stock ($1.00 par value) authorized,
issued and outstanding: 3,000 shares 3 3
Capital in excess of par value 20,787 20,787
Reinvested earnings 4,510 2,797
-------- --------
25,300 23,587
-------- --------
Total liabilities and stockholder's equity $116,085 $102,626
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
ZAPATA ENERGY INDUSTRIES
CONDENSED COMBINED INCOME STATEMENTS
(unaudited, in thousands)
<TABLE>
<CAPTION>
<S> <C> <C>
Nine Months Eight Months
Ended Ended
June 30, 1995 June 30, 1994
------------- -------------
Revenues $53,086 $49,874
------- -------
Expenses:
Operating expenses 40,221 36,480
Depreciation and amortization 4,322 3,600
Selling, general and administrative 3,742 4,952
------- -------
48,285 45,032
------- -------
Operating income 4,801 4,842
Interest expense, net (2,208) (2,549)
Other income 474 --
------- -------
Income before income taxes 3,067 2,293
Provision for income taxes 1,354 941
------- -------
Net income $ 1,713 $ 1,352
------- -------
------- -------
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
ZAPATA ENERGY INDUSTRIES
CONDENSED COMBINED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
<TABLE>
<CAPTION>
<S> <C> <C>
Nine Months Eight Months
Ended Ended
June 30, 1995 June 30, 1994
------------- -------------
Cash flow provided by operating activities:
Net income $ 1,713 $ 1,352
-------- -------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 4,322 3,600
Changes in other assets and liabilities (3,973) (4,121)
-------- -------
Total adjustments 349 (521)
-------- -------
Net cash provided by operating activities 2,062 831
-------- -------
Cash flow used by investing activities:
Capital expenditures (11,495) (4,995)
Business acqusitions, net of cash acquired -- (73,222)
------- -------
Net cash used by investing activities (11,495) (78,217)
-------- -------
Cash flow provided (used) by financing activities:
Borrowings 12,864 --
Principal payments of long-term obligations (72) (98)
Proceeds from issuance of common stock
to Parent -- 20,790
Advances from (repayments to) Parent (2,835) 60,812
-------- -------
Net cash provided by financing activities 9,957 81,504
-------- -------
Net increase in cash and cash equivalents 524 4,118
Cash and cash equivalents at beginning of period 1,678 --
-------- -------
Cash and cash equivalents at end of period $ 2,202 $ 4,118
-------- -------
-------- -------
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
ZAPATA ENERGY INDUSTRIES
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS (Unaudited)
NOTE 1. ORGANIZATION
The combined financial statements of Zapata Energy Industries ("Zapata
Energy Industries" or the "Company") include Zapata Rentals, Inc., Zapata
Compression Investments, Inc. and Energy Industries, Inc., three wholly-owned
subsidiaries of Zapata Corporation ("Zapata"). Zapata Energy Industries is
engaged in the business of renting, fabricating, selling, and servicing
natural gas compressor packages used in the oil and gas industry.
NOTE 2. FINANCIAL STATEMENTS
The condensed combined financial statements included herein have been
prepared by Zapata Energy Industries, 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 the Company 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 audited combined
financial statements as of September 30, 1994 and the notes thereto.
NOTE 3. INTEREST EXPENSE
The Company's interest expense includes an allocation of interest
expense from Zapata totaling $1,243,000 for the nine months ended June 30,
1995 and $2,709,000 for the eight months ended June 30, 1994. Interest
expense of Zapata that was not directly attributable to or related to other
operations of Zapata was allocated to the Company based on net assets.
NOTE 4. INVENTORIES
The Company maintains inventories to support package fabrication in the
Corpus Christi, Texas headquarters, as well as repair and maintenance
operations in the branch offices. Inventories as of June 30, 1995 are
comprised of the following components (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Major fabrication components $ 9,480
Parts to support fabrication 6,164
Parts to support field service 5,808
Used parts and equipment 2,680
Labor in process 41
-------
$24,173
-------
-------
</TABLE>
4
<PAGE>
NOTE 5. SUBSEQUENT EVENT
On June 30, 1995, Zapata announced that it had entered into an
agreement to sell the assets of Zapata Energy Industries for $130 million to
Enterra Corporation. The agreement is subject to the signing of a definitive
agreement containing customary and reasonable representations and warranties
and indemnification provisions and certain government approvals.
As of June 30, 1995, the Company was not in compliance with certain
cash flow covenants related to its Texas Commerce Bank loan. As a result of
the covenant violation, the total balance outstanding of $26,800,000 at June
30, 1995 related to this loan is reflected as a current liability.
5
<PAGE>
PRO FORMA FINANCIAL INFORMATION
The pro forma financial statements are based on the historical financial
statements of Enterra, Total Energy Services Company ("TOTAL"), prior to its
acquisition by Enterra on August 12, 1994, and Zapata Energy Industries
("Zapata Energy Industries"), giving effect, under the purchase method of
accounting, to certain adjustments. The pro forma balance sheet was prepared
as if the acquisitions occurred on June 30, 1995. The pro forma statements
of operations were prepared as if the acquisitions had occurred as of January
1, 1994 and do not include any incremental revenues or the effect of any
modifications in operations that might have occurred had Enterra owned and
operated the businesses during the periods except as described below.
The pro forma financial statements should be read in conjunction with
the notes to the following pro forma financial statements and with the
Consolidated Financial Statements of Enterra and TOTAL and the related notes
thereto incorporated by reference herein and the Audited and Interim Combined
Financial Statements of Zapata Energy Industries and the related notes
thereto contained elsewhere in this Current Report on Form 8-K. The pro
forma financial information has been prepared based upon assumptions deemed
appropriate by management of Enterra. This information is not necessarily
indicative of the actual results or financial condition that would have been
achieved had the acquisitions occurred at these dates or of future results.
Actual results of TOTAL's operations are included with Enterra's results
after August 11, 1994 and actual results of Zapata Energy Industries will be
included with Enterra's results only from the date on which the acquisition
is consummated.
<PAGE>
UNAUDITED PRO FORMA BALANCE SHEET
JUNE 30, 1995
(In thousands)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
--------------------------------- -------------------------------------
ZAPATA
ENERGY
ENTERRA INDUSTRIES ADJUSTMENTS(a) ADJUSTED
--------------- -------------- ----------------- ---------------
ASSETS
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 7,305 $ 2,202 $ -- $ 9,507
Accounts receivable 126,699 10,198 -- 136,897
Inventories 101,387 24,173 -- 125,560
Deferred tax and other current assets 23,065 -- -- 23,065
----------- ----------- ------------ -----------
Total current assets 258,456 36,573 -- 295,029
Property, plant and equipment 543,355 67,307 (7,810) 602,852
Less accumulated depreciation 308,343 7,810 (7,810) 308,343
----------- ----------- ------------ -----------
Property, plant and equipment, net 235,012 59,497 -- 294,509
Deferred charges and other assets 6,159 1,493 -- 7,652
Goodwill, net 178,265 18,523 18,915 215,703
----------- ----------- ------------ -----------
$ 677,892 $ 116,086 $ 18,915 $ 812,893
----------- ----------- ------------ -----------
----------- ----------- ------------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 1,142 $ 27,228 $ (27,228) $ 1,142
Accounts payable 32,724 3,558 (3,558) 32,724
Other current liabilities 57,502 4,743 (4,743) 57,502
----------- ----------- ------------ -----------
Total current liabilities 91,368 35,529 (35,529) 91,368
Long-term debt 128,643 763 135,000 263,643
(763)
Deferred income taxes 12,198 1,591 (1,591) 12,198
Other liabilities 470 52,902 (52,902) 470
Minority interest 1,756 -- -- 1,756
Stockholders' equity:
Common stock 27,775 3 (3) 27,775
Additional paid-in capital 288,946 20,787 (20,787) 288,946
Cumulative translation adjustment (8,529) -- -- (8,529)
Retained earnings 135,265 4,510 (4,510) 135,265
----------- ----------- ------------ -----------
Total stockholders' equity 443,457 25,300 (25,300) 443,457
----------- ----------- ------------ -----------
$ 677,892 $ 116,085 $ 18,915 $ 812,892
----------- ----------- ------------ -----------
----------- ----------- ------------ -----------
</TABLE>
2
<PAGE>
ENTERRA CORPORATION
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1995
(In thousands, except per share data)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
--------------------------------- -------------------------------------
ENERGY
ENTERRA INDUSTRIES ADJUSTMENTS ADJUSTED
--------------- -------------- ----------------- ---------------
<S> <C> <C> <C> <C>
REVENUES $ 229,605 $ 34,923 $ -- $ 264,528
COSTS AND EXPENSES
Costs of operations 141,474 25,289 (2,374) (c) 164,389
Selling, general and administrative 49,017 3,840 (1,960) (c) 50,897
Depreciation and amortization 24,242 2,916 536 (d) 27,694
Unusual charges 28,281 -- -- 28,821
---------- ---------- ---------- ----------
243,014 32,045 (3,798) 271,261
---------- ---------- ---------- ----------
OPERATING INCOME (LOSS) (13,409) 2,878 3,798 (6,733)
Other income (expense)
Interest income 390 156 -- 546
Interest and debt expense (4,647) (1,650) (2,974)(e) (9,271)
Other 871 474 -- 1,345
---------- ---------- ----------- ----------
Income (loss) before income taxes and minority
interests (16,795) 1,858 824 (14,113)
Income tax provision (benefit) (9,396) 820 311(f) (8,265)
---------- ---------- ---------- ----------
Income (loss) before minority interests (7,399) (1,038) 513 (5,848)
Minority interests in (income) loss of
subsidiaries 311 -- -- 311
---------- ---------- ---------- ----------
NET INCOME (LOSS) $ (7,088) $ 1,038 $ 513 $ (5,537)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Average shares outstanding 27,755 -- -- 27,755
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
NET INCOME (LOSS) PER SHARE $ (0.26) $ -- $ -- $ (0.20)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Adjusted shares outstanding (k) 23,437 23,437
---------- ----------
---------- ----------
Adjusted net income (loss)
per share (k) $ (0.30) $ (0.24)
---------- ----------
---------- ----------
</TABLE>
3
<PAGE>
ENTERRA CORPORATION
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
DECEMBER 31, 1994
(In thousands, except per share data)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
----------------------------------------------- -------------------------------------
ZAPATA
ENERGY
ENTERRA TOTAL ADJUSTMENTS ADJUSTED INDUSTRIES ADJUSTMENTS ADJUSTED
------------ --------- ----------- -------- ------------- ----------- -----------
January 1
Year Ended to Eleven Months
December 31, August 11, Ended
1994 1994 September 30,
1994
------------ ---------- ----------- --------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES $ 302,243 $ 146,390 -- $ 448,633 $ 72,522 $ 6,014 (b) $ 527,169
COSTS AND EXPENSES
Costs of operations 179,629 100,089 279,718 52,768 5,080 (b) 332,818
(4,748)(c)
Selling, general and admin. 69,055 27,763 (1,910)(g) 94,908 6,917 390 (b) 98,295
(3,920)(c)
Depreciation and amortization 33,104 7,833 3,114 (h) 44,051 4,867 490 (b) 50,480
1,072 (d)
--------- ---------- ------ -------- -------- ------- ---------
281,788 135,685 1,204 418,677 64,552 1,636 481,593
--------- ---------- ------ -------- -------- ------- ---------
OPERATING INCOME (LOSS) 20,455 10,705 (1,204) 29,956 7,970 7,650 45,576
Other income (expense)
Interest income 1,019 303 -- 1,322 -- -- 1,322
Interest and debt expense (3,066) (2,841) 77 (i) (5,830) (3,124) (4,058)(e) (13,012)
Other 246 (517) -- (271) -- 221 (50)
--------- ---------- ------ -------- -------- ------- ---------
Income before income taxes and
minority interests 18,654 7,650 (1,127) 25,177 4,846 3,813 33,836
Income tax provision (benefit) 6,256 2,586 331 (j) 9,173 2,049 1,408 (f) 12,630
--------- ---------- ------ -------- -------- ------- ---------
Income before minority interests 12,398 5,064 (1,458) 16,004 2,797 2,405 21,206
Minority interests 119 123 -- 242 -- -- 242
--------- ---------- ------ -------- -------- ------- ---------
NET INCOME (LOSS) $ 12,517 $ 5,187 $(1,458) $ 16,246 $ 2,797 $ 2,405 $ 21,448
--------- ---------- ------ -------- -------- ------- ---------
Average shares outstanding 20,832 -- 6,904 27,736 -- -- 27,736
--------- ---------- ------ -------- -------- ------- ---------
--------- ---------- ------ -------- -------- ------- ---------
NET INCOME (LOSS) PER SHARE $ 0.60 $ -- $ -- $ 0.59 $ 0.77
--------- ---------- ------ -------- -------- ------- ---------
--------- ---------- ------ -------- -------- ------- ---------
Adjusted shares outstanding(k) 17,603 5,834 23,437 23,437
--------- ---------- ------ -------- -------- ------- ---------
--------- ---------- ------ -------- -------- ------- ---------
Adjusted net income (loss)
per share(k) $ 0.71 $ 0.69 $ 0.92
--------- ---------- ------ -------- -------- ------- ---------
--------- ---------- ------ -------- -------- ------- ---------
</TABLE>
4
<PAGE>
(a) Assumes Enterra will purchase the assets only of Zapata Energy Industries
in a taxable transaction for cash of $130 million and will incur
transaction costs of $5 million. All necessary funds are assumed borrowed
pursuant to an increase in Enterra's current revolving line of credit.
Due to the recent acquisition of these assets by Zapata Energy Industries'
parent and the write-up to fair market value at that time, no further
write-up is expected. Consequently, the transaction assumes goodwill
will be recorded in the amount of $37,438 ($18,915 more than reflected
on Zapata Energy Industries financials) and such will be amortized over
40 years.
(b) To reflect the results of operations for Zapata Energy Industries for the
month of October 1993, a period prior to its ownership by Zapata.
(c) Reflects the elimination of salaries, benefits and related costs as well as
other facilities and overhead costs that are expected as a result of the
overlapping operations of Zapata Energy Industries and Enterra's
compression business.
(d) Reflects an increase in depreciation due to an adjustment to conform to the
shorter life assigned to rental assets by Enterra's compression business
and an increase in goodwill amortization expense due to the increase in
goodwill created by the acquisition of Zapata Energy Industries.
(e) Reflects increased interest expense caused by the borrowing of $135
million in connection with the acquisition of Zapata Energy Industries.
(f) Reflects an adjustment to income tax expense for the incremental pretax
income that results from the acquisition of Zapata Energy Industries and
the adjustments reflected above.
(g) Reflects the elimination of salaries, benefits and related costs incurred
during 1994 of the TOTAL corporate staff and other administrative personnel
who were not retained by the combined entity as a result of overlapping
positions.
(h) Reflects increased depreciation expense due to the write-up of fixed
assets depreciated over the estimated ten year life and increased
amortization related to goodwill amortized over 40 years, related to the
TOTAL acquisition.
(i) Reflects a net decrease in interest expense that would have resulted from
Enterra's more favorable borrowing rates, offset in part by increased
borrowings, from the TOTAL acquisition.
(j) Reflects an adjustment to tax expense for the above TOTAL adjustments and
to reflect Enterra's incremental tax rate.
(k) Adjusted shares outstanding and adjusted net income (loss) per share
reflect the conversion of Enterra's actual common shares outstanding to the
pro forma common shares of Weatherford International Incorporated
("Weatherford") (0.845 shares of Weatherford for each Enterra share
after giving effect to a one-for-two reverse stock split to be effected
by Weatherford at the effective time of the merger) that will be received
by Enterra stockholders assuming the merger of Enterra and Weatherford is
approved as proposed in the Joint Proxy Statement/Prospectus of Enterra
and Weatherford. This information is provided herein solely for
comparative purposes to information provided in the Joint Proxy
Statement/Prospectus.
5
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statement of Weatherford International Incorporated on Form S-4 of our report
dated December 16, 1994, except as to Note 13 as to which the date is
August 24, 1995, on our audit of the combined financial statements of Zapata
Energy Industries as of and for the eleven months ended September 30, 1994,
which report is included in this Form 8-K.
Coopers & Lybrand L.L.P.
Houston, Texas
August 28, 1995
