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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
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þ
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the fiscal year ended December 31, 2005 | ||
| or | ||
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o
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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)
| Nevada | 74-1339132 | |
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(State or other jurisdiction of
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(I.R.S. Employer | |
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incorporation or organization)
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Identification No.) | |
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100 Meridian Centre, Suite 350
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14618 | |
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Rochester, NY
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(Zip Code) | |
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(Address of principal executive offices)
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Registrant’s Telephone Number, Including Area Code
(585) 242-2000
Securities Registered Pursuant to Section 12(b) of the
Act:
| Title of Each Class | Name of Each Exchange on Which Registered | |
| Common Stock, $0.01 par value | New York Stock Exchange |
Securities Registered Pursuant to Section 12(g) of the
Act:
None.
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o or No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o or No þ
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 þ or No o
.
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K is
not contained herein, and will not be contained, to the best of
Registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any
amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definitions of “accelerated filer and large
accelerated filer” in
Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated
filer o Accelerated
filer þ Non-accelerated
filer o
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2 of the
Act). Yes o or No þ
The aggregate market value of the voting stock held by
non-affiliates of the registrant as of June 30, 2005 (the
last business day of the registrant’s most recently
completed second fiscal quarter) was approximately
$56.6 million. For the sole purpose of making this
calculation, the term “non-affiliate” has been
interpreted to exclude directors, corporate officers and holders
of 10% or more of the Company’s common stock.
As of March 1, 2006, the Registrant had outstanding
19,182,456 shares of common stock, $0.01 par value.
Documents Incorporated By Reference:
Portions of the Registrant’s definitive Proxy Statement to
be delivered to the Company’s stockholders in connection
with the Company’s 2006 Annual Meeting of Stockholders,
which the Company plans to file with the Securities and Exchange
Commission pursuant to Regulation 14A promulgated under the
Securities Exchange Act of 1934, on or prior to May 1,
2006, are incorporated by reference in Part III
(Items 10, 11, 12, 13 and 14) of this
Form 10-K.
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FORWARD-LOOKING STATEMENTS
CAUTIONARY STATEMENT FOR PURPOSES OF THE “SAFE HARBOR”
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995. This document contains certain “forward-looking
statements” within the meaning of Section 27A of the
Securities Act of 1933, as amended (the “Securities
Act”), and Section 21E of the Securities Exchange Act
of 1934, as amended (the “Exchange Act”). The Company
intends such forward-looking statements to be covered by the
safe harbor provisions for forward-looking statements contained
in the Private Securities Litigation Reform Act of 1995, and
includes this statement for purposes of such safe harbor
provisions. Forward-looking statements, which are based upon
certain assumptions and describe future plans, strategies and
expectations of the Company, are generally identifiable by use
of the words “believes,” “expects,”
“intends,” “anticipates,” “plans,”
“seeks,” “estimates,” “projects,”
“may” or similar expressions. The ability of the
Company to predict results or the actual effect of future plans,
strategies or expectations is inherently uncertain. Important
factors which may cause actual results to differ materially from
the forward-looking statements contained herein or in other
public statements by the Company are described, among other
places, under the caption of this report titled
“Part I — Item 1A — Risk
Factors” and other risks identified from time to time in
the Company’s filings with the Securities and Exchange
Commission (“SEC”), press releases and other
communications by the Company, Omega Protein Corporation or
Zap.Com Corporation. The Company assumes no obligation to update
forward-looking statements or to update the reasons actual
results could differ from those projected in the forward-looking
statements.
| Item 1. | Business |
General
Zapata Corporation (“Zapata” or “the
Company”) was incorporated in Delaware in 1954 and was
reincorporated in Nevada in April 1999. The Company’s
principal executive offices are at 100 Meridian Centre,
Suite 350, Rochester, New York 14618. Zapata’s common
stock is listed on the New York Stock Exchange
(“NYSE”) and trades under the symbol “ZAP.”
Zapata is a holding company which currently has one operating
company, Omega Protein Corporation (“Omega Protein” or
“Omega”), in which the Company had a 58% ownership
interest in at December 31, 2005. On December 2, 2005,
Zapata completed the sale of its 77% ownership interest in
Safety Components International, Inc. (“Safety
Components” or “Safety”). Omega Protein trades on
the New York Stock Exchange under the symbol “OME” and
Safety Components trades on the over-the counter electronic
bulletin board (“OTCBB”) under the symbol
“SAFY”. In addition, Zapata owns 98% of Zap.Com
Corporation (“Zap.Com”), which is a public shell
company and trades on the OTCBB under the symbol
“ZPCM.”
On December 8, 2005, Zapata announced that the Board of
Directors had authorized management to seek a buyer for its 58%
ownership interest in Omega Protein. As of the date of this
report, no offers have been received and no agreements or
understandings have been entered into by the Company relative to
Omega Protein. There can be no assurance, that a satisfactory
transaction involving Omega Protein will emerge, the timing of
any such transaction, if any, or whether the transaction will
ultimately enhance Zapata stockholder value or how that value
will be realized.
The Company files annual reports on
Form 10-K,
quarterly reports on
Form 10-Q, current
reports on
Form 8-K and
amendments to these reports with the United States Securities
and Exchange Commission (“SEC”). The Company makes
these reports and Section 16 filings by its officers and
directors available free of charge on its website at
www.zapatacorp.com as soon as reasonably practicable after such
reports are electronically filed with, or furnished to, the SEC.
Information contained on the Company’s website is not
incorporated by reference to this Report. This Report should be
read in conjunction with the registration statements, reports
and other items that the Company and its current and former
subsidiaries file with the SEC.
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In addition, the public may read and copy any materials filed by
the Company with the SEC at the SEC’s Public Reference Room
at 450 Fifth Street, NW, Washington, DC 20549. The public
may obtain information on the operation of the Public Reference
Room by calling the SEC at
1-800-SEC-0330. The SEC
maintains an Internet site that contains reports, proxy and
information statements, and other information regarding issuers
that file electronically with the SEC at www.sec.gov.
As used throughout this report, “Zapata Corporate” is
defined as Zapata Corporation exclusive of its majority owned
subsidiaries, Omega Protein and Zap.Com, and its former majority
owned subsidiary, Safety Components.
Zapata Corporate
The Company effected an eight-for-one stock split of its
outstanding shares of common stock, par value $.01 per
share (the “Common Stock”), effective at the close of
business on April 6, 2005. Where a number of shares of
Common Stock is listed in this report for a date or period prior
to the effective date of the stock split, that number of shares
of Common Stock has been proportionately adjusted as if the
eight-for-one stock split had been in effect on that prior date
or during that prior period.
In December 2002, the Board of Directors authorized the Company
to purchase up to 4.0 million shares of its outstanding
common stock in the open market or privately negotiated
transactions. The shares may be purchased from time to time as
determined by the Company. Any purchased shares would be placed
in treasury and may subsequently be reissued for general
corporate purposes. The repurchases will be made only at such
times as are permissible under the federal securities laws. No
time limit has been placed on the duration of the program and no
minimum number or value of shares to be repurchased has been
fixed. Zapata reserves the right to discontinue the repurchase
program at any time and there can be no assurance that any
repurchases will be made. As of the date of this report, no
shares have been repurchased under this program.
Zapata continues to evaluate strategic opportunities for the use
of its capital resources, including but not limited to the
acquisition of other operating businesses, the minority interest
of controlled subsidiaries, funding of
start-up proposals and
possible stock repurchases. The Company has not focused and does
not intend to focus its acquisition efforts solely on any
particular industry or geographical market. While the Company
focuses its attention in the United States, the Company may
investigate acquisition opportunities outside of the United
States when management believes that such opportunities might be
attractive. Similarly, the Company does not yet know the
structure of any acquisition. The Company may pay consideration
in the form of cash, securities of the Company or a combination
of both. The Company may raise capital through the issuance of
equity or debt and may utilize non-investment grade securities
as a part of an acquisition strategy. Such investments often
involve a high degree of risk and may be considered highly
speculative.
As of the date of this report, Zapata is not a party to any
agreements related to the acquisition of an operating business,
business combination or for the sale or other transaction
related to any of its subsidiaries. There can be no assurance
that any of these possible transactions will occur or that they
will ultimately be advantageous to Zapata or enhance Zapata
stockholder value.
Employees. As of December 31, 2005, Zapata Corporate
employed 7 employees who performed management and administrative
functions, including managing the assets of the Company,
providing oversight of its subsidiary companies, evaluating
potential acquisition candidates, fulfilling various reporting
requirements associated with being a publicly traded company and
various other accounting, tax and administrative matters.
Omega Protein
General. Omega Protein is the largest processor, marketer
and distributor of fish meal and fish oil products in the United
States. Omega produces and sells a variety of protein and oil
products derived from menhaden, a species of wild herring-like
fish found along the Gulf of Mexico and Atlantic coasts. The
fish is not genetically modified or genetically enhanced. Omega
processes several grades of fish meal (regular or
“FAQ” meal and specialty meals), as well as fish oil
and fish solubles. Omega’s fish meal products are
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primarily used as a protein ingredient in animal feed for swine,
cattle, aquaculture and household pets. Fish oil is utilized for
animal and aquaculture feeds, industrial applications, additives
to human food products and as dietary supplements. Omega’s
fish solubles are sold primarily to livestock feed
manufacturers, aquaculture feed manufacturers and for use as an
organic fertilizer. See “Omega Protein —
Products — Fish Meal” and “— Fish
Oil.”
Omega operates four menhaden processing plants: two in
Louisiana, one in Mississippi and one in Virginia. Omega also
operates a Health and Science Center in Reedville, Virginia,
which provides 100-metric tons per day fish oil processing
capacity for Omega’s food grade oils and industrial and
feed grade oils. See “Omega Protein — Meal and
Oil Processing Plants” and “— Health and
Science Center.”
All of Omega’s products contain healthy long-chain Omega-3
fatty acids. Omega-3 fatty acids are commonly referred to as
“essential fatty acids” because the body does not
produce them. Instead, essential fatty acids must be obtained
from outside sources, such as food or special supplements.
Long-chain Omega-3s are also commonly referred to as a
“good fat” for their health benefits, as opposed to
the “bad fats” that create or aggravate health
conditions through long-term consumption. Scientific research
suggests that long-chain Omega-3s as part of a balanced diet may
provide significant benefits for health issues such as
cardiovascular disease, inflammatory conditions and other
ailments.
Under its patented production process, Omega produces
OmegaPure®,
a taste-free, odorless refined fish oil which is the only marine
source of long-chain Omega-3’s directly affirmed by the
U.S. Food and Drug Administration (“FDA”) as a
food ingredient that is Generally Recognized as Safe
(“GRAS”). See “Omega Protein —
Products — Refined Fish Oil — Food Grade
Oils.”
Omega operates through two material subsidiaries: Omega Protein,
Inc. and Omega Shipyard, Inc. Omega Protein, Inc. is
Omega’s principal operating subsidiary for its menhaden
processing business and is the successor to a business conducted
since 1913. Omega Shipyard, Inc. owns a drydock facility in Moss
Point, Mississippi, which is used to provide shoreside
maintenance for Omega’s fishing fleet and, subject to
outside demand and excess capacity, occasionally for third-party
vessels. Revenues from shipyard work for third-party vessels in
2005 were not material. Omega also has a number of other
immaterial direct and indirect subsidiaries.
Prior to 2005, Omega operated a Mexican subsidiary which
coordinated Omega’s fish meal and oil sales and purchases
through a local Mexican sales office. In 2005, Omega
discontinued its use of this Mexican office and consolidated
these functions in its Houston, Texas headquarters.
Hurricane Damages. In August 2005, Omega’s Moss
Point, Mississippi fish processing facility and adjacent
shipyard were severely damaged by Hurricane Katrina. In
September 2005, Omega’s Cameron, Louisiana and Abbeville,
Louisiana fish processing facilities were also severely damaged
by Hurricane Rita. Each of these facilities was non-operational
immediately after these weather events. The Moss Point,
Abbeville and Cameron facilities accounted for approximately
16%, 31% and 22%, respectively, of Omega’s full year 2004
production tonnage, so as an immediate result of the two
hurricanes, approximately 70% of Omega’s operating capacity
was impaired and Omega’s business, results of operations
and financial condition were materially adversely affected.
Operations at the Moss Point and Abbeville fish processing
facilities and the shipyard were re-established in mid-October
2005, but at reduced processing capabilities. Omega expects
these two facilities to return to full operational status prior
to the beginning of the Gulf fishing season in April 2006. Omega
is currently rebuilding its Cameron, Louisiana facility and
expects it to be fully operational by mid 2006.
Omega maintains insurance coverage for a variety of these
damages, most notably property, inventory and vessel insurance.
The nature and extent of the insurance coverage varies by line
of policy and Omega has recorded insurance recoveries as an
account receivable based on the preliminary discussions with
insurers and adjusters. Omega anticipates that further
recoveries could be available, but such additional recoveries
will require further analysis and discussions with Omega’s
insurance carriers. Such recoveries, if any, would be recognized
in future periods once they are deemed probable. Omega does not
maintain business interruption insurance in any material amounts.
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The direct impact of the two hurricanes upon Omega was a loss of
physical inventories and physical damage to the plants. Omega
estimated its total hurricane damages at approximately
$27.7 million, of which approximately $12.0 million is
expected to be recovered under insurance policies
($2.0 million of which has been paid in 2005 and
$2.0 million of which has been paid in 2006). Therefore,
Omega recognized a $15.7 million loss in 2005 due to
estimated damages in excess of insurance recoveries. Of the
damage estimate, approximately $2.5 million was related to
damaged fish meal inventory and approximately $13.0 million
was related to write-offs of inventory costs that had been
allocated to future production that did not occur. Omega did not
maintain business interruption insurance for these types of
deferred inventory costs due to its high cost an limited
availability. See “Item 8. Financial Statements and
Supplementary Data — Note 11 Hurricane
Losses” for additional information on the components of the
hurricane related losses. A substantial portion of the amounts
listed are based upon estimates and assumptions. Actual amounts,
when available, could differ materially from those estimates and
changes to those estimates could have a material effect on
Omega’s future financial statements. Not included in the
amounts listed are the replacement capital costs of property and
equipment, which did not have any book basis and were destroyed
in the hurricanes, and the costs of clean up incurred subsequent
to December 31, 2005.
As of December 31, 2005, Omega’s four active
processing plants, assuming that no hurricane damages had
occurred, would have had an aggregate annual capacity to process
approximately 950,000 tons of fish. The previously described
hurricane damages reduced the annual aggregate processing
capacity to approximately 600,000 tons as of December 31,
2005. This capacity is expected to return to original
pre-hurricane capacity by mid-2006 when the Cameron facility is
expected to be fully operational.
Because of the damages to Omega’s Cameron, Louisiana
facility caused by Hurricane Rita, Omega intends to begin its
2006 fishing season by operating its full contingent of 31 Gulf
of Mexico fishing vessels out of its two operating facilities in
Abbeville, Louisiana and Moss Point, Mississippi. Later in the
2006 fishing season when Omega expects that the Cameron,
Louisiana plant will be operational, up to 11 vessels will
be shifted to Cameron. This plan will substantially increase the
number of vessels at the Abbeville and Moss Point plants to a
level that Omega has not operated at previously. Although these
two facilities have adequate processing capacity, Omega believes
that fishing efforts may be diminished because increased
unloading time due to additional vessels could keep some vessels
off the fishing grounds during the most optimal fishing times.
It is possible that other logistical, mechanical or other
manpower constraints arising out of this increased vessel load
could also reduce the efficiency of these two plants.
Geographic Information. Omega operates within one
industry segment, menhaden fishing, for the production and sale
of fish meal, fish solubles and fish oil. Export sales of fish
oil and fish meal were approximately $32 million,
$39 million, and $46 million in 2005, 2004 and 2003,
respectively. Such sales were made primarily to the Mexican,
Asian and Canadian markets. In 2005, 2004 and 2003, sales to one
customer were approximately $8.5 million, $8.8 million
and $10.8 million, respectively. This customer differed
from year to year.
The following table shows the geographical distribution of Omega
Protein’s revenues (in thousands) based on location of
customers.
| Years Ended December 31, | ||||||||||||||||||||||||
| 2005 | 2004 | 2003 | ||||||||||||||||||||||
| Revenues | Percent | Revenues | Percent | Revenues | Percent | |||||||||||||||||||
|
U.S.
|
$ | 77,587 | 70.6 | % | $ | 80,688 | 67.4 | % | $ | 71,877 | 61.0 | % | ||||||||||||
|
Mexico
|
9,781 | 8.9 | 13,252 | 11.1 | 5,985 | 5.0 | ||||||||||||||||||
|
Europe
|
2,308 | 2.1 | 11,230 | 9.4 | 13,098 | 11.1 | ||||||||||||||||||
|
Canada
|
7,033 | 6.4 | 5,880 | 4.9 | 7,697 | 6.5 | ||||||||||||||||||
|
Asia
|
7,473 | 6.8 | 3,359 | 2.8 | 9,103 | 7.7 | ||||||||||||||||||
|
South & Central America
|
1,758 | 1.6 | 1,435 | 1.2 | 6,331 | 5.4 | ||||||||||||||||||
|
Other
|
3,956 | 3.6 | 3,801 | 3.2 | 3,835 | 3.3 | ||||||||||||||||||
|
Total
|
$ | 109,896 | 100.0 | % | $ | 119,645 | 100.0 | % | $ | 117,926 | 100.0 | % | ||||||||||||
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Fishing. During 2005, Omega owned a fleet of 61 fishing
vessels and 32 spotter aircraft for use in its fishing
operations and also leased additional aircraft where necessary
to facilitate operations. During the 2005 fishing season in the
Gulf of Mexico, which runs from mid-April through October, Omega
operated 31 fishing vessels and 28 spotter aircraft. The fishing
area in the Gulf is generally located along the Gulf Coast, with
a concentration off the Louisiana and Mississippi coasts. The
fishing season along the Atlantic coast begins in early May and
usually extends into December. During the 2005 season, Omega
operated 10 fishing vessels and 7 spotter aircraft along the
Mid-Atlantic coast, concentrated primarily in and around
Virginia and North Carolina. The remaining fleet of fishing
vessels and spotter aircraft are not routinely operated during
the fishing season and are
back-up to the active
fleet, used for other transportation purposes, inactive or in
the process of refurbishment in Omega’s shipyard.
Menhaden usually school in large, tight clusters and are
commonly found in warm, shallow waters. Spotter aircraft locate
the schools and direct the fishing vessels to them. The
principal fishing vessels transport two 40-foot purse boats,
each carrying several fishermen and one end of a 1,500-foot net.
The purse boats encircle the school and capture the fish in the
net. The fish are then pumped from the net into refrigerated
holds of the fishing vessel or onto a carry vessel, and then are
unloaded at Omega’s processing plants. “Carry
vessels” do not engage in active fishing but instead carry
fish from Omega’s offshore fishing vessels to its plants.
Utilization of carry vessels increases the amount of time that
certain of Omega’s fishing vessels remain offshore fishing
productive waters and therefore increases Omega’s fish
catch per vessel employed. The carry vessels have reduced crews
and crew expenses and incur less maintenance cost than the
actual fishing vessels.
Meal and Oil Processing Plants. During 2005, Omega
operated four meal and oil processing plants, two in Louisiana,
one in Mississippi and one in Virginia, where the menhaden are
processed into three general products types: fish meal, fish oil
and fish solubles. Omega’s processing plants are located in
coastal areas near Omega’s fishing fleet. Annual volume
processed varies depending upon menhaden catch. Each plant
maintains a dedicated dock to unload fish, fish processing
equipment and storage facility. The fish are unloaded from the
fishing vessels into storage boxes and then conveyed into steam
cookers. The fish are then passed through presses to remove most
of the oil and water. The solid portions of the fish are dried
and ground into fish meal. The liquid that is produced in the
cooking and pressing operations contains oil, water, dissolved
protein and some fish solids. This liquid is decanted to remove
the water and solids and is put through a centrifugal oil and
water separation process. The separated fish oil is a finished
product called crude oil. The separated water and protein
mixture is further processed through evaporators to recover the
soluble protein, which can be sold as a finished product or
added to the solid portions of the fish for processing into fish
meal.
Shipyard. Omega owns a 49.4 acre shipyard facility
in Moss Point, Mississippi which includes two dry docks, each
with a capacity of 1,300 tons. The shipyard is used for routine
maintenance and vessel refurbishment on Omega’s fishing
vessels and occasionally for shoreside maintenance services to
third-party vessels if excess capacity exists.
Health and Science Center. In October 2004, Omega
completed construction and commenced operation of a new Health
and Science Center that provides 100-metric tons per day fish
oil processing capacity. The new center is located adjacent to
Omega’s Reedville, Virginia processing plant. The
food-grade facility includes
state-of-the-art
processing equipment and controls that will allow Omega to
refine, bleach, fractionate and deodorize its menhaden fish oil
and has more than tripled Omega’s previous refined fish oil
production capacity for food grade oils and industrial and feed
grade oils. The facility also provides Omega with automated
packaging and on-site
refrigerated storage capacity and has a new fully equipped
lipids laboratory to enhance the development of Omega-3 oils and
food products.
Products. Omega sells three general types of products:
fish meal, fish oil and fish solubles.
Fish Meal. Fish meal, the principal product made from
menhaden, is sold primarily as a high-protein feed ingredient.
It is used as a protein supplement in feed formulated for pigs
and other livestock, aquaculture and household pets. Each use
requires certain standards to be met regarding quality and
protein content,
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which are determined by the freshness of the fish and by
processing conditions such as speed and temperatures. Omega
produces fish meal of several different types:
| Special Selecttm. Special Selecttm is a premium grade low temperature processed fish meal. The quality control guidelines are very stringent, producing a higher protein level and higher digestibility and a lower total volatile nitrogen (“TVN”) and histamine count. These guidelines require that only the freshest fish and the most gentle drying process be used. Special Selecttm is targeted for monogastrics, including baby pigs, turkey poults, pets, shrimp and trout. | |
| SeaLactm. SeaLactm is similar to Special Selecttm in its freshness (low TVN) and gentle drying (high digestibility). During the processing however, Omega removes some of the soluble protein. This step allows the amount of rumen undegradable protein to be maximized while still maintaining excellent digestibility. This product is made specifically for dairy and beef cattle, sheep, goats and other ruminants requiring bypass protein. | |
| FAQ Meal. FAQ (Fair Average Quality) Meal, Omega’s commodity grade fish meal, guarantees a protein content of at least 60%. This product typically is used in protein blends for poultry, catfish, pets and other animals. |
Fish Oil. Omega produces crude unrefined fish oil,
refined fish oil and food grade oils.
| Unrefined Fish Oil. Unrefined fish oil (also referred to as crude fish oil) is Omega’s basic fish oil product. This grade of fish oil has not undergone any portion of the refining process. Omega’s markets for crude fish oil have changed over the past decade. In the early 1990’s, Omega’s main crude fish oil market, which accounted for greater than 90% of Omega’s production, was the manufacturers of hydrogenated oils for human consumption such as margarine and shortening. In 2004, Omega estimates that approximately 70% of its crude fish oil was sold as a feed ingredient to the aquaculture industry. The growth of the worldwide aquaculture industry has resulted in increasing demand for fish oils in order to improve feed efficiency, nutritional value, survivability and health of farm-raised fish species. | |
| Refined Fish Oil. Omega’s refined fish oils come in three basic grades and also includes crude fish oils of special quality or that may require custom packaging or special additives. Refined oils also include industrial grade oils which are used in a variety of industrial applications. |
| Feed Grade Oils. Feed grade menhaden oil is processed and refined to offer a high Omega-3 oil for use in premium pet, aquaculture and livestock feeds, as well as agricultural and attractant applications. The processing reduces oxidation while enhancing Omega-3 fatty acids for incorporation in the final feed to enhance skin and coat conditioning, reproductive performance, and increasing immunity. Both kosher and organic products are available. Omega’s refined feed grade fish oils are sold in three basic grades under the name Virginia Primetm Virginia Prime Silvertm is fish oil that has been fractionated. Virginia Prime Goldtm fish oil is fractionated, alkali refined and then bleached. Virginia Prime Platinumtm fish oil is fractionated, alkali refined, bleached and then deodorized. | |
| SeaCidetm. SeaCidetm is a unique blend of refined menhaden oil, cottonseed oil and an organic emulsifier developed for use against target pests and fungal diseases that occur in a variety of field crops, orchards, vineyards and greenhouse operations. SeaCidetm is an all natural organic alternative to chemical insecticides and fungicides, is less phytotoxic than petroleum based oils, is compatible with most fertilizers, and is versatile enough for use on virtually any crop. | |
| OmegaEquis. OmegaEquis is a specialty feed additive product for the equine market that supplies Omega-3 fatty acids to horses. OmegaEquis is Virginia Prime Goldtm that has been fractionated, alkali refined, bleached and then flavored in order to enhance palatability. |
| Industrial Grade Oils. Omega’s industrial grade menhaden oils are refined and processed to enhance the unique fatty acid range, making them desirable for a number of drying and lubricating applications including coolant transfer, chemical raw material, drying and rustproofing paints, drilling |
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| fluids and leather treatment chemicals. The industrial grade oils are sold under the names Virginia Prime Silvertm and Virginia Prime Goldtm. | |
| Food Grade Oils. Omega has developed a patented process to fully refine menhaden oil to remove flavor, odor, color and pro-oxidants and offer a naturally high, long-chain Omega-3 content. Omega’s main product in this grade is OmegaPure®. Food applications for OmegaPure® are designed to deliver a stable, odorless, flavorless source of Omega-3 fatty acids to enhance human nutrition. These applications include mainstream consumer foods, medical care foods and dietary supplements. OmegaPure® is also kosher-certified. |
Omega-3 fatty acids exist in two forms: long-chain and
short-chain. Short-chain Omega-3’s (or alpha-linolenic acid
(“ALA”)), are generally found in canola oil, soy beans
and flaxseed, and generally require ten to twenty times as much
concentration in the diet to approach the same benefit levels as
long-chain Omega-3’s. Long-chain Omega-3 fatty acids are
found in marine sources and consist of two main types:
eicosapentaenoic acid (“EPA”) and docosahexaenoic acid
(“DHA”). EPA is a fatty acid that generally reduces
inflammatory responses and has been linked to the alleviation of
symptoms from asthma, arthritis, psoriasis and other
inflammatory conditions. DHA is a major structural fatty acid in
the brain and the eye’s retina. DHA is important for proper
brain and eye development in infants and has been shown to
support cardiovascular health in adults.
As result of the completion of its Health and Science Center in
Reedville, Virginia, in October 2004, Omega is the only
fully-integrated fish oil processing operation in the United
States that both directly conducts fishing operations and also
manufactures highly refined EPA and DHA from these marine
resources. With the completion of this new facility, Omega can
control the purity and quality of its product from harvesting
all the way through manufacturing and shipment.
Various scientific studies have linked consumption of Omega-3
fatty acids to a number of nutritional and health benefits, such
as heart health, treatment of arthritis and other inflammatory
diseases, improving brain and eye function and treatment of
depression. For example, in September 2004, the FDA announced
that scientific evidence indicates that long-chain Omega-3 fatty
acids may be beneficial in reducing coronary heart disease.
In addition, the American Heart Association (“AHA”)
issued a Scientific Statement in November 2002, entitled
“Fish Consumption, Fish Oil, Omega-3 Fatty Acids, and
Cardiovascular Disease.” The Scientific Statement outlines
the findings of a comprehensive report that examined the
cardiovascular health benefit of Omega-3 fatty acids from fish
sources, specifically DHA and EPA. The report concluded that
consumption of such Omega-3 fatty acids, either through diet or
supplements, may reduce the incidence of cardiovascular disease.
The statement referred to studies that have indicated the
following to be associated with the intake of Omega-3 fatty
acids: decreased risk of sudden death and arrhythmia, decreased
thrombosis (blood clot), decreased triglyceride levels,
decreased growth of atherosclerotic plaque, improved arterial
health and lower blood pressure. The Scientific Statement
concludes that Omega-3 fatty acids have been shown in
epidemiological and clinical trials to reduce the incidence of
heart disease.
Menhaden oil currently is the only marine source of long-chain
Omega-3’s directly affirmed by the FDA as a Generally
Recognized As Safe (or “GRAS”) food ingredient for
direct human consumption. The FDA has approved menhaden oil use
in 29 different food categories such as margarine, salad
dressings, condiments, yogurt, ice cream, cheese, prepared
meats, sauces, soups, crackers, cookies, cereals and bakery
products.
In 2005, the U.S. Department of Agriculture and the
Department of Health and Human Services released the 2005
Dietary Guidelines for Americans. The Guidelines, which are
issued every five years, represent the federal government’s
most current science-based advice to promote human health and
reduce the risk of chronic diseases through nutrition and
physical activity. The previous Dietary Guidelines issued in
2000 recognized that certain fish contain Omega-3 fatty acids
that are being studied to determine if they offer protection
against heart disease, but did not specifically identify these
Omega-3 fatty acids as EPA and DHA. The 2005 Dietary Guidelines
specifically mentioned EPA and DHA and stated the “limited
evidence suggests
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an association between consumption of fatty acids in fish and
reduced risks of mortality from cardiovascular disease for the
general population.”
In 2005,
OmegaPure®
won the Wellness Foods Readers’ Choice Award for the Omega
oils category based on an unaided recall survey sent to 9,100
readers of the magazine. Wellness Foods is a publication focused
on the nutraceutical market which includes fortified food and
beverage products. Its circulation consists almost exclusively
of individuals employed in the food and beverage industry.
Fish Solubles. Fish solubles are a liquid protein product
used as an additive in fish meal and are also marketed as an
independent product to animal feed formulators and the
fertilizer industry. Omega’s soluble-based products are:
| Neptunetm Fish Concentrate. This aqua grade liquid protein is composed of low molecular weight, water-soluble compounds such as free amino acids, peptides and nucleotides that are attractants for a variety of aquaculture feeds. The product is utilized in both shrimp and finfish diets to improve attractability and thus consumption and conversion. Neptunetm Fish Concentrate also can be added directly to grow-out ponds as a fertilizer to help feed plankton and other natural food sources. | |
| OmegaGrowtm. OmegaGrowtm is a liquid soil or foliar-applied fertilizer for plant nutrition. OmegaGrowtm is approved for organic uses by the Organic Materials Review Institute (“OMRI”). OmegaGrowtm is a free-flowing product that has been filtered through an 80-mesh screen and can be applied by sprayers or through irrigation systems. | |
| OmegaGrow Plustm. OmegaGrow Plustm is a liquid foliar-applied fertilizer for plant nutrition that also helps to control insect and fungus problems. This product has additional oil content of 25% to 30% which is greater than the 7% to 10% oil content typically found in OmegaGrowtm. These higher levels are detrimental to soft-bodied insects, as well as fungal diseases in citrus and vegetable crops. OmegaGrow Plustm can be used as a replacement for petroleum-based oil sprays. |
Distribution System. Omega’s distribution system of
warehouses, tank storage facilities, vessel loading facilities,
trucks, barges and railcars allows Omega to service customers
throughout the United States and also foreign locations. Omega
owns and leases warehouses and tank storage space for storage of
its products, generally at terminals along the Mississippi River
and Tennessee River. See “Properties.” Omega generally
contracts with third-party trucking, vessel, barge and railcar
companies to transport its products to and from warehouses and
tank storage facilities and directly to its customers.
Historically, approximately 35% to 40% of Omega’s FAQ grade
fish meal was sold on a
two-to-twelve-month
forward contract basis. The balance of FAQ grade fish meal and
other products was substantially sold on a spot basis through
purchase orders. In 2002, Omega began a similar forward sales
program for its specialty grade meals and crude fish oil due to
increasing demand for these products. During 2003, 2004 and
2005, approximately 50%, 43% and 70% respectively of
Omega’s specialty meals and crude fish oil had been sold on
a forward contract basis. Omega’s annual revenues are
highly dependent on both annual fish catch and inventories and,
in addition, inventory is generally carried over from one year
to the next year. Omega determines the level of inventory to be
carried over based on prevailing market prices of the products,
and sales volumes that will fluctuate from quarter to quarter
and year to year. Omega’s fish meal products have a useable
life of approximately one year from date of production; however,
Omega typically attempts to empty its warehouses of the previous
season’s meal products by the second or third month of the
new fishing season. Omega’s crude fish oil products do not
lose efficacy unless exposed to oxygen and, therefore, their
storage life typically is longer than that of fish meal.
Customers and Marketing. Most of Omega’s marine
protein products are sold directly to about 600 customers
by Omega’s agriproducts sales department, while a smaller
amount is sold through independent sales agents. Product
inventory was $37.0 million on December 31, 2005
versus $30.3 million as of December 31, 2004.
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Omega’s fish meal is sold primarily to domestic feed
producers for utilization as a high-protein ingredient for the
swine, aquaculture, dairy and pet food industries. Fish oil
sales primarily involve export markets where the fish oil is
used for aquaculture feeds and is refined for use as a
hydrogenated edible oil.
Omega’s products are sold both in the U.S. and
internationally. International sales consist mainly of fish oil
sales to Norway, Canada, Chile and Mexico. Omega’s sales in
these foreign markets are denominated in U.S. dollars and
not directly affected by currency fluctuations. Such sales could
be adversely affected by changes in demand resulting from
fluctuations in currency exchange rates.
A number of countries in which Omega currently sells products
impose various tariffs and duties, none of which have a
significant impact on Omega’s foreign sales. Certain of
these duties are being reduced annually for certain countries
under the North American Free Trade Agreement and the Uruguay
Round Agreement of the General Agreement on Tariffs and Trade.
In all cases, Omega’s products are shipped to its customers
either by FOB shipping point or CIF terms, and therefore, the
customer is responsible for any tariffs, duties or other levies
imposed on Omega’s products sold into these markets.
During the off season, Omega fills purchase orders from the
inventory it has accumulated during the fishing season or in
some cases, by re-selling meal purchased from other suppliers.
Prices for Omega’s products tend to be lower during the
fishing season when product is more abundant than in the off
season. Throughout the entire year, prices are often
significantly influenced by supply and demand in world markets
for competing products, primarily other global sources of fish
meal and oil, and also soybean meal for its fish meal products,
and vegetable oils for its fish oil products when used as an
alternative.
Quality Control. Omega believes that maintaining high
standards of quality in all aspects of its manufacturing
operations play an important part in its ability to attract and
retain customers and maintain its competitive position. To that
end, Omega has adopted strict quality control systems and
procedures designed to test the quality aspects of its products,
such as protein content and digestibility. Omega regularly
reviews, updates and modifies these systems and procedures as
appropriate.
Purchases and Sales of Third-Party Meal and Oils. Omega
has from time to time purchased fish meal and fish oil from
other domestic and international manufacturers. These purchase
and resale transactions have been ancillary to Omega’s base
manufacturing and sales business.
Part of Omega’s business plan involves expanding its
purchase and resale of other manufacturers’ fish meal and
fish oil products. In 2002, Omega initially focused on the
purchase and resale of Mexican fish meal and fish oil and
revenues generated from these types of transactions in that year
represented less than 2% of total Company revenues. During 2003
and 2004, Omega’s fish catch and resultant product
inventories were reduced, primarily due to adverse weather
conditions, and Omega further expanded its purchase and resales
of other fish meals and oils (primarily Panamanian, Peruvian and
Mexican fish meal and U.S. menhaden oil). Although
operating margins from these activities are less than the
margins typically generated from Omega’s base domestic
production, these operations provide Omega with a source of fish
meal and oil to sell into other markets where Omega has not
historically had a presence. During 2003, Omega purchased
products totaling approximately 12,500 tons, or approximately 5%
of total volume 2003 sales. During 2004, Omega purchased
products totaling approximately 17,800 tons, or approximately 8%
of total volume 2004 sales. During 2005, Omega purchased
products totaling approximately 16,600 tons, or approximately 8%
of total volume 2005 sales.
Insurance. Omega maintains insurance against physical
loss and damage to its assets, coverage against liabilities to
third parties it may incur in the course of its operations, as
well as workers’ compensation, United States
Longshoremen’s and Harbor Workers’ Compensation Act
and Jones Act coverage. Assets are insured at replacement cost,
market value or assessed earning power. Omega’s limits for
liability coverage are statutory or $50 million. The
$50 million limit is comprised of several excess liability
policies, which are subject to deductibles, underlying limits,
annual aggregates and exclusions. Omega believes its insurance
coverage to be in such form, against such risks, for such
amounts and subject to such deductibles and self-retentions as
are prudent and normal for its operations. Over the last four
years, Omega has elected to increase its deductibles and
self-retentions in order to achieve lower insurance premium
costs. These higher deductibles
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and self-retentions have resulted in greater costs to Omega in
the case of Hurricanes Katrina and Rita and will expose Omega to
greater risk of loss if additional future claims occur. In
addition, Omega’s cost of insurance for property damage has
increased materially and will likely further increase materially
in future years as insurers recoup losses paid and to be paid
out in connection with the Katrina and Rita hurricanes by
charging higher premiums. Omega does not maintain business
interruption insurance in any material amount due to its high
cost and limited availability.
Competition. Omega competes with a small domestic
privately-owned menhaden fishing company and with international
marine protein and oil producers, including Mexican sardine
processors and South American anchovy processors. In addition,
but to a lesser extent, Omega’s marine protein and oil
business is also subject to significant competition from
producers of vegetable and other animal protein products and oil
products such as Archer Daniels Midland and Cargill. Many of
these competitors have significantly greater financial resources
and more extensive and diversified operations than those of
Omega.
Omega competes on price, quality and performance characteristics
of its products, such as protein level and amino acid profile in
the case of fish meal. The principal competition for
Omega’s fish meal and fish solubles is from other global
production of marine proteins as well as other protein sources
such as soybean meal and other vegetable or animal protein
products. Omega believes, however, that these other non-marine
sources are not complete substitutes because fish meal offers
nutritional values not contained in such other sources. Other
globally produced fish oils provide the primary market
competition for Omega’s fish oil, as well as soybean and
rapeseed oil, from time to time.
Fish meal prices have historically borne a relationship to
prevailing soybean meal prices (more weakly correlated in recent
years), while prices for fish oil are generally influenced by
prices for vegetable fats and oils, such as soybean and palm
oils. Thus, the prices for Omega’s products are established
by worldwide supply and demand relationships over which Omega
has no control and tend to fluctuate significantly over the
course of a year and from year to year.
Regulation. Omega’s operations are subject to
federal, state and local laws and regulations relating to the
locations and periods in which fishing may be conducted as well
as environmental and safety matters. At the state and local
level, certain state and local government agencies have enacted
legislation or regulations which prohibits, restricts or
regulates menhaden fishing within their jurisdictional waters.
Omega’s menhaden fishing operations are also subject to
regulation by two interstate compact commissions created by
federal law: the Atlantic States Marine
Fisheries Commission (“ASMFC”) which consists of
15 states along the Atlantic Coast, and the Gulf States
Marine Fisheries Commission which consists of 5 states
along the Gulf of Mexico.
In August 2005, the Atlantic Menhaden Management Board (the
“Management Board”) of the Atlantic States Marine
Fisheries Commission (“ASMFC”) approved an
Addendum II (the “Addendum”) to the existing
Amendment I of the Interstate Fishery Management Plan for
Atlantic Menhaden Plan (“Plan”). The Addendum, if it
were to be accepted and implemented by the Commonwealth of
Virginia as an ASMFC member, would establish an annual cap on
Omega’s menhaden landings from the Chesapeake Bay in an
amount equal to Omega’s average annual landings over a five
year period. Omega estimates that this annual limitation would
be approximately 106,000 metric tons. The recommended cap would
be implemented for a five-year period beginning in 2006. Had the
cap been in place for the 2005 fishing season, it would not have
impacted Omega’s 2005 fishing operations in the Chesapeake
Bay.
The ASMFC’s 2003 peer-reviewed stock assessment of the
Atlantic menhaden resource indicated that menhaden are not
overfished and that overfishing is not occurring on a coast wide
basis. However, the Management Board stated that because it
believed that the Bay-wide status of the menhaden resource was
unknown, it was implementing a precautionary cap to limit the
expansion of menhaden reduction landings from the Bay. The
Addendum also recommended a multi-year research program to
determine the status of menhaden in the Bay and assess whether
localized depletion is occurring.
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The recommended cap would not adversely affect Omega’s
ability to fish in Virginia or other waters outside the
Chesapeake Bay or in any federal waters (waters beyond three
miles from shore). Omega’s Gulf of Mexico operations also
remain unrestricted by this recommendation.
The only ASMFC member state that is impacted by the recommended
ASMFC cap is the Commonwealth of Virginia because it is the only
Chesapeake Bay state whose waters are open for reduction
menhaden fishing. The Addendum sent to Virginia called for the
submission of a cap implementation program to the Management
Board prior to January 11, 2006. Legislative bills to
address the Addendum’s recommendations were filed for
consideration in the Virginia General Assembly but on
January 26, 2006, a House Subcommittee voted to table the
bills. The recommended cap was therefore never referred to the
Virginia General Assembly and as a result, never adopted by the
Commonwealth of Virginia.
In addition, on January 31, 2006, the Attorney General of
the Commonwealth of Virginia issued a written official advisory
opinion that stated that the Management Board exceeded its
authority when it adopted the recommended menhaden cap for three
reasons: (a) the recommended cap is a wholly new management
measure, which cannot be implemented by an addendum;
(b) when Atlantic menhaden stocks have been declared
“healthy” (as they have been), a cap or quota cannot
be imposed via an “addendum” process unless menhaden
are found to be overfished; and (c) the existing Plan does
not include a prerequisite management measure that can be varied
by imposition of a cap through an addendum. The Attorney General
also stated that because adoption of the cap exceeded the
Management Board’s authority, Virginia would not be out of
compliance with the Plan should the General Assembly decline to
adopt the proposed cap. The Attorney General also stated that
the ASMFC failed to follow required procedures in adopting the
cap as an addendum.
Under the Atlantic Coastal Fisheries Cooperative Management
Act, the ASMFC has the right to refer the Commonwealth of
Virginia to the U.S. Secretary of Commerce for alleged
non-compliance with the Plan. The U.S. Secretary of
Commerce must then determine: (i) if Virginia has failed to
meet mandatory obligations under the Plan, and (ii) whether
the measures that Virginia has failed to implement are
“necessary for the conservation” of the menhaden
commercial fishery. Omega believes that the proposed cap can
meet neither of these tests, particularly in light of the
persuasive weight and authority of the Attorney General’s
opinion. However, if the Secretary were to find in the
affirmative on both questions, it is possible that he could
declare a moratorium on all commercial harvesting of menhaden in
the Virginia waters unless Virginia were to comply with the
terms of the Plan as amended by the Addendum. Omega believes,
based on consultations with its legal and scientific advisors,
that such a result is unlikely.
Omega, through its operation of fishing vessels, is subject to
the jurisdiction of the U.S. Coast Guard, the National
Transportation Safety Board and the U.S. Customs Service.
The U.S. Coast Guard and the National Transportation Safety
Board set safety standards and are authorized to investigate
vessel accidents and recommend improved safety standards. The
U.S. Customs Service is authorized to inspect vessels at
will.
Omega’s operations are subject to federal, state and local
laws and regulations relating to the protection of the
environment, including the federal Clean Water Act, which
imposes strict controls against the discharge of pollutants in
reportable quantities, and along with the Oil Pollution Act,
imposes substantial liability for the costs of oil removal,
remediation and damages. Omega’s operations also are
subject to the federal Clean Air Act, as amended; the federal
Comprehensive Environmental Response, Compensation, and
Liability Act, which imposes liability, without regard to fault,
on certain classes of persons that contributed to the release of
any “hazardous substances” into the environment; and
the federal Occupational Safety and Health Act
(“OSHA”). The implementation of continuing safety and
environmental regulations from these authorities could result in
additional requirements and procedures for Omega, and it is
possible that the costs of these requirements and procedures
could be material.
The OSHA hazard communications standard, the Environmental
Protection Agency community
right-to-know
regulations under Title III of the federal Superfund
Amendment and Reauthorization Act and similar state statutes
require Omega to organize information about hazardous materials
used or produced in its operations. Certain of this information
must be provided to employees, state and local governmental
authorities and local citizens. Numerous other environmental
laws and regulations, along with similar state laws, also apply
to the operations of Omega, and all such laws and regulations
are subject to change.
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Omega has made, and anticipates that it will make in the future,
expenditures in the ordinary course of its business in
connection with environmental matters. Such expenditures have
not been material in the past, and while they are expected to
increase in the future, such increases are not expected to be
material to Omega’s overall business. However, there is no
assurance that environmental laws and regulations enacted in the
future will not require material expenditures or otherwise
adversely affect Omega’s operations.
Omega continually monitors regulations which affect fish meal
and fish oil in the United States and in those foreign
jurisdictions where it sells its products. In some cases,
particularly in Europe, regulators have mandated various
environmental contaminant levels which, on occasion, certain of
Omega’s products do not meet. In those instances, Omega has
either negotiated a lower price with the customer for that
product lot or has sold the product lot in another market where
the regulatory standards are met. To date, such regulations have
not had a material adverse effect on Omega’s business, but
it is possible they may do so in the future.
Omega’s harvesting operations are subject to the Shipping
Act of 1916 and the regulations promulgated thereunder by the
Department of Transportation, Maritime Administration which
require, among other things, that Omega be incorporated under
the laws of the U.S. or a state, Omega’s chief
executive officer be a U.S. citizen, no more of
Omega’s directors be non-citizens than a minority of the
number necessary to constitute a quorum and at least 75% of
Omega’s outstanding capital stock (including a majority of
Omega’s voting capital stock) be owned by
U.S. citizens. If Omega fails to observe any of these
requirements, it will not be eligible to conduct its harvesting
activities in U.S. jurisdictional waters. Such a loss of
eligibility would have a material adverse effect on Omega’s
business, results of operations and financial condition.
To protect against such loss of eligibility, Omega’s
Articles of Incorporation (i) contain provisions limiting
the aggregate percentage ownership by non-citizens of each class
of Omega’s capital stock to no more than 25% of the
outstanding shares of each such class (the “Permitted
Percentage”) so that any purported transfer to non-citizens
of shares in excess of the Permitted Percentage will be
ineffective as against Omega for all purposes (including for
purposes of voting, dividends and any other distribution, upon
liquidation or otherwise), (ii) provide for a dual stock
certificate system to determine such ownership pursuant to which
certificates representing shares of Company Common Stock bear
legends that designate such certificates as either
“citizen” or “non-citizen” depending on the
citizenship of the owner, and (iii) permit Omega’s
Board of Directors to make such determinations as may reasonably
be necessary to ascertain such ownership and implement
restrictive limitations on those shares that exceed the
Permitted Percentage (the “Excess Shares”). For
example, Omega’s Board is authorized, among other things,
to redeem for cash (upon written notice) any Excess Shares in
order to reduce the aggregate ownership by non-citizens to the
Permitted Percentage.
Employees. At December 31, 2005, during Omega’s
off-season, Omega employed approximately 410 persons. At
August 31, 2005, during the peak of the 2005 fishing
season, Omega employed approximately 970 persons. Approximately
145 employees at the Reedville, Virginia plant are represented
by an affiliate of the United Food and Commercial Workers Union.
The union agreement for the Reedville employees has a three-year
term which expires in April 2008. During the past five years
Omega has not experienced any strike or work stoppage which has
had a material impact on its operations. Omega considers its
employee relations to be generally satisfactory.
Zap.Com
Zap.Com is a public shell company which does not have any
existing business operations. From time to time, Zap.Com
considers acquisitions that would result in it becoming an
operating company. Zap.Com may also consider developing a new
business suitable for its situation.
Employees. As of December 31, 2005, Zap.Com had two
employees, Avram Glazer, President and CEO, and Leonard DiSalvo,
VP-Finance and Chief Financial Officer. Neither Mr. Glazer
nor Mr. DiSalvo receive a salary or bonus from Zap.Com and
currently devote a significant portion of their business time to
Zapata, where they hold the same offices. Both of these
officers, however, devote such time to Zap.Com’s affairs as
is required to perform their duties to Zap.Com.
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Safety Components
Safety Components is an independent supplier of automotive
airbag fabric and cushions and technical fabrics with operations
in North America and Europe. Zapata originally purchased
2,663,905 shares of Safety Components common stock for
$30.9 million on September 23, 2003, and purchased an
additional 1,498,489 shares on October 7, 2003 for
$16.9 million, bringing the Company’s ownership
percentage to approximately 84% at that time. The Company
accounted for these transactions under the purchase method and
began consolidating amounts related to Safety’s assets and
liabilities as of September 30, 2003 and Safety’s
results of operations in the fourth quarter of 2003.
On September 21, 2005, Zapata’s Board of Directors
approved a plan to pursue a sale of all of the Company’s
4,162,394 shares of Safety common stock. Based on this
approval, the Company determined that this subsidiary
substantially met the criteria to report the pending sale as
“Assets Held for Sale” and the subsidiary as
“Discontinued Operations” in accordance with
accounting rules. As used throughout this document, all amounts
and disclosures related to Safety pertain to “Discontinued
Operations.”
On December 2, 2005, Zapata closed on the sale of all of
its shares of Safety common stock to WLR Recovery Fund II,
L.P. and WLR Recovery Fund III, L.P., Delaware limited
partnerships (collectively the “WLR Recovery Funds”)
for $12.30 per share or $51,197,446 in the aggregate. Prior
to the close, the Company made a $1.0 million capital
contribution to Safety for the Safety compensation committee to
pay bonuses to the Safety executive officers and key employees.
This payment was made under a plan approved by Zapata to provide
Safety management with an incentive to continue with Safety
until the completion of the sale to the WLR Recovery Funds.
For the year ended December 31, 2005, Zapata recorded a
transaction related loss of $9.9 million related to the
sale of Safety. This amount primarily reflects the reduction of
the carrying value of Safety to the net selling price, partially
offset by the reversal of certain deferred tax liabilities.
Though the Company sold its shares in Safety for a cash gain
compared to the original investment, this transaction related
loss resulted from the sales proceeds being less than
Zapata’s carrying value of its investment in Safety
Components. Safety’s generation of net income subsequent to
the Company’s original purchase of the stock increased
Zapata’s carrying value which consisted of Zapata’s
original investment in common stock of Safety Components and the
aforementioned subsequent capital contribution.
Financial Information About Segments
Information required by this section is incorporated by
reference from Note 20 to the Company’s Consolidated
Financial Statements included in Item 8 of this Report.
| Item 1A. | Risk Factors |
Before you invest in shares of our common stock or if you
otherwise receive ownership of our common stock, you should be
aware that there are various risks which could negatively impact
the Company’s results of operations, cash flows and
financial condition, including those described below. We urge
you to carefully consider these risk factors together with all
of the other information included in this filing, the
information incorporated in this filing, and other risks and
uncertainties identified in Zapata’s other public reports,
filings made with the SEC, press releases and public statements
made by authorized officers of Zapata before you decide to
purchase or make an investment decision regarding our common
stock.
| The market liquidity for our common stock is relatively low and may make it difficult to purchase or sell our stock. |
As of December 31, 2005, the Company had
19,149,556 shares of common stock outstanding. The average
daily trading volume in our stock during the twelve month period
ending December 31, 2005 was approximately
22,000 shares. Although a more active trading market may
develop in the future, the limited market liquidity for our
stock could affect a stockholder’s ability to sell at a
price satisfactory to that stockholder.
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| We may not find a buyer for our ownership interest in Omega Protein. |
Our Board of Directors has authorized its management to seek a
buyer for our 58% interest in Omega Protein. As of the date of
this report, no offers have been received and no agreements or
understandings have been entered into by the Company relative to
Omega Protein. There can be no assurance, that a satisfactory
transaction involving Omega Protein will emerge, the timing of
any such transaction, if any, or whether the transaction will
ultimately enhance Zapata stockholder value or how that value
will be realized.
Additionally, there can be no assurance that we will be able to
sell our interest in Omega for an amount in excess of our
carrying value. Should we sell our interest in Omega for an
amount less than the carrying value at that time, we would incur
a transaction loss, net of tax consequences.
| Our portfolio of investments may cause the Company to be classified as an Investment Company. |
Since a significant portion of our assets consist of securities,
including equity and other interests in operating companies, we
could become subject to the registration requirements of the
Investment Company Act of 1940 (the “Investment Company
Act”). The Investment Company Act requires registration of,
and imposes substantial restrictions on, certain companies that
engage, or propose to engage, primarily in the business of
investing, reinvesting, owning, holding or trading in
securities, or that fail certain statistical tests concerning a
company’s asset composition and sources of income. We
intend to actively participate in the management of our
operating companies, consistent with applicable laws,
contractual arrangements and other requirements. Accordingly, we
believe that we are primarily engaged in a business other than
investing, reinvesting, owning, holding or trading in
securities. Further, we endeavor to ensure that our holdings of
investment securities constitute less than 40% of our total
assets (excluding Government securities and cash) on an
unconsolidated basis. We will monitor and attempt to adjust the
nature of our interests in and involvement with operating
companies in order to avoid subjecting the Company to the
registration requirements of the Investment Company Act. There
can be no assurance, however, that our business activities will
not ultimately subject the Company to the Investment Company
Act. If we are required to register as an investment company
under the Investment Company Act, we would become subject to
regulations that would have a material adverse impact on its
financial position, results of operations and cash flows.
| Since we already meet the ownership criteria of the personal holding company rules, we may have to pay a punitive tax if Zapata Corporate generates passive income in excess of operating expenses. |
Section 541 of the Internal Revenue Code of 1986, as
amended (the “IRC”), subjects a corporation, which is
a “personal holding company” as defined in the IRC, to
a 15% penalty tax on “undistributed personal holding
company income” in addition to the corporation’s
normal income tax. Generally, undistributed personal holding
company income is based on taxable income, subject to certain
adjustments, most notably a reduction for Federal incomes taxes.
Personal holding company income is comprised primarily of
passive investment income plus, under certain circumstances,
personal service income. The Company’s income tax group
could become subject to the penalty tax if (i) 60% or more
of our adjusted ordinary gross income is personal holding
company income and (ii) 50% or more of our outstanding
common stock is owned, directly or indirectly, by five or fewer
individuals at any time during the last half of the taxable
year. We believe that five or fewer of our stockholders hold 50%
or more of our outstanding common stock for purposes of IRC
Section 541. However, as of December 31, 2005, we had
no undistributed personal holding company income and therefore
have not recorded a personal holding company tax liability.
There can be no assurance that we will not be subject to this
tax in the future that in turn may materially and adversely
impact our financial position, results of operations and cash
flows.
| A change of ownership could reduce the benefits associated with the Company’s tax assets. |
A change of ownership pursuant to Section 382 of the
Internal Revenue Code could significantly or possibly eliminate
our utilization of our net operating losses and/or alternative
minimum tax credits. An
15
Table of Contents
ownership change for this purpose is generally a change in the
majority ownership of a company over a three year period.
| Our company is majority-owned by the Malcolm I. Glazer Family Limited Partnership. As a result of this ownership, we are a “controlled company” within the meaning of the New York Stock Exchange rules and are exempt from certain corporate governance requirements. |
Our majority stockholder, the Malcolm I. Glazer Family Limited
Partnership, will have the ability to effectively control our
management and affairs. In addition, any action requiring a
simple-majority stockholder vote can be determined solely by our
majority stockholder. This includes the ability to elect all
members of our Board of Directors and determine the outcome of
certain corporate actions requiring majority stockholder
approval, such as merger and acquisition decisions, and the
election of directors, or sale of all or substantially all of
our assets. This level of ownership may also have a significant
effect in delaying, deferring, or preventing a change in control
of Zapata and may adversely affect the voting and other rights
of other holders of our common stock.
Under the New York Stock Exchange rules, a company of which more
than 50% of the voting power is held by an individual, a group,
or another company is a “controlled company” and may
elect not to comply with certain New York Stock Exchange
corporate governance requirements, as applicable, including
(1) the requirement that a majority of the board of
directors consist of independent directors, (2) the
requirement that we have a nominating/corporate governance
committee that is composed entirely of independent directors
with a written charter addressing the committee’s purpose
and responsibilities and (3) the requirement that we have a
compensation committee that is composed entirely of independent
directors with a written charter addressing the committee’s
purpose and responsibilities. Though we have utilized exemptions
(1) and (2) above and the written charter requirement
of (3), the Company currently has a Compensation Committee
comprised entirely of independent directors. However, there can
be no assurance that we will continue to have a compensation
committee comprised entirely of independent directors, nor that
we will continue to utilize the other exemptions while we are a
controlled company.
| The exercise of our subsidiaries’ outstanding stock options could significantly dilute our ownership in these subsidiaries. |
Subsidiary stock option exercises could significantly dilute our
ownership in our subsidiaries. Such dilution would cause us to
consolidate proportionately less net income (or loss) recognized
by our subsidiaries and would increase minority interest. Such
dilution could also cause a loss of control (typically when
ownership falls below 50%) which could lead to deconsolidation.
Such investments would be subsequently accounted for under the
equity method of accounting.
| The carrying value of our prepaid pension asset could be significantly reduced if we terminate our pension plan. |
In the event that we decide to terminate our pension plan (the
“Plan”), at the time of this decision, we would be
required to incur a non-cash charge through earnings in an
amount equal to the remaining balance of the Plan’s
unrecognized net losses component of the Plan’s prepaid
pension asset. If not terminated, the Plan will continue to be
subject to the additional minimum liability requirements of
SFAS No. 87, “Employers’ Accounting for
Pensions”. Such requirements require the recognition of an
additional pension liability in the amount of the unfunded
accumulated benefit obligation in excess of accrued pension with
an equal amount to be recognized net of the associated tax
benefits in accumulated other comprehensive (loss) income.
Accordingly, depending on market conditions, we may have to
reverse our prepaid pension balance and record a pension
liability through a non-cash charge to equity. As we have not
determined if we will terminate the Plan, and due to the
uncertainty of market conditions, we can provide no assurances
as to the ultimate financial statement impact that Plan
modifications or changes in market conditions may have.
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| Litigation defense and settlement costs may be material. |
There can be no assurance that we will prevail in any pending
litigation in which we are involved. To the extent that we
sustain losses from any pending litigation which are not
presently reserved or otherwise provided for or insured against,
our business, results of operations, cash flows and/or financial
condition could be adversely affected.
| Indemnification agreements with former subsidiaries or related parties may cause us to spend our capital resources to meet obligations related to the agreements. |
Throughout our history, we have entered into numerous
transactions relating to the sale, disposal or spin-off of
partially and wholly owned subsidiaries. Pursuant to certain of
these transactions, we may be obligated to indemnify other
parties to these agreements. These obligations include
indemnifications for losses incurred by such parties arising out
of the operations of such businesses prior to these transactions
or the inaccuracy of representations of information supplied by
the Company in connection with such transactions. For example,
during the third quarter of 2005, we were notified by
Weatherford International Inc. (“Weatherford”) of a
claim for reimbursement of in connection with the investigation
and cleanup of purported environmental contamination at two
properties formerly owned by a non-operating Zapata subsidiary.
The claim was made under an indemnification provision given by
Zapata to Weatherford in a 1995 asset purchase agreement and
relates to alleged environmental contamination that purportedly
existed on the properties prior to the date of the sale.
| Future acquisitions may not require a shareholder vote and may be material to the Company. |
Any future acquisitions could be material in size and scope, and
since we have not yet identified any additional assets, property
or business that we may acquire or develop, potential investors
will have virtually no substantive information about any such
new business upon which to base a decision whether to invest in
the company. In any event, depending upon the size and structure
of any future acquisitions, stockholders may not have the
opportunity to vote on the transaction, or access to any
information about any new business until such time as a
transaction is completed and we file a report with the SEC
disclosing the nature of such transaction and/or business. For
example, during September and October 2003, stockholders were
informed through press releases and SEC filings that we had
acquired a significant stake in Safety Components. Such
transactions materially affected our financial position, results
of operations and cash flows. In the Safety Components
acquisition, we utilized approximately $47.8 million of our
cash, cash equivalents and short-term investments to complete
the acquisition. The acquisition of Safety Components
contributed an additional $63.5 million to our consolidated
revenues for the fourth quarter of 2003.
| We may not be successful in identifying any suitable future acquisition opportunities. |
There is no assurance that we will be successful in identifying
or consummating any suitable future acquisitions, and, if an
acquisition does occur, there is no assurance that it will be
successful in enhancing our business or will increase our
earnings or not materially adversely affect our financial
condition. We face significant competition for acquisition
opportunities, which may inhibit our ability to complete
suitable transactions or increase the cost that must be paid.
Future acquisitions could also divert a substantial amount of
our time, result in short term reductions in earnings or special
transactions or other charges and may be difficult to integrate
with existing operations or assets. We may, in the future, issue
additional shares of common stock or other securities in
connection with one or more acquisitions, which may dilute our
stockholders. Depending upon the size and number of any future
acquisitions, we may also borrow money to fund our acquisitions.
In that event, our stockholders would be subject to the risks
normally associated with leveraged transactions, including the
inability to service the debt or the dedication of a significant
amount of cash flow to service the debt, limitations on our
ability to secure future financing and the imposition of certain
operating restrictions.
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Risks associated with Omega Protein that may impact Zapata
include the following, any of which could have a material
adverse impact on Omega’s financial position, results of
operations and cash flows:
| Omega is dependent on a single natural resource and may not be able to catch the amount of menhaden that it requires to operate profitably. |
Omega’s primary raw material is menhaden. Omega’s
business is totally dependent on its annual menhaden harvest in
ocean waters along the U.S. Atlantic and Gulf coasts.
Omega’s ability to meet its raw material requirements
through its annual menhaden harvest fluctuates from year to
year, and even at times month to month, due to natural
conditions over which Omega has no control. These natural
conditions, which include varying fish population, adverse
weather conditions and disease, may prevent Omega from catching
the amount of menhaden required to operate profitability.
| Omega’s operations are geographically concentrated in the Gulf of Mexico where they are susceptible to regional adverse weather patterns such as hurricanes. |
Three of Omega’s four operating plants are located in the
Gulf of Mexico (two in Louisiana and one in Mississippi), a
region which has historically been subject to a late
summer/early fall hurricane season. Omega’s Virginia
facility has in the past also at times been adversely affected
by hurricanes. All three of Omega’s Gulf of Mexico plants
were severely damaged within a one-month span by Hurricanes
Katrina and Rita in August and September 2005. Immediately after
the second hurricane, approximately 70% of Omega’s 2004
production capacity was impaired and Omega’s business,
results of operations and financial condition were materially
adversely affected. Additional future weather related
disruptions could, if they occur, also have a material adverse
effect on Omega’s business, results of operations and
financial condition. In addition, Omega’s costs of
insurance for property damage will likely increase materially in
future years as insurers recoup losses paid and to be paid out
in connection with the Katrina and Rita hurricanes by charging
higher premiums.
It is possible that Hurricanes Katrina and Rita may have
adversely affected Gulf Coast waters by causing increased
pollution or debris in shallow waters where Omega historically
has operated and these adverse effects if they occur could
adversely affect Omega’s ability to catch menhaden.
| The costs of energy may materially impact Omega’s business. |
Omega has experienced substantially higher costs for energy in
recent years, particularly in 2005 and expects these higher
costs to continue into 2006. Omega’s business is materially
dependent on diesel fuel for its vessels and natural gas for its
operating facilities. The costs of these commodities, which are
beyond Omega’s control, may have an adverse impact on
Omega’s business, results of operations and financial
condition.
| Fluctuation in “oil yields” derived from Omega’s fish catch could impact Omega’s ability to operate profitably. |
The “oil yield,” or the percentage of oil derived from
the menhaden fish, while it is relatively high compared to many
species of fish, has fluctuated over the years and from month to
month due to natural conditions relating to fish biology over
which Omega has no control. The oil yield has at times
materially impacted the amount of fish oil that Omega has been
able to produce from its available fish catch and it is possible
that oil yields in the future could also adversely impact
Omega’s ability to operate profitably.
| Laws or regulations that restrict or prohibit menhaden or purse seine fishing operations could adversely affect Omega’s ability to operate. |
The adoption of new laws or regulations at federal, regional,
state or local levels that restrict or prohibit menhaden or
purse seine fishing operations, or stricter interpretations of
existing laws or regulations, could materially adversely affect
Omega’s business, results of operations and financial
condition. In addition, the impact of a violation by Omega of
federal, regional, state or local law or regulation relating to
its fishing
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operations, the protection of the environment or the health and
safety of its employees could have a material adverse affect on
Omega’s business, results of operations and financial
condition.
One example of potentially restrictive regulation involves an
addendum to a fisheries management plan recommended by a
regional regulatory board in August 2005 which, if it were to be
adopted by the Commonwealth of Virginia, could limit for a
five-year period the annual amount commercial menhaden catch in
the Chesapeake Bay to Omega’s
5-year average Bay
catch. There is also the possibility, which Omega does not
believe is likely, that if the U.S. Secretary of Commerce
were to find the Commonwealth of Virginia out of compliance with
the management plan, that he could declare a moratorium on all
commercial harvesting of menhaden in Virginia waters unless
Virginia were to comply with the restriction.
| Omega’s fish catch may be impacted by restrictions on its spotter aircraft. |
If Omega’s spotter aircraft are prohibited or restricted
from operating in their normal manner during Omega’s
fishing season, Omega’s business, results of operations and
financial condition could be adversely affected. For example, as
a direct result of the September 11, 2001 terrorist
attacks, the Secretary of Transportation issued a federal ground
stop order that grounded certain aircraft (including
Omega’s fish-spotting aircraft) for approximately nine
days. This loss of spotter aircraft coverage severely hampered
Omega’s ability to locate menhaden fish during this
nine-day period and thereby reduced its amount of saleable
product.
| Worldwide supply and demand relationships, which are beyond Omega’s control, influence the prices that Omega receives for many of its products and may from time to time result in low prices for many of Omega’s products. |
Prices for many of Omega’s products are subject to, or
influenced by, worldwide supply and demand relationships over
which Omega has no control and which tend to fluctuate to a
significant extent over the course of a year and from year to
year. The factors that influence these supply and demand
relationships are world supplies of fish meal made from other
fish species, animal proteins and fats, palm oil, soy meal and
oil, and other edible oils.
| New laws or regulation regarding contaminants in fish oil or fish meal may increase Omega’s cost of production or cause Omega to lose business. |
It is possible that future enactment of increasingly stringent
regulations regarding contaminants in fish meal or fish oil by
foreign countries or the United States may adversely affect
Omega’s business, results of operations and financial
condition. More stringent regulations could result in:
(i) Omega’s incurrence of additional capital
expenditures on contaminant reduction technology in order to
meet the requirements of those jurisdictions, and possibly
higher production costs for Company’s products, or
(ii) Omega’s withdrawal from marketing its products in
those jurisdictions.
| Three of Omega’s four operating plants were severely damaged by Hurricanes Katrina and Rita and Omega has had to undertake substantial rebuilding efforts. |
As an immediate result of the two hurricanes, approximately 70%
of Omega’s operating capacity was impaired. Operations at
the Moss Point and Abbeville fish processing facilities and the
shipyard were re-established in mid-October 2005, but at reduced
processing capabilities. Omega expects that these two facilities
will return to full operational status prior to the beginning of
the Gulf fishing season in April 2006. Omega is currently
rebuilding is Cameron, Louisiana facility and expects it to be
fully operational by mid 2006.
The costs of the rebuilding efforts will be substantial and not
all costs will be covered by insurance due to deductibles,
exclusions and other policy limitations. In addition, there
could be some initial loss of productivity as Company personnel
become familiar with new equipment and associated new operating
procedures. Omega’s failure to successfully rebuild its
operations by effectively managing rebuilding costs, as well as
any
19
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initial loss of productivity from the rebuilding efforts, could
have a material adverse effect on Omega’s financial
condition and results of operations.
| Omega’s plan to operate 31 vessels out of two Gulf of Mexico plants in 2006 rather than three may be unsuccessful. |
Because of the damages to Omega’s Cameron, Louisiana
facility caused by Hurricane Rita, Omega intends to begin its
2006 fishing season by operating its full contingent of 31 Gulf
of Mexico fishing vessels out of its two operating facilities in
Abbeville, Louisiana and Moss Point, Mississippi. Later in the
2006 fishing season when Omega expects that the Cameron,
Louisiana plant will be operational, up to 11 vessels will
be shifted to Cameron. This plan will substantially increase the
number of vessels at Abbeville and Moss Point to a level that
Omega has not operated at previously. Although these two
facilities have adequate processing capacity, Omega believes
that fishing efforts may be diminished because increased
unloading time due to additional vessels will keep some vessels
off the fishing grounds during the most optimal fishing times.
It is possible that other logistical, mechanical or other
manpower constraints arising out of this increased vessel load
could also reduce the efficiency of these two plants.
| Omega’s strategy to expand into the food grade oils market may be unsuccessful. |
Omega’s attempts to expand its fish oil sales into the
market for refined, food grade fish oils for human consumption
may not be successful. Omega’s expectations regarding
future demand for Omega-3 fatty acids may prove to be incorrect
or, if future demand does meet Omega’s expectations, it is
possible that purchasers could utilize Omega-3 sources other
than Omega’s products.
| Omega’s quarterly operating results will fluctuate. |
Fluctuations in Omega’s quarterly operating results will
occur due to the seasonality of Omega’s business, the
unpredictability of Omega’s fish catch and oil yields, and
Omega’s deferral of sales of inventory based on worldwide
prices for competing products.
| Omega’s business is subject to significant competition, and some competitors have significantly greater financial resources and more extensive and diversified operations than Omega. |
The marine protein and oil business is subject to significant
competition from producers of vegetable and other animal protein
products and oil products such as Archer Daniels Midland and
Cargill. In addition, but to a lesser extent, Omega competes
with small domestic privately-owned menhaden fishing companies
and international marine protein and oil producers, including
Scandinavian herring processors and South American anchovy and
sardine processors. Many of these competitors have significantly
greater financial resources and more extensive and diversified
operations than Omega.
| Omega’s foreign customers are subject to disruption typical to foreign countries. |
Omega’s sales of its products in foreign countries are
subject to risks associated with foreign countries such as
changes in social, political and economic conditions inherent in
foreign operations, including:
| • | Changes in the law and policies that govern foreign investment and international trade in foreign countries; | |
| • | Changes in U.S. laws and regulations relating to foreign investment and trade; | |
| • | Changes in tax or other laws; | |
| • | Partial or total expropriation; | |
| • | Current exchange rate fluctuations; | |
| • | Restrictions on current repatriation; or | |
| • | Political disturbances, insurrection or war. |
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In addition, it is possible that Omega, at any one time, could
have a significant amount of its revenues generated by sales in
a particular country which would concentrate Omega’s
susceptibility to adverse events in that country.
| Omega may undertake acquisitions that are unsuccessful and Omega’s inability to control the inherent risks of acquiring businesses could adversely affect its business, results of operations and financial condition operations. |
In the future Omega may undertake acquisitions of other
businesses, located either in the United States or in other
countries, although there can be no assurances that this will
occur. There can be no assurance that Omega will be able
(i) to identify and acquire acceptable acquisition
candidates on favorable terms, (ii) to profitably manage
future businesses it may acquire, or (iii) to successfully
integrate future businesses it may acquire without substantial
costs, delays or other problems. Any of these outcomes could
have a material adverse effect on Omega’s business, results
of operations and financial condition.
| Omega’s failure to comply with federal U.S. citizenship ownership requirements may prevent it from harvesting menhaden in the U.S. jurisdictional waters. |
Omega’s harvesting operations are subject to the Shipping
Act of 1916 and the regulations promulgated thereunder by the
Department of Transportation, Maritime Administration which
require, among other things, that Omega be incorporated under
the laws of the U.S. or a state, Omega’s chief
executive officer be a U.S. citizen, no more of
Omega’s directors be non-citizens than a minority of a
number necessary to constitute a quorum and at least 75% of
Omega’s outstanding capital stock (including a majority of
its voting capital stock) be owned by U.S. citizens. If
Omega fails to observe any of these requirements, Omega will not
be eligible to conduct its harvesting activities in
U.S. jurisdictional waters. Such a lost of eligibility
would have a material adverse effect on Omega’s business,
results of operations and financial condition.
| Omega may not be able to recruit, train and retain qualified marine personnel in sufficient numbers. |
Omega’s business is dependent on its ability to recruit,
train and retain qualified marine personnel in sufficient
numbers such as vessel captains, vessel engineers and other
crewmembers. To the extent that Omega is not successful in
recruiting, training and retaining these employees in sufficient
numbers, its productivity may suffer. If Omega were unable to
secure a sufficient number of workers during periods of peak
employment, the lack of personnel could have an adverse effect
on Omega’s business, results of operations and financial
condition. The impact of Hurricanes Katrina and Rita have
exacerbated the difficulties of recruiting and retaining
qualified marine personnel in the Gulf Coast area.
Omega participates in the United States H2B Visa Program whereby
foreign nationals are permitted to enter the United States
temporarily and engage in seasonal, non-agricultural employment.
Omega utilizes its H2B Visa workers for a portion of its fishing
vessel crews and plant personnel. Changes in the H2B Visa
Program, the termination of that program, or caps on the number
of workers available under that program, could have a material
adverse effect upon Omega’s ability to secure a sufficient
number of workers during periods of peak employment.
| Omega’s Credit Facility and other Fisheries Finance Program loan agreements contain covenants and restrictions that may limit Omega’s financial flexibility. |
Omega’s Credit Facility with Bank of America, N.A. and
Omega’s loan agreements under the Title XI
Fisheries Finance Program contain various covenants and
restrictions such as prohibitions on dividends and stock
repurchases without the lender’s consent. The Credit
Facility also contains various financial covenants that provide,
for example, that Omega may not report two quarters of
consecutive net losses, and that Omega must maintain a certain
ratio of earnings to fixed charges. Because Omega did experience
net losses in quarters three and four in 2005 and did not
maintain the required fixed charge coverage ratio for the fourth
quarter of 2005, it requested (and received) a waiver of these
two covenants from the bank lender. If Omega were to experience
an additional two quarters of consecutive net losses or fail to
maintain the fixed charge
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coverage ratio covenant again, it would require an additional
waiver from the bank lender or Omega would be in default under
the Credit Facility.
Item 1B. Unresolved
Staff Comments
None.
| Item 2. | Properties |
Zapata Corporate
Zapata’s corporate headquarters are located in Rochester,
New York where the Company leases approximately
3,000 square feet of office space. Zapata believes its
facilities and those of its subsidiaries are adequate and
suitable for its current level of operations.
Omega Protein
Omega’s material properties are described below. Omega
believes its facilities are adequate and suitable for its
current level of operations.
Plants. Omega owns its plants in Reedville, Virginia,
Moss Point, Mississippi and Abbeville, Louisiana (except for
certain portions of the Abbeville facility which are leased from
unaffiliated third parties). Omega also owns its Health and
Science Center in Reedville, Virginia, as well as its Morgan
City, Louisiana property which was formerly operated as a plant.
Omega leases from unaffiliated third parties the real estate on
which its Cameron, Louisiana plant is located.
Omega’s Moss Point, Abbeville and Cameron plants were
severely damaged in the third quarter 2005 by Hurricanes Katrina
and Rita. See “Omega Protein — Hurricane
Damages.”
Warehouse and Storage. Omega owns, as well as leases from
unaffiliated third parties, warehouses and tank space for
storage of its products, generally at terminals located along
the Mississippi River and Tennessee River. Omega’s material
storage facilities are located at:
| Approximate Fish Meal | ||||||||
| Location | and Fish Oil Storage Capacity | Owned/Lease | ||||||
|
Reedville, Virginia
|
29,950 tons | Owned | ||||||
|
Abbeville, Louisiana
|
14,500 tons | Owned | ||||||
|
Moss Point, Mississippi
|
18,400 tons | Owned | ||||||
|
Morgan City, Louisiana
|
10,000 tons | Owned | ||||||
|
St. Louis, Missouri
|
10,000 tons | Owned | ||||||
|
Avondale, Louisiana
|
25,800 tons | Leased | ||||||
|
Cameron, Louisiana
|
13,900 tons | Leased | ||||||
|
East Dubuque, Illinois
|
11,000 tons | Leased | ||||||
|
Guntersville, Alabama
|
10,000 tons | Leased | ||||||
|
Norfolk, Virginia
|
2,800 tons | Leased | ||||||
|
Port Arthur, Texas
|
7,500 tons | Leased | ||||||
|
Gretna, Louisiana
|
10,000 tons | Leased | ||||||
Shipyard. Omega owns a 49.4 acre shipyard facility
in Moss Point, Mississippi which includes two dry docks, each
with a capacity of 1,300 tons. The shipyard is used for routine
maintenance and vessel refurbishment on Omega’s fishing
vessels and occasionally for shoreside maintenance services to
third-party vessels if excess capacity exists.
The shipyard facility was severely damaged in the third quarter
2005 by Hurricane Katrina. See “Omega Protein —
Hurricane Damages.”
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Table of Contents
Administrative and Executive Offices. Omega leases office
space from unaffiliated third parties in Hammond, Louisiana for
its administrative offices and in Houston, Texas for its
executive offices. Omega plans to close its Hammond, Louisiana
office in mid-2006 and consolidate those functions in its
Houston, Texas office.
Zap.Com
Zap.Com’s headquarters are located in Rochester, New York,
in space subleased to it by Zapata on a month-to month basis.
Zapata has advised Zap.Com that it will not charge rent or other
fees for the use of this space for future periods until further
notice.
| Item 3. | Legal Proceedings |
None.
| Item 4. | Submission of Matters to a Vote of Security Holders |
None.
PART II
| Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
Zapata’s common stock is listed on the New York Stock
Exchange (“NYSE”) and trades under the symbol
“ZAP.” On April 6, 2005, the Company effected an
eight-for-one stock split, par value $.01 per share. Where
a number of shares of Common Stock is listed in this report for
a date or period prior to the effective date of the stock split,
that number of shares of Common Stock has been proportionately
adjusted as if the eight-for-one stock split had been in effect
on that prior date or during that prior period.
The high and low sales prices for the Company’s common
stock for each quarterly period for the last two fiscal years,
are shown in the following table.
| High | Low | ||||||||
|
Year Ended December 31, 2005
|
|||||||||
|
First Quarter
|
$ | 10.22 | $ | 7.31 | |||||
|
Second Quarter
|
9.75 | 5.80 | |||||||
|
Third Quarter
|
8.57 | 6.10 | |||||||
|
Fourth Quarter
|
7.75 | 5.66 | |||||||
|
Year Ended December 31, 2004
|
|||||||||
|
First Quarter
|
$ | 7.50 | $ | 6.26 | |||||
|
Second Quarter
|
8.63 | 7.00 | |||||||
|
Third Quarter
|
8.10 | 7.26 | |||||||
|
Fourth Quarter
|
7.94 | 7.17 | |||||||
The Company has not declared any dividends since the
Company’s Board of Directors discontinued dividend payments
in 1998. The Company may use all or a significant portion of its
cash assets in the acquisition of other operating businesses,
the minority interest of controlled subsidiaries, funding of
start-up proposals and
possible stock repurchases as discussed below. In deciding
whether to declare dividends, the Company’s Board of
Directors will consider the Company’s operating results,
cash flow, financial condition, capital requirements, general
business condition of its future operating businesses and such
other factors, as the Board deems relevant. The rights of the
holders of common stock to receive dividends or other payments
with respect thereto in the future will be subject to the prior
and superior rights of holders of Zapata’s
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Preferred Stock and Preference Stock then outstanding. Zapata
has authorized Preferred Stock and Preference Stock, none of
which are outstanding as of the date of this report.
Omega Protein’s credit facilities currently prohibit any
dividends from being declared or paid with respect to its
respective outstanding capital stock, including the shares held
by Zapata. For all periods presented in this Report, Zapata has
not received any dividends from any of its consolidated
subsidiaries.
On December 6, 2002, the Board of Directors authorized the
Company to purchase up to 4.0 million shares of its
outstanding common stock in the open market or privately
negotiated transactions. The shares may be purchased from time
to time as determined by the Company. Any purchased shares would
be placed in treasury and may subsequently be reissued for
general corporate purposes. The repurchases will be made only at
such times as are permissible under the federal securities laws.
No time limit has been placed on the duration of the program and
no minimum number or value of shares to be repurchased has been
fixed. Zapata reserves the right to discontinue the repurchase
program at any time and there can be no assurance that any
repurchases will be made. As of the date of this report, no
shares have been repurchased under this program.
As of March 1, 2006, there were approximately 2,400 holders
of record of common stock. This number does not include the
stockholders for whom shares are held in a “nominee”
or “street” name.
The following table sets forth information as of
December 31, 2005, with respect to compensation plans under
which equity securities of the Company are authorized for
issuance:
| Number of Securities Remaining | ||||||||||||
| Number of Securities to be | Weighted-Average | Available for Future Issuance | ||||||||||
| Issued Upon Exercise of | Exercise Price of | Under Equity Compensation | ||||||||||
| Outstanding Options, | Outstanding Options, | Plans (Excluding Securities | ||||||||||
| Plan Category | Warrants and Rights | Warrants and Rights | Reflected in Column (a)) | |||||||||
| (In thousands) | (In thousands) | |||||||||||
|
Equity compensation plans approved by security holders
|
1,339 | $ | 5.56 | 5,906 | ||||||||
|
Equity compensation plans not approved by security holders
|
— | — | — | |||||||||
|
Total
|
1,339 | $ | 5.56 | 5,906 | ||||||||
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| Item 6. | Selected Financial Data |
The following table sets forth certain selected historic
consolidated financial information of the Company for the
periods and as of the dates presented and should be read in
conjunction with the Company’s Consolidated Financial
Statements and the related notes thereto included in Item 8
of this Report and with “Management’s Discussion and
Analysis of Financial Condition and Results of Operations”
included in Item 7 of this Report. All amounts are in
thousands, except for per share amounts.
| For the Year Ended December 31, | |||||||||||||||||||||
| 2005 | 2004 | 2003 | 2002 | 2001(3)(4) | |||||||||||||||||
|
Income Statement Data:
|
|||||||||||||||||||||
|
Revenues
|
$ | 109,896 | $ | 119,645 | $ | 117,926 | $ | 117,008 | $ | 98,836 | |||||||||||
|
Operating income (loss)
|
(16,404 | ) | 912 | 5,830 | 15,803 | 1,838 | |||||||||||||||
|
Net (loss) income from continuing operations
|
(5,774 | ) | (1,520 | ) | 354 | 6,473 | 4,434 | ||||||||||||||
|
Net (loss) income from discontinued operations(1)
|
(3,402 | ) | 5,253 | 538 | — | — | |||||||||||||||
|
Net income (loss) to common stockholders(1)
|
(9,176 | ) | 3,733 | 892 | 6,473 | 4,434 | |||||||||||||||
|
Net (loss) income per share — basic and diluted:
|
|||||||||||||||||||||
|
(Loss) income from continuing operations
|
(0.30 | ) | (0.07 | ) | 0.02 | 0.34 | 0.23 | ||||||||||||||
|
(Loss) income from discontinued operations
|
(0.18 | ) | 0.27 | 0.03 | — | — | |||||||||||||||
|
Net (loss) income per share — basic and diluted
|
(0.48 | ) | 0.20 | 0.05 | 0.34 | 0.23 | |||||||||||||||
|
Cash dividend paid
|
— | — | — | — | — | ||||||||||||||||
|
Common stock dividends paid, per share
|
— | — | — | — | — | ||||||||||||||||
|
Cash Flow Data:
|
|||||||||||||||||||||
|
Capital expenditures
|
17,590 | 22,907 | 14,965 | 7,803 | 1,972 | ||||||||||||||||
| December 31, | ||||||||||||||||||||
| 2005 | 2004 | 2003 | 2002(2) | 2001(3)(4) | ||||||||||||||||
|
Balance Sheet Data:
|
||||||||||||||||||||
|
Working capital
|
$ | 154,435 | $ | 141,810 | $ | 140,818 | $ | 148,580 | $ | 133,736 | ||||||||||
|
Property and equipment, net
|
93,985 | 97,820 | 85,332 | 80,842 | 82,239 | |||||||||||||||
|
Total assets
|
294,354 | 362,489 | 359,039 | 284,977 | 271,677 | |||||||||||||||
|
Current maturities of long-term debt
|
2,443 | 1,661 | 1,566 | 1,270 | 1,296 | |||||||||||||||
|
Long-term debt
|
27,658 | 15,943 | 17,605 | 14,239 | 15,510 | |||||||||||||||
|
Stockholders’ equity
|
171,684 | 186,314 | 182,537 | 175,262 | 169,851 | |||||||||||||||
| (1) | During 2005, the Company sold its approximate 77% ownership interest in Safety Components for $51.2 million. Accordingly, the Company recognized a loss on sale of $9.9 million. Though the Company sold its shares in Safety for a cash gain compared to the original investment, this transaction related loss resulted from the sales proceeds being less than Zapata’s carrying value of its investment in Safety Components. Safety’s generation of net income subsequent to the Company’s original purchase of the stock increased Zapata’s carrying value which consisted of Zapata’s original investment in common stock |
25
Table of Contents
| of Safety Components and a subsequent capital contribution. Zapata had purchased approximately 84% of the common stock of Safety Components during 2003 and began consolidating amounts related to Safety’s income statement in the fourth quarter of 2003. Such amounts are included under Discontinued Operations for all periods presented. | |
| (2) | During 2002, the Company received a federal tax refund of approximately $17.3 million primarily related to losses realized on the sale in 2001 of certain non-investment grade securities and the sale of the Company’s holdings of Viskase Corporation (“Viskase”) common stock. |
| (3) | During 2001, the Company recognized impairment charges of approximately $11.8 million based on adverse market conditions and the sale of non-investment grade securities. |
| (4) | During 2001, the Company sold its Viskase shares. See Note 3 above. |
| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operation |
The following is a discussion of the Company’s financial
condition and results of operations. This discussion should be
read in conjunction with the Company’s Consolidated
Financial Statements included in Item 8 of this Report.
This discussion contains forward-looking statements that involve
risks and uncertainties. The Company’s actual results could
differ materially from those discussed herein. Factors that
could cause or contribute to such differences include, but are
not limited to, those discussed below in “Part I,
Item 1A. Risk Factors,” as well as those discussed in
this section and elsewhere in this report.
Overview
Zapata is a holding company which currently has one operating
company, Omega Protein Corporation in which the Company had a
58% ownership interest in at December 31, 2005. In
addition, Zapata owns 98% of Zap.Com Corporation, which is a
public shell company. On December 2, 2005, Zapata completed
the sale of its 77% ownership interest in Safety Components
International, Inc.
| Zapata Corporate |
The Company effected an eight-for-one stock split of its
outstanding shares of common stock, par value $.01 per
share (the “Common Stock”), effective at the close of
business on April 6, 2005. Where a number of shares of
Common Stock is listed in this report for a date or period prior
to the effective date of the stock split, that number of shares
of Common Stock has been proportionately adjusted as if the
eight-for-one stock split had been in effect on that prior date
or during that prior period.
In December 2002, the Board of Directors authorized the Company
to purchase up to 4.0 million shares of its outstanding
common stock in the open market or privately negotiated
transactions. No time limit has been placed on the duration of
the program and no minimum number or value of shares to be
repurchased has been fixed. As of the date of this report, no
shares have been repurchased under this program.
On December 8, 2005, Zapata announced that its Board of
Directors had authorized management to seek a buyer for its 58%
ownership interest in Omega Protein. As of the date of this
report, no offers have been received and no agreements or
understandings have been entered into by the Company relative to
Omega Protein. There can be no assurance, that a satisfactory
transaction involving Omega Protein will emerge, the timing of
any such transaction, if any, or whether the transaction will
ultimately enhance Zapata stockholder value or how that value
will be realized.
Zapata continues to evaluate strategic opportunities for the use
of its capital resources, including the acquisition of other
operating businesses, the minority interest of controlled
subsidiaries, funding of
start-up proposals and
possible stock repurchases. As of the date of this report,
Zapata is not a party to any agreements related to the
acquisition of an operating business, business combination or
for the sale or other transaction related to any of its
subsidiaries. There can be no assurance that any of these
possible transactions will occur or that they will ultimately be
advantageous to Zapata or enhance Zapata stockholder value.
26
Table of Contents
| Omega Protein |
Business. Omega is the largest U.S. producer of
protein-rich meal and oil derived from marine sources.
Omega’s products are produced from menhaden (a herring-like
fish found in commercial quantities), and include regular grade
and value-added specialty fish meals, crude and refined fish
oils and fish solubles. Omega’s fish meal products are used
as nutritional feed additives by animal feed manufacturers and
by commercial livestock producers. Omega’s crude fish oil
is sold to food producers and feed manufacturers, and its
refined fish oil products are used in food production and
certain industrial applications. Fish solubles are sold as
protein additives for animal feed and as fertilizers.
Fishing. Omega’s harvesting season generally extends
from May through December on the mid-Atlantic coast and from
April through October on the Gulf coast. During the off-season
and the first few months of each fishing season, Omega fills
purchase orders from the inventory it has accumulated during the
previous fishing season or in some cases, by re-selling meal
purchased from other suppliers.
On August 29, 2005, Omega’s Moss Point, Mississippi
fish processing facility and adjacent shipyard were severely
damaged by Hurricane Katrina. On September 25, 2005,
Omega’s Cameron, Louisiana and Abbeville, Louisiana fish
processing facilities were also severely damaged by Hurricane
Rita. Each of these facilities was non-operational immediately
after these weather events. Operations at the Moss Point fish
processing facility, the Abbeville fish processing facility and
the shipyard were re-established in mid-October, 2005, but at
reduced processing capabilities.
Omega is currently rebuilding its Cameron, Louisiana facility
and expects it to be fully operational by mid 2006. Omega
currently estimates that its full contingent of 31 Gulf of
Mexico fishing vessels will begin the 2006 fishing season and
will be capable of unloading its fish catch at Omega’s Moss
Point and Abbeville fish processing facilities. Although these
facilities have adequate processing capacity, Omega believes
that fishing efforts may be diminished because increased
unloading time due to additional vessels could keep some vessels
off the fishing grounds during the most optimal fishing times.
It is possible that other logistical, mechanical or other
manpower constraints arising out of this increased vessel load
could also reduce the efficiency of these two plants.
Harvesting and Production. The following table summarizes
Omega’s harvesting and production for the indicated periods:
| Years Ended December 31, | |||||||||||||||
| 2005 | 2004 | 2003 | |||||||||||||
|
Fish catch (tons)(1)
|
522,399 | 534,761 | 543,404 | ||||||||||||
|
Production (tons):
|
|||||||||||||||
|
Fish meal
|
|||||||||||||||
|
Regular grade
|
30,944 | 29,016 | 40,795 | ||||||||||||
|
Special Select
|
82,452 | 84,060 | 73,098 | ||||||||||||
|
Sea-Lac
|
22,751 | 25,862 | 29,308 | ||||||||||||
|
Oil
|
|||||||||||||||
|
Crude
|
53,140 | 51,060 | 53,813 | ||||||||||||
|
Refined
|
6,335 | 6,447 | 5,616 | ||||||||||||
|
Solubles
|
6,439 | 5,492 | 5,821 | ||||||||||||
|
Total Production
|
202,061 | 201,937 | 208,451 | ||||||||||||
| (1) | Fish catch has been converted to tons using the National Marine Fisheries Service (“NMFS”) fish catch conversion ratio of 670 pounds per 1,000 fish. |
In 2002, Omega’s total production was 241,972 tons of meal,
oil and solubles. During 2005, 2004 and 2003, Omega experienced
a poor fish catch (approximately 11%, 18% and 11%, respectively,
below expectations and a similar reduction from 2002 actual
results), combined with poor oil yields. In 2005, the
27
Table of Contents
reduced fish catch was primarily attributable to Hurricanes
Katrina and Rita and the subsequent loss of substantially all
Gulf operating capacity resulting from those hurricanes. In 2004
and 2003, the reduced fish catch was primarily attributable to
adverse weather conditions and the poor oil yields were due to
the reduced fat content of the fish. As a result of the poor
fish catch and reduced yields, Omega experienced significantly
higher per unit product costs (approximately 15% increase)
during 2004 compared to 2003. The impact of higher cost
inventories and fewer volumes available for sale was carried
forward and has adversely affected Omega’s earnings through
the first and second quarters of 2005. During the third quarter
of 2005, Omega suffered plant closures due to Hurricanes Katrina
and Rita. The direct impact of the hurricanes upon Omega was
loss of physical inventories and physical damage to three
plants. The interruption of processing capabilities caused Omega
to address the impact of abnormal downtime of its processing
facilities, which resulted in the immediate recognition of costs
which would ordinarily have been captured as inventory costs.
The amounts of these losses were substantial and are more fully
described in Notes 4, 5, 6 and 11 of Notes to
Consolidated Financial Statements.
Markets. Pricing for Omega’s products has been
volatile in the past several years and is attributable mainly to
the international availability, or the perceived international
availability, of fish meal and fish oil inventories. In an
effort to reduce price volatility and to generate higher, more
consistent profit margins, in fiscal 2000 Omega embarked on a
quality control program designed to increase its capability of
producing higher quality fish meal products and, in conjunction
therewith, enhanced it sales efforts to penetrate premium
product markets. Since 2000, Omega’s sales volumes of
specialty meal products have increased approximately 41%. Future
volumetric growth in specialty meal sales will be dependant upon
increased harvesting efforts and market demand. Additionally,
Omega is attempting to introduce its refined fish oil into the
food market. Omega has made sales, which to date have not been
material, of its refined fish oil, trademarked
OmegaPure®,
to food manufacturers in the United States and Canada at prices
that provide substantially improved margins over the margins
that can be obtained from selling non-refined crude fish oil.
Omega cannot estimate, however, the size of the actual domestic
or international markets for Omega Pure or how long it may take
to develop these markets.
During 2002, Omega developed a business plan to expand its
purchase and resale of other manufacturers’ fish meal and
fish oil products and engaged a full-time consultant to
implement Omega’s business plan which focused initially on
the purchase and resale of Mexican fish meal and fish oil. In
2002, revenues generated from these types of transactions
represented less than 2% of total Company revenues. During 2003
and again in 2004, Omega’s fish catch and resultant product
inventories were reduced, primarily due to adverse weather
conditions. Omega supplemented its inventories and subsequent
sales by purchasing other fish meal and oil products. Although
operating margins from these activities are less than the
margins typically generated from Omega’s base domestic
production, these operations provide Omega with a source of fish
meal and oil to sell into other markets where Omega has not
historically had a presence. Omega purchased products totaling
approximately 16,555 and 17,800 tons, or approximately 8% and 8%
of total volume sales for the fiscal year ended
December 31, 2005 and 2004, respectively.
Historically, approximately 35% to 40% of Omega’s FAQ fish
meal was sold on a
two-to-twelve-month
forward contract basis. The balance of regular grade and other
products was substantially sold on a spot basis through purchase
orders. Omega began a similar forward sales program for its
specialty grade meals and crude fish oil for 2002 due to
increasing demand for these products. During 2003, 2004 and 2005
approximately 50%, 43% and 70% respectively, of its specialty
meals and crude fish oil had been sold on a forward contract
basis. Omega’s annual revenues are highly dependent on both
annual fish catch and inventories and, in addition, inventory is
generally carried over from one year to another year. Omega
determines the level of inventory to be carried over based on
prevailing market prices of the products and anticipated
customer usage and demand during the off season. Thus,
production volume does not necessarily correlate with sales
volume in the same year and sales volumes will fluctuate from
quarter to quarter. Omega’s fish meal products have a
useable life of approximately one year from date of production.
Practically, however, Omega typically attempts to empty its
warehouses of the previous season’s products by the second
or third month of the new fishing season. Omega’s crude
fish oil products do not lose efficacy unless exposed to oxygen
and therefore, their storage life typically is longer than that
of fish meal.
28
Table of Contents
The following table sets forth Omega’s revenues by product
(in millions) and the approximate percentage of total revenues
represented thereby, for the indicated periods:
| Years Ended December 31, | ||||||||||||||||||||||||
| 2005 | 2004 | 2003 | ||||||||||||||||||||||
| Revenues | Percent | Revenues | Percent | Revenues | Percent | |||||||||||||||||||
|
Regular Grade
|
$ | 19.4 | 17.7 | % | $ | 20.7 | 17.3 | % | $ | 26.5 | 22.5 | % | ||||||||||||
|
Special Select
|
48.5 | 44.1 | 49.5 | 41.4 | 39.5 | 33.5 | ||||||||||||||||||
|
SeaLac
|
17.7 | 16.1 | 18.6 | 15.6 | 14.5 | 12.3 | ||||||||||||||||||
|
Crude Oil
|
17.3 | 15.7 | 24.3 | 20.3 | 31.5 | 26.7 | ||||||||||||||||||
|
Refined Oil
|
5.3 | 4.8 | 4.7 | 3.9 | 3.8 | 3.2 | ||||||||||||||||||
|
Fish Solubles
|
1.7 | 1.6 | 1.8 | 1.5 | 2.1 | 1.8 | ||||||||||||||||||
|
Total
|
$ | 109.9 | 100.0 | % | $ | 119.6 | 100.0 | % | $ | 117.9 | 100.0 | % | ||||||||||||
Omega’s principal raw material is menhaden, a species of
fish that inhabits coastal and inland tidal waters in the United
States. Menhaden are undesirable for direct human consumption
due to their small size, prominent bones and high oil content.
Certain state agencies, as well as interstate compacts, impose
resource depletion restrictions on menhaden pursuant to
fisheries management legislation or regulations and may impose
additional legislation or regulations in the future. For
example, in August 2005, the Management Board of the ASMFC
approved an addendum to an existing Fishery Management Plan. The
addendum, if it were to be accepted and implemented by the
Commonwealth of Virginia as an ASMFC member, would establish an
annual cap for a five year period beginning in 2006 on
Omega’s menhaden landings from the Chesapeake Bay in an
amount equal to Omega’s average annual landings over a five
year period. Omega estimates that this annual limitation would
be approximately 106,000 metric tons. Had the cap been in place
for the 2005 fishing season, it would not have impacted
Omega’s 2005 fishing operations in the Chesapeake Bay.
However, in this case, the Virginia legislature did not approve
the recommended cap, and the Virginia Attorney General later
issued an advisory opinion that the Management Board exceeded
its authority when it adopted the recommended cap. See
Item 1. Omega Protein — Regulation.” To
date, Omega has not experienced any material adverse impact on
its fish catch or results of operations as a result of these
recommended restrictions.
Omega from time to time considers potential transactions
including, but not limited to, enhancement of physical
facilities to improve production capabilities and the
acquisition of other businesses. Certain of the potential
transactions reviewed by Omega would, if completed, result in
its entering new lines of business (generally including certain
businesses to which Omega sells its products such as pet food
manufacturers, aquaculture feed manufacturers, fertilizer
companies and organic foods distributors), although
historically, reviewed opportunities have been generally related
in some manner to Omega’s existing operations or which
would have added new protein products to Omega’s product
lines. Although Omega does not, as of the date hereof, have any
commitment with respect to a material acquisition, it could
enter into such agreement in the future.
Omega carries insurance for certain losses relating to its
vessels and Jones Act liability for employees aboard its vessels
(collectively, “Vessel Claims Insurance”). The typical
Vessel Claims Insurance policy contains an annual aggregate
deductible (“AAD”) for which Omega remains
responsible, while the insurance carrier is responsible for all
applicable amounts which exceed the AAD. It is Omega’s
policy to accrue current amounts due and record amounts paid out
on each claim. Once payments exceed the AAD, Omega records an
insurance receivable for a given policy year.
In 2003, Omega’s Vessel Claims Insurance carrier for the
period October 1, 1997 through September 30, 1998, and
for 80% of Omega’s Jones Act claims for the period
October 1, 1998 through March 31, 2000 was declared
insolvent by a state insurance regulator. Omega had previously
provided an allowance for doubtful accounts for all the amount
due to Omega from the insurance carrier.
29
Table of Contents
Seasonal and Quarterly Results. Omega’s menhaden
harvesting and processing business is seasonal in nature. Omega
generally has higher sales during the menhaden harvesting season
(which includes the second and third quarter of each year) due
to increased product availability, but prices during the fishing
season tend to be lower than during the off-season. As a result,
Omega’s quarterly operating results have fluctuated in the
past and may fluctuate in the future. In addition, from time to
time Omega defers sales of inventory based on worldwide prices
for competing products that affect prices for Omega’s
products which may affect comparable period comparisons.
| Zap.Com |
Zap.Com is a public shell company which does not have any
existing business operations. From time to time, Zap.Com
considers acquisitions that would result in it becoming an
operating company. Zap.Com may also consider developing a new
business suitable for its situation.
| Safety Components |
Safety Components is an independent supplier of automotive
airbag fabric and cushions and technical fabrics with operations
in North America and Europe. Zapata originally purchased
2,663,905 shares of Safety Components common stock for
$30.9 million on September 23, 2003, and purchased an
additional 1,498,489 shares on October 7, 2003 for
$16.9 million, bringing the Company’s ownership
percentage to approximately 84% at that time. The Company
accounted for these transactions under the purchase method and
began consolidating amounts related to Safety’s assets and
liabilities as of September 30, 2003 and amounts related to
Safety’s results of operations in the fourth quarter of
2003.
On September 21, 2005, Zapata’s Board of Directors
approved a plan to pursue a sale of all of the Company’s
4,162,394 shares of Safety common stock. Based on this
approval, the Company determined that this subsidiary
substantially met the criteria to report the pending sale as
“Assets Held for Sale” and the subsidiary as
“Discontinued Operations” in accordance with
accounting rules. As used throughout this document, all amounts
and disclosures related to Safety pertain to “Discontinued
Operations.”
On December 2, 2005, Zapata closed on the sale of all of
its 4,162,394 shares of common stock in Safety Components
to WLR Recovery Fund II, L.P. and WLR Recovery
Fund III, L.P., Delaware limited partnerships (collectively
the “WLR Recovery Funds”) for $12.30 per share or
$51,197,446 in the aggregate. Prior to the close of the sale,
Zapata paid an aggregate of $1,000,000 in the form of a capital
contribution to Safety Components for the Safety compensation
committee to pay bonuses to its executive officers and key
employees. This payment was made under a plan approved by Zapata
during the third quarter of 2005 to provide Safety Components
management with an incentive to continue with Safety until the
completion of the sale to the WLR Recovery Funds.
For the year ended December 31, 2005, Zapata recorded a
transaction related loss of $9.9 million related to the
sale of Safety. This amount primarily reflects the reduction of
the carrying value of Safety to the net selling price, partially
offset by the reversal of certain deferred tax liabilities.
Though the Company sold its shares in Safety for a cash gain
compared to the original investment, this transaction related
loss resulted from the sales proceeds being less than
Zapata’s carrying value of its investment in Safety
Components. Safety’s generation of net income subsequent to
the Company’s original purchase of the stock increased
Zapata’s carrying value which consisted of Zapata’s
original investment in common stock of Safety Components and the
aforementioned subsequent capital contribution.
30
Table of Contents
Consolidated Results of Operations
The following tables summarize Zapata’s consolidating
results of operations (in thousands). Certain reclassifications
of prior year information have been made to conform to the
current presentation.
| Zapata | Omega | Discontinued | |||||||||||||||||||
| Corporate | Protein | Zap.Com | Operations(1) | Consolidated | |||||||||||||||||
|
Year Ended December 31, 2005
|
|||||||||||||||||||||
|
Revenues
|
$ | — | $ | 109,896 | $ | — | $ | — | $ | 109,896 | |||||||||||
|
Cost of revenues
|
— | 91,985 | — | — | 91,985 | ||||||||||||||||
|
Gross profit
|
— | 17,911 | — | — | 17,911 | ||||||||||||||||
|
Operating expense:
|
|||||||||||||||||||||
|
Selling, general and administrative
|
5,385 | 13,055 | 132 | — | 18,572 | ||||||||||||||||
|
Loss resulting from natural disaster, net
|
— | 15,743 | — | — | 15,743 | ||||||||||||||||
|
Operating loss
|
(5,385 | ) | (10,887 | ) | (132 | ) | — | (16,404 | ) | ||||||||||||
|
Other income (expense)
|
|||||||||||||||||||||
|
Interest income
|
1,242 | 615 | 54 | — | 1,911 | ||||||||||||||||
|
Interest expense
|
— | (1,255 | ) | — | — | (1,255 | ) | ||||||||||||||
|
Other, net
|
126 | 73 | — | — | 199 | ||||||||||||||||
| 1,368 | (567 | ) | 54 | — | 855 | ||||||||||||||||
|
Loss before income taxes and minority interest
|
(4,017 | ) | (11,454 | ) | (78 | ) | — | (15,549 | ) | ||||||||||||
|
Benefit for income taxes
|
2,480 | 4,268 | — | — | 6,748 | ||||||||||||||||
|
Minority interest in net loss of consolidated subsidiaries(2)
|
— | 3,026 | 1 | — | 3,027 | ||||||||||||||||
|
Loss from continuing operations
|
(1,537 | ) | (4,160 | ) | (77 | ) | — | (5,774 | ) | ||||||||||||
|
Discontinued operations:
|
|||||||||||||||||||||
|
(Loss) income before taxes and minority interest (including loss
on disposal)
|
(12,245 | ) | — | — | 10,364 | (1,881 | ) | ||||||||||||||
|
Benefit (provision) for income taxes
|
2,388 | — | — | (2,511 | ) | (123 | ) | ||||||||||||||
|
Minority interest(2)
|
— | — | — | (1,398 | ) | (1,398 | ) | ||||||||||||||
|
Net (loss) income from discontinued operations
|
(9,857 | ) | — | — | 6,455 | (3,402 | ) | ||||||||||||||
|
Net (loss) income to common stockholders
|
$ | (11,394 | ) | $ | (4,160 | ) | $ | (77 | ) | $ | 6,455 | $ | (9,176 | ) | |||||||
|
Diluted loss per share
|
$ | (0.48 | ) | ||||||||||||||||||
31
Table of Contents
| Zapata | Omega | Discontinued | |||||||||||||||||||
| Corporate | Protein | Zap.Com | Operations(1) | Consolidated | |||||||||||||||||
|
Year Ended December 31, 2004
|
|||||||||||||||||||||
|
Revenues
|
$ | — | $ | 119,645 | $ | — | $ | — | $ | 119,645 | |||||||||||
|
Cost of revenues
|
— | 104,237 | — | — | 104,237 | ||||||||||||||||
|
Gross profit
|
— | 15,408 | — | — | 15,408 | ||||||||||||||||
|
Operating expense:
|
|||||||||||||||||||||
|
Selling, general and administrative
|
4,210 | 10,120 | 166 | — | 14,496 | ||||||||||||||||
|
Operating (loss) income
|
(4,210 | ) | 5,288 | (166 | ) | — | 912 | ||||||||||||||
|
Other income (expense)
|
|||||||||||||||||||||
|
Interest income
|
374 | 594 | 24 | — | 992 | ||||||||||||||||
|
Interest expense
|
— | (965 | ) | — | — | (965 | ) | ||||||||||||||
|
Other, net
|
— | (221 | ) | — | — | (221 | ) | ||||||||||||||
| 374 | (592 | ) | 24 | — | (194 | ) | |||||||||||||||
|
(Loss) income before income taxes and minority interest
|
(3,836 | ) | 4,696 | (142 | ) | — | 718 | ||||||||||||||
|
Benefit (provision) for income taxes
|
539 | (1,494 | ) | — | — | (955 | ) | ||||||||||||||
|
Minority interest in net (income) loss of consolidated
subsidiaries(2)
|
— | (1,287 | ) | 4 | — | (1,283 | ) | ||||||||||||||
|
(Loss) Income from continuing operations
|
(3,297 | ) | 1,915 | (138 | ) | — | (1,520 | ) | |||||||||||||
|
Discontinued operations:
|
|||||||||||||||||||||
|
Income before taxes and minority interest (including loss on
disposal)
|
— | — | — | 15,217 | 15,217 | ||||||||||||||||
|
Provision for income taxes
|
(2,613 | ) | — | — | (5,273 | ) | (7,886 | ) | |||||||||||||
|
Minority interest(2)
|
— | — | — | (2,078 | ) | (2,078 | ) | ||||||||||||||
|
Net income from discontinued operations
|
(2,613 | ) | — | — | 7,866 | 5,253 | |||||||||||||||
|
Net (loss) income to common stockholders
|
$ | (5,910 | ) | $ | 1,915 | $ | (138 | ) | $ | 7,866 | $ | 3,733 | |||||||||
|
Diluted earnings per share
|
$ | 0.20 | |||||||||||||||||||
32
Table of Contents
| Zapata | Omega | Discontinued | |||||||||||||||||||
| Corporate | Protein | Zap.Com | Operations(1)(3) | Consolidated | |||||||||||||||||
|
Year Ended December 31, 2003
|
|||||||||||||||||||||
|
Revenues
|
$ | — | $ | 117,926 | $ | — | $ | — | $ | 117,926 | |||||||||||
|
Cost of revenues
|
— | 99,028 | — | — | 99,028 | ||||||||||||||||
|
Gross profit
|
— | 18,898 | — | — | 18,898 | ||||||||||||||||
|
Operating expense:
|
|||||||||||||||||||||
|
Selling, general and administrative
|
3,574 | 9,369 | 125 | — | 13,068 | ||||||||||||||||
|
Operating (loss) income
|
(3,574 | ) | 9,529 | (125 | ) | — | 5,830 | ||||||||||||||
|
Other income (expense)
|
|||||||||||||||||||||
|
Interest income
|
749 | 443 | 22 | — | 1,214 | ||||||||||||||||
|
Interest expense
|
— | (1,134 | ) | — | — | (1,134 | ) | ||||||||||||||
|
Other, net
|
— | (234 | ) | — | — | (234 | ) | ||||||||||||||
| 749 | (925 | ) | 22 | — | (154 | ) | |||||||||||||||
|
(Loss) income before income taxes and minority interest
|
(2,825 | ) | 8,604 | (103 | ) | — | 5,676 | ||||||||||||||
|
Provision for income taxes
|
(211 | ) | (2,806 | ) | — | — | (3,017 | ) | |||||||||||||
|
Minority interest in net (income) loss of consolidated
subsidiaries(2)
|
— | (2,307 | ) | 2 | — | (2,305 | ) | ||||||||||||||
|
(Loss) income from continuing operations
|
(3,036 | ) | 3,491 | (101 | ) | — | 354 | ||||||||||||||
|
Discontinued operations:
|
|||||||||||||||||||||
|
Income before taxes and minority interest (including loss on
disposal)
|
— | — | — | 1,796 | 1,796 | ||||||||||||||||
|
Provision for income taxes
|
— | — | — | (716 | ) | (716 | ) | ||||||||||||||
|
Minority interest(2)
|
— | — | — | (542 | ) | (542 | ) | ||||||||||||||
|
Net income from discontinued operations
|
— | — | — | 538 | 538 | ||||||||||||||||
|
Net (loss) income to common stockholders
|
$ | (3,036 | ) | $ | 3,491 | $ | (101 | ) | $ | 538 | $ | 892 | |||||||||
|
Diluted loss per share
|
$ | 0.05 | |||||||||||||||||||
| (1) | Results of operations related to Safety Components have been disclosed within discontinued operations in accordance with SFAS No. 144. |
| (2) | Minority interest represents the minority stockholders’ interest in the net income (loss) of each segment. |
| (3) | For the year ended December 31, 2003, due to the timing of the acquisition, Safety’s results of operations were included in Zapata’s consolidated results for the fourth quarter. |
For information affecting period to period comparability see the
notes to the selected financial data included in
“Item 6 — Selected Financial Data.” For
more information concerning segments, see Note 20 to the
Company’s Consolidated Financial Statements included in
Item 8 of this Report.
2005 Compared to 2004
Zapata reported a consolidated net loss of $9.2 million or
$(.48) per diluted share on revenues of $109.9 million for
the year ended December 31, 2005 as compared to
consolidated net income of $3.7 million or $.20 per
diluted share on revenues of $119.6 million in 2004. On a
consolidated basis, the decrease in net income resulted from
decreased net income at Omega Protein related to hurricane
losses, combined with a loss recorded for the sale of
Zapata’s shares of Safety Components common stock.
33
Table of Contents
The following presents a more detailed discussion of the
consolidated operating results:
Revenues from continuing operations. Consolidated
revenues decreased $9.7 million from $119.6 million in
2004 to $109.9 million in 2004, related to decreased
revenues at Omega Protein. Omega’s decrease was due to
lower sales volumes of 7% and 27% for fish meal and fish oil,
respectively. The decrease in revenue was partially offset by
2005 sales prices of Omega’s fish meal and fish oil which
increased by 4% and 6%, respectively, as compared to the 2004
sales prices. Considering both fish meal and fish oil sales
activities, Omega experienced a $14.2 million decrease in
revenues due to reduced sales volumes, partially offset by an
increase of $4.0 million in sales caused by increased sales
prices, when comparing 2005 to 2004.
Cost of revenues from continuing operations. Consolidated
cost of revenues, including depreciation an amortization, for
the year ended December 31, 2005 was $92.0 million, a
$12.3 million decrease from $104.2 million, related to
an increase at Omega Protein. Omega’s cost of revenues, as
a percentage of revenues, was 84% for 2005 as compared to 87%
for 2004. The 3% decrease in cost of sales as percentage of
revenue was primarily due to increased sales prices, as noted
above, in 2005 as compared to 2004 and decreased per unit
product costs in 2005 as compared to 2004 due to increased
production during the period the Gulf of Mexico plants were
operational in 2005.
Selling, general and administrative from continuing
operations. Consolidated selling, general, and
administrative expenses increased $4.1 million from
$14.5 million in 2004 to $18.6 million in 2005. This
increase was primarily due to increased expenditures at Omega
Protein of $2.9 million related to its governmental
relations program, increased audit fees, increases in
employee-related costs and expenses, marketing expenditures and
expenses associated with abandoned acquisition activity. In
addition, selling, general and administrative costs increased at
Zapata Corporate by $1.2 million, primarily attributable to
legal accruals which were reduced in the prior year, combined
with stock option modification expenses in the current year.
Loss resulting from natural disaster. For the year ended
December 31, 2005, Omega incurred losses, net of insurance
receivable, of $15.7 million relating to damages incurred
at its Moss Point, Mississippi fish processing facility and
adjacent shipyard from Hurricane Katrina, and damages incurred
at its Cameron and Abbeville, Louisiana fish processing
facilities from Hurricane Rita.
Interest income from continuing operations. Consolidated
interest income increased $919,000 from $992,000 for the year
ended December 31, 2004 to $1.9 million in the year
ended December 31, 2005. This increase was attributable to
increases of $868,000 at Zapata Corporate resulting from higher
interest rates on investment and an increase in cash balances
available for investment after selling its common stock holdings
in Safety Components. In addition, Omega Protein and Zap.Com had
increases in interest income of $21,000 and $30,000,
respectively, resulting from higher returns on cash and cash
equivalents.
Interest expense from continuing operations. Interest
expense increased $290,000 for the year ended December 31,
2005 as compared to the year ended December 21, 2004
related to increases at Omega Protein caused by the addition of
$14.0 million in debt which was obtained in October 2005.
Income taxes from continuing operations. The Company
recorded a consolidated benefit for income taxes of
$6.7 million for the year ended December 31, 2005 as
compared to a provision for income taxes of $955,000 for the
prior year. The change from a provision to a benefit is
primarily the result of Omega’s recognition of a benefit
for income taxes of $4.3 million in the current year as
compared to a provision of $1.5 million in the prior year.
This was primarily the result of the benefit recorded in
conjunction with the recognition of the $15.7 million loss
resulting from the hurricanes. In addition, Zapata Corporate
recognized a benefit of $2.5 million in 2005 as compared to
$539,000 in 2004. This was primarily the result of the
elimination of $4.2 million of deferred tax liabilities
which had been established during periods in which Safety
Components was consolidated for book purposes and not
consolidated for tax purposes.
For all periods in which any of the Company’s subsidiaries
are consolidated for book purposes and not consolidated for tax
purposes, Zapata will recognize a provision or benefit to
reflect the increase or decrease in the difference between the
Company’s book and tax basis in each subsidiary. The
provision or benefit will be equal to the sum of the
Company’s tax effected proportionate share of each
subsidiary’s net income or loss.
34
Table of Contents
Accordingly, the Company’s effective tax rate for each
period can vary significantly depending on the changes in the
underlying difference between the Company’s book and tax
basis in its subsidiaries.
Minority interest from continuing operations. Minority
interest from the consolidated statements of operations
represents the minority stockholders’ interest in the net
income of the Company’s subsidiaries (approximately 42% of
Omega Protein and approximately 2% of Zap.Com). In 2005,
minority interest was a $3.1 million and $1,000 reduction
of the net loss for Zapata’s share in Omega Protein and
Zap.Com, respectively.
Net income from discontinued operations. Pursuant to the
Zapata Board of Directors’ approval of the plan to sell the
Company’s shares of Safety Components and the subsequent
sale of these shares to the WLR Recovery Funds, all operating
results related to Safety have been reclassified and included in
discontinued operations. For the year ended December 31,
2005, the Company recognized a net loss from discontinued
operations of $3.4 million as compared to net income from
discontinued operations of $5.3 million for year ended
2004. The change from net income to net loss recognized from
discontinued operations resulted primarily from Zapata’s
recognition of a $9.9 million loss on the sale of Safety
Components.
2004 Compared to 2003
Zapata reported consolidated net income of $3.7 million or
$.19 per diluted share on revenues of $119.6 million
for the year ended December 31, 2004 as compared to
consolidated net income of $892,000 or $.05 per diluted
share on revenues of $117.9 million in 2003. On a
consolidated basis, net income increased as a result of
increased net income from discontinued operations, partially
offset by a decrease in net income at Omega Protein. In
addition, Zapata Corporate’s net loss increased due to an
increase in the provision for income taxes recognized to reflect
changes in the Company’s book and tax basis in its
subsidiaries.
The following presents a more detailed discussion of the
consolidated operating results:
Revenues from continuing operations. Consolidated
revenues increased $1.7 million from $117.9 million in
2003 to $119.6 million in 2004, relating to increased
revenues at Omega Protein. Omega’s increase in revenues was
due to higher selling prices of 7% and 16% for fish meal and
fish oil, respectively. Sales volumes of Omega’s fish meal
in 2004 increased by 3% while 2004 sales volumes of the fish oil
decreased by 29%. Considering both fish meal and fish oil sales
activities, Omega experienced an $8.4 million increase in
revenues due to higher prices, offset by a reduction of
$6.6 million in revenues caused by reduced sales volumes,
when comparing 2004 to 2003. Omega attributes the lower fiscal
2004 oil sales volumes to a reduction in fish oil inventories
carried over the previous year and reduced fish catch during
2004 attributable to adverse weather conditions resulting in
fewer volumes available for sale; fish meal volume sales were
supplemented by purchased products. Omega attributes the higher
fish meal and fish oil prices to lower available world supplies
of fish meal and fish oil and higher prices for other competing
proteins and fats.
Cost of revenues from continuing operations. Consolidated
cost of revenues for the year ended December 31, 2004 was
$104.2 million, a $5.2 million increase from
$99.0 million, related to an increase at Omega Protein.
Omega’s cost of revenues, including depreciation and
amortization, for 2004 was $104.2 million, a
$5.2 million increase or 5%. Cost of revenues as a
percentage of revenues was 87% for 2004 as compared to 84% for
2003. The 3% increase in cost of revenues as percentage of
revenue was primarily due to higher 2004 cost of production due
to reduced fish catch brought about by adverse weather
conditions along the Atlantic Coast and in the Gulf of Mexico.
Selling, general and administrative from continuing
operations. Consolidated selling, general, and
administrative expenses increased $1.4 million from
$13.1 million in 2003 to $14.5 million in 2004.
Zapata Corporate’s selling, general, and administrative
increased approximately $636,000 for the year ended
December 31, 2004 as compared to the same period in the
prior year. This increase was primarily attributable to legal
reserves reversals which were less than reversals in the prior
year, partially offset by a reduction in pension expense
recognized during 2004. Additionally, Zapata Corporate incurred
approximately $112,000 of Sarbanes-Oxley related compliance
expenses during 2004.
35
Table of Contents
Omega’s selling, general and administrative expenses
increased $751,000 or 8% from $9.4 million in 2003 to
$10.1 million in 2004. The increase was primarily due to
increased consulting expenditures related to its governmental
relations program, Sarbanes-Oxley compliance efforts, and
increases in employee-related costs and marketing expenditures.
Interest income from continuing operations. Consolidated
interest income decreased $222,000 from $1.2 million for
the year ended December 31, 2003 to $992,000 for the year
ended December 31, 2004. This decrease is a result of a
lower principal balance of cash and cash equivalents at Zapata
Corporate after spending $47.8 million in 2003 to purchase
a majority interest in Safety Components. In addition, interest
income increased by $151,000 at Omega Protein.
Interest expense from continuing operations. Interest
expense decreased $169,000 for the year ended December 31,
2004 as compared to the year ended December 21, 2003
related to decreases at Omega Protein.
Income taxes from continuing operations. The Company
recorded a consolidated provision for income taxes of $955,000
for the year ended December 31, 2004 as compared to a
provision of $3.0 million for the prior year. The decrease
in the consolidated provision was primarily the result of a
decrease in the provision at Omega Protein resulting from a
decrease in pre-tax
income during the period.
For all periods in which any of the Company’s subsidiaries
are consolidated for book purposes and not consolidated for tax
purposes, Zapata will recognize a provision or benefit to
reflect the increase or decrease in the difference between the
Company’s book and tax basis in each subsidiary. The
provision or benefit will be equal to the sum of the
Company’s tax effected proportionate share of each
subsidiary’s net income or loss. Accordingly, the
Company’s effective tax rate for each period can vary
significantly depending on the changes in the underlying
difference between the Company’s book and tax basis in its
subsidiaries.
Minority interest from continuing operations. Minority
interest from the consolidated statements of operations
represents the minority stockholders’ interest in the net
income of the Company’s subsidiaries (approximately 42% of
Omega Protein and approximately 2% of Zap.Com). In 2004,
minority interest was a $3.4 million reduction to net
income for Zapata’s share in the net incomes of Omega
Protein, partially offset by Zapata’s share in the net loss
of Zap.Com.
Net income from discontinued operations. Pursuant to the
Zapata Board of Directors’ approval of the plan to sell the
Company’s shares of Safety Components and the subsequent
sale of these shares to the WLR Recovery Funds, all operating
results related to Safety have been reclassified and included in
discontinued operations. For the year ended December 31,
2004, net income from discontinued operations increased to
$5.3 million from $538,000 for the year ended
December 31, 2003. This increase resulted from
Zapata’s consolidation of a full year of Safety’s
results in 2004, as compared to consolidating only the fourth
quarter in 2003 due to the timing of the original acquisition.
In addition, purchase accounting adjustments reduced
Safety’s contribution by $498,000 in 2004 as compared to
$1.7 million in 2003.
Liquidity and Capital Resources
Zapata, Omega Protein and Zap.Com are separate public companies.
Accordingly, the capital resources and liquidity of Omega
Protein and Zap.Com are legally independent of Zapata. The
working capital and other assets of Omega Protein and Zap.Com
are dedicated to their respective operations and are not
expected to be readily available for the general corporate
purposes of Zapata, except for any dividends that may be
declared and paid to their respective stockholders. Omega
Protein’s credit facilities currently prohibit any
dividends from being declared or paid with respect to its
respective outstanding capital stock, including the shares held
by Zapata. For all periods presented in this Report, Zapata has
not received any dividends from any of its consolidated
subsidiaries.
36
Table of Contents
The following tables summarizes information about Zapata’s
consolidated contractual obligations (in thousands) as of
December 31, 2005 and the effect such obligations are
expected to have on its consolidated liquidity and cash flow in
future periods:
| Payments Due by Period | ||||||||||||||||||||
| Less than | 1 to 3 | 3 to 5 | More than | |||||||||||||||||
| Zapata Consolidated Contractual Obligations | Total | 1 Year | Years | Years | 5 Years | |||||||||||||||
|
Long-term and short-term debt obligations(1)
|
$ | 30,101 | $ | 2,443 | $ | 5,062 | $ | 4,278 | $ | 18,318 | ||||||||||
|
Interest on long-term debt(1)
|
13,693 | 1,833 | 3,439 | 2,776 | 5,645 | |||||||||||||||
|
Operating lease obligations(2)
|
6,368 | 800 | 1,432 | 1,304 | 2,832 | |||||||||||||||
|
Consulting agreements(3)
|
1,012 | 602 | 225 | 185 | — | |||||||||||||||
|
Pension liabilities(4)
|
11,810 | — | — | — | 11,810 | |||||||||||||||
|
Standby letters of credit(5)
|
8,030 | 8,030 | — | — | — | |||||||||||||||
|
Fish meal purchase(6)
|
2,618 | 2,618 | — | — | — | |||||||||||||||
|
Total contractual obligations
|
$ | 73,632 | $ | 16,326 | $ | 10,158 | $ | 8,543 | $ | 38,605 | ||||||||||
| (1) | As of December 31, 2005, the Company had $30.1 million in consolidated indebtedness, all of which relates to Omega Protein. Zapata has neither guaranteed nor otherwise agreed to be liable for the repayment of this debt. For more information concerning debt, see Note 9 to the Company’s Consolidated Financial Statements included in Item 8 of this Report. |
| (2) | For more information concerning operating leases, see Note 14 to the Company’s Consolidated Financial Statements included in Item 8 of this Report. |
| (3) | For more information concerning the consulting agreement with Malcolm Glazer, see Note 18 to the Company’s Consolidated Financial Statements included in Item 8 of this Report. Other amounts in this category are related to a consultancy and retirement agreement entered into in 1981 with a former executive officer of the Company. |
| (4) | Omega expects to make contributions of $2.6 million to its pension plan in 2006. For more information concerning pension liabilities, see Note 15 to the Company’s Consolidated Financial Statements included in Item 8 of this Report. |
| (5) | As of December 31, 2005, Omega had no outstanding borrowings under the $20 million Credit Facility other than $8.0 million in standby letters of credit. In September 2004 the United States Department of Commerce Fisheries Finance Program approved a $14 million financing application (“Approval Letter”) made by the Company. As of December 31, 2005, Omega had closed on the $14 million loan. |
| (6) | This amount represents the fish meal purchase not related to standby letters of credit. An additional $5.1 million of fish meal purchases is contained in standby letters of credit obligation. |
As of December 31, 2005, Omega was out of compliance with
the Minimum Net Income covenant in its Credit Facility due to
its reporting of net losses for two consecutive quarters (third
and fourth quarters of 2005). Omega notified the lender of the
covenant non-compliance and received a waiver from the lender.
As of December 31, 2005, Omega was out of compliance with
the Ratio of Earnings to Fixed Charges covenant in the Credit
Facility. Omega notified the lender of the covenant
non-compliance and received a waiver from the lender.
Zapata Corporate
Because Zapata does not guarantee or otherwise assume the
liabilities of Omega Protein or Zap.Com or have any investment
commitments to these majority and formerly-owned subsidiaries,
it is useful to separately review the cash obligations of Zapata
exclusive of its majority-owned subsidiaries.
37
Table of Contents
Zapata Corporate’s liquidity needs are primarily for
operating expenses, litigation, insurance costs and possible
Zapata stock repurchases. Zapata Corporate may also invest a
significant portion of its cash and cash equivalents in the
purchase of companies.
The following table summarizes information about Zapata
Corporate’s contractual obligations (in thousands) as of
December 31, 2005, and the effects such obligations are
expected to have on Zapata Corporate’s liquidity and cash
flow in future periods:
| Payments Due by Period | ||||||||||||||||||||
| Less than | 1 to 3 | 3 to 5 | More than | |||||||||||||||||
| Zapata Corporate Contractual Obligations | Total | 1 Year | Years | Years | 5 Years | |||||||||||||||
|
Operating lease obligations(1)
|
$ | 95 | $ | 60 | $ | 35 | $ | — | $ | — | ||||||||||
|
Consulting agreements(2)
|
1,012 | 602 | 225 | 185 | — | |||||||||||||||
|
Pension liability(3)
|
878 | — | — | — | 878 | |||||||||||||||
|
Total contractual obligations
|
$ | 1,985 | $ | 662 | $ | 260 | $ | 185 | $ | 878 | ||||||||||
| (1) | For more information concerning operating leases, see Note 14 to the Company’s Consolidated Financial Statements included in Item 8 of this Report. |
| (2) | For more information concerning the consulting agreement with Malcolm Glazer, see Note 18 to the Company’s Consolidated Financial Statements included in Item 8 of this Report. Other amounts in this category are related to a consultancy and retirement agreement entered into in 1981 with a former executive officer of the Company. |
| (3) | For more information concerning pension liabilities, see Note 15 to the Company’s Consolidated Financial Statements included in Item 8 of this Report. |
Zapata Corporate’s current source of liquidity is its cash
and cash equivalents and the interest income it earns on these
funds. Zapata expects these assets to continue to be a source of
liquidity except to the extent that they may be used to fund any
acquisitions of companies, the minority interest of controlled
subsidiaries, or repurchases of Zapata stock. Zapata
Corporate’s investments consist of U.S. Government
agency securities and cash equivalents. As of December 31,
2005, Zapata Corporate’s cash and cash equivalents were
$75.3 million as compared to $28.7 million as of
December 31, 2004. This increase resulted from the sale of
Safety Components and the receipt of the $51.2 million
purchase price.
In addition to its cash, cash equivalents, and interest income,
Zapata Corporate has a potential secondary source of liquidity
from dividends declared by Omega Protein or Zap.Com, provided a
consent is obtained from their lenders. Also, the sale of the
Company’s holdings of common stock in these subsidiaries
could provide another secondary source of liquidity. These
holdings constitute “restricted stock” under SEC
Rule 144 and may only be sold in the public market pursuant
to an effective registration statement under the Securities Act
of 1933 and under any required state securities laws or pursuant
to an available exemption. These and other securities law
restrictions could prevent or delay any sale by Zapata of these
securities or reduce the amount of proceeds that might otherwise
be realized therefrom. Currently, all of Zapata’s equity
securities holdings are eligible for sale under Rule 144.
Zapata also has demand and piggyback registration rights for its
Omega Protein and Zap.Com shares. The low trading volumes for
Omega Protein and Zap.Com common stock may make it difficult for
Zapata to sell any significant number of shares in the public
market other than pursuant to an underwritten offering.
Zapata management believes that, based on current levels of
operations and anticipated growth, cash flow from operations,
together with other available sources of funds, will be adequate
to fund its operational and capital requirements for at least
the next twelve months. Depending on the size and terms of
future acquisitions of operating companies or of the minority
interest of controlled subsidiaries, Zapata may raise additional
capital through the issuance of equity or debt. There is no
assurance, however, that such capital will be available at the
time, in the amounts necessary or with terms satisfactory to
Zapata.
38
Table of Contents
Off-Balance Sheet Arrangements
The Company and its subsidiaries do not have any off-balance
sheet arrangements that are material to its financial position,
results of operations or cash flows. The Company is a party to
agreements with its officers, directors and to certain outside
parties. For further discussion of these guarantees, see
Note 14 to the Consolidated Financial Statements included
in Item 8 of this report.
Summary of Cash Flows
The following table summarizes Zapata’s consolidating cash
flow information (in thousands) for the last three fiscal years:
| Zapata | Omega | Discontinued | ||||||||||||||||||
| Corporate | Protein | Zap.Com | Operations(1) | Consolidated | ||||||||||||||||
|
Year Ended December 31, 2005
|
||||||||||||||||||||
|
Cash (used in) provided by
|
||||||||||||||||||||
|
Operating activities
|
$ | (4,712 | ) | $ | (4,104 | ) | $ | (56 | ) | $ | 10,951 | $ | 2,079 | |||||||
|
Investing activities
|
51,197 | (15,226 | ) | — | (6,406 | ) | 29,565 | |||||||||||||
|
Financing activities
|
90 | 12,922 | — | (2,441 | ) | 10,571 | ||||||||||||||
|
Effect of exchange rate changes on cash and cash equivalents
|
— | 13 | — | (81 | ) | (68 | ) | |||||||||||||
|
Net increase (decrease) in cash and cash equivalents
|
$ | 46,575 | $ | (6,395 | ) | $ | (56 | ) | $ | 2,023 | $ | 42,147 | ||||||||
| Zapata | Omega | Discontinued | ||||||||||||||||||
| Corporate | Protein | Zap.Com | Operations(1) | Consolidated | ||||||||||||||||
|
Year Ended December 31, 2004
|
||||||||||||||||||||
|
Cash (used in) provided by
|
||||||||||||||||||||
|
Operating activities
|
$ | (2,961 | ) | $ | 20,625 | $ | (95 | ) | $ | 13,370 | $ | 30,939 | ||||||||
|
Investing activities
|
29,351 | (22,833 | ) | — | (6,547 | ) | (29 | ) | ||||||||||||
|
Financing activities
|
13 | (404 | ) | — | (8,780 | ) | (9,171 | ) | ||||||||||||
|
Effect of exchange rate changes on cash and cash equivalents
|
— | (5 | ) | — | 1,765 | 1,760 | ||||||||||||||
|
Net increase (decrease) in cash and cash equivalents
|
$ | 26,403 | $ | (2,617 | ) | $ | (95 | ) | $ | (192 | ) | $ | 23,499 | |||||||
| Zapata | Omega | Discontinued | ||||||||||||||||||
| Corporate | Protein | Zap.Com | Operations(1)(2) | Consolidated | ||||||||||||||||
|
Year Ended December 31, 2003
|
||||||||||||||||||||
|
Cash (used in) provided by
|
||||||||||||||||||||
|
Operating activities
|
$ | (5,498 | ) | $ | 11,894 | $ | (154 | ) | $ | 7,922 | $ | 14,164 | ||||||||
|
Investing activities, net of cash acquired
|
(37,367 | ) | (14,768 | ) | — | 5,311 | (46,824 | ) | ||||||||||||
|
Financing activities
|
10 | 4,836 | — | (9,412 | ) | (4,566 | ) | |||||||||||||
|
Effect of exchange rate changes on cash and cash equivalents
|
— | (38 | ) | — | 555 | 517 | ||||||||||||||
|
Net (decrease) increase in cash and cash equivalents
|
$ | (42,855 | ) | $ | 1,924 | $ | (154 | ) | $ | 4,376 | $ | (36,709 | ) | |||||||
| (1) | Cash flow information related to Safety Components for the years ended December 31, 2005, 2004 and 2003 has been disclosed within discontinued operations in accordance with SFAS No. 144. |
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| (2) | Due to the timing of the original purchase and consolidation, Safety’s cash flow information was included in Zapata’s consolidated cash flows beginning in the fourth quarter of 2003. |
| Net cash provided by operating activities. |
Consolidated cash provided by operating activities was
$2.1 million and $30.9 million for the years ended
December 31, 2005 and 2004 respectively. The decrease in
consolidated cash provided by operating activities was primarily
due to Omega’s change from cash provided by operating
activities of $20.6 million in 2004 as compared to cash
used in operating activities of $4.1 in 2005. This change was
primarily attributable to the change in activities relating to
increased inventory and losses associated with Hurricanes
Katrina and Rita.
Consolidated cash provided by operating activities was
$30.9 million and $14.1 million for the years ended
December 31, 2004 and 2003 respectively. The increase in
consolidated cash provided by operating activities was primarily
due to Omega’s increase of $8.8 million in 2004 as
compared to 2003 combined with an increase of $5.4 million
attributable to Safety Components. Omega’s increase
resulted primarily from timing of receivables as compared to the
prior year. Safety’s increase resulted primarily from
including 12 months of its cash flow results in 2004 as
compared to three months in 2003 due to the timing of the
acquisition. In addition, Zapata Corporate’s cash used in
operating activities decreased by $2.5 from 2003 to 2004
primarily related to deferred income taxes.
| Net cash used in investing activities. |
Consolidated cash provided by investing activities was
$29.6 million for the year ended December 31, 2005 as
compared to cash used in investing activities of $29,000 for the
year ended December 31, 2004. The reason for this change is
primarily due to an increase in cash provided by investing
activities of $21.8 million at Zapata Corporate. This
increase resulted from the receipt of the $51.2 million in
proceeds from the sale of Safety Components in 2005, as compared
to proceeds from the maturities of short-term investments of
$29.4 million in 2004 related to the change in mix of cash,
cash equivalents and short-term investments during the period.
Consolidated cash used in investing activities was $29,000 and
$46.8 million for the years ended December 31, 2004
and 2003 respectively. The decrease in consolidated cash used in
investing activities was primarily due to the Company’s
purchase of 84% of Safety Components common stock for
$47.8 million in 2003, compared to no such acquisitions in
2004. This decrease was partially offset by an
$11.9 million increase in cash used in investing activities
at Safety Components which primarily resulted from consolidating
12 months of cash flow results in 2004 as compared to three
months in 2003 due to the timing of the acquisition. This
decrease was also partially offset by increases in cash used in
investing activities at Omega Protein of $8.1 million
related to funding of the construction of the new Health and
Science Center. The use of cash in investing activities at Omega
Protein and Safety Components was almost entirely offset by the
change in the mix of Zapata Corporate’s cash and cash
equivalents and short-term investments. Variations in the
Company’s consolidated net cash (used in) provided by
investing activities are typically the result of the change in
mix of cash, cash equivalents, short- and long-term investments
during the period. All highly liquid investments with original
maturities of three months or less are considered to be cash
equivalents and all investments with original maturities of
greater than three months are classified as either short- or
long-term investments.
Other than possible acquisitions of operating companies, the
minority interest of controlled subsidiaries, funding of
start-up proposals and
possible stock repurchases, Zapata Corporate does not expect any
capital expenditures during 2006. Omega Protein has reported
that it anticipates making $8 million in capital
expenditures in 2006 which will be used to refurbish vessels,
plant assets and to repair certain equipment, in addition to any
future capital expenditures related to the hurricanes. Omega has
also reported that it expects to receive insurance proceeds from
hurricane damages to assist in meeting its capital expenditures.
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| Net cash used in financing activities. |
Consolidated cash provided by financing activities was
$10.6 million for the year ended December 31, 2005 as
compared to cash used in financing activities of
$9.2 million for the year ended December 31, 2004. The
change in cash from financing activities resulted primarily from
changes at Omega Protein and Safety Components. Omega’s
change resulted primarily from $14.0 million in proceeds
from Title XI debt received during 2005. In addition,
Safety’s change in financing activities resulted from
additional repayments of its other debt and long-term
obligations.
Consolidated cash used in financing activities was
$9.2 million and $4.6 million for the years ended
December 31, 2004 and 2003 respectively. The increase in
consolidated cash used in financing activities was primarily due
to Omega’s proceeds from Title XI and other borrowings
of $5.3 million in 2003 as compared to no such borrowings
in 2004. This increase was partially offset by a decrease of
$632,000 at Safety Components resulting from consolidating
12 months of cash flow results in 2004 as compared to three
months in 2003 due to the timing of the acquisition.
Recent Accounting Pronouncements
In November 2004, the Financial Accounting Standards Board
(“FASB”) issued Statement of Financial Accounting
Standards (“SFAS”) No. 151, “Inventory
Costs,” which clarifies the accounting for abnormal amounts
of idle facility expense, freight, handling costs, and wasted
material. SFAS No. 151 will be effective for inventory
costs incurred during fiscal years beginning after June 15,
2005. The adoption of this statement is not expected to have any
impact on the Company’s consolidated financial position,
results of operations or cash flows.
In December 2004, the FASB issued SFAS No. 123R,
“Share Based Payment,” that requires companies to
expense the value of employee stock options and similar awards
for interim and annual periods beginning after June 15,
2005 and applies to all outstanding and unvested stock-based
awards at a company’s adoption date. The Company does not
believe that the adoption of this statement will have a material
effect on the Company’s consolidated financial position and
results of operations for its currently outstanding unvested
stock options. However, there can be no assurance that any
future grants of stock options will not have a material impact
on the Company’s consolidated financial position and
results of operations.
In December 2004, the FASB issued SFAS No. 153,
“Exchanges of Nonmonetary Assets,” which eliminates
the exception for nonmonetary exchanges of similar productive
assets and replaces it with a general exception for exchanges of
nonmonetary assets that do not have commercial substance.
SFAS No. 153 will be effective for nonmonetary asset
exchanges occurring in fiscal periods beginning after
June 15, 2005. The adoption of this statement is not
expected to have any impact on the Company’s consolidated
financial position, results of operations or cash flows.
In March 2005, the FASB issued Interpretation (“FIN”)
No. 47, “Accounting for Conditional Asset Retirement
Obligations — an Interpretation of FASB Statement
No. 143.” This interpretation clarifies the timing of
liability recognition for legal obligations associated with an
asset retirement when the timing and (or) method of
settling the obligation are conditional on a future event that
may or may not be within the control of the entity.
FIN No. 47 is effective no later than the end of
fiscal years ending after December 15, 2005. The adoption
of FIN No. 47 did not have a material impact on the
Company’s financial condition, results of operations or
cash flows.
Critical Accounting Policies and Estimates
The discussion and analysis of Zapata’s consolidated
financial condition, liquidity and results of operations are
based upon our consolidated financial statements, which have
been prepared in accordance with accounting principles generally
accepted in the United States of America. The preparation of
these financial statements requires management to make estimates
and assumptions that affect amounts reported therein.
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The following lists our current accounting policies involving
significant management judgment and provides a brief description
of these policies:
Discontinued Operations. The Company has adopted the
provisions of SFAS No. 144, “Accounting for the
Impairment or Disposal of Long-Lived Assets.”
SFAS No. 144 replaces SFAS No. 121,
“Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of.” This standard
establishes a single accounting model for long-lived assets to
be disposed of by sale, including discontinued operations to
include a “component of an entity” (rather than a
segment of a business). A component of an entity comprises
operations and cash flows that can be clearly distinguished,
operationally and for financial reporting purposes, from the
rest of the entity. A component of an entity that is classified
as held for sale, or has been disposed of, is presented as a
discontinued operation if the operations and cash flows of the
component will be (or have been) eliminated from the ongoing
operations of the entity and the entity will not have any
significant continuing involvement in the operations of the
component.
For example, on September 21, 2005, Zapata’s Board of
Directors approved a plan to pursue a sale with respect to the
Company’s holdings of 4,162,394 shares of Safety
Components’ common stock. Based on this approval, the
Company determined that this subsidiary substantially met the
criteria to report the pending sale as “Assets Held for
Sale” and the subsidiary as “Discontinued
Operations” in accordance with SFAS No. 144,
“Accounting for the Impairment or Disposal of Long-Lived
Assets.” Accordingly, assets classified as held for sale
were measured at the lower of the carrying amount or fair value
less cost to sell. The Company completed its sale of Safety
Components on December 2, 2005.
Acquisition Accounting. The Company accounts for
acquisitions using the purchase method of accounting in
accordance with SFAS No. 141, “Business
Combinations.” Under the purchase method, the Company is
required to record the net assets acquired at the estimated fair
value at the date of acquisition. The determination of the fair
value of the assets acquired and liabilities assumed requires
the Company to make estimates and assumptions that affect the
Company’s financial statements. In addition, depending on
the specific facts and circumstances, goodwill and other
intangible assets, including those intangible assets with finite
lives could result from an acquisition. Different estimates and
assumptions regarding these assets, specifically the estimated
fair values and lives, could result in materially different
amortization expense over the estimated lives of such assets.
Litigation reserves. The establishment of litigation
reserves requires judgments concerning the ultimate outcome of
pending litigation against the Company and its subsidiaries. In
applying judgment, management utilizes opinions and estimates
obtained from outside legal counsel to apply the standards of
SFAS No. 5 “Accounting for Contingencies.”
Accordingly, estimated amounts relating to certain litigation
have met the criteria for the recognition of a liability under
SFAS No. 5. Other litigation for which a liability has
not been recognized is reviewed on an ongoing basis in
conjunction with the standards of SFAS No. 5. A
liability is recognized for all associated legal costs as
incurred. Liabilities for litigation settlements, legal fees and
changes in these estimated amounts may have a material impact on
the Company’s financial position, results of operations or
cash flows.
For example, in a claim settled in 2003 against Zapata and a
non-operating wholly-owned subsidiary of Zapata which commenced
during the 1990’s, the Company had been carrying a reserve
of $1.0 million due to the uncertainty regarding the
Company’s insurance coverage as it related to the claim.
During July 2003, a court granted summary judgment to Zapata and
our subsidiary holding that the insurance carrier owed a duty to
defend and indemnify both Zapata and our subsidiary in this
matter. Based on the court’s decision, Zapata reversed the
entire $1.0 million reserve into income during 2003.
Deferred income taxes. Deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable
income in the years in which the temporary differences are
expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in the tax rates is
recognized in earnings in the period that includes the enactment
date. Additionally, taxing jurisdictions could retroactively
disagree with the Company’s tax treatment of certain items,
and some historical transactions have income tax effects going
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forward. Accounting rules require these future effects to be
evaluated using current laws, rules and regulations, each of
which can change at any time and in an unpredictable manner.
The Company reduces its deferred tax assets to an amount that it
believes is more likely than not to be realized. In so doing,
the Company estimates future taxable income in determining if
any valuation allowance is necessary. While the Company believes
it is more likely than not that it will be able to realize its
amount of estimated deferred tax assets, it is possible that the
facts and circumstances on which the Company’s estimates
and judgments are based could change, which could result in
additional income tax expense in the future to recognize or
increase the associated valuation allowances.
Benefit plan assumptions. On a consolidated basis, the
Company has three defined benefit plans, under which
participants earn a retirement benefit based upon a formula set
forth in each plan. The Company records income or expense
related to these plans using actuarially determined amounts that
are calculated under the provisions of SFAS No. 87,
“Employers’ Accounting for Pensions.” Key
assumptions used in the actuarial valuations include the
discount rate and the anticipated rate of return on plan assets.
These rates are based on market interest rates, and therefore
fluctuations in market interest rates could impact the amount of
pension income or expense recorded for these plans. Despite the
Company’s belief that its estimates are reasonable for
these key actuarial assumptions, future actual results will
likely differ from the Company’s estimates, and these
differences could materially affect the Company’s future
financial statements either unfavorably or favorably.
The discount rate enables a company to state expected future
cash flows at a present value on the measurement date. Both
Zapata and Omega Protein have little latitude in selecting this
rate; it is based on the yield on high-quality fixed income
investments at the measurement date. A lower discount rate
increases the present value of benefit obligations and increases
pension expense. On a consolidated basis, a 50 basis point
reduction in the discount rate would increase pension expense by
$64,000 in 2006.
To determine the expected long-term rate of return on pension
plan assets, Zapata and Omega Protein consider a variety of
factors including historical returns and asset class return
expectations based on each Company’s plan’s current
asset allocation. On a consolidated basis, a 50 basis point
reduction in the expected return on assets would increase
pension expense by $142,000 in 2006.
Omega’s hurricane losses. On August 29, 2005,
Omega’s Moss Point, Mississippi fish processing facility
and adjacent shipyard were severely damaged by Hurricane
Katrina. On September 25, 2005, Omega’s Cameron,
Louisiana and Abbeville, Louisiana fish processing facilities
were also severely damaged by Hurricane Rita. Each of these
facilities was non-operational immediately after these weather
events. Operations at the Moss Point fish processing facility,
the Abbeville fish processing facility and the shipyard were
re-established in mid-October, 2005, but at reduced processing
capabilities. Omega is currently rebuilding its Cameron,
Louisiana facility and expects it to be fully operational by mid
2006.
The direct impact of the two hurricanes upon Omega was a loss of
physical inventories and physical damage to the plants. The
interruption of processing capabilities caused Omega to address
the impact of abnormal downtime of its processing facilities,
which resulted in the immediate recognition of costs which would
ordinarily have been captured as inventory costs. The amounts of
these losses are more fully described in Notes 4, 5, 6
and 11 to the Company’s Consolidated Financial Statements
included in Item 8 of this Report.
Omega maintains insurance coverage for a variety of these
damages, most notably property, inventory and vessel insurance.
The nature and extent of the insurance coverage varies by line
of policy and Omega has recorded insurance recoveries as
accounts receivable based on estimates. Omega anticipates that
further recoveries could be available, but such additional
recoveries will require further analysis and discussions with
Omega’s insurance carriers and adjusters. Such recoveries,
if any, would be recognized in future periods once they are
deemed probable. Omega does not maintain business interruption
insurance in any material amounts.
Omega’s impairment of long-lived assets. Omega
evaluates at each balance sheet date the continued
appropriateness of the carrying value of its long-lived assets
including its long-term receivables and property, plant and
equipment in accordance with SFAS No. 144,
“Accounting for the Impairment or Disposals of
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Long-Lived Assets.” Omega reviews long-lived assets for
impairment when events or changes in circumstances indicate that
the carrying amount of any such assets or grouping of assets may
not be recoverable. Omega’s management has grouped certain
assets together (primarily marine vessels) for imparment testing
on a fleet basis. If indicators of impairment are present,
management would evaluate the undiscounted cash flows estimated
to be generated by those assets or grouping of assets compared
to the carrying amount of those items. The net carrying value of
assets or grouping of assets not recoverable is reduced to fair
value. Omega considers continued operating losses, or
significant and long-term changes in business conditions, to be
its primary indicators of potential impairment.
Omega’s revenue recognition. Omega derives revenue
principally from the sales of a variety of protein and oil
products derived from menhaden. Omega recognizes revenue for the
sale of its products when title and rewards of ownership to its
products are transferred to the customer.
Omega’s accounting for property, equipment and
depreciation. Omega records property and equipment additions
at cost. Depreciation of property and equipment is computed by
the straight-line method at rates expected to amortize the cost
of property and equipment, net of salvage value, over their
estimated useful lives. Estimated useful lives, determined at
the date of acquisition, of new assets acquired are based
primarily on the review of existing property and equipment.
Estimated useful lives are as follows:
| Useful Lives (Years) | ||||
|
Fishing vessels and fish processing plants
|
15-20 | |||
|
Machinery, equipment, furniture and fixtures and other
|
3-10 | |||
Replacements and major improvements are capitalized; maintenance
and repairs are charged to expense as incurred. Upon sale or
retirement, the costs and related accumulated depreciation are
eliminated from the accounts. Any resulting gains or losses are
included in the statement of operations. Omega capitalizes
interest as part of the acquisition cost of a qualifying asset.
Interest is capitalized only during the period of time required
to complete and prepare the asset for its intended use
Omega’s inventory costing. Omega’s inventory is
stated at the lower of cost or market. Omega’s fishing
season runs from mid-April to the first of November in the Gulf
of Mexico and from the beginning of May into December in the
Atlantic. Government regulations generally preclude Omega from
fishing during the off-seasons.
Omega’s inventory cost system considers all costs
associated with an annual fish catch and its processing, both
variable and fixed, including both costs incurred during the
off-season and during the fishing season. Omega’s costing
system allocates cost to inventory quantities on a per unit
basis as calculated by a formula that considers total estimated
inventoriable costs for a fishing season (including off-season
costs) to total estimated fish catch and the relative fair
market value of the individual products produced. Omega adjusts
the cost of sales, off-season costs and inventory balances at
the end of each quarter based on revised estimates of total
inventoriable costs and fish catch. Omega’s
lower-of-cost-or-market-value
analyses at year-end and at interim periods compares total
estimated per unit production cost of Omega’s expected
production to the projected per unit market prices of the
products. The impairment analyses involve estimates of, among
other things, future fish catches and related costs, and
expected commodity prices for the fish products. These
estimates, which management believes are reasonable and
supportable, involve estimates of future activities and events
which are inherently imprecise and from which actual results may
differ materially. Revisions in such estimates or actual results
could materially impact Omega’s results of operation and
financial position.
Any costs incurred during abnormal downtime related to activity
at Omega’s plants are charged to expense as incurred.
Omega’s deferral of off-season costs. During the
off-seasons, in connection with the upcoming fishing seasons,
Omega incurs costs (i.e., plant and vessel related labor,
utilities, rent, repairs and depreciation) that are directly
related to Omega’s infrastructure. These costs accumulate
in inventory and are applied as
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elements of the cost of production of Omega’s products
throughout the fishing season ratably based on Omega’s
monthly fish catch and the expected total fish catch for the
season.
Omega’s accounting for self-insurance retentions.
Omega carries insurance for certain losses relating to its
vessels and Jones Act liabilities for employees aboard its
vessels. Omega provides reserves for those portions of the
Annual Aggregate Deductible for which Omega remains responsible
by using an estimation process that considers Company-specific
and industry data as well as management’s experience,
assumptions and consultation with counsel, as these reserves
include estimated settlement costs. Management’s current
estimated range of liabilities related to such cases is based on
claims for which management can estimate the amount and range of
loss. For those claims where there may be a range of loss, Omega
has recorded an estimated liability inside that range, based on
management’s experience, assumptions and consultation with
counsel. The process of estimating and establishing reserves for
these claims is inherently uncertain and the actual ultimate net
cost of a claim may vary materially from the estimated amount
reserved. There is some degree of inherent variability in
assessing the ultimate amount of losses associated with these
claims due to the extended period of time that transpires
between when the claim might occur and the full settlement of
such claims. This variability is generally greater for Jones Act
claims by vessel employees. Omega continually evaluates loss
estimates associated with claims and losses as additional
information becomes available and revises its estimates.
Although management believes estimated reserves related to these
claims are adequately recorded, it is possible that actual
results could significantly differ from the recorded reserves,
which could materially impact Omega’s results of
operations, financial position and cash flow.
With respect to health insurance, Omega is primarily
self-insured. Omega purchases individual stop loss coverage with
a large deductible. As a result, Omega is primarily self-insured
for claims and associated costs up to the amount of the
deductible, with claims in excess of the deductible amount being
covered by insurance. Expected claims estimates are based on
health care trend rates and historical claims data; actual
claims may differ from those estimates. Omega continually
evaluates its claims experience related to this coverage with
information obtained from its risk management consultants.
Assumptions used in preparing these insurance estimates are
based on factors such as claims settlement patterns, claim
development trends, claim frequency and severity patterns,
inflationary trends and data reasonableness. Together these
factors will generally affect the analysis and determination of
the “best estimate” of the projected ultimate claim
losses. The results of these evaluations are used to both
analyze and adjust Omega’s insurance loss reserves.
The Company continually updates and assesses the facts and
circumstances regarding these critical accounting matters and
other significant accounting matters affecting estimates in its
financial statements. See “Risk Factors” included in
Item 1A of this Report.
| Item 7A. | Quantitative and Qualitative Disclosures about Market Risk |
Equity Price Risk. As the Company considers its holdings
of Omega Protein and Zap.Com common stock to be a potential
source of secondary liquidity, the Company is subject to equity
price risk to the extent of fluctuations in the market prices
and trading volumes of these securities. Fluctuation in the
market price of a security may result from perceived changes in
the underlying economic characteristics of the investee, the
relative price of alternative investments and general market
conditions. Furthermore, amounts realized in the sale of a
particular security may be affected by the relative quantity of
the security being sold.
Interest Rate Risk. Zapata Corporate and Zap.Com hold
investment grade securities which may include a mix of
U.S. Government or Government agency obligations,
certificates of deposit, money market deposits and commercial
paper rated A-1 or P-1. In addition, Omega Protein holds
certificates of deposit and commercial quality grade investments
rated A-2 P-2 or better with companies and financial
institutions. As the majority of the Company’s consolidated
investment grade securities constitute short-term
U.S. Government agency securities, the Company does not
believe that the value of these instruments have a material
exposure to interest rate risk. However, changes in interest
rates do affect the investment income the
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Company earns on its cash equivalents and marketable securities
and, therefore, impacts its cash flows and results of
operations. Accordingly, there is inherent roll-over risk for
the Company’s investment grade securities as they mature
and are renewed at current market rates. Using the
Company’s consolidated investment grade security balance of
$103.4 million at December 31, 2005 as a hypothetical
constant cash balance, an adverse change of 1% in interest rates
would decrease interest income by approximately
$1.0 million during a twelve-month period.
Market Risk. Omega Protein is exposed to minimal market
risk associated with interest rate movements on its borrowings.
A one percent increase or decrease in the levels of interest
rates on such borrowings would not result in a material change
to the Company’s results of operations.
Currency Exchange Rates and Forward Contracts. Although
Omega Protein sells products in foreign countries, all of
Omega’s revenues are billed and paid for in US dollars. As
a result, Omega’s management does not believe that it is
exposed to any significant foreign country currency exchange
risk, and Omega does not utilize market risk sensitive
instruments to manage its exposure to this risk.
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| Item 8. | Financial Statements and Supplementary Data |
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
of Zapata Corporation:
We have completed integrated audits of Zapata Corporation’s
2005 and 2004 consolidated financial statements and of its
internal control over financial reporting as of
December 31, 2005, and an audit of its 2003 consolidated
financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Our
opinions, based on our audits, are presented below.
Consolidated financial statements and financial statement
schedules
In our opinion, the consolidated financial statements listed in
the index appearing under Item 15(a)(1) present fairly, in
all material respects, the financial position of Zapata
Corporation and its subsidiaries at December 31, 2005 and
December 31, 2004, and the results of their operations and
their cash flows for each of the three years in the period ended
December 31, 2005 in conformity with accounting principles
generally accepted in the United States of America. In addition,
in our opinion, the financial statement schedules listed in the
index appearing under Item 15(a)(2) present fairly, in all
material respects, the information set forth therein when read
in conjunction with the related consolidated financial
statements. These financial statements and financial statement
schedules are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these
financial statements and financial statement schedules based on
our audits. We conducted our audits of these statements in
accordance with the standards of the Public Company Accounting
Oversight Board (United States). 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 of financial statements includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
Internal control over financial reporting
Also, we have audited management’s assessment, included in
Management’s Report on Internal Control Over Financial
Reporting appearing under Item 9A, that Zapata Corporation
did not maintain effective internal control over financial
reporting as of December 31, 2005, because of the effect of
the Company not maintaining effective controls over accounting
for income taxes, based on criteria established in Internal
Control — Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO). The Company’s management is responsible for
maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control
over financial reporting. Our responsibility is to express
opinions on management’s assessment and on the
effectiveness of the Company’s internal control over
financial reporting based on our audit.
We conducted our audit of internal control over financial
reporting in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over
financial reporting was maintained in all material respects. An
audit of internal control over financial reporting includes
obtaining an understanding of internal control over financial
reporting, evaluating management’s assessment, testing and
evaluating the design and operating effectiveness of internal
control, and performing such other procedures as we consider
necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinions.
A company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s
internal control
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over financial reporting includes those policies and procedures
that (i) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company;
(ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
A material weakness is a control deficiency, or combination of
control deficiencies, that results in more than a remote
likelihood that a material misstatement of the annual or interim
financial statements will not be prevented or detected. The
following material weakness has been identified and included in
management’s assessment:
As of December 31, 2005, the Company did not maintain
effective controls over the application and monitoring of its
accounting for income taxes. Specifically, the Company did not
have controls designed and in place to ensure the accuracy and
completeness of financial information provided to the Company by
third party tax advisors used in accounting for income taxes and
the determination of current income taxes payable, deferred
income tax assets and liabilities and the related income tax
provision (benefit) and the review and evaluation of the
application of generally accepted accounting principles relating
to accounting for income taxes. This control deficiency resulted
in the restatement of the Company’s consolidated financial
statements for the quarter ended September 30, 2005.
Additionally, this control deficiency could result in a material
misstatement of the aforementioned accounts that would result in
a material misstatement to annual or interim financial
statements that would not be prevented or detected. Accordingly,
management has determined that this control deficiency
constitutes a material weakness.
This material weakness was considered in determining the nature,
timing, and extent of audit tests applied in our audit of the
2005 consolidated financial statements, and our opinion
regarding the effectiveness of the Company’s internal
control over financial reporting does not affect our opinion on
those consolidated financial statements.
In our opinion, management’s assessment that Zapata
Corporation did not maintain effective internal control over
financial reporting as of December 31, 2005, is fairly
stated, in all material respects, based on criteria established
in Internal Control — Integrated Framework
issued by the COSO. Also, in our opinion, because of the
effect of the material weakness described above on the
achievement of the objectives of the control criteria, Zapata
Corporation has not maintained effective internal control over
financial reporting as of December 31, 2005, based on
criteria established in Internal Control —
Integrated Framework issued by the COSO.
PricewaterhouseCoopers LLP
Rochester, New York
April 5, 2006
48
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ZAPATA CORPORATION
CONSOLIDATED BALANCE SHEETS
| December 31, | December 31, | |||||||||
| 2005 | 2004 | |||||||||
| (In thousands, except share | ||||||||||
| and per share amounts) | ||||||||||
| ASSETS | ||||||||||
|
Current assets:
|
||||||||||
|
Cash and cash equivalents
|
$ | 103,373 | $ | 63,249 | ||||||
|
Accounts receivable, net
|
24,170 | 14,505 | ||||||||
|
Inventories, net
|
46,860 | 40,442 | ||||||||
|
Prepaid expenses and other current assets
|
2,314 | 2,373 | ||||||||
|
Assets related to discontinued operations
|
— | 78,440 | ||||||||
|
Total current assets
|
176,717 | 199,009 | ||||||||
|
Other assets, net
|
23,652 | 19,648 | ||||||||
|
Property, plant and equipment, net
|
93,985 | 97,820 | ||||||||
|
Non-current assets related to discontinued operations
|
— | 46,012 | ||||||||
|
Total assets
|
$ | 294,354 | $ | 362,489 | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||
|
Current liabilities:
|
||||||||||
|
Current maturities of long-term debt
|
$ | 2,443 | $ | 1,661 | ||||||
|
Accounts payable
|
3,989 | 2,567 | ||||||||
|
Accrued and other current liabilities
|
15,850 | 13,977 | ||||||||
|
Liabilities related to discontinued operations
|
— | 38,994 | ||||||||
|
Total current liabilities
|
22,282 | 57,199 | ||||||||
|
Long-term debt
|
27,658 | 15,943 | ||||||||
|
Pension liabilities
|
11,810 | 9,677 | ||||||||
|
Other liabilities and deferred taxes
|
983 | 3,720 | ||||||||
|
Non-current liabilities related to discontinued operations
|
— | 10,126 | ||||||||
|
Total liabilities
|
62,733 | 96,665 | ||||||||
|
Commitments and contingencies
|
||||||||||
|
Minority interest
|
59,937 | 79,510 | ||||||||
|
Stockholders’ equity:
|
||||||||||
|
Preferred stock, $.01 par; 1,600,000 shares authorized;
none issued or outstanding
|
— | — | ||||||||
|
Preference stock, $.01 par; 14,400,000 shares authorized;
none issued or outstanding
|
— | — | ||||||||
|
Common stock, $0.01 par, 132,000,000 shares authorized;
24,581,636 and 24,564,600 shares issued; and 19,149,556 and
19,132,520 shares outstanding, respectively
|
246 | 31 | ||||||||
|
Capital in excess of par value
|
162,730 | 160,671 | ||||||||
|
Retained earnings
|
45,127 | 54,841 | ||||||||
|
Treasury stock, at cost, 5,432,080 shares
|
(31,668 | ) | (31,668 | ) | ||||||
|
Accumulated other comprehensive (loss) income
|
(4,751 | ) | 2,439 | |||||||
|
Total stockholders’ equity
|
171,684 | 186,314 | ||||||||
|
Total liabilities and stockholders’ equity
|
$ | 294,354 | $ | 362,489 | ||||||
The accompanying notes are an integral part of the consolidated
financial statements.
49
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ZAPATA CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
| December 31, | December 31, | December 31, | ||||||||||||
| 2005 | 2004 | 2003 | ||||||||||||
| (In thousands, except per share amounts) | ||||||||||||||
|
Revenues
|
$ | 109,896 | $ | 119,645 | $ | 117,926 | ||||||||
|
Cost of revenues
|
91,985 | 104,237 | 99,028 | |||||||||||
|
Gross profit
|
17,911 | 15,408 | 18,898 | |||||||||||
|
Operating expense:
|
||||||||||||||
|
Selling, general and administrative
|
18,572 | 14,496 | 13,068 | |||||||||||
|
Loss resulting from natural disaster, net
|
15,743 | — | — | |||||||||||
|
Total operating expenses
|
34,315 | 14,496 | 13,068 | |||||||||||
|
Operating (loss) income
|
(16,404 | ) | 912 | 5,830 | ||||||||||
|
Other income (expense):
|
||||||||||||||
|
Interest income
|
1,911 | 992 | 1,214 | |||||||||||
|
Interest expense
|
(1,255 | ) | (965 | ) | (1,134 | ) | ||||||||
|
Other, net
|
199 | (221 | ) | (234 | ) | |||||||||
| 855 | (194 | ) | (154 | ) | ||||||||||
|
(Loss) income before income taxes and minority interest
|
(15,549 | ) | 718 | 5,676 | ||||||||||
|
Benefit (provision) for income taxes
|
6,748 | (955 | ) | (3,017 | ) | |||||||||
|
Minority interest in net loss (income) of consolidated
subsidiaries
|
3,027 | (1,283 | ) | (2,305 | ) | |||||||||
|
Net (loss) income from continuing operations
|
(5,774 | ) | (1,520 | ) | 354 | |||||||||
|
Discontinued operations:
|
||||||||||||||
|
(Loss) income before taxes and minority interest (including loss
on disposal)
|
(1,881 | ) | 15,217 | 1,796 | ||||||||||
|
Provision for income taxes
|
(123 | ) | (7,886 | ) | (716 | ) | ||||||||
|
Minority interest
|
(1,398 | ) | (2,078 | ) | (542 | ) | ||||||||
|
Net (loss) income from discontinued operations
|
(3,402 | ) | 5,253 | 538 | ||||||||||
|
Net (loss) income to common stockholders
|
$ | (9,176 | ) | $ | 3,733 | $ | 892 | |||||||
|
Net (loss) income per common share — basic and diluted
(Loss) income from continuing operations
|
$ | (0.30 | ) | $ | (0.07 | ) | $ | 0.02 | ||||||
|
Discontinued operations, net of income taxes and minority
interest
|
(0.18 | ) | 0.27 | 0.03 | ||||||||||
|
(Loss) income per common share — basic and diluted
|
$ | (0.48 | ) | $ | 0.20 | $ | 0.05 | |||||||
|
Weighted average common shares outstanding:
|
||||||||||||||
|
Basic
|
19,136 | 19,131 | 19,128 | |||||||||||
|
Diluted
|
19,136 | 19,131 | 19,244 | |||||||||||
The accompanying notes are an integral part of the consolidated
financial statements.
50
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ZAPATA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the Years Ended December 31, | ||||||||||||||||
| 2005 | 2004 | 2003 | ||||||||||||||
| (In thousands) | ||||||||||||||||
|
Cash flows from operating activities:
|
||||||||||||||||
|
Net (loss) income
|
$ | (9,176 | ) | $ | 3,733 | $ | 892 | |||||||||
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
||||||||||||||||
|
Depreciation and amortization
|
13,339 | 11,112 | 12,975 | |||||||||||||
|
Involuntary conversion from natural disaster
|
8,324 | — | — | |||||||||||||
|
Loss on sale of Safety Components International, Inc.
|
9,857 | — | — | |||||||||||||
|
Loss on disposal of assets
|
149 | 187 | (115 | ) | ||||||||||||
|
Provisions for losses on receivables
|
30 | 11 | 191 | |||||||||||||
|
Stock option modification expense
|
353 | — | — | |||||||||||||
|
Minority interest in net (loss) income of consolidated
subsidiaries
|
(3,027 | ) | 1,283 | 2,305 | ||||||||||||
|
Deferred income taxes
|
(7,504 | ) | 897 | 6,853 | ||||||||||||
|
Changes in assets and liabilities:
|
||||||||||||||||
|
Accounts receivable
|
(11,695 | ) | 7,465 | (8,983 | ) | |||||||||||
|
Inventories
|
(6,418 | ) | (37 | ) | 1,534 | |||||||||||
|
Prepaid expenses and other current assets
|
394 | 133 | (771 | ) | ||||||||||||
|
Other assets
|
(213 | ) | 554 | 900 | ||||||||||||
|
Accounts payable
|
1,422 | (952 | ) | 798 | ||||||||||||
|
Pension liabilities
|
770 | 662 | (1,431 | ) | ||||||||||||
|
Accrued liabilities and other current liabilities
|
901 | (2,219 | ) | (8,142 | ) | |||||||||||
|
Other liabilities
|
(90 | ) | (7 | ) | (227 | ) | ||||||||||
|
Discontinued operations
|
4,663 | 8,117 | 7,385 | |||||||||||||
|
Total adjustments
|
11,255 | 27,206 | 13,272 | |||||||||||||
|
Net cash provided by operating activities
|
2,079 | 30,939 | 14,164 | |||||||||||||
|
Cash flows from investing activities:
|
||||||||||||||||
|
Proceeds from sale of Safety Components International, Inc.
|
51,197 | — | — | |||||||||||||
|
Payment for purchase of Safety Components International, Inc.,
net of cash acquired
|
— | — | (47,807 | ) | ||||||||||||
|
Proceeds from disposition of assets
|
364 | 74 | 162 | |||||||||||||
|
Proceeds from insurance company — hurricane
|
2,000 | — | — | |||||||||||||
|
Purchase of short-term investments
|
— | — | (29,351 | ) | ||||||||||||
|
Proceeds from maturities of short-term investments
|
— | 29,351 | 35,832 | |||||||||||||
|
Proceeds from maturities of long-term investments
|
— | — | 3,994 | |||||||||||||
|
Capital expenditures
|
(17,590 | ) | (22,907 | ) | (14,965 | ) | ||||||||||
|
Discontinued operations
|
(6,406 | ) | (6,547 | ) | 5,311 | |||||||||||
|
Net cash provided by (used in) investing activities
|
29,565 | (29 | ) | (46,824 | ) | |||||||||||
|
Cash flows from financing activities:
|
||||||||||||||||
|
Principal payments of long-term debt
|
(1,503 | ) | (1,567 | ) | (1,690 | ) | ||||||||||
|
Proceeds from borrowings
|
14,000 | — | 5,352 | |||||||||||||
|
Proceeds from stock option exercises
|
515 | 1,176 | 1,184 | |||||||||||||
|
Discontinued operations
|
(2,441 | ) | (8,780 | ) | (9,412 | ) | ||||||||||
|
Net cash provided by (used in) financing activities
|
10,571 | (9,171 | ) | (4,566 | ) | |||||||||||
|
Effect of exchange rate changes on cash and cash equivalents
|
(68 | ) | 1,760 | 517 | ||||||||||||
|
Net increase (decrease) in cash and cash equivalents
|
42,147 | 23,499 | (36,709 | ) | ||||||||||||
|
(Decrease) increase in cash from discontinued operations
|
(2,023 | ) | 192 | (4,376 | ) | |||||||||||
|
Cash and cash equivalents at beginning of period
|
63,249 | 39,558 | 80,643 | |||||||||||||
|
Cash and cash equivalents at end of period
|
$ | 103,373 | $ | 63,249 | $ | 39,558 | ||||||||||
|
Cash paid during the year for:
|
||||||||||||||||
|
Interest
|
$ | 1,484 | $ | 1,783 | $ | 1,448 | ||||||||||
|
Income taxes
|
$ | 4,112 | $ | 2,908 | $ | 528 | ||||||||||
|
Supplemental disclosure of non-cash investing and financing
activities:
|
||||||||||||||||
|
Fair value of assets acquired
|
$ | — | $ | — | $ | 101,530 | ||||||||||
|
Cash paid for the common stock
|
— | — | (47,807 | ) | ||||||||||||
|
Liabilities assumed
|
$ | — | $ | — | $ | 53,723 | ||||||||||
|
Equipment acquired under capital lease obligations
|
$ | — | $ | 553 | $ | — | ||||||||||
The accompanying notes are an integral part of the consolidated
financial statements.
51
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ZAPATA CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
| Accumulated | ||||||||||||||||||||||||||||||||||
| Common Stock | Capital in | Other | Total | |||||||||||||||||||||||||||||||
| Comprehensive | Excess of | Retained | Treasury | Comprehensive | Stockholders’ | |||||||||||||||||||||||||||||
| Income (Loss) | Shares | Amount | Par Value | Earnings | Stock | (Loss) Income | Equity | |||||||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||||||||||
|
Balance at December 31, 2002
|
3,070 | $ | 31 | $ | 162,037 | $ | 50,216 | $ | (31,668 | ) | $ | (5,354 | ) | $ | 175,262 | |||||||||||||||||||
|
Net income
|
892 | — | — | — | 892 | — | — | 892 | ||||||||||||||||||||||||||
|
Minimum pension liability adjustment, net of tax effects and
minority interest
|
1,701 | — | — | — | — | — | 1,701 | 1,701 | ||||||||||||||||||||||||||
|
Effect of subsidiary equity transactions
|
— | — | — | 1,443 | — | — | — | 1,443 | ||||||||||||||||||||||||||
|
Stock option exercise, net of tax effects
|
— | — | — | 10 | — | — | — | 10 | ||||||||||||||||||||||||||
|
Effect of subsidiary currency translation adjustment, net of tax
effects and minority interest
|
3,249 | — | — | — | — | — | 3,249 | 3,249 | ||||||||||||||||||||||||||
|
Effect of subsidiary loss on derivatives, net of tax effects and
minority interest
|
(6 | ) | — | — | — | — | — | (6 | ) | (6 | ) | |||||||||||||||||||||||
|
Reclassification adjustment for gain on securities realized in
net income, net of tax effects
|
(14 | ) | — | — | — | — | — | (14 | ) | (14 | ) | |||||||||||||||||||||||
|
Total comprehensive income
|
$ | 5,822 | ||||||||||||||||||||||||||||||||
|
Balance at December 31, 2003
|
3,070 | $ | 31 | $ | 163,490 | $ | 51,108 | $ | (31,668 | ) | $ | (424 | ) | $ | 182,537 | |||||||||||||||||||
|
Net income
|
3,733 | — | — | — | 3,733 | — | — | 3,733 | ||||||||||||||||||||||||||
|
Minimum pension liability adjustment, net of tax effects and
minority interest
|
(523 | ) | — | — | — | — | — | (523 | ) | (523 | ) | |||||||||||||||||||||||
|
Effect of subsidiary equity transactions
|
— | — | — | (2,832 | ) | — | — | — | (2,832 | ) | ||||||||||||||||||||||||
|
Stock option exercise, net of tax effects
|
— | 1 | — | 13 | — | — | — | 13 | ||||||||||||||||||||||||||
|
Effect of subsidiary currency translation adjustment, net of tax
effects and minority interest
|
3,270 | — | — | — | — | — | 3,270 | 3,270 | ||||||||||||||||||||||||||
|
Effect of subsidiary loss on derivatives, net of tax effects and
minority interest
|
116 | — | — | — | — | — | 116 | 116 | ||||||||||||||||||||||||||
|
Total comprehensive income
|
$ | 6,596 | ||||||||||||||||||||||||||||||||
|
Balance at December 31, 2004
|
3,071 | $ | 31 | $ | 160,671 | $ | 54,841 | $ | (31,668 | ) | $ | 2,439 | $ | 186,314 | ||||||||||||||||||||
|
Net loss
|
(9,176 | ) | — | — | — | (9,176 | ) | — | — | (9,176 | ) | |||||||||||||||||||||||
|
Minimum pension liability adjustment, net of tax effects and
minority interest
|
(542 | ) | — | — | — | — | — | (542 | ) | (542 | ) | |||||||||||||||||||||||
|
Effect of stock split
|
215 | (215 | ) | — | ||||||||||||||||||||||||||||||
|
Effect of subsidiary equity transactions
|
— | — | — | (323 | ) | — | — | — | (323 | ) | ||||||||||||||||||||||||
|
Stock option exercise, net of tax effects
|
— | 17 | — | 90 | — | — | — | 90 | ||||||||||||||||||||||||||
|
Stock option modification
|
— | — | — | 353 | — | — | — | 353 | ||||||||||||||||||||||||||
|
Effect of subsidiary currency translation adjustment, net of tax
effects and minority interest
|
7 | — | — | — | — | — | 7 | 7 | ||||||||||||||||||||||||||
|
Effects of discontinued operations
|
— | — | — | 2,154 | (538 | ) | — | (6,655 | ) | (5,039 | ) | |||||||||||||||||||||||
|
Total comprehensive loss
|
$ | (9,711 | ) | |||||||||||||||||||||||||||||||
|
Balance at December 31, 2005
|
3,088 | $ | 246 | $ | 162,730 | $ | 45,127 | $ | (31,668 | ) | $ | (4,751 | ) | $ | 171,684 | |||||||||||||||||||
The accompanying notes are an integral part of the consolidated
financial statements
52
Table of Contents
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Business and
Organization
Zapata Corporation (“Zapata” or “the
Company”) is a holding company which currently has one
operating company, Omega Protein Corporation (“Omega
Protein” or “Omega”), in which the Company had a
58% ownership interest in at December 31, 2005. In
addition, Zapata owns 98% of Zap.Com Corporation
(“Zap.Com”), which is a public shell company. On
December 2, 2005, Zapata completed the sale of its 77%
ownership interest in Safety Components International, Inc.
(“Safety Components” or “Safety”).
Omega Protein produces and markets a variety of products
produced from menhaden (a herring-like species of fish found in
commercial quantities in the U.S. coastal waters of the
Atlantic Ocean and Gulf of Mexico), including regular grade and
value-added specialty fish meals, crude and refined fish oils
and fish solubles. Omega’s fish meal products are primarily
used as a protein ingredient in animal feed for swine, cattle,
aquaculture and household pets. Fish oil is utilized for animal
and aquaculture feeds, industrial applications, additives to
human food products and as a dietary supplement. Omega’s
fish solubles are sold primarily to livestock feed
manufacturers, aquaculture feed manufacturers and for use as an
organic fertilizer. Omega Protein trades on the New York Stock
Exchange under the symbol “OME.”
Zap.Com is a public shell company which does not have any
existing business operations. From time to time, Zap.Com
considers acquisitions that would result in it becoming an
operating company. Zap.Com may also consider developing a new
business suitable for its situation. Zap.Com trades on the
over-the-counter
electronic bulletin board under the symbol “ZPCM.”
As used throughout this report, “Zapata Corporate” is
defined as Zapata Corporation exclusive of its majority owned
subsidiaries, Omega Protein and Zap.Com, and its former majority
owned subsidiary, Safety Components.
| Note 2. | Significant Accounting Policies |
| Consolidation |
The consolidated financial statements include Zapata and its
wholly and majority-owned domestic and foreign subsidiaries
(collectively, “Zapata” or the “Company”).
Consolidated financial statements are financial statements of a
parent company and its subsidiaries presented as if the entities
were a single economic unit. Although the assets, liabilities,
revenues, and expenses of all entities are combined to provide a
single set of financial statements, certain eliminations and
adjustments are made. These eliminations are necessary to ensure
that only arm’s-length transactions between independent
parties are reflected in the consolidated statements. In
addition, when the parent company consolidates non-wholly owned
subsidiaries, minority interest on the consolidated balance
sheets and statements of operations represents the minority
stockholders’ (those other than the parent company)
interest in the net assets and net income of such subsidiaries.
| Cash and Cash Equivalents |
The Company invests certain of its excess cash in government and
corporate debt instruments. All highly liquid investments with
original maturities of three months or less are considered to be
cash equivalents. The recorded amounts for cash equivalents
approximate fair market value due to the short-term nature of
these financial instruments.
| Inventories |
Omega Protein’s inventory is stated at the lower of cost or
market. Omega Protein’s fishing season runs from mid-April
to the first of November in the Gulf of Mexico and from the
beginning of May into December in the Atlantic. Government
regulations preclude Omega Protein from fishing during the
off-seasons.
Omega Protein’s inventory cost system considers all costs
associated with an annual fish catch and its processing, both
variable and fixed, including both costs incurred during the
off-season and during the fishing
53
Table of Contents
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
season. Omega Protein’s costing system allocates cost to
inventory quantities on a per unit basis as calculated by a
formula that considers total estimated inventoriable costs for a
fishing season (including off-season costs) to total estimated
fish catch and the relative fair market value of the individual
products produced. Omega Protein adjusts the cost of sales,
off-season costs and inventory balances at the end of each
quarter based on revised estimates of total inventoriable costs
and fish catch. Omega Protein’s
lower-of-cost-or-market-value
analyses at year-end and at interim periods compares the total
estimated per unit production cost of expected production to the
projected per unit market prices of the products. The impairment
analyses involve estimates of, among other things, future fish
catches and related costs, and expected commodity prices for the
fish products. These estimates, which management believes are
reasonable and supportable, involve estimates of future
activities and events which are inherently imprecise and from
which actual results may differ materially.
Any costs incurred during abnormal downtime related to
activities at Omega’s plants are charged to expense as
incurred.
During the off-seasons, in connection with the upcoming fishing
seasons, Omega Protein incurs costs (i.e., plant and vessel
related labor, utilities, rent, repairs, and depreciation) that
are directly related to Omega’s infrastructure. These costs
accumulate in inventory and are applied as elements of the cost
of production of Omega Protein’s products throughout the
fishing season ratably based on Omega’s monthly fish catch
and the expected total fish catch for the season.
| Hurricane Losses |
On August 29, 2005, Omega’s Moss Point, Mississippi
fish processing facility and adjacent shipyard were severely
damaged by Hurricane Katrina. On September 25, 2005,
Omega’s Cameron, Louisiana and Abbeville, Louisiana fish
processing facilities were also severely damaged by Hurricane
Rita. Each of these facilities was non-operational immediately
after these weather events. Operations at the Moss Point fish
processing facility, the Abbeville fish processing facility and
the shipyard were re-established in mid-October, 2005, but at
reduced processing capabilities. Omega expects these facilities
to return to full operational status prior to the beginning of
the Gulf fishing season in April 2006. Omega is currently
rebuilding its Cameron, Louisiana facility and expects it to be
fully operational by mid 2006.
The direct impact of the two hurricanes upon Omega was a loss of
physical inventories and physical damage to the plants. The
interruption of processing capabilities caused Omega to address
the impact of abnormal downtime of its processing facilities,
which resulted in the immediate recognition of costs which would
ordinarily have been captured as inventory costs. The amounts of
these losses are more fully described in Notes 4, 5, 6
and 11.
Omega maintains insurance coverage for a variety of these
damages, most notably property, inventory and vessel insurance.
The nature and extent of the insurance coverage varies by line
of policy and Omega has recorded insurance recoveries as
accounts receivable based on estimates. Omega anticipates that
further recoveries could be available, but such additional
recoveries will require further analysis and discussions with
Omega’s insurance carriers. Such recoveries, if any, would
be recognized in future periods once they are deemed probable.
Omega does not maintain business interruption insurance in any
material amounts.
| Pension Plans |
Annual costs of pension plans are determined actuarially based
on Statement of Financial Accounting Standards
(“SFAS”) No. 87. The Company applies revised
SFAS No. 132, “Employers’ Disclosures about
Pensions and Other Postretirement Benefits” disclosure
requirements for its pensions and other postretirement benefit
plans.
54
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ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| Property, Plant and Equipment |
Consolidated property, plant and equipment is recorded at cost
and depreciated over the estimated useful lives of the assets
using the straight-line method. Estimated useful lives of assets
acquired, determined as of the date of acquisition, are as
follows:
|
Buildings
|
20 — 40 years | |||
|
Fishing vessels
|
15 — 20 years | |||
|
Machinery and equipment
|
4 — 10 years | |||
|
Furniture and fixtures
|
3 — 10 years |
Leasehold improvements are depreciated over the lesser of their
useful life or the lease term; replacements and major
improvements are capitalized; maintenance and repairs are
charged to expense as incurred. Upon sale or retirement, the
costs and related accumulated depreciation are eliminated from
the accounts. Any resulting gains or losses are included in the
statement of operations. Under certain conditions, interest may
be capitalized as part of the acquisition cost of an asset.
Interest is capitalized only during the period of time required
to complete and prepare the asset for its intended use. At
December 31, 2005 and 2004, property, plant and equipment
included approximately $180,000 and $323,000, respectively, of
capitalized interest related to Omega Protein.
| Accounting for the Impairment of Long-Lived Assets |
The Company evaluates at each balance sheet date for continued
appropriateness of the carrying value of its long-lived assets
including its long-term receivables and property, plant and
equipment in accordance with Statement of Financial Accounting
Standards (“SFAS”) No. 144, “Accounting for
the Impairment or Disposals of Long-Lived Assets.” The
Company reviews long-lived assets for impairment when events or
changes in circumstances indicate that the carrying amount of
any such assets or grouping of assets may not be recoverable.
Omega has grouped certain assets together (primarily marine
vessels) for impairment testing on a fleet basis. If indicators
of impairment are present, Omega’s management evaluates the
undiscounted cash flows estimated to be generated by those
assets or grouping of assets compared to the carrying amount of
those items. The net carrying value of assets or grouping of
assets not recoverable is reduced to fair value. Omega considers
continued operating losses, or significant and long-term changes
in business conditions, to be its primary indicators of
potential impairment.
| Fair Value of Financial Instruments |
The consolidated financial statements include financial
instruments whereby the fair market value of such instruments
may differ from amounts reflected on a historical basis.
Financial instruments of the Company may consist of cash
deposits, U.S. Government Agency Securities, accounts
receivable, advances to affiliates, accounts payable, certain
accrued liabilities and long-term debt. See Note 9 for
further information regarding the fair value of debt.
| Comprehensive Income (Loss) |
SFAS No. 130, “Reporting Comprehensive
Income,” establishes standards for the reporting and
display of comprehensive income (loss) and its components within
the financial statements. Other comprehensive income (loss) is
comprised of charges and credits to stockholders’ equity,
other than contributions from or distributions to stockholders,
excluded from the determination of net income (loss). The
Company’s other comprehensive income (loss) is comprised of
changes to minimum pension liabilities, foreign currency
translations, gains or losses on derivatives and
reclassification adjustments for gains and losses on sales of
securities.
55
Table of Contents
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| Issuance of Stock by Subsidiaries |
Sales of stock by a subsidiary and subsidiary stock option
exercises are accounted for in accordance with Staff Accounting
Bulletin Topic 5H, “Accounting for Sales of Stock by a
Subsidiary.” The Company has adopted the capital
transaction method to account for subsidiary stock sales and
option exercises. Accordingly, increases and decreases in the
Company’s share of its subsidiary’s net equity
resulting from subsidiary stock transactions are recorded on the
Consolidated Balance Sheets and Consolidated Statements of
Stockholders’ Equity as increases or decreases to Capital
in Excess of Par Value.
| Revenue Recognition |
Omega Protein recognizes revenue from product sales when goods
have been shipped and the risk of loss has passed.
| Advertising Costs |
The costs of advertising are expensed as incurred in accordance
with Statement of Position 93-7 “Reporting on Advertising
Costs” and are included as a component of selling, general
and administrative expenses in the accompanying consolidated
statements of operations.
| Research and Development Expenses |
Research and development costs are charged to operations when
incurred and are included as a component of selling, general and
administrative expenses in the accompanying consolidated
statements of operations.
| Insurance |
Omega Protein carries insurance for certain losses relating to
its vessels and Jones Act liabilities for employees aboard its
vessel. Omega provides reserves for those portions of the annual
aggregate deductible for which Omega remains responsible by
using an estimation process that considers Omega
Protein-specific and industry data as well as its
management’s experience, assumptions and consultation with
counsel. Omega Protein management’s current estimated range
of liabilities related to such cases is based on claims for
which its management can estimate the amount and range of loss.
For those claims where there may be a range of loss, Omega has
recorded an estimated liability inside that range, based on
Omega’s management’s experience, assumptions and
consultation with counsel. The process of estimating and
establishing reserves for losses adjustment expenses related to
these claims is inherently uncertain and the actual ultimate net
cost of a claim may vary materially from the estimated amount
reserved. There is some degree of inherent variability in
assessing the ultimate amount of losses associated with these
claims due to the extended period of time that transpires
between when the claim might occur and the full settlement of
such claims. This variability is generally greater for Jones Act
claims by vessel employees. Omega continually evaluates loss
estimates associated with claims and losses as additional
information becomes available and revises its estimates.
Although Omega’s management believes estimated reserves
related to these claims are adequately recorded, it is possible
that actual results could significantly differ from the recorded
reserves, which could materially impact the Company’s
results of operations, financial position and cash flow.
With respect to health insurance, Omega is primarily
self-insured. Omega purchases individual stop loss coverage with
a large deductible. As a result, Omega is primarily self-insured
for claims and associated costs up to the amount of the
deductible, with claims in excess of the deductible amount being
covered by insurance. Expected claims estimates are based on
health care trend rates and historical claims data; actual
claims may differ from those estimates. Omega continually
evaluates its claims experience related to this coverage with
information obtained from its risk management consultants.
Assumptions used in preparing these insurance estimates are
based on factors such as claims settlement patterns, claim
development trends, claim frequency and severity patterns,
inflationary trends and data
56
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ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
reasonableness. Together these factors will generally affect the
analysis and determination of the “best estimate” of
the projected ultimate claim losses. The results of these
evaluations are used to both analyze and adjust Omega’s
insurance loss reserves.
Omega Protein does not carry business interruption insurance in
any material amounts due to its high cost and limited
availability.
| Income Taxes |
Zapata and Omega each file a separate consolidated
U.S. federal income tax return. Zapata’s consolidated
U.S. federal income tax return includes subsidiaries in
which Zapata owns in excess of 80% of the voting interests.
Accordingly, Zap.Com is included in Zapata’s consolidated
U.S. federal income tax return.
The Company utilizes the liability method to account for income
taxes. This method requires the recognition of deferred tax
assets and liabilities for the expected future tax consequences
of existing temporary differences between the financial
reporting and tax reporting basis of assets and liabilities, and
operating loss and tax credit carry-forwards for tax purposes.
Valuation allowances are recognized to reduce deferred tax
assets to an amount that is more likely than not to be realized.
| Environmental Expenditures |
Environmental expenditures that result from the remediation of
an existing condition caused by past operations that will not
contribute to current or future revenues are expensed.
Expenditures that extend the life of the related property or
prevent future environmental contamination are capitalized.
Undiscounted liabilities are recognized for remedial activities
when the cleanup is probable and the cost can be reasonably
estimated.
| Foreign Currency Translation |
Omega’s Mexican operations use the local currency as the
functional currency. Assets and liabilities of those operations
are translated into U.S. dollars using period-end exchange
rates; income and expenses are translated using the average
exchange rates for the reporting period. Translation adjustments
are deferred in accumulated other comprehensive income (loss), a
separate component of stockholders’ equity.
| Stock-Based Compensation |
The Company accounts for stock- based compensation according to
Accounting Principles Board Opinion No. 25 and the related
interpretations under Financial Accounting Standards Board
(“FASB”) Interpretation No. 44, “Accounting
for Certain Transactions Involving Stock Compensation.” The
Company adopted the required disclosure provisions under
SFAS No. 148 and continues to use the intrinsic value
method of accounting for stock-based compensation. Had
compensation expense for the Company’s stock
57
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ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
option grants been determined based on fair value at the grant
date using the Black-Scholes option-pricing model, the
Company’s net income and earnings per share (basic and
diluted) would have been as follows:
| For the Year Ended December 31, | |||||||||||||
| 2005 | 2004 | 2003 | |||||||||||
| (In thousands) | |||||||||||||
|
Net (loss) income from continuing operations, as reported
|
$ | (5,774 | ) | $ | (1,520 | ) | $ | 354 | |||||
|
Add: Total stock-based employee compensation expense determined
under APB No. 25, included in reported net income, net of
tax effects:
|
219 | — | — | ||||||||||
|
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards, net of
tax effects:
|
|||||||||||||
|
Zapata Corporate
|
(309 | ) | (125 | ) | (53 | ) | |||||||
|
Omega Protein
|
(733 | ) | (341 | ) | (247 | ) | |||||||
|
Zap.Com
|
(6 | ) | (1 | ) | — | ||||||||
|
Pro forma expense
|
(1,048 | ) | (467 | ) | (300 | ) | |||||||
|
Pro forma net (loss) income from continuing operations
|
$ | (6,603 | ) | $ | (1,987 | ) | $ | 54 | |||||
|
Net (loss) income from discontinued operations, as reported
|
$ | (3,402 | ) | $ | 5,253 | $ | 538 | ||||||
|
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards, net of
tax effects
|
— | — | — | ||||||||||
|
Pro forma net (loss) income from discontinued operations
|
(3,402 | ) | 5,253 | 538 | |||||||||
|
Total pro forma net (loss) income
|
$ | (10,005 | ) | $ | 3,266 | $ | 592 | ||||||
|
(Loss) income per common share — basic and
diluted — as reported
|
|||||||||||||
|
Loss from continuing operations
|
$ | (0.30 | ) | $ | (0.07 | ) | $ | 0.02 | |||||
|
Discontinued operations, net of income taxes and minority
interest
|
(0.18 | ) | 0.27 | 0.03 | |||||||||
|
(Loss) income per common share — basic and
diluted — as reported
|
$ | (0.48 | ) | $ | 0.20 | $ | 0.05 | ||||||
|
(Loss) income per common share — basic and
diluted — pro forma
|
|||||||||||||
|
Loss from continuing operations
|
$ | (0.34 | ) | $ | (0.10 | ) | $ | 0.00 | |||||
|
Discontinued operations, net of income taxes and minority
interest
|
(0.18 | ) | 0.27 | 0.03 | |||||||||
|
(Loss) income per common share — basic and
diluted — pro forma
|
$ | (0.52 | ) | $ | 0.17 | $ | 0.03 | ||||||
In May 2005, Omega accelerated the vesting of all unvested,
out-of-the-money,
explicit service period stock options granted under Omega’s
2000 Long-Term Incentive Plan. The purpose of accelerating
vesting was to eliminate future compensation expense that Omega
would otherwise recognize in its Statement of Operations with
respect to these accelerated stock options upon the adoption by
Omega of SFAS No. 123R. A stock option was considered
“out-of-the-money”
if the stock option exercise price was greater than $6.04 which
was the closing price of Omega’s common stock on the date
of the acceleration. As a result of this action, stock options
to purchase 390,000 shares of Omega’s common
stock became immediately exercisable.
58
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ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The vesting created a modification of stock options; however,
there was no impact on the fair value of the options. The
weighted average exercise price of all the accelerated stock
options was $9.98.
| Use of Estimates |
The preparation of financial statements in conformity with
accounting principals generally accepted in the United States of
America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. Due to the inherent
uncertainty involved in making estimates, actual results in
future periods could differ from these estimates.
| Concentrations of Credit Risk |
Zapata invests the majority of its excess cash, cash equivalents
and other investments in U.S. Government Agency Securities
and therefore has significantly reduced its future exposure to
market risk.
Omega Protein has cash deposits concentrated primarily in one
major bank. Also, Omega has Certificates of Deposit and
commercial quality grade investments rated A-2 P-2 or better
short-term investments with companies and financial
institutions. As a result of the forgoing, Omega believes that
credit risk in such investments is minimal.
Omega’s customer base generally remains consistent from
year to year. Omega performs ongoing credit evaluations of its
customers and generally does not require material collateral.
Omega maintains reserves for potential credit losses and such
losses have historically been within its management’s
expectations.
| Reclassification |
Certain reclassifications of prior year information have been
made to conform to the current presentation.
| Note 3. | Discontinued Operations |
Safety Components is an independent supplier of automotive
airbag fabric and cushions and technical fabrics with operations
in North America and Europe. Zapata originally purchased
2,663,905 shares of Safety Components common stock for
$30.9 million on September 23, 2003, and purchased an
additional 1,498,489 shares on October 7, 2003 for
$16.9 million, bringing the Company’s ownership
percentage to approximately 84% at that time. The Company
accounted for these transactions under the purchase method and
began consolidating amounts related to Safety’s assets and
liabilities as of September 30, 2003 and amounts related to
Safety’s results of operations in the fourth quarter of
2003.
On September 21, 2005, Zapata’s Board of Directors
approved a plan to pursue a sale of all of the Company’s
4,162,394 shares of Safety common stock. Based on this
approval, the Company determined that this subsidiary
substantially met the criteria to report the pending sale as
“Assets Held for Sale” and the subsidiary as
“Discontinued Operations” in accordance with
accounting rules. As used throughout this document, all amounts
and disclosures related to Safety pertain to “Discontinued
Operations.” In accordance with SFAS No. 144,
depreciation and amortization expense were suspended on assets
held for sale effective with the September 21, 2005 Board
approval of the disposal plan.
On December 2, 2005, Zapata closed on the sale of all of
its 4,162,394 shares of common stock in Safety Components
to WLR Recovery Fund II, L.P. and WLR Recovery
Fund III, L.P., Delaware limited partnerships (collectively
the “WLR Recovery Funds”) for $12.30 per share or
$51,197,446 in the aggregate. Prior to the close of the sale,
Zapata paid an aggregate of $1,000,000 in the form of a capital
contribution to Safety Components for the Safety compensation
committee to pay bonuses to its executive officers and key
employees. This payment was made under a plan approved by Zapata
during the third quarter of 2005 to provide Safety Components
management with an incentive to continue with Safety until the
completion of the sale to the WLR Recovery Funds.
59
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ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
For the year ended December 31, 2005, Zapata recorded a
transaction related loss of $9.9 million related to the
sale of Safety. This amount primarily reflects the reduction of
the carrying value of Safety to the net selling price, partially
offset by the reversal of certain deferred tax liabilities.
Though the Company sold its shares in Safety for a cash gain
compared to the original investment, this transaction related
loss resulted from the sales proceeds being less than
Zapata’s carrying value of its investment in Safety
Components. Safety’s generation of net income subsequent to
the Company’s original purchase of the stock increased
Zapata’s carrying value which consisted of Zapata’s
original investment in common stock of Safety Components and the
aforementioned subsequent capital contribution.
Operating results of discontinued operations are as follows:
| For the Year Ended December 31, | ||||||||||||
| 2005 | 2004 | 2003 | ||||||||||
| (In thousands) | ||||||||||||
|
Revenue from discontinued operations
|
$ | 205,983 | $ | 247,883 | $ | 63,503 | ||||||
|
Income before taxes and minority interest
|
10,364 | 15,217 | 1,796 | |||||||||
The major classes of assets and liabilities of our discontinued
operations at December 31, 2005 and 2004 are as follows:
| December 31, | December 31, | |||||||||
| 2005 | 2004 | |||||||||
| (In thousands) | ||||||||||
|
Current assets:
|
||||||||||
|
Cash and cash equivalents
|
$ | — | $ | 4,184 | ||||||
|
Accounts receivable, net
|
— | 38,872 | ||||||||
|
Assets held in deferred compensation plan
|
— | 4,361 | ||||||||
|
Inventory, net
|
— | 26,882 | ||||||||
|
Prepaid expenses and other assets
|
— | 4,141 | ||||||||
|
Total current assets
|
$ | — | $ | 78,440 | ||||||
|
Non-current assets:
|
||||||||||
|
Intangible assets, net
|
$ | — | $ | 6,158 | ||||||
|
Other assets
|
— | 373 | ||||||||
|
Property, plant and equipment, net
|
— | 39,481 | ||||||||
|
Total non-current assets
|
$ | — | $ | 46,012 | ||||||
|
Current liabilities:
|
||||||||||
|
Current maturities of long-term debt
|
$ | — | $ | 3,263 | ||||||
|
Accounts payable
|
— | 16,828 | ||||||||
|
Accrued and other current liabilities
|
— | 18,903 | ||||||||
|
Total current liabilities
|
$ | — | $ | 38,994 | ||||||
|
Non-current liabilities:
|
||||||||||
|
Long-term debt
|
$ | — | $ | 3,729 | ||||||
|
Other liabilities and deferred taxes
|
— | 6,397 | ||||||||
|
Total non-current liabilities
|
$ | — | $ | 10,126 | ||||||
60
Table of Contents
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| Note 4. | Accounts Receivable |
Accounts receivable are summarized as follows:
| December 31, | December 31, | |||||||
| 2005 | 2004 | |||||||
| (In thousands) | ||||||||
|
Trade
|
$ | 11,407 | $ | 12,161 | ||||
|
Insurance
|
11,704 | 1,242 | ||||||
|
Income tax
|
383 | 722 | ||||||
|
Other
|
866 | 540 | ||||||
| 24,360 | 14,665 | |||||||
|
Less: Allowance for doubtful accounts
|
(190 | ) | (160 | ) | ||||
| $ | 24,170 | $ | 14,505 | |||||
As a result of Hurricanes Katrina and Rita (see
Note 11 — Hurricane Losses), Omega sustained
damage to its three fish processing facilities and its shipyard
located in the Gulf of Mexico region. Based on estimates, Omega
believes its hurricane related insurance recoveries will total
approximately $12 million. Omega received a $2 million
advance prior to December 31, 2005. Subsequent to
December 31, 2005, Omega received a second advance of
$2 million. Omega anticipates that further recoveries could
be available, but such additional recoveries, if any, will
require further estimation analysis and discussions with
Omega’s insurance carriers and adjusters. Additional
amounts will be recognized when the amounts are probable.
| Note 5. | Inventories |
Inventories are summarized as follows:
| December 31, | December 31, | ||||||||
| 2005 | 2004 | ||||||||
| (In thousands) | |||||||||
|
Fish meal
|
$ | 14,742 | $ | 18,693 | |||||
|
Fish oil
|
21,552 | 11,118 | |||||||
|
Fish solubles
|
672 | 509 | |||||||
|
Unallocated inventory cost pool (including off season costs)
|
5,926 | 5,794 | |||||||
|
Other materials and supplies
|
3,968 | 4,328 | |||||||
|
Total inventory
|
$ | 46,860 | $ | 40,442 | |||||
At December 31, 2005 and 2004, inventory consisted
exclusively of Omega Protein’s inventories.
Inventory at December 31, 2005 and December 31, 2004
is stated at the lower of cost or market. The elements of the
unallocated inventory cost pool at December 31, 2005
include plant and vessel related labor, utilities, rent, repairs
and depreciation, to be allocated to inventories produced
through the remainder of the 2006 season.
As a result of hurricanes Katrina and Rita, Omega sustained
damage to its Gulf of Mexico fish meal storage facilities and
materials and supplies warehouses. Omega recognized a
$2.5 million fish meal inventory write-off and
$1.6 million materials and supplies write-off for the year
ended December 31, 2005. (See Note 11 —
Hurricane Losses.)
The hurricanes also affected Omega’s 2005 Gulf of Mexico
fishing season due to the closure of its three fish
processing facilities in the Gulf of Mexico region. As a result
of these closures and their impact on fishing, Omega has
recognized a $13.0 million unallocated inventory cost pool
write-off for the year ended December 31, 2005. (See
Note 11 — Hurricane Losses.)
61
Table of Contents
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| Note 6. | Property, Plant and Equipment |
Property, plant and equipment, net are summarized as follows:
| December 31, | December 31, | |||||||
| 2005 | 2004 | |||||||
| (In thousands) | ||||||||
|
Land
|
$ | 7,630 | $ | 6,995 | ||||
|
Building and improvements
|
16,927 | 15,630 | ||||||
|
Machinery and equipment
|
72,766 | 72,709 | ||||||
|
Fishing vessels
|
90,880 | 85,219 | ||||||
|
Furniture and fixtures
|
3,071 | 2,806 | ||||||
|
Construction in progress
|
4,391 | 7,273 | ||||||
| 195,665 | 190,632 | |||||||
|
Less: Accumulated depreciation and impairment
|
(101,680 | ) | (92,812 | ) | ||||
| $ | 93,985 | $ | 97,820 | |||||
Consolidated depreciation expense for years ended
December 31, 2005, 2004 and 2003 was $12.6 million,
$10.1 million, and $10.5 million, respectively.
As a result of hurricanes Katrina and Rita, Omega sustained
damage to its property and equipment at its Gulf of Mexico
facilities. Omega recognized a $8.3 million involuntary
conversion loss of property and equipment for the year ended
December 31, 2005. (See Note 11 — Hurricane
Losses.)
| Note 7. | Other Assets |
Other assets are summarized as follows:
| December 31, | December 31, | |||||||
| 2005 | 2004 | |||||||
| (In thousands) | ||||||||
|
Fishing nets, net of accumulated amortization of $1,347 and
$2,238
|
$ | 639 | $ | 719 | ||||
|
Prepaid pension cost
|
15,780 | 16,096 | ||||||
|
Deferred tax assets
|
6,293 | 1,754 | ||||||
|
Insurance receivable, net of allowance for doubtful accounts of
$2.0 million at December 31, 2005 and 2004
|
475 | 623 | ||||||
|
Other
|
465 | 456 | ||||||
| $ | 23,652 | $ | 19,648 | |||||
Prepaid pension cost is calculated in accordance with
SFAS No. 87. As of December 31, 2005 and 2004,
these balances consisted primarily of unrecognized net losses of
$15.3 million and $14.8 respectively. (See Note 15
Qualified Defined Benefit Plans)
Omega Protein’s amortization expense for fishing nets
amounted to $680,000, $899,000, and $985,000 for the years ended
December 31, 2005, 2004, and 2003, respectively.
Omega carries insurance for certain losses relating to its
vessels and Jones Act liability for employees aboard its vessels
(collectively, “Vessel Claims Insurance”). The typical
Vessel Claims Insurance policy contains an annual aggregate
deductible (“AAD”) for which Omega remains
responsible, while the insurance carrier is responsible for all
applicable amounts which exceed the AAD. It is Omega’s
policy to accrue current amounts due and record amounts paid out
on each claim. Once payments exceed the AAD, Omega records an
insurance receivable for a given policy year, net of allowance
for doubtful accounts.
62
Table of Contents
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| Note 8. | Accrued and Other Current Liabilities |
Accrued and other current liabilities are summarized as follows:
| December 31, | December 31, | |||||||
| 2005 | 2004 | |||||||
| (In thousands) | ||||||||
|
Salary and benefits
|
$ | 4,654 | $ | 4,619 | ||||
|
Insurance
|
3,879 | 3,340 | ||||||
|
Trade creditors
|
3,243 | 2,556 | ||||||
|
Federal and state income taxes
|
1,844 | 1,893 | ||||||
|
Litigation reserves
|
410 | 435 | ||||||
|
Other
|
1,820 | 1,134 | ||||||
| $ | 15,850 | $ | 13,977 | |||||
| Note 9. | Debt |
Long-term debt consisted of the following:
| December 31, | December 31, | ||||||||
| 2005 | 2004 | ||||||||
| (In thousands) | |||||||||
|
U.S. Government guaranteed obligations (Title XI loan)
collateralized by a first lien on certain vessels and certain
plant assets:
|
|||||||||
|
Amounts due in installments through 2016, interest from 6.5% to
7.6%
|
$ | 29,737 | $ | 17,171 | |||||
|
Amounts due in installments through 2014, interest at Eurodollar
rates of 4.5% and 2.4% at December 31, 2005 and 2004,
respectively, plus 4.5%
|
359 | 400 | |||||||
|
Other debt at 6.3% at December 31, 2005 and 2004
|
5 | 33 | |||||||
|
Total debt
|
30,101 | 17,604 | |||||||
|
Less: current maturities
|
(2,443 | ) | (1,661 | ) | |||||
|
Total long-term debt
|
$ | 27,658 | $ | 15,943 | |||||
At December 31, 2005 and 2004, consolidated debt consisted
exclusively of the obligations of Omega Protein. Zapata has
neither guaranteed nor otherwise agreed to be liable for the
repayment of this debt. The estimated fair value of Omega
Protein’s long-term debt at December 31, 2005 and 2004
was $30.5 million and $19.0 million, respectively,
based on the borrowing rates currently available to Omega for
loans with similar term and maturities.
Omega was initially authorized to receive up to
$20.6 million in loans under the Title XI program, and
has borrowed the entire amount authorized under such program.
The Title XI loans are secured by liens on certain of
Omega’s fishing vessels and mortgages on Omega’s
Reedville, Virginia and Abbeville, Louisiana plants. Loans are
now available under similar terms pursuant to the Title XI
program without intervening lenders.
In September 2004, the United States Department of Commerce
Fisheries Finance Program (the “FFP”) approved
Omega’s financing application in an amount not to exceed
$14 million (the “Approval Letter”). Borrowings
under the Approval Letter are to be used to finance and/or
refinance approximately 73% of the actual depreciable cost of
Omega’s future fishing vessels refurbishments and capital
expenditures relating to shore-side fishing assets, for a term
not to exceed 15 years from inception at interest rates
determined by the U.S. Treasury. Final approval for all
such future projects requires individual approval
63
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ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
through the Secretary of Commerce, National Oceanic and
Atmospheric Administration, and National Marine Fisheries
Service (“National Marine Fisheries Service”).
Borrowings under the FFP are required to be evidenced by secured
agreements, undertakings, and other documents of whatsoever
nature deemed by the National Marine Fisheries Service sole
discretion, as necessary to accomplish the intent and purpose of
the Approval Letter. Omega is required to comply with customary
National Marine Fisheries Service covenants as well as certain
special covenants. In December 2004, Omega submitted a
$4.9 million financing request against the $14 million
approval, and subsequently amended that request to include the
entire $14 million. Omega closed on the $14 million
FFP loan on October 17, 2005. On December 1, 2005,
pursuant to the Title XI program, the United States
Department of Commerce approved another financing application
made by Omega in the amount of $16.4 million.
On December 20, 2000 Omega entered into a $20 million
revolving credit agreement with Bank of America, N.A. (the
“Credit Facility”). Borrowings under this facility may
be used for working capital and capital expenditures. Omega is
required to comply with certain financial covenants from and
after the last day of any month in which the Credit
Facility’s availability is less than $3 million on any
date or the Credit Facility’s availability averages less
than $6 million for any calendar month. The Credit Facility
was amended on October 11, 2005, to increase the amount of
Title XI loans that Omega is permitted to borrow from
$25 million to $31 million. The Credit Facility was
further amended on November 16, 2005, to among other
things, extend the term of the Credit Facility from
December 20, 2006 to October 31, 2007, decrease the
maximum borrowing availability tied to Omega’s eligible
inventory from $12 million to $10 million, add a
covenant that Omega may not generate a net loss for any two
consecutive quarters, increase the Fixed Charge Coverage Ratio
to be less than 1.25 to 1, as measured on a quarterly basis
using the consolidated results of the four fiscal quarter period
ending with the applicable reporting period and reduce both the
unused commitment fee and interest rates. A commitment fee of
37.5 basis points per annum is payable quarterly on the
actual daily amount of the availability under the Credit
Facility. The applicable interest rate will be adjusted (up or
down) prospectively on a quarterly basis from LIBOR plus 2.00%
to LIBOR plus 2.50% or at Omega’s option, Prime minus 0.50%
to Prime plus 0.00%, depending upon the Fixed Charge Coverage
Ratio being greater than 2.5 times to less than or equal to 1.5
times, respectively. The Credit Facility is collateralized by
all of Omega’s trade receivables, inventory and equipment.
In addition, the Credit Facility does not allow for the payment
of cash dividends or stock repurchases.
As of December 31, 2005, Omega was out of compliance with
the Minimum Net Income covenant in the Credit Facility due to
its reporting of net losses for two consecutive quarters (third
and fourth quarters of 2005). Omega notified the lender of the
covenant non-compliance and received a waiver from the lender.
As of December 31, 2005, Omega was out of compliance with
the Ratio of Earnings to Fixed Charges covenant in the Credit
Facility. Omega notified the lender of the covenant
non-compliance and received a waiver from the lender.
As of December 31, 2005, Omega had no borrowings
outstanding under the Credit Facility. At December 31, 2005
and 2004, Omega had outstanding letters of credit under the
Credit Facility totaling approximately $8.0 million and
$2.7 million, respectively, issued in support of
worker’s compensation insurance programs in 2005 and 2004
and to purchase fish meal from a third party in 2005.
64
Table of Contents
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Future annual minimum principal payments of long-term debt
obligations at December 31, 2005 are due in the following
fiscal years (in thousands):
|
2006
|
$ | 2,443 | ||
|
2007
|
2,465 | |||
|
2008
|
2,597 | |||
|
2009
|
2,197 | |||
|
2010
|
2,081 | |||
|
Thereafter
|
18,318 | |||
| $ | 30,101 | |||
| Note 10. | Stockholders’ Equity |
| Common Stock |
On April 6, 2005, the Company effected an eight-for-one
stock split, resulting in approximately 19.1 million shares
of common stock then outstanding. In addition, the
Company’s authorized shares increased to 132.0 million
common stock shares, 1.6 million preferred stock shares and
14.4 million preference stock shares. The preferred and
preference stock are undesignated “blank check” shares.
In accordance with SEC Staff Accounting Bulletin Topic 4C,
all share information on the financial statements and notes to
financial statements, including per share amounts, have been
proportionally adjusted as if the eight-for-one stock split had
been effective as of the date or period presented.
On December 6, 2002, the Board of Directors further
authorized the Company to purchase up to 4.0 million shares
of its outstanding common stock in the open market or privately
negotiated transactions. The shares may be purchased from time
to time as determined by the Company. Any purchased shares would
be placed in treasury and may subsequently be reissued for
general corporate purposes. The repurchases will be made only at
such times as are permissible under the federal securities laws.
No time limit has been placed on the duration of the program and
no minimum number or value of shares to be repurchased has been
fixed. Zapata reserves the right to discontinue the repurchase
program at any time and there can be no assurance that any
repurchases will be made. As of December 31, 2005, no
shares had been repurchased under this program.
65
Table of Contents
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| Accumulated Other Comprehensive (Loss) Income |
Components of accumulated other comprehensive (loss) income in
stockholders equity (in thousands):
| Accumulated | ||||||||||||||||||||
| Unrealized | Minimum | Subsidiary | Other | |||||||||||||||||
| Gain | Pension | Currency | Subsidiary | Comprehensive | ||||||||||||||||
| (Loss) on | Liability | Translation | Loss on | (Loss) | ||||||||||||||||
| Securities | Adjustment | Adjustment | Derivatives | Income | ||||||||||||||||
|
December 31, 2002
|
$ | 14 | $ | (5,368 | ) | — | — | $ | (5,354 | ) | ||||||||||
|
Minimum pension liability adjustment, net of tax effects of $904
and minority interest
|
— | 1,701 | — | — | 1,701 | |||||||||||||||
|
Effect of subsidiary currency translation adjustment, net of tax
effects of $12 and minority interest
|
— | — | 3,249 | — | 3,249 | |||||||||||||||
|
Effect of subsidiary loss on derivatives, net of minority
interest
|
— | — | — | (6 | ) | (6 | ) | |||||||||||||
|
Reclassification adjustment for gain on securities realized in
net income, net of tax effects of $9
|
(14 | ) | — | — | — | (14 | ) | |||||||||||||
|
December 31, 2003
|
$ | — | $ | (3,667 | ) | $ | 3,249 | $ | (6 | ) | $ | (424 | ) | |||||||
|
Minimum pension liability adjustment, net of tax effects of $271
and minority interest
|
— | (523 | ) | — | — | (523 | ) | |||||||||||||
|
Effect of subsidiary currency translation adjustment, net of tax
effects of $1 and minority interest
|
— | — | 3,270 | — | 3,270 | |||||||||||||||
|
Effect of subsidiary loss on derivatives, net of minority
interest
|
— | — | — | 116 | 116 | |||||||||||||||
|
December 31, 2004
|
$ | — | $ | (4,190 | ) | $ | 6,519 | $ | 110 | $ | 2,439 | |||||||||
|
Minimum pension liability adjustment, net of tax effects of $29
and minority interest
|
— | (542 | ) | — | — | (542 | ) | |||||||||||||
|
Effect of subsidiary currency translation adjustment, net of tax
effects of $8 and minority interest
|
— | — | 7 | — | 7 | |||||||||||||||
|
Effects of discontinued operations
|
— | — | (6,545 | ) | (110 | ) | (6,655 | ) | ||||||||||||
|
December 31, 2005
|
— | $ | (4,732 | ) | $ | (19 | ) | $ | — | $ | (4,751 | ) | ||||||||
| Note 11. | Hurricane Losses |
On August 29, 2005, Omega Protein’s Moss Point,
Mississippi fish processing facility and adjacent shipyard were
severely damaged by Hurricane Katrina. On September 24,
2005, Omega’s Cameron, Louisiana and the Abbeville,
Louisiana fish processing facilities were also severely damaged
by Hurricane Rita. Each of these facilities was non-operational
immediately after these weather related events. For the year
ended
66
Table of Contents
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
December 31, 2005, the following amounts have been
recognized in the consolidated statement of operations (in
thousands):
|
Damaged fish meal inventory
|
$ | 2,496 | ||
|
Write-off of other materials and supplies
|
1,648 | |||
|
Write-off of unallocated inventory cost pool
|
12,978 | |||
|
Involuntary conversion of property and equipment
|
8,324 | |||
|
Idle plant costs recognized as period expense
|
1,038 | |||
|
Clean-up costs incurred
|
1,259 | |||
|
Estimated insurance recoveries
|
(12,000 | ) | ||
|
Estimated damages in excess of insurance recoveries
|
$ | 15,743 | ||
A substantial portion of the amounts listed above are based upon
estimates and assumptions. Actual amounts, when available, could
differ materially from those estimates and changes to those
estimates could have a material affect on the future financial
statements.
Not included in the amounts listed in the above table are the
replacement capital costs of property and equipment, which did
not have any book basis and were destroyed in the hurricanes,
and the costs of clean up incurred subsequent to
December 31, 2005.
| Note 12. | Earnings Per Share Information |
The following table details the potential common shares excluded
from the calculation of diluted earnings per share because their
exercise price was greater than the average market price for the
period or because their impact would be antidilutive to the net
loss (in thousands, except per share amounts):
| For the Years Ended | |||||||||||||
| December 31, | |||||||||||||
| 2005 | 2004 | 2003 | |||||||||||
|
Potential common shares excluded from the calculation of diluted
earnings per share:
|
|||||||||||||
|
Stock options
|
1,356 | 1,362 | 244 | ||||||||||
|
Weighted average price per share
|
$ | 5.55 | $ | 5.56 | $ | 7.07 | |||||||
| Note 13. | Income Taxes |
Domestic and foreign income from continuing operations before
income taxes and minority interest are as follows:
| Years Ended December 31, | |||||||||||||
| 2005 | 2004 | 2003 | |||||||||||
|
Income from continuing operations before income taxes and
minority interest:
|
|||||||||||||
|
Domestic
|
$ | (15,549 | ) | $ | 718 | $ | 5,676 | ||||||
|
Foreign
|
— | — | — | ||||||||||
|
Income from continuing operations before income taxes and
minority interest
|
$ | (15,549 | ) | $ | 718 | $ | 5,676 | ||||||
67
Table of Contents
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The combined income tax benefit (provision) from continuing
operations consisted of the following:
| Year Ended December 31, | |||||||||||||
| 2005 | 2004 | 2003 | |||||||||||
|
Current:
|
|||||||||||||
|
State
|
$ | — | $ | — | $ | — | |||||||
|
Federal
|
— | — | — | ||||||||||
|
Foreign
|
— | — | — | ||||||||||
|
Deferred:
|
|||||||||||||
|
State
|
621 | (169 | ) | (148 | ) | ||||||||
|
Federal
|
6,127 | (786 | ) | (2,869 | ) | ||||||||
|
Foreign
|
— | — | — | ||||||||||
|
Benefit (provision) for income taxes
|
$ | 6,748 | $ | (955 | ) | $ | (3,017 | ) | |||||
The following table reconciles the income tax benefit
(provision) for all periods computed using the
U.S. statutory rate of 35% to the benefit
(provision) from continuing operations as reflected in the
financial statements:
| Year Ended December 31, | ||||||||||||
| 2005 | 2004 | 2003 | ||||||||||
|
Benefit (provision) at statutory rate
|
$ | 5,441 | $ | (252 | ) | $ | (1,986 | ) | ||||
|
Foreign sales corporation exempt income
|
148 | 118 | 183 | |||||||||
|
IRS audit resolution
|
— | — | 3,139 | |||||||||
|
Valuation allowance for deferred tax assets
|
— | (841 | ) | — | ||||||||
|
Adjustment for basis difference in subsidiary
|
1,498 | (148 | ) | (4,514 | ) | |||||||
|
State taxes, net of federal benefit
|
408 | 150 | (66 | ) | ||||||||
|
Increase in tax reserve
|
(461 | ) | — | — | ||||||||
|
Other
|
(286 | ) | 18 | 227 | ||||||||
|
Benefit (provision) for income taxes
|
$ | 6,748 | $ | (955 | ) | $ | (3,017 | ) | ||||
68
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ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Temporary differences and tax credit carryforwards that gave
rise to significant portions of deferred tax assets and
liabilities are as follows:
| December 31, | December 31, | ||||||||
| 2005 | 2004 | ||||||||
| (In thousands) | |||||||||
|
Deferred tax assets:
|
|||||||||
|
Assets and accruals not yet deductible
|
$ | 2,126 | $ | 1,815 | |||||
|
Alternative minimum tax credit carryforwards
|
7,776 | 7,776 | |||||||
|
Equity in loss of unconsolidated affiliates
|
122 | 297 | |||||||
|
Net operating loss carryforward
|
20,661 | 18,271 | |||||||
|
Minimum pension liability
|
3,909 | 3,477 | |||||||
|
State income tax
|
1,157 | 367 | |||||||
| 35,751 | 32,003 | ||||||||
|
Less valuation allowance
|
(1,853 | ) | (1,288 | ) | |||||
|
Total deferred tax assets
|
33,898 | 30,715 | |||||||
|
Deferred tax liabilities:
|
|||||||||
|
Property and equipment
|
(9,590 | ) | (12,360 | ) | |||||
|
Pension
|
(5,727 | ) | (6,135 | ) | |||||
|
Write up of subsidiary investment
|
(10,975 | ) | (12,473 | ) | |||||
|
Assets currently deductible
|
(1,722 | ) | (1,956 | ) | |||||
|
Total deferred tax liabilities
|
(28,014 | ) | (32,924 | ) | |||||
|
Net deferred tax assets (liabilities)
|
$ | 5,884 | $ | (2,209 | ) | ||||
The Company has $20.7 million in deferred tax assets
attributable to net operating loss carry-forwards for federal
income tax purposes, of which $10.4 million is attributable
to Omega and the remaining $10.3 million is attributable to
Zapata. Since the two companies cannot currently file a
consolidated federal income tax return, the ability for each of
these companies to utilize its own net operating losses is
dependent on the future taxable income that each company
separately generates. Net operating loss carry-forwards have a
20 year carry-forward period. For Zapata and Omega, the net
operating losses will begin to expire in 2020 and 2019,
respectively. Additionally, Zapata has approximately
$6.6 million and Omega has approximately $1.2 million
in federal alternative minimum tax credits which can be used to
offset future federal tax liabilities. Alternative minimum tax
credits do not expire.
The Company has a valuation allowance for December 31, 2005
and 2004 of $1.9 million and $1.3 million
respectively. The majority of Zapata’s portion of the
valuation allowance for the year ended December 31, 2004
relates to state net operating loss carryforwards. With the
exception of the valuation allowances recorded by Omega and
Zapata, the Company believes it is more likely than not that its
remaining deferred tax assets as of December 31, 2005 and 2004
will be realized. The ultimate realization of deferred tax
assets could be negatively impacted by market conditions and
other variables not known or anticipated at this time.
The American Jobs Creation Act of 2004 (the “Act”)
provides a deduction for income from qualified domestic
production activities, which will be phased in from 2005 through
2010. In return, the Act also provides for a two-year phase-out
of the existing extra-territorial income exclusion
(ETI) for foreign sales that was viewed to be inconsistent
with international trade protocols by the European Union.
Under the guidance in FASB Staff Position No. FAS 109-1,
Application of FASB Statement No. 109, “Accounting for
Income Taxes,” to the Tax Deduction on Qualified Production
Activities Provided by the
69
Table of Contents
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
American Jobs Creation Act of 2004, the deduction will be
treated as a “special deduction” as described in FASB
Statement No. 109. As such, the special deduction has no
effect on deferred tax assets and liabilities existing at the
enactment date. Rather, the impact of this deduction will be
reported in the period in which the deduction is claimed on our
tax return.
Omega has sufficient net operating loss carryforwards (NOLs)
that will fully offset near term future taxable income. Because
of the NOL carryforward, Omega will not be entitled to the
special deduction because the deduction is based on taxable
income after taking into account NOLs. Zapata is not currently
eligible for the benefits of this provision. Therefore, the
Company’s near term effective tax rate will not reflect any
benefit for the special deduction.
During 2003, Zapata finalized its audit with the Internal
Revenue Service for the tax years ended September 30, 1997
through 2001. This resulted in a net tax benefit of
approximately $3.1 million relating to a federal refund and
the elimination of certain tax contingencies. This benefit was
offset by the recognition of a deferred tax liability of
approximately $4.5 million associated with the excess of
book basis over tax basis attributable to Zapata’s
investment in Omega Protein.
If Zapata or Omega has a change of ownership pursuant to
Section 382 of the Internal Revenue Code, utilization of
their respective net operating losses or alternative minimum tax
credits could be significantly limited or, in Zapata’s
case, possibly eliminated. An ownership change for this purpose
is generally a change in the majority ownership of a company
over a three year period.
Section 541 of the Internal Revenue Code of 1986, as
amended (the “IRC”), subjects a corporation, which is
a “personal holding company” as defined in the IRC, to
a 15% penalty tax on “undistributed personal holding
company income” in addition to the corporation’s
normal income tax. Generally, undistributed personal holding
company income is based on taxable income, subject to certain
adjustments, most notably a reduction for Federal incomes taxes.
Personal holding company income is comprised primarily of
passive investment income plus, under certain circumstances,
personal service income. Zapata and its domestic subsidiaries
(other than Omega) could become subject to the penalty tax if
(i) 60% or more of its adjusted ordinary gross income is
personal holding company income and (ii) 50% or more of its
outstanding common stock is owned, directly or indirectly, by
five or fewer individuals at any time during the last half of
the taxable year. The Company believes that five or fewer of
Zapata’s stockholders hold 50% or more of its outstanding
common stock for purposes of IRC Section 541. However, as
of December 31, 2005, Zapata and its domestic subsidiaries
(other than Omega) had no undistributed personal holding company
income due to losses generated by the consolidated tax filing
group and therefore has not recorded a personal holding company
tax liability. There can be no assurance that Zapata will not be
subject to this tax in the future that in turn may materially
and adversely impact the Company’s financial position,
results of operations and cash flows.
| Note 14. | Commitments and Contingencies |
| Leases Payable |
Future annual minimum payments under non-cancelable operating
lease obligations as of December 31, 2005 are as follows
(in thousands):
|
2006
|
$ | 800 | ||
|
2007
|
747 | |||
|
2008
|
685 | |||
|
2009
|
675 | |||
|
2010
|
629 | |||
|
Thereafter
|
2,832 | |||
|
Total minimum lease payments
|
6,368 | |||
Rental expenses for leases were $607,000, $721,000, and $650,000
in 2005, 2004, and 2003, respectively.
70
Table of Contents
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| Litigation |
Zapata is involved in litigation relating to claims arising out
of its past and current operations in the normal course of
business. Zapata maintains insurance coverage against such
potential ordinary course claims in an amount in which it
believes to be adequate. While the results of any ultimate
resolution cannot be predicted, in the opinion of Zapata’s
management, based upon discussions with counsel, any losses
resulting from these matters will not have a material adverse
effect on Zapata’s results of consolidated operations, cash
flow or financial position.
| Environmental Matters |
During the third quarter of 2005, Zapata was notified by
Weatherford International Inc. (“Weatherford”) of a
claim for reimbursement of approximately $200,000 in connection
with the investigation and cleanup of purported environmental
contamination at two properties formerly owned by a
non-operating Zapata subsidiary. The claim was made under an
indemnification provision given by Zapata to Weatherford in a
1995 asset purchase agreement and relates to alleged
environmental contamination that purportedly existed on the
properties prior to the date of the sale.
Weatherford has also advised the Company that it anticipates
that further remediation and cleanup may be required, although
they have not provided any information regarding the cost of any
such future clean up. Zapata has challenged any responsibility
to indemnify Weatherford and is in the process of retaining its
own expert to determine whether the condition is such that it
would be required to provide indemnification under the asset
purchase agreement, including, whether the contamination
occurred after the sale of the property.
At this time, although it is reasonably possible that some costs
could be incurred related to this site, the Company has
inadequate information to enable it to estimate any reasonably
possible range of estimated liability relating to these sites
beyond the specific amount claimed to date by Weatherford.
Further, there can be no assurance that the Company will not
incur material costs and expenses in connection with any further
investigation and remediation at the site.
Zapata and its subsidiaries are subject to various possible
claims and lawsuits regarding environmental matters in addition
to those discussed above. Zapata’s management believes that
costs, if any, related to these matters will not have a material
adverse effect on the consolidated results of operations, cash
flows or financial position of the Company.
| Guarantees |
The Company has applied the disclosure provisions of FASB
Interpretation No. 45 (FIN 45), “Guarantor’s
Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others,” to its
agreements containing guarantee or indemnification clauses.
These disclosure provisions expand those required by
SFAS No. 5, “Accounting for Contingencies,”
by requiring a guarantor to disclose certain types of
guarantees, even if the likelihood of requiring the
guarantor’s performance is remote. The following is a
description of arrangements in which the Company is the
guarantor.
During February 2003, Zapata’s directors and officers
entered into indemnification agreements with the Company. These
agreements provide additional rights to persons entitled to
indemnification that is currently provided under the
Company’s Articles of Incorporation and By-laws and will
protect the officers and directors from losses incurred as a
result of claims made against such individuals arising out of,
or because of their service to the Company. The maximum
potential amount of future payments the Company could be
required to make under these indemnification agreements is
unlimited; however, Zapata maintains Director and Officer
Liability insurance to limit potential exposure. As a result of
this insurance coverage, it is the opinion of Zapata’s
management that the estimated fair value of any liabilities
under these indemnification agreements is minimal and
accordingly, no liabilities have been recorded under the
provisions of FIN 45.
71
Table of Contents
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Throughout its history, the Company has entered into numerous
transactions relating to the sale, disposal or spin-off of past
operations. Pursuant to certain of these transactions, the
Company may be obligated to indemnify other parties to these
agreements. These obligations include indemnifications for
losses incurred by such parties arising out of the operations of
such businesses prior to these transactions or the inaccuracy of
representations of information supplied by the Company in
connection with such transactions. These indemnification
obligations were in effect prior to December 31, 2002 and
are therefore grandfathered under the provisions of
FIN No. 45. Accordingly, no liabilities have been
recorded for the indemnification clauses in these agreements.
| Purchase Obligation |
As of December 31, 2005, Omega Protein had two letters of
credit relating to a fish meal purchase commitment totaling
approximately $5.1 million. Additionally, Omega had a
separate fish meal purchase commitment totaling approximately
$2.6 million.
| Note 15. | Qualified Defined Benefit Plans |
| General |
Zapata and Omega Protein have separate and independent
noncontributory defined benefit pension plans covering certain
U.S. employees. Benefits are generally based on
employees’ years of service and compensation level. All of
the costs of these plans are borne by Zapata and Omega. Each
plan has adopted an excess benefit formula integrated with
covered compensation. Both plan’s participants are 100%
vested in the accrued benefit after five years of service. The
funding policy of each plan is to make contributions as required
by applicable regulations. All plans use a December 31
measurement date.
In 2005, Zapata Corporation’s Board of Directors authorized
a plan to freeze the Zapata pension plan in accordance with
ERISA rules and regulations so that new employees, after
January 15, 2006, will not be eligible to participate in
the pension plan and further benefits will no longer accrue for
existing participants. The freezing of the pension plan had the
effect of vesting all existing participants in their pension
benefits in the plan. Additionally, the freezing will cause the
Company to recognize a curtailment loss of approximately
$147,000 during January 2006 which represents the balance of the
unamortized prior service cost.
In 2002, Omega Protein’s Board of Directors authorized a
plan to freeze the Omega pension plan in accordance with ERISA
rules and regulations so that new employees, after July 31,
2002, will not be eligible to participate in the pension plan
and further benefits will no longer accrue for existing
participants. The freezing of the pension plan had the effect of
vesting all existing participants in their pension benefits in
the plan.
Additionally, effective April 1, 1992, Zapata adopted a
supplemental pension plan, which provides supplemental
retirement payments to certain former senior executives of
Zapata. The amounts of such payments equal the difference
between the amounts received under the applicable pension plan
and the amounts that would otherwise be received if pension plan
payments were not reduced as the result of the limitations upon
compensation and benefits imposed by federal law. Effective
December 1994, the supplemental pension plan was frozen.
72
Table of Contents
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| Consolidated Obligations and Funded Status |
| December 31, | December 31, | |||||||
| 2005 | 2004 | |||||||
| (In thousands) | ||||||||
|
Change in Benefit Obligation
|
||||||||
|
Benefit obligation at beginning of year
|
$ | 46,381 | $ | 43,908 | ||||
|
Service Cost
|
41 | 38 | ||||||
|
Interest Cost
|
2,580 | 2,603 | ||||||
|
Actuarial loss (gain)
|
1,766 | 2,829 | ||||||
|
Benefits paid
|
(3,287 | ) | (2,997 | ) | ||||
|
Benefit obligation at end of year
|
47,481 | 46,381 | ||||||
|
Change in Plan Assets
|
||||||||
|
Plan assets at fair value at beginning of year
|
37,714 | 37,893 | ||||||
|
Actual return on plan assets
|
1,421 | 2,714 | ||||||
|
Contributions
|
104 | 104 | ||||||
|
Benefits paid
|
(3,287 | ) | (2,997 | ) | ||||
|
Plan assets at fair value at end of year
|
35,952 | 37,714 | ||||||
|
Reconciliation of Prepaid Pension Cost and Total Amount
Recognized
|
||||||||
|
Unfunded status of plan
|
(11,529 | ) | (8,667 | ) | ||||
|
Unrecognized prior service cost
|
156 | 258 | ||||||
|
Unrecognized net loss
|
27,233 | 25,356 | ||||||
|
Recognized prepaid pension cost
|
15,860 | 16,947 | ||||||
|
Amounts Recognized in the Statement of Financial Position
Consist of: |
||||||||
|
Prepaid benefit cost
|
15,780 | 16,096 | ||||||
|
Accrued benefit liability
|
(11,810 | ) | (9,677 | ) | ||||
|
Accumulated other comprehensive income
|
11,890 | 10,528 | ||||||
|
Net amount realized
|
$ | 15,860 | $ | 16,947 | ||||
| Years Ended December 31, | ||||||||||||
| 2005 | 2004 | 2003 | ||||||||||
| (In thousands) | ||||||||||||
|
Components of net periodic benefit cost
|
||||||||||||
|
Service cost
|
$ | 41 | $ | 38 | $ | 29 | ||||||
|
Interest cost
|
2,580 | 2,603 | 2,787 | |||||||||
|
Expected return on plan assets
|
(2,933 | ) | (2,999 | ) | (2,555 | ) | ||||||
|
Amortization of transition assets and other deferrals
|
1,502 | 1,339 | 1,759 | |||||||||
|
Net periodic pension cost
|
$ | 1,190 | $ | 981 | $ | 2,020 | ||||||
| Years Ended December 31, | ||||||||||||
| 2005 | 2004 | 2003 | ||||||||||
| (In thousands) | ||||||||||||
|
Increase (decrease) in minimum liability included in other
comprehensive income, net of tax effects and minority interest
|
$ | 542 | $ | 523 | $ | (1,701 | ) | |||||
73
Table of Contents
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| Pension Liabilities |
Pension liabilities as presented on the Consolidated Balance
Sheets are summarized as follows:
| December 31, | December 31, | ||||||||
| 2005 | 2004 | ||||||||
| (In thousands) | |||||||||
|
Pension liability resulting from:
|
|||||||||
|
Omega Protein’s pension plan
|
$ | 10,932 | $ | 8,845 | |||||
|
Zapata’s supplemental retirement plan
|
878 | 832 | |||||||
| $ | 11,810 | $ | 9,677 | ||||||
Pension liabilities are primarily derived from the additional
minimum pension liability requirements of SFAS No. 87
which requires the recognition of an additional minimum pension
liability in the amount of the unfunded accumulated benefit
obligation in excess of accrued pension cost with an equal
amount to be recognized net of the associated tax benefits in
accumulated other comprehensive income. Based on current
authoritative rules regarding pension accounting, increases in
the additional minimum liability do not impact earnings or cash
flow, and could reverse in future periods should either interest
rates increase or market performance and plan returns improve.
There is no assurance that changes in rules governing pension
accounting will not result in the recognition of income (loss)
as a result of changes in the additional minimum liability.
| Zapata Corporate Pension Plan Information |
The accumulated benefit obligation for Zapata Corporate’s
pension plan was $19.6 and $19.5 million at
December 31, 2005 and 2004, respectively. The fair value of
Zapata’s plan assets were $19.9 million and
$20.5 million at December 31, 2005 and 2004,
respectively.
| Assumptions | 2005 | 2004 | 2003 | ||||||||||
| (In thousands) | |||||||||||||
|
Weighted-average assumptions used to determine benefit
obligations as of December 31
|
|||||||||||||
|
Discount rate
|
5.50 | % | 5.75 | % | 6.00 | % | |||||||
|
Expected long-term return on plan assets
|
7.75 | % | 7.75 | % | 8.00 | % | |||||||
|
Salary scale
|
4.50 | % | 4.50 | % | 4.50 | % | |||||||
|
Weighted-average assumptions used to determine net periodic
benefit cost for the years ended December 31
|
|||||||||||||
|
Discount rate
|
5.75 | % | 6.00 | % | 6.50 | % | |||||||
|
Expected long-term return on plan assets
|
7.75 | % | 8.00 | % | 8.00 | % | |||||||
|
Salary scale
|
4.50 | % | 4.50 | % | 4.50 | % | |||||||
Zapata’s Board of Directors has established a Pension
Committee to oversee plan assets. The Pension Committee is
comprised of two members of management and is responsible for
establishing objectives and policies for the investment of Plan
assets with assistance from the Plan’s investment
consultant. As the obligations of the Plan are relatively
long-term in nature, the Plan’s investment strategy has
been to maximize long-term capital appreciation. The Plan has
historically invested within and among equity and fixed income
asset classes in a manner that sought to achieve the highest
rate of return consistent with a moderate amount of volatility.
At the same time, the Plan maintained a sufficient amount
invested in highly liquid investments to meet the Plan’s
immediate and projected cash flow needs. To achieve these
objectives, the Committee developed guidelines for the
composition of investments to be held by the Plan. Due to
varying rates of return among asset classes, the actual asset
mix may vary somewhat from these guidelines but are generally
rebalanced as soon as practical.
74
Table of Contents
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Plan Assets. The Zapata Pension Plan asset allocations
and target Plan asset allocations by asset category are as
follows:
| Allocation as of | Plan Investment | |||||||||||||||||||
| December 31, | Allocation Guidelines | |||||||||||||||||||
| Asset Category | 2005 | 2004 | Min | Target | Max | |||||||||||||||
|
Domestic Equity Securities
|
41% | 46% | 28% | 52% | 75% | |||||||||||||||
|
International Equity Securities
|
15% | 9% | 0% | 9% | 15% | |||||||||||||||
|
Debt Securities
|
0% | 0% | 0% | 19% | 60% | |||||||||||||||
|
Guaranteed Investment Contracts
|
43% | 44% | 0% | 20% | 60% | |||||||||||||||
|
Real Estate
|
0% | 0% | 0% | 0% | 0% | |||||||||||||||
|
Other
|
1% | 1% | 0% | 0% | 0% | |||||||||||||||
As of December 31, 2005 and 2004, no plan assets were
invested in Zapata common stock.
The Company currently has a prepaid pension asset of
approximately $15.8 million as of December 31, 2005.
If the Company decides to terminate the Plan, at the time of
this decision, the Company would be required to incur a non-cash
charge through earnings in an amount equal to the unrecognized
net loss component of the Plan’s prepaid pension asset. At
December 31, 2005, unrecognized net losses represented
approximately $15.3 million. Accordingly, depending on
market conditions, the Company may have to reverse its prepaid
pension balance and record a pension liability through a
non-cash charge to equity. As the Company has not determined if
it will terminate the Plan, and due to the uncertainty of market
conditions, the Company can provide no assurances as to the
ultimate financial statement impact that Plan modifications may
have.
For 2005, the Company assumed a long-term asset rate of return
of 7.75%. In developing this rate of return assumption, the
Company obtained input from our third party pension plan
investment advisor which included a review of historical returns
and asset class return expectations based on the Plan’s
current asset allocation. Despite the Company’s belief that
this assumption is reasonable, future actual results may differ
from this estimate.
Contributions. Zapata plans to make no contributions to
its pension plan in 2006.
Estimated Future Benefit Payments. The following benefit
payments, which reflect expected future service, as appropriate,
are expected to be paid:
| Pension Benefits | ||||
| (In thousands) | ||||
|
2006
|
$ | 1,435 | ||
|
2007
|
1,417 | |||
|
2008
|
1,416 | |||
|
2009
|
1,392 | |||
|
2010
|
1,412 | |||
|
Years 2011-2015
|
7,039 | |||
| Omega Protein Pension Plan Information |
Omega’s funding policy is to make contributions as required
by applicable regulations. Omega uses a December 31
measurement date for its pension plan. The accumulated benefit
obligation for the pension plan was $27.0 and $26.1 million
at December 31, 2005 and 2004, respectively. The fair value
of Omega’s plan assets were $16.1 million and
$17.2 million at December 31, 2005 and 2004,
respectively. The unrecognized
75
Table of Contents
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
net loss of $11.5 million at December 31, 2005 is
expected to be reduced by future returns on plan assets and
through decreases in future net pension credits.
| Assumptions | 2005 | 2004 | 2003 | ||||||||||
| (In thousands) | |||||||||||||
|
Weighted-average assumptions used to determine benefit
obligations as of December 31
|
|||||||||||||
|
Discount rate
|
5.50 | % | 5.75 | % | 6.25 | % | |||||||
|
Expected long-term return on plan assets
|
8.50 | % | 8.50 | % | 8.50 | % | |||||||
|
Salary scale up to age 50
|
N/A | N/A | N/A | ||||||||||
|
Salary scale over age 50
|
N/A | N/A | N/A | ||||||||||
|
Weighted-average assumptions used to determine net periodic
benefit cost for the years ended December 31
|
|||||||||||||
|
Discount rate
|
5.75 | % | 6.25 | % | 6.50 | % | |||||||
|
Expected long-term return on plan assets
|
8.50 | % | 8.50 | % | 8.50 | % | |||||||
|
Salary scale up to age 50
|
N/A | N/A | N/A | ||||||||||
|
Salary scale over age 50
|
N/A | N/A | N/A | ||||||||||
Omega, in consultations with its actuarial firm, employs a
building block approach in determining the assumed long-term
rate of return for plan assets. Omega reviews historical market
data and long-term historical relationships between equities and
fixed income in accordance with the widely-accepted capital
market principle that assets with higher volatility generally
generate greater returns over the long run. Omega also evaluates
current market factors such as inflation and interest rates
before it determines long-term capital market assumptions. After
taking into account diversification of asset classes and the
need to periodically re-balance asset classes, Omega establishes
the assumed long-term portfolio rate of return by a building
block approach. Omega also reviews peer data and historical
returns to check its long-term rate of return for reasonability
and appropriateness.
Plan Assets. Omega’s pension plan weighted-average
asset allocations at December 31, 2005, and 2004, by asset
category are as follows:
| December 31, | |||||||||
| Asset Category | 2005 | 2004 | |||||||
|
Equity securities
|
61% | 73% | |||||||
|
Debt securities
|
38% | 26% | |||||||
|
Other
|
1% | 1% | |||||||
|
Total
|
100% | 100% | |||||||
Equity securities do not include any of Omega’s common
stock at December 31, 2005, and 2004, respectively.
Contributions. Omega Protein expects to make
contributions of $2.6 million to the pension plan in 2006.
76
Table of Contents
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Estimated Future Benefit Payments. The following benefit
payments, which reflect expected future service, as appropriate,
are expected to be paid:
| Pension Benefits | ||||
| (In thousands) | ||||
|
2006
|
$ | 1,576 | ||
|
2007
|
1,663 | |||
|
2008
|
1,695 | |||
|
2009
|
1,752 | |||
|
2010
|
1,778 | |||
|
Years 2011-2015
|
9,029 | |||
Zapata Corporate
Supplemental Pension Plan Information
The accumulated benefit obligation for the pension plan was $0.9
and $0.8 million at December 31, 2005 and 2004,
respectively. The fair value of Zapata’s Supplemental plan
assets were $0 at December 31, 2005 and 2004, respectively.
Zapata’s supplemental plan is subject to the additional
minimum liability requirements of SFAS No. 87.
Accordingly, based upon plan actuarial and asset information,
the Company had an additional pension liability of $393,000 and
$300,000 in 2005 and 2004, respectively. Amounts listed as
minimum pension liability adjustments under the caption
“Comprehensive (Loss) Income” on the Consolidated
Statements of Stockholders’ Equity represent the net change
in the portion of the additional pension liability recorded
under accumulated other comprehensive loss on the Consolidated
Balance Sheets.
| Assumptions | 2005 | 2004 | 2003 | ||||||||||
| (In thousands) | |||||||||||||
|
Weighted-average assumptions used to determine benefit
obligations as of December 31
|
|||||||||||||
|
Discount rate
|
5.50 | % | 5.75 | % | 6.00 | % | |||||||
|
Expected long-term return on plan assets
|
N/A | N/A | N/A | ||||||||||
|
Rate of compensation increase
|
N/A | N/A | N/A | ||||||||||
|
Weighted-average assumptions used to determine net periodic
benefit cost for the years ended December 31
|
|||||||||||||
|
Discount rate
|
5.75 | % | 6.00 | % | 6.50 | % | |||||||
|
Expected long-term return on plan assets
|
N/A | N/A | N/A | ||||||||||
|
Rate of compensation increase
|
N/A | N/A | N/A | ||||||||||
Plan Assets. Due to the nature of the plan, the Zapata
Supplemental Pension Plan has no plan assets.
Contributions. Zapata plans to make no contributions to
its supplemental pension plan in 2006. However, as the Zapata
supplemental pension plan is an unfunded plan, estimated future
benefit payments will be made in accordance with the schedule
below.
Estimated Future Benefit Payments. The following benefit
payments, which reflect expected future service, as appropriate,
are expected to be paid:
| Pension Benefits | ||||
| (In thousands) | ||||
|
2006
|
$ | 103 | ||
|
2007
|
100 | |||
|
2008
|
97 | |||
|
2009
|
94 | |||
|
2010
|
91 | |||
|
Years 2011-2015
|
398 | |||
77
Table of Contents
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| Note 16. | Qualified Defined Contribution Plans |
Effective May 31, 2001, the Company established the Zapata
401(k) Plan (the “Zapata Plan”) and simultaneously
revoked its participation in the Omega Protein 401(k) Retirement
and Savings Plan, (the “Profit Sharing Plan”). All
amounts held by the Profit Sharing Plan on behalf of current and
former employees of Zapata were transferred to the Zapata Plan.
Participants may defer a fixed amount or a percentage of their
eligible compensation, subject to limitations of the Zapata
Plan. The Company makes a discretionary matching contribution of
100% of the employee’s contribution up to 3% of eligible
compensation and 50% of the employee’s contribution between
3% and 5% of eligible compensation. In accordance with Plan
provisions, in 2003 through the first quarter of 2005, the
Company funded its matching contribution with funds held in a
forfeitures account within the plan. The Company recognized
expenses for contributions to the Zapata Plan of approximately
$16,000, $0, and $9,000, in 2005, 2004 and 2003 respectively.
All qualified employees of Omega are covered under the Omega
Protein 401(k) Savings and Retirement Plan (the
“Plan”). Prior to 2001, Omega contributed matching
contributions to the Plan based on employee contributions and
compensation. Omega suspended its matching contributions to the
Plan for 2001. In 2002, the Board of Directors authorized the
reinstatement of the Company’s matching cash contribution
to the Plan, effective January 1, 2002, at levels
previously in place prior to the suspension of the match in
2001. Omega’s matching contributions to the Plan were
approximately $715,000, $660,000, and $553,000 during 2005,
2004, and 2003 respectively.
| Note 17. | Stock Option Plans |
Zapata’s Amended and Restated Special Incentive Plan (the
“1987 Plan”) provides for the granting of stock
options and the awarding of restricted stock. Under the 1987
Plan, options may be granted at prices equivalent to the market
value of the common stock at the date of grant. Options become
exercisable on dates as determined by the Zapata Board of
Director’s Compensation Committee, provided that the
earliest such date cannot occur before six months after the date
of grant. Unexercised options will expire on varying dates, up
to a maximum of ten years from the date of grant. All options
granted vest ratably over three years beginning on the first
anniversary of the date of grant and have an exercise price
equal to the fair market value of the stock at grant date. The
awards of restricted stock have a restriction period of not less
than six months and not more than five years. The 1987 Plan
provided for the issuance of up to 480,000 shares of the
common stock. During 1992, the stockholders approved an
amendment to the 1987 Plan that provided for the automatic grant
of a nonqualified stock option to directors of Zapata who are
not employees of Zapata or any subsidiary of Zapata. As of
December 31, 2005, stock options covering a total of
32,000 shares had been exercised. No shares of common stock
are available for future stock options or other awards under the
Plan. As of December 31, 2005, there were options for the
purchase of up to 48,000 shares outstanding under the 1987
plan.
On December 5, 1996, the Company’s stockholders
approved a long-term incentive plan (the “1996 Plan”).
The 1996 Plan provides for the granting of restricted stock,
stock appreciation rights, stock options and other types of
awards to key employees of the Company. Under the 1996 Plan,
options may be granted by the Committee at prices equivalent to
the market value of the common stock on the date of grant.
Options become exercisable in one or more installments on such
dates as the Committee may determine. Unexercised options will
expire on varying dates up to a maximum of ten years from the
date of grant. All options granted vest ratably over three years
beginning on the first anniversary of the date of grant and have
an exercise price equal to the fair market value of the stock at
grant date. The 1996 Plan provides for the issuance of options
to purchase up to 4.0 million shares of common stock.
During 1999, the stockholders approved an amendment to the 1996
Plan which increased the number of shares available for options
granted under the plan to 8,000,000 shares. At
December 31, 2005, stock options covering a total of
850,228 shares had been exercised and a total of
5,906,400 shares of common stock are available for future
stock options or other awards under
78
Table of Contents
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
the Plan. As of December 31, 2005 there were options for
the purchase of up to 1,243,372 shares outstanding under
the 1996 plan.
In May 2002, the Stockholders approved specific stock option
grants of 8,000 options to each of the six non-employee
directors of the Company. These grants had been approved by the
Board of Directors and awarded by the Company in March of 2002.
These grants are non-qualified options with a ten year life and
are exercisable in cumulative one-third installments vesting
annually beginning on the first anniversary of the date of
grant. As of December 31, 2005, there were options for the
purchase of up to 48,000 shares outstanding under these
grants.
A summary of the status of Zapata Corporate’s stock options
is presented below:
| For the Years Ended December 31, | ||||||||||||||||||||||||
| 2005 | 2004 | 2003 | ||||||||||||||||||||||
| Weighted | Weighted | Weighted | ||||||||||||||||||||||
| Average | Average | Average | ||||||||||||||||||||||
| Number of | Exercise | Number of | Exercise | Number of | Exercise | |||||||||||||||||||
| Shares | Prices | Shares | Prices | Shares | Prices | |||||||||||||||||||
|
Outstanding at beginning of year
|
1,356,408 | $ | 5.55 | 1,356,408 | $ | 5.55 | 1,167,208 | $ | 5.69 | |||||||||||||||
|
Granted
|
— | — | 6,000 | $ | 7.50 | 215,600 | $ | 6.80 | ||||||||||||||||
|
Exercised
|
(17,036 | ) | $ | 5.29 | (2,000 | ) | $ | 6.36 | (3,728 | ) | $ | 2.69 | ||||||||||||
|
Forfeited
|
— | — | (4,000 | ) | $ | 6.36 | (22,672 | ) | $ | 6.33 | ||||||||||||||
|
Outstanding at end of year
|
1,339,372 | $ | 5.56 | 1,356,408 | $ | 5.55 | 1,356,408 | $ | 5.55 | |||||||||||||||
|
Exercisable at end of year
|
1,265,505 | $ | 5.48 | 1,194,640 | $ | 5.42 | 1,058,544 | $ | 5.49 | |||||||||||||||
Options outstanding and exercisable as of December 31, 2005
are summarized below:
| Options Outstanding | Options Exercisable | |||||||||||||||||||||||
| Weighted | ||||||||||||||||||||||||
| Average | Weighted | Weighted | ||||||||||||||||||||||
| Remaining | Average | Average | ||||||||||||||||||||||
| Number | Contractual | Exercise | Range of | Number | Exercise | |||||||||||||||||||
| Range of Exercise Prices | Outstanding | Life | Price | Exercise Prices | Exercisable | Price | ||||||||||||||||||
|
$2.422 to $ 2.775
|
151,040 | 6 years | $ | 2.77 | $ | 2.422 to $ 2.775 | 151,040 | $ | 2.77 | |||||||||||||||
|
$3.125 to $ 3.438
|
50,400 | 6 years | $ | 3.33 | $ | 3.125 to $ 3.438 | 50,400 | $ | 3.33 | |||||||||||||||
|
$5.547 to $ 5.781
|
910,332 | 1 years | $ | 5.77 | $ | 5.547 to $ 5.781 | 910,332 | $ | 5.77 | |||||||||||||||
|
$6.813 to $10.938
|
227,600 | 8 years | $ | 7.05 | $ | 6.813 to $10.938 | 153,733 | $ | 7.14 | |||||||||||||||
| 1,339,372 | 1,265,505 | |||||||||||||||||||||||
79
Table of Contents
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following table gives the weighted-average assumptions used
in the determination of fair value of each stock option granted
using the Black-Scholes option-pricing model. Safety Components
is not included because they did not issue stock options during
the period their results were consolidated by the Company.
| For Grants During the Years Ended | |||||||||||||
| December 31, | |||||||||||||
| 2005 | 2004 | 2003 | |||||||||||
|
Zapata Corporate:
|
|||||||||||||
|
Expected option term
|
N/A | 3 years | 3 years | ||||||||||
|
Dividend yield
|
N/A | 0 | % | 0 | % | ||||||||
|
Risk-free interest rate
|
N/A | 2.81 | % | 2.46 | % | ||||||||
|
Volatility
|
N/A | 32.58 | % | 37.65 | % | ||||||||
|
Weighted average grant date fair value
|
N/A | $ | 1.54 | $ | 1.92 | ||||||||
|
Omega Protein:
|
|||||||||||||
|
Expected option term
|
5 years | 5 years | 5 years | ||||||||||
|
Dividend yield
|
0 | % | 0 | % | 0 | % | |||||||
|
Risk-free interest rate
|
4.23 | % | 3.7 | % | 3.42 | % | |||||||
|
Volatility
|
61.46 | % | 58.2 | % | 66.4 | % | |||||||
|
Weighted average grant date fair value
|
$ | 4.95 | $ | 5.40 | $ | 3.33 | |||||||
|
Zap.Com:
|
|||||||||||||
|
Expected option term
|
N/A | 3 years | N/A | ||||||||||
|
Dividend yield
|
N/A | 0 | % | N/A | |||||||||
|
Risk-free interest rate
|
N/A | 2.86 | % | N/A | |||||||||
|
Volatility
|
N/A | 441.54 | % | N/A | |||||||||
|
Weighted average grant date fair value
|
N/A | $ | 0.08 | N/A | |||||||||
| Note 18. | Related Party Transactions |
| Safety Components |
On December 2, 2005, Zapata paid $1.0 million to
Safety Components in the form of a capital contribution for the
Safety Components compensation committee to pay bonuses to the
Safety Components executive officers and key employees. Zapata
approved this plan to pay the bonus during the third quarter of
2005, in order to provide Safety Components management with an
incentive to continue with Safety Components until the
completion of the sale to WLR Recovery Funds. This capital
contribution increased Zapata’s carrying value of its
investment in Safety Components which, when compared to the
proceeds from the sale of Safety’s Common Stock, resulted
in a transaction loss upon disposition.
During 2003, after acquiring in excess of 80% of the voting
interests in Safety Components, the Company entered into a tax
sharing and indemnity agreement with Safety Components. On or
about April 1, 2004, Zapata’s stock ownership
percentage of Safety Components outstanding stock decreased
below 80% due to stock option exercises by Safety
Components’ employees. Therefore, Safety Components was
only included in Zapata’s consolidated income tax returns
for the fourth quarter of 2003 and the first quarter of 2004.
| Omega Protein |
Upon completion of Omega’s initial public offering in 1998,
Omega and Zapata entered into certain agreements including the
Administrative Services Agreement, which covers certain
administrative services Omega provides to Zapata, which
included, among other things, the administration of the Zapata
Pension Plan. The Administrative Services Agreement allows Omega
to provide certain administrative services to Zapata at
Omega’s estimated cost. During the third quarter of 2004,
Zapata engaged a third party administrator for the Zapata
Pension Plan, ceasing to utilize Omega for these services. For
the years ended
80
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ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
December 31, 2005, 2004 and 2003, Zapata reimbursed Omega
$0, $14,500, and $17,000, respectively for services provided
under the plan. Zapata had $105,000 recorded as an intercompany
payable to Omega as of December 31, 2005 and 2004,
respectively.
Zapata and Omega also entered into a Sublease Agreement which
provided for Omega to lease its principal corporate offices in
Houston, Texas from Zapata Corporation of Texas, Inc., a
non-operating wholly-owned subsidiary of Zapata, and provided
Omega with the ability to utilize telephone equipment worth
approximately $21,000 for no additional charge. In May 2003,
Zapata Corporation of Texas, Inc. assigned the lease to Omega
who assumed all obligations under the lease with the third party
landlord.
| Zap.Com |
Since its inception, Zap.Com has utilized the services of the
Zapata’s management and staff under a shared services
agreement that allocated these costs on a percentage of time
basis. Zap. Com also subleases its office space in Rochester,
New York from Zapata. Under the sublease agreement, annual
rental payments are allocated on a cost basis. Zapata has waived
its rights under the shared services agreement to be reimbursed
for these expenses since May 1, 2000. For the years ended
December 31, 2005, 2004 and 2003, approximately $13,000,
$13,000 and $12,000, respectively, was recorded as contributed
capital for these services.
In November 2004, Zap.Com granted stock options to its sole
director, corporate secretary and certain Zapata employees under
the 1999 Plan. Zap.Com accounted for the stock options granted
to its director in accordance with FASB Interpretation
No. 44, “Accounting for Certain Transactions Involving
Stock Compensation (an interpretation of APB Opinion
No. 25).” See “Note 1. — Stock
Based Compensation” for Zapata’s portion of
Zap.Com’s pro forma expense related to the stock options
granted to Zap.Com’s sole director. These amounts are
immaterial and are included under “Zap.Com.” Because
Zapata controls Zap.Com, the stock options granted to Zapata
employees have been accounted for as a stock dividend from
Zap.Com to Zapata under Emerging Issues Task Force
Issue 00-23,
“Issues Related to the Accounting for Stock Compensation
under APB Opinion No. 25 and FASB Interpretation
No. 44.” These amounts are immaterial and have been
included under “Zapata Corporate” on
“Note 1. — Stock Based Compensation.”
For options granted to the Company’s corporate secretary,
Zapata will recognize approximately $1,000 of compensation
expense ratably over the three year vesting period.
| Other |
In February 2005, the Company modified the terms of certain
outstanding stock options held by Darcie Glazer and Edward
Glazer, to extend the early termination of the exercise period
following Darcie Glazer’s termination of employment with
the Company in 2001. Consistent with FASB Interpretation
No. 44, “Accounting for Certain Transactions involving
Stock Compensation (an interpretation of APB Opinion
No. 25),” the Company recorded a compensation charge
of approximately $353,000 related to this modification.
During 2002, the Company finalized the terms of a consulting
agreement with its former Chairman of the Board of Directors,
Malcolm Glazer. Subject to the terms of the agreement, the
Company pays Malcolm Glazer $122,500 per month until
April 30, 2006. The agreement also provides for health and
other medical benefits for Mr. Glazer and his wife. This
agreement will terminate in the event of Mr. Glazer’s
death or permanent disability.
Based on an indemnification clause in the Company’s
by-laws, during the year ended December 31, 2003, the
Company incurred legal fees of approximately $34,000 related to
a previously dismissed action against Malcolm I. Glazer, the
Malcolm I. Glazer Family Limited Partnership, and Malcolm I.
Glazer GP, Inc.
| Note 19. | Recently Issued Accounting Pronouncements |
In November 2004, the FASB issued SFAS No. 151,
“Inventory Costs,” which clarifies the accounting for
abnormal amounts of idle facility expense, freight, handling
costs, and wasted material. SFAS No. 151 will
81
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ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
be effective for inventory costs incurred during fiscal years
beginning after June 15, 2005. The adoption of this
statement is not expected to have any impact on the
Company’s consolidated financial position, results of
operations or cash flows.
In December 2004, the FASB issued SFAS No. 123R,
“Share Based Payment,” that requires companies to
expense the value of employee stock options and similar awards
for interim and annual periods beginning after June 15,
2005 and applies to all outstanding and unvested stock-based
awards at a company’s adoption date. The Company does not
believe that the adoption of this statement will have a material
effect on the Company’s consolidated financial position and
results of operations for its currently outstanding unvested
stock options. However, there can be no assurance that any
future grants of stock options will not have a material impact
on the Company’s consolidated financial position and
results of operations.
In December 2004, the FASB issued SFAS No. 153,
“Exchanges of Nonmonetary Assets,” which eliminates
the exception for nonmonetary exchanges of similar productive
assets and replaces it with a general exception for exchanges of
nonmonetary assets that do not have commercial substance.
SFAS No. 153 will be effective for nonmonetary asset
exchanges occurring in fiscal periods beginning after
June 15, 2005. The adoption of this statement is not
expected to have any impact on the Company’s consolidated
financial position, results of operations or cash flows.
In March 2005, the FASB issued Interpretation (“FIN”)
No. 47, “Accounting for Conditional Asset Retirement
Obligations, an Interpretation of FASB Statement
No. 143.” This interpretation clarifies the timing of
liability recognition for legal obligations associated with an
asset retirement when the timing and (or) method of
settling the obligation are conditional on a future event that
may or may not be within the control of the entity.
FIN No. 47 is effective no later than the end of
fiscal years ending after December 15, 2005. The adoption
of FIN No. 47 did not have a material impact on the
Company’s financial condition, results of operations or
cash flows.
| Note 20. | Industry Segment and Geographic Information |
The following summarizes certain financial information of each
segment for the years ended December 31, 2005, 2004, and
2003:
| Operating | Depreciation | Income Tax | |||||||||||||||||||||||||||
| Income | Total | and | Benefit | Capital | |||||||||||||||||||||||||
| Revenues | (Loss) | Assets | Amortization | Interest, net | (Provision) | Expenditures | |||||||||||||||||||||||
|
Year ended December 31, 2005
|
|||||||||||||||||||||||||||||
|
Omega Protein
|
$ | 109,896 | $ | (10,887 | ) | $ | 200,122 | $ | 13,301 | $ | (640 | ) | $ | 4,268 | $ | 17,590 | |||||||||||||
|
Zap.Com
|
— | (132 | ) | 1,766 | 1 | 54 | — | — | |||||||||||||||||||||
|
Corporate
|
— | (5,385 | ) | 92,466 | 36 | 1,242 | 2,480 | — | |||||||||||||||||||||
| $ | 109,896 | $ | (16,404 | ) | $ | 294,354 | $ | 13,338 | $ | 656 | $ | 6,748 | $ | 17,590 | |||||||||||||||
|
Year ended December 31, 2004
|
|||||||||||||||||||||||||||||
|
Omega Protein
|
$ | 119,645 | $ | 5,288 | $ | 190,058 | $ | 11,066 | $ | (371 | ) | $ | (1,494 | ) | $ | 22,907 | |||||||||||||
|
Zap.Com
|
— | (166 | ) | 1,825 | 1 | 24 | — | — | |||||||||||||||||||||
|
Corporate
|
— | (4,210 | ) | 46,154 | 45 | 374 | 539 | — | |||||||||||||||||||||
|
Discontinued Operations
|
— | — | 124,452 | — | — | — | — | ||||||||||||||||||||||
| $ | 119,645 | $ | 912 | $ | 362,489 | $ | 11,112 | $ | 27 | $ | (955 | ) | $ | 22,907 | |||||||||||||||
|
Year ended December 31, 2003
|
|||||||||||||||||||||||||||||
|
Omega Protein
|
$ | 117,926 | $ | 9,529 | $ | 186,060 | $ | 12,903 | $ | (691 | ) | $ | (2,806 | ) | $ | 14,930 | |||||||||||||
|
Zap.Com
|
— | (125 | ) | 1,954 | 1 | 22 | — | — | |||||||||||||||||||||
|
Corporate
|
— | (3,574 | ) | 51,222 | 71 | 749 | (211 | ) | 35 | ||||||||||||||||||||
|
Discontinued Operations
|
— | — | 119,803 | — | — | — | — | ||||||||||||||||||||||
| $ | 117,926 | $ | 5,830 | $ | 359,039 | $ | 12,975 | $ | 80 | $ | (3,017 | ) | $ | 14,965 | |||||||||||||||
82
Table of Contents
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following table shows the geographical distribution of
revenues (in thousands) based on location of customers:
| Years Ended December 31, | ||||||||||||||||||||||||
| 2005 | 2004 | 2003 | ||||||||||||||||||||||
| Revenues | Percent | Revenues | Percent | Revenues | Percent | |||||||||||||||||||
|
U.S.
|
$ | 77,587 | 70.6 | % | $ | 80,688 | 67.4 | % | $ | 71,877 | 61.0 | % | ||||||||||||
|
Europe
|
2,308 | 2.1 | 11,230 | 9.4 | 13,098 | 11.1 | ||||||||||||||||||
|
Asia
|
7,473 | 6.8 | 3,359 | 2.8 | 9,103 | 7.7 | ||||||||||||||||||
|
Mexico
|
9,781 | 8.9 | 13,252 | 11.1 | 5,985 | 5.1 | ||||||||||||||||||
|
Canada
|
7,033 | 6.4 | 5,880 | 4.9 | 7,697 | 6.5 | ||||||||||||||||||
|
South & Central America
|
1,758 | 1.6 | 1,435 | 1.2 | 6,331 | 5.4 | ||||||||||||||||||
|
Other
|
3,956 | 3.6 | 3,801 | 3.2 | 3,835 | 3.2 | ||||||||||||||||||
|
Total
|
$ | 109,896 | 100 | % | $ | 119,645 | 100.0 | % | $ | 117,926 | 100.0 | % | ||||||||||||
Omega’s export sales of fish oil and fish meal were
approximately $32 million, $39 million, and
$46 million in 2005, 2004 and 2003, respectively. Such
sales were made primarily to Mexican, Asian and Canadian
markets. In 2005, 2004 and 2003, Omega’s sales to one
customer were approximately $8.5 million, $8.8 million
and $10.8 million, respectively. This customer differed
from year to year.
| Note 21. | Quarterly Financial Data (unaudited) |
The following table presents certain unaudited consolidated
operating results for each of the Company’s preceding eight
quarters. The Company believes that the following information
includes all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation in accordance
with accounting principles generally accepted in the United
States of America. The operating results for any interim period
are not necessarily indicative of results for any other period.
The following unaudited quarterly results reflect restated
amounts from the Company’s Quarterly Report of
Form 10-Q/A for
the period ended September 30, 2005 as filed with the SEC
on April 5, 2006.
| Quarter Ended | |||||||||||||||||
| March 31, | June 30, | September 30, | December 31, | ||||||||||||||
| 2005 | 2005 | 2005 | 2005 | ||||||||||||||
| (In thousands, except per share amounts) | |||||||||||||||||
|
Revenues
|
$ | 23,831 | $ | 27,510 | $ | 31,418 | $ | 27,137 | |||||||||
|
Gross profit
|
3,056 | 3,817 | 7,386 | 3,652 | |||||||||||||
|
Operating (loss) income
|
(1,386 | ) | (570 | ) | (10,535 | ) | (3,913 | ) | |||||||||
|
Net (loss) income from continuing operations(1)
|
(990 | ) | (481 | ) | (3,330 | ) | (973 | ) | |||||||||
|
Net income (loss) from discontinued operations(1)
|
1,068 | 945 | (5,831 | ) | 416 | ||||||||||||
|
Net income (loss) available to common stockholders
|
78 | 464 | (9,161 | ) | (557 | ) | |||||||||||
|
Net (loss) income per common share — basic and
diluted(1)(2):
|
|||||||||||||||||
|
(Loss) income from continuing operations
|
(0.05 | ) | (0.03 | ) | (0.17 | ) | (0.05 | ) | |||||||||
|
Discontinued operations
|
0.06 | 0.05 | (0.31 | ) | 0.02 | ||||||||||||
|
(Loss) income per common share — basic and diluted
|
0.00 | 0.02 | (0.48 | ) | (0.03 | ) | |||||||||||
83
Table of Contents
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| Quarter Ended | |||||||||||||||||
| March 31, | June 30, | September 30, | December 31, | ||||||||||||||
| 2004 | 2004 | 2004 | 2004 | ||||||||||||||
| (In thousands, except per share amounts) | |||||||||||||||||
|
Revenues
|
$ | 25,056 | $ | 26,456 | $ | 41,501 | $ | 26,632 | |||||||||
|
Gross profit
|
3,674 | 5,393 | 5,125 | 1,216 | |||||||||||||
|
Operating (loss) income
|
(167 | ) | 1,525 | 1,385 | (1,831 | ) | |||||||||||
|
Net (loss) income from continuing operations(1)
|
(568 | ) | (181 | ) | (76 | ) | (695 | ) | |||||||||
|
Net income from discontinued operations(1)
|
2,366 | 1,018 | 860 | 1,009 | |||||||||||||
|
Net income available to common stockholders
|
1,798 | 837 | 784 | 314 | |||||||||||||
|
Net (loss) income per common share — basic and
diluted(1)(2):
|
|||||||||||||||||
|
(Loss) income from continuing operations
|
(0.03 | ) | (0.01 | ) | (0.00 | ) | (0.04 | ) | |||||||||
|
Discontinued operations
|
0.12 | 0.05 | 0.04 | 0.05 | |||||||||||||
|
(Loss) income per common share — basic and diluted
|
0.09 | 0.04 | 0.04 | 0.02 | |||||||||||||
| (1) | In accordance with SFAS No. 144, quarterly information has been reclassified to disclose amounts related to Safety Components as discontinued operations for all periods presented. |
| (2) | Net (loss) income per share has been computed independently for each quarter based upon the weighted average shares outstanding for that quarter. Therefore, the sum of the quarterly earnings per share amounts may not equal the reported annual amounts. |
Omega’s menhaden harvesting and processing business is
seasonal in nature. Omega generally has higher sales during the
menhaden harvesting season (which includes the second and third
quarter of each year) due to increased product availability, but
prices during the fishing season tend to be lower than during
the off-season. As a result, the Omega’s quarterly
operating results have fluctuated in the past and may fluctuate
in the future. In addition, from time to time Omega defers sales
of inventory based on worldwide prices for competing products
that affects prices for Omega’s products which may affect
comparable period comparisons.
84
Table of Contents
| Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
None.
| Item 9A. | Controls and Procedures |
| Evaluation of Disclosure Controls and Procedures |
The Company maintains disclosure controls and procedures that
are designed to ensure that information required to be disclosed
in the Company’s reports under the Exchange Act is
recorded, processed, summarized and reported within the time
periods specified in the SEC’s rules and forms, and that
such information is accumulated and communicated to management,
including the Company’s Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure. The Company’s management,
with participation of the Company’s Chief Executive Officer
and Chief Financial Officer, has evaluated the effectiveness of
the Company’s disclosure controls and procedures as of the
end of the fiscal year covered by this Annual Report on
Form 10-K. As
described below under Management’s Report on Internal
Control Over Financial Reporting, the Company has identified a
material weakness in the Company’s internal control over
financial reporting (as defined in Exchange Act
Rules 13a-15(f)
and 15d-15(f)). The Company’s Chief Executive Officer and
Chief Financial Officer have concluded that as a result of the
material weakness, as of December 31, 2005, the period
covered by this Annual Report on
Form 10-K, the
Company’s disclosure controls and procedures were not
effective.
| Management’s Report on Internal Control Over Financial Reporting |
The management of the Company is responsible for establishing
and maintaining adequate internal control over financial
reporting as defined in Rules 13a-15(f) and 15d-15(f) under
the Securities Exchange Act of 1934. The Company’s internal
control over financial reporting is designed to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for
external purposes in accordance with generally accepted
accounting principles in the United States of America. The
Company’s internal control over financial reporting
includes those policies and procedures that: (i) pertain to
the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions
of the assets of the Company; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and
expenditures of the Company are being made only in accordance
with authorizations of management and directors of the Company;
and (iii) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use or
disposition of the Company’s assets that could have a
material effect on the financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Company’s
internal control over financial reporting as of
December 31, 2005. In making this assessment, management
used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal
Control-Integrated Framework. Based on our assessment using
those criteria, management has concluded that the Company did
not maintain effective internal control over financial reporting
as of December 31, 2005 as a result of material weakness
described below.
A material weakness is a control deficiency, or combination of
control deficiencies, that results in more than a remote
likelihood that a material misstatement of the annual or interim
financial statements will not be prevented or detected.
As of December 31, 2005, the Company did not maintain
effective controls over the application and monitoring of its
accounting for income taxes. Specifically, we did not have
controls designed and in place to ensure the accuracy and
completeness of financial information provided to the Company by
third party tax advisors used in accounting for income taxes and
the determination of current income taxes payable, deferred
income tax assets and liabilities and the related income tax
provision (benefit) and the review and evaluation of the
application of generally accepted accounting principles relating
to accounting for income taxes. This
85
Table of Contents
control deficiency resulted in the restatement of the
Company’s consolidated financial statements for quarter
ended September 30, 2005. Additionally, this control
deficiency could result in a material misstatement of the
aforementioned accounts that would result in a material
misstatement to annual or interim financial statements that
would not be prevented or detected. Accordingly, management has
determined that this control deficiency constitutes a material
weakness.
Management’s assessment of the effectiveness of our
internal control over financial reporting as of
December 31, 2005 has been audited by
PricewaterhouseCoopers LLP, an independent registered public
accounting firm, as stated in their report which appears herein.
| Remediation Plans for Material Weakness in Internal Control over Financial Reporting |
The Company is implementing enhancements to its internal control
over financial reporting to provide reasonable assurance that
errors and control deficiencies in its accounting for income
taxes will not recur. These enhancements are expected to include
improving our knowledge of accounting for income taxes which
should enhance our ability to review and evaluate the tax
financial information prepared by our outside tax advisors which
supports the Company’s quarterly tax provision.
Additionally, the Company will engage our outside tax advisors
in a more robust quarterly discussion which should improve the
review and oversight process relating to the internal controls
over the Company’s accounting for income taxes.
These enhancements will occur on an ongoing basis beginning with
the first quarter of 2006.
| Changes in Internal Control over Financial Reporting |
There have been no changes in our internal control over
financial reporting during the most recently completed fiscal
quarter that have materially affected, or is reasonably likely
to materially affect, our internal control over financial
reporting.
| Item 9B. | Other Information. |
In May 2005, the Company submitted to the NYSE its Annual CEO
Certification with respect to its compliance with the NYSE
corporate governance listing standards. Additionally, the
certifications pursuant to Sarbanes-Oxley Act Section 302
are filed as exhibits to this Report.
PART III
| Item 10. | Directors and Executive Officers of the Registrant. |
Pursuant to General Instruction G on
Form 10-K, the
information called for by Item 10 of Part III of
Form 10-K is
incorporated by reference to the information set forth in the
Company’s definitive proxy statement relating to its 2006
Annual Meeting of Stockholders (the “2006 Proxy
Statement”) to be filed pursuant to Regulation 14A
under the Exchange Act in response to Items 401, 405 and
406 of
Regulation S-K
under the Securities Act of 1933, as amended, and the Exchange
Act
(“Regulation S-K”).
| Item 11. | Executive Compensation. |
Pursuant to General Instruction G of
Form 10-K, the
information called for by Item 11 of Part III of
Form 10-K is
incorporated by reference to the information set forth in the
2006 Proxy Statement in response to Item 402 of
Regulation S-K,
excluding the material concerning the report on executive
compensation and the performance graph specified by
paragraphs (k) and (l) of such Item.
| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. |
Pursuant to General Instruction G of
Form 10-K, the
information called for by Item 12 of Part III of
Form 10-K is
incorporated by reference to the information set forth in the
2006 Proxy Statement in response to Item 403 of
Regulation S-K,
and to Part II, Item 5 of this Report in response to
Item 201(d) of
Regulation S-K.
86
Table of Contents
| Item 13. | Certain Relationships and Related Transactions. |
Pursuant to General Instruction G of
Form 10-K, the
information called for by Item 13 of Part III of
Form 10-K is
incorporated by reference to the information set forth in the
2006 Proxy Statement in response to Item 404 of
Regulation S-K.
| Item 14. | Principal Accounting Fees and Services. |
Pursuant to General Instruction G of
Form 10-K, the
information called for by Item 14 of Part III of
Form 10-K is
incorporated by reference to the information set forth in the
2006 Proxy Statement in response to Item 9(e) of
Schedule 14A.
PART IV
| Item 15. | Exhibits, Financial Statement Schedules. |
| (a) | List of Documents Filed. |
(1) Financial Statements
| Financial Statements, Zapata Corporation. | |
| Report of Independent Registered Public Accounting Firm. | |
| Consolidated Balance Sheets as of December 31, 2005 and 2004. | |
| Consolidated Statements of Operations for the years ended December 31, 2005, 2004, and 2003. | |
| Consolidated Statements of Cash Flows for the years ended December 31, 2005, 2004, and 2003. | |
| Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2005, 2004, and 2003. | |
| Notes to Consolidated Financial Statements. |
(2) Financial Statement Schedules
| Schedule I — Condensed Financial Information of the Registrant | |
| Schedule II — Valuation and Qualifying Accounts |
| (b) | Exhibits. |
The exhibit list attached to this report is incorporated herein
in its entirety by reference as if fully set forth herein. The
exhibits indicated by an asterisk (*) are incorporated by
reference.
| Exhibit | ||||
| No. | Description of Exhibits | |||
| 3(a)* | Articles of Incorporation of Zapata filed with Secretary of State of Nevada May 14, 1999 (Exhibit 3.1 to Current Report on Form 8-K filed May 14, 1999 (File No. 1-4219)). | |||
| 3(b)* | Certificate of Decrease in Authorized and Outstanding shares dated January 23, 2001 filed with Secretary of State of Nevada January 26, 2001. (Exhibit 3(c) to Zapata’s Annual Report on Form 10-K for the year ended December 31, 2002 filed April 2, 2001 (File No. 1-4219)). | |||
| 3(c)* | Amended By-Laws of Zapata Corporation as amended March 1, 2002. (Exhibit 3(e) to Zapata’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002 filed August 14, 2002 (File No. 1-4219)). | |||
| 10(a)*† | Consultancy and Retirement Agreement, dated August 27, 1981, by and between Zapata and B. John Mackin. (Exhibit 10(o) to Zapata’s report on Form 10-K for the fiscal year ended September 30, 1981 (File No. 1-4219)) | |||
| 10(b)*† | Zapata Supplemental Pension Plan effective as of April 1, 1992 (Exhibit 10(b) to Zapata’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1992 (File No. 1-4219)). | |||
| 10(c) | Zapata Amended and Restated 1996 Long-Term Incentive Plan. | |||
| 10(d)* | Stockholders’ Agreement dated May 30, 1997 by Malcolm I. Glazer and the Malcolm I. Glazer Family Limited Partnership in favor of Zapata (Exhibit 10(z) to Zapata’s Quarterly Report on Form 10-Q for the Fiscal quarter ended June 30, 1997 (File No. 1-4219)). | |||
| 10(e)* | Separation Agreement dated April 8, 1998 between Zapata and Omega Protein. (Exhibit 10.2 to Zapata’s Current Report on Form 8-K filed April 21, 1998 (File No. 1-4219)). | |||
87
Table of Contents
| Exhibit | ||||
| No. | Description of Exhibits | |||
| 10(f)* | Administrative Services Agreement dated April 8, 1998 between Zapata and Omega Protein. — (Exhibit 10.3 to Zapata’s Current Report on Form 8-K filed April 21, 1998 (File No. 1-4219)). | |||
| 10(g)* | Tax Indemnity Agreement dated April 8, 1998 between Zapata and Omega Protein. (Exhibit 10.7 to Omega Protein’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1998 (File No. 1-14003)). | |||
| 10(h)* | Registration Rights Agreement dated April 8, 1998 between Zapata and Omega Protein. (Exhibit 10.8 to Omega Protein’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1998 (File No. 1-14003)). | |||
| 10(i)* | Investment and Distribution Agreement between Zap.Com and Zapata (Exhibit No. 10.1 to Zap.Com’s Registration Statement of Form S-1 (File No. 333-76135) originally filed with the Securities and Exchange Commission on April 12, 1999, as amended). | |||
| 10(j)* | Services Agreement between Zap.Com and Zapata (Exhibit No. 10.2 to Zap.Com’s Registration Statement of Form S-1 (File No. 333-76135) originally filed with the Securities and Exchange Commission on April 12, 1999, as amended). | |||
| 10(k)* | Tax Sharing and Indemnity Agreement between Zap.Com and Zapata (Exhibit No. 10.3 to Zap.Com’s Registration Statement of Form S-1 (File No. 333-76135) originally filed with the Securities and Exchange Commission on April 12, 1999, as amended). | |||
| 10(l)* | Registration Rights Agreement between Zap.Com and Zapata (Exhibit No. 10.4 to Zap.Com’s Registration Statement of Form S-1 (File No. 333-76135) originally filed with the Securities and Exchange Commission on April 12, 1999, as amended). | |||
| 10(m)* | Consulting Agreement dated March 1, 2002 between Zapata and Malcolm I. Glazer. (Filed as exhibit 10(m) to Zapata’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002 filed August 14, 2002) (File No. 1-4219). | |||
| 10(n)* | Letter dated November 11, 2002 from the Malcolm I. Glazer Family Limited Partnership and Malcolm I. Glazer with respect to the Shareholders’ Agreement dated May 30, 1997. (Filed as Exhibit 10(q) to Zapata’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2002 filed November 13, 2002) (File No. 1-4219). | |||
| 10(o)†* | Form of February 28, 2003 Indemnification Agreement by and among Zapata and the directors and officers of the Company. (Filed as Exhibit 10(q) to Zapata’s Annual Report on Form 10-K for the year ended December 31, 2002 filed March 26, 2003) (File No. 1-4219). | |||
| 10(p)†* | Form of March 1, 2002 Director Stock Option Agreement by and among Zapata and the non-employee directors of the Company. (Filed as Exhibit 10(r) to Zapata’s Annual Report on Form 10-K for the year ended December 31, 2002 filed March 26, 2003) (File No. 1-4219). | |||
| 10(q)* | Assignment and Assumption of Lease dated May 30, 2003 with Omega Protein Corporation. (Filed as Exhibit 10.1 to Zapata’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003 filed August 4, 2003) (File No. 1-4219). | |||
| 10(r)* | Tax Sharing Agreement dated March 19, 2004 between Zapata and Safety Components International, Inc. | |||
| 10(s)†* | Indemnification Agreement by and between Safety Components International, Inc., Automotive Safety Components International, Inc., Safety Components Fabric Technologies, Inc., and Leonard DiSalvo dated January 26, 2004 (the form of which is incorporated by reference to Exhibit 10.30 to the Safety Components International, Inc. Quarterly Report on Form 10-Q for the quarter ended September 27, 2003) (File No. 0-23938). | |||
| 10(t)†* | Indemnification Agreement by and between Safety Components International, Inc., Automotive Safety Components International, Inc., Safety Components Fabric Technologies, Inc., and Avram A. Glazer dated as of January 26, 2004 (the form of which is incorporated by reference to Exhibit 10.30 to the Safety Components International, Inc. Quarterly Report on Form 10-Q for the quarter ended September 27, 2003) (File No. 0-23938). | |||
| 10(u)†* | Indemnification Agreement made effective as of February 4, 1998 by and between Omega Protein Corporation and Avram A. Glazer (the form of which is incorporated by reference to Exhibit 10.47 to the Omega Protein Corporation Registration Statement on Form S-1 [Registration No. 333-44967]). | |||
88
Table of Contents
| Exhibit | ||||
| No. | Description of Exhibits | |||
| 10(v)†* | Indemnification Agreement made effective as of April 10, 2002 by and between Omega Protein Corporation and Darcie S. Glazer (the form of which is incorporated by reference to Exhibit 10.47 to the Omega Protein Corporation Registration Statement on Form S-1 [Registration No. 333-44967]). | |||
| 10(w)* | Stock Purchase Agreement, dated September 23, 2005, between Zapata, WLR Recovery Fund II, L.P. and WLR Recovery Fund III, L.P. (as amended by Amendment No. 1 and Joinder dated September 26, 2005). (Exhibit 10.1 to Zapata’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005 (File No. 1-4219)). | |||
| 10(x)* | Escrow Agreement dated September 26, 2005 among WLR Recovery Fund II, L.P., WLR Recovery Fund III, L.P., Zapata Corporation and Citibank N.A., as escrow agent. (Exhibit 10.2 to Zapata’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005 (File No. 1-4219)). | |||
| 10(y)* | Summary of Agreement to make capital contribution by Zapata Corporation to Safety Components International, Inc. (Exhibit 10.3 to Zapata’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005 (File No. 1-4219)). | |||
| 21 | Subsidiaries of the Registrant. | |||
| 23 | Consent of PricewaterhouseCoopers LLP. | |||
| 24 | Powers of attorney. | |||
| 31 | .1 | Certification of CEO Pursuant to Rule 13a-14 or 15d-14 of the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
| 31 | .2 | Certification of CFO Pursuant to Rule 13a-14 or 15d-14 of the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
| 32 | .1 | Certification of CEO Pursuant to 18 U.S.C Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
| 32 | .2 | Certification of CFO Pursuant to 18 U.S.C Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
| † | Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to the requirements of Item 15(a)(3) of Form 10-K. |
89
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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) |
| By: | /s/ Leonard DiSalvo |
|
|
|
| (Leonard DiSalvo Vice President) |
April 5, 2006
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
| Signature | Title | Date | ||||
|
/s/ Avram A. Glazer (Avram A. Glazer) |
President and Chief Executive Officer (Principal Executive Officer) and Director |
April 5, 2006 | ||||
|
/s/ Leonard DiSalvo (Leonard DiSalvo) |
Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) |
April 5, 2006 | ||||
|
/s/ Warren H. Gfeller* (Warren H. Gfeller) |
||||||
|
/s/ Bryan G. Glazer* (Bryan G. Glazer) |
||||||
|
/s/ Edward S. Glazer* (Edward S. Glazer) |
||||||
|
/s/ Darcie S. Glazer* (Darcie S. Glazer) |
||||||
|
/s/ Robert V.
Leffler, Jr.* (Robert V. Leffler, Jr.) |
||||||
|
/s/ John R. Halldow* (John R. Halldow) |
||||||
| *By: |
/s/ Leonard DiSalvo (Leonard DiSalvo Attorney-in-Fact) |
|||||
90
Table of Contents
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
ZAPATA CORPORATION
CONDENSED BALANCE SHEETS
(PARENT COMPANY ONLY)
| December 31, | December 31, | ||||||||||
| 2005 | 2004 | ||||||||||
| (In thousands, except share | |||||||||||
| and per share amounts) | |||||||||||
| ASSETS | |||||||||||
|
Current assets:
|
|||||||||||
|
Cash and cash equivalents
|
$ | 75,252 | $ | 28,677 | |||||||
|
Accounts receivable
|
224 | 479 | |||||||||
|
Prepaid expenses and other current assets
|
1,191 | 850 | |||||||||
|
Total current assets
|
76,667 | 30,006 | |||||||||
|
Investments and other assets:
|
|||||||||||
|
Investments in subsidiaries
|
115,293 | 175,193 | |||||||||
|
Other assets
|
15,780 | 16,096 | |||||||||
|
Total investments and other assets
|
131,073 | 191,289 | |||||||||
|
Property, plant and equipment, net
|
19 | 53 | |||||||||
|
Total assets
|
$ | 207,759 | $ | 221,348 | |||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
|
Current liabilities:
|
|||||||||||
|
Accounts payable
|
$ | 245 | $ | 142 | |||||||
|
Accrued and other current liabilities
|
2,803 | 2,399 | |||||||||
|
Total current liabilities
|
3,048 | 2,541 | |||||||||
|
Pension liabilities
|
878 | 832 | |||||||||
|
Other liabilities and deferred taxes
|
983 | 3,721 | |||||||||
|
Non-current liabilities related to discontinued operations
|
— | 2,613 | |||||||||
|
Total liabilities
|
4,909 | 9,707 | |||||||||
|
Commitments and contingencies
|
|||||||||||
|
Stockholders’ equity:
|
|||||||||||
|
Preferred stock, $.01 par; 1,600,000 shares authorized;
none issued or outstanding
|
— | — | |||||||||
|
Preference stock, $.01 par; 14,400,000 shares authorized;
none issued or outstanding
|
— | — | |||||||||
|
Common stock, $0.01 par, 132,000,000 shares authorized;
24,581,636 and 24,564,600 shares issued; and 19,149,556 and
19,132,520 shares outstanding, respectively
|
246 | 31 | |||||||||
|
Capital in excess of par value
|
221,657 | 221,430 | |||||||||
|
Retained earnings
|
12,858 | 22,034 | |||||||||
|
Treasury stock, at cost, 5,432,080 shares
|
(31,668 | ) | (31,668 | ) | |||||||
|
Accumulated other comprehensive loss
|
(243 | ) | (186 | ) | |||||||
|
Total stockholders’ equity
|
202,850 | 211,641 | |||||||||
|
Total liabilities and stockholders’ equity
|
$ | 207,759 | $ | 221,348 | |||||||
The accompanying notes are an integral part of the condensed
financial statements.
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Table of Contents
ZAPATA CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(PARENT COMPANY ONLY)
| For the Years Ended December 31, | ||||||||||||||
| 2005 | 2004 | 2003 | ||||||||||||
| (In thousands) | ||||||||||||||
|
Revenues
|
$ | — | $ | — | $ | — | ||||||||
|
Cost of revenues
|
— | — | — | |||||||||||
|
Gross profit
|
— | — | — | |||||||||||
|
Operating expenses:
|
||||||||||||||
|
Selling, general and administrative
|
5,385 | 4,210 | 3,574 | |||||||||||
|
Total operating expenses
|
5,385 | 4,210 | 3,574 | |||||||||||
|
Operating loss
|
(5,385 | ) | (4,210 | ) | (3,574 | ) | ||||||||
|
Other income:
|
||||||||||||||
|
Interest income
|
1,242 | 374 | 749 | |||||||||||
|
Equity in income of consolidated subsidiaries
|
2,218 | 9,643 | 3,928 | |||||||||||
|
Other, net
|
126 | — | — | |||||||||||
| 3,586 | 10,017 | 4,677 | ||||||||||||
|
(Loss) income before income taxes
|
(1,799 | ) | 5,807 | 1,103 | ||||||||||
|
Benefit (provision) for income taxes
|
2,480 | 539 | (211 | ) | ||||||||||
|
Net income from continuing operations
|
681 | 6,346 | 892 | |||||||||||
|
Discontinued operations:
|
||||||||||||||
|
Loss on disposal of discontinued operations
|
(12,245 | ) | — | — | ||||||||||
|
Tax benefit (provision) from discontinued operations
|
2,388 | (2,613 | ) | — | ||||||||||
|
Loss from discontinued operations
|
(9,857 | ) | (2,613 | ) | — | |||||||||
|
Net (loss) income available to common stockholders
|
$ | (9,176 | ) | $ | 3,733 | $ | 892 | |||||||
The accompanying notes are an integral part of the condensed
financial statements.
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Table of Contents
ZAPATA CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(PARENT COMPANY ONLY)
| For the Years Ended December 31, | |||||||||||||||
| 2005 | 2004 | 2003 | |||||||||||||
| (In thousands) | |||||||||||||||
|
Cash flows from operating activities:
|
|||||||||||||||
|
Net income to common stockholders
|
$ | (9,176 | ) | $ | 3,733 | $ | 892 | ||||||||
|
Adjustments to reconcile net income to common stockholders to
net cash (used in) provided by operating activities:
|
|||||||||||||||
|
Depreciation and amortization
|
37 | 45 | 71 | ||||||||||||
|
Loss on disposal of discontinued operations
|
9,857 | — | — | ||||||||||||
|
Contributed capital for unreimbursed management services and rent
|
(13 | ) | (13 | ) | (12 | ) | |||||||||
|
Stock option modification expense
|
353 | — | — | ||||||||||||
|
Equity in income of subsidiaries
|
(2,218 | ) | (9,643 | ) | (3,928 | ) | |||||||||
|
Deferred income taxes
|
(3,236 | ) | (597 | ) | 4,047 | ||||||||||
|
Changes in assets and liabilities:
|
|||||||||||||||
|
Accounts receivable
|
255 | 1,625 | (2,077 | ) | |||||||||||
|
Prepaid expenses and other current assets
|
(5 | ) | 103 | (122 | ) | ||||||||||
|
Amounts due to subsidiaries
|
— | — | 105 | ||||||||||||
|
Accounts payable
|
103 | (96 | ) | 156 | |||||||||||
|
Pension liabilities
|
(47 | ) | (34 | ) | (3 | ) | |||||||||
|
Accrued liabilities and other current liabilities
|
(1,075 | ) | (896 | ) | (4,792 | ) | |||||||||
|
Other assets and liabilities
|
453 | 2,812 | 165 | ||||||||||||
|
Total adjustments
|
4,464 | (6,694 | ) | (6,390 | ) | ||||||||||
|
Net cash used in operating activities
|
(4,712 | ) | (2,961 | ) | (5,498 | ) | |||||||||
|
Cash flows from investing activities:
|
|||||||||||||||
|
Payment for purchase of Safety Components International,
Inc.
|
— | — | (47,807 | ) | |||||||||||
|
Proceeds from sale of discontinued operations
|
51,197 | — | — | ||||||||||||
|
Purchase of short-term investments
|
— | — | (29,351 | ) | |||||||||||
|
Purchase of long-term investments
|
— | — | — | ||||||||||||
|
Proceeds from maturities of long-term investments
|
— | 29,351 | 3,994 | ||||||||||||
|
Proceeds from maturities of short-term investments
|
— | — | 35,832 | ||||||||||||
|
Capital expenditures
|
— | — | (35 | ) | |||||||||||
|
Net cash provided by (used in) investing activities
|
51,197 | 29,351 | (37,367 | ) | |||||||||||
|
Cash flows from financing activities:
|
|||||||||||||||
|
Proceeds from stock option exercises
|
90 | 13 | 10 | ||||||||||||
|
Net cash provided by financing activities
|
90 | 13 | 10 | ||||||||||||
|
Net increase (decrease) in cash and cash equivalents
|
46,575 | 26,403 | (42,855 | ) | |||||||||||
|
Cash and cash equivalents at beginning of period
|
28,677 | 2,274 | 45,129 | ||||||||||||
|
Cash and cash equivalents at end of period
|
$ | 75,252 | $ | 28,677 | $ | 2,274 | |||||||||
|
Supplemental disclosure of non-cash investing and financing
activities:
|
|||||||||||||||
|
Fair value of assets acquired
|
$ | — | $ | — | $ | 101,530 | |||||||||
|
Cash paid for the common stock
|
— | — | (47,807 | ) | |||||||||||
|
Liabilities assumed
|
$ | — | $ | — | $ | 53,723 | |||||||||
The accompanying notes are an integral part of the condensed
financial statements.
93
Table of Contents
ZAPATA CORPORATION
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
(PARENT COMPANY ONLY)
| Note 1. | Basis of Presentation |
The Company’s investment in subsidiaries in the parent
company only financial statements is stated at cost, plus equity
in earnings of subsidiaries. The parent company only financials
should be read in conjunction with Zapata’s consolidated
financial statements.
| Note 2. | Restricted Net Assets |
As discussed in Note 9 to the Consolidated Financial
Statements included in Item 8 of this report, the terms of
Omega Protein’s debt and credit facilities prohibit or
place restrictions on its ability to transfer funds to Zapata in
the form of cash dividends, loans or advances. Due to the nature
of the restrictions contained in Omega’s debt and credit
agreements, all of Omega’s net assets are considered
restricted. Zap.Com is not a party to any agreement which
restricts the use of its assets. Accordingly, none of
Zap.Com’s net assets are considered restricted.
| Note 3. | Commitments and Contingencies |
| Leases Payable |
Future annual minimum payments under non-cancelable operating
lease obligations for Zapata Corporate as of December 31,
2004 are as follows (in thousands):
| Operating | ||||
| Leases | ||||
|
2006
|
$ | 60 | ||
|
2007
|
35 | |||
|
2008
|
— | |||
|
2009
|
— | |||
|
2010
|
— | |||
|
Thereafter
|
— | |||
| $ | 95 | |||
Rental expenses for Zapata Corporate leases were approximately
$118,000, $279,000, and $275,000 in 2005, 2004, and 2003,
respectively.
| Litigation |
See Note 14 to the Consolidated Financial Statements
included in Item 8 of this report for information regarding
Zapata Corporate’s litigation matters.
| Guarantees |
See Note 14 to the Consolidated Financial Statements
included in Item 8 of this Report for information regarding
Zapata’s guarantees.
94
Table of Contents
ZAPATA CORPORATION
NOTES TO THE CONDENSED FINANCIAL
STATEMENTS — (Continued)
| Note 4. | Related Party Transactions |
Included in the parent company only condensed balance sheets are
amounts receivable from Safety Components under a tax sharing
and indemnity agreement of approximately $401,000 as of
December 31, 2004. Also in the parent company only
condensed balance sheets are amounts payable to Omega Protein of
approximately $105,000 as of December 31, 2005 and 2004.
Additionally, approximately $13,000 of amounts waived under
Zapata’s shared services agreement with Zap.Com are
included as increases in Zapata Corporate’s Investment in
Zap.Com for the years ended December 31, 2005 and 2004.
Included in the parent company only condensed statements of
operations are approximately $14,500 and $17,000 years
ended December 31, 2004 and 2003, respectively, related to
services provided to Zapata by Omega under an administrative
services agreement.
See Note 18 to the Consolidated Financial Statements
included in Item 8 of this Report for additional
information regarding related party transactions.
95
Table of Contents
SCHEDULE II
ZAPATA CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
| Balance at | Charged in | Balance at | |||||||||||||||||||
| Beginning | Costs and | Change in | End of | ||||||||||||||||||
| Description | of Period | Expenses | Estimate | Deductions(A) | Period | ||||||||||||||||
| (In thousands) | |||||||||||||||||||||
|
December 31, 2003:
|
|||||||||||||||||||||
|
Allowance for doubtful accounts
|
$ | 2,321 | $ | 211 | $ | — | $ | (19 | ) | $ | 2,513 | ||||||||||
|
Deferred tax asset valuation account
|
452 | — | 417 | (17 | ) | 852 | |||||||||||||||
|
December 31, 2004:
|
|||||||||||||||||||||
|
Allowance for doubtful accounts
|
$ | 2,513 | $ | 11 | $ | — | $ | — | $ | 2,524 | |||||||||||
|
Deferred tax asset valuation account
|
852 | 436 | — | — | 1,288 | ||||||||||||||||
|
December 31, 2005:
|
|||||||||||||||||||||
|
Allowance for doubtful accounts
|
$ | 2,524 | $ | 30 | $ | — | $ | $ | 2,554 | ||||||||||||
|
Deferred tax asset valuation account
|
1,288 | 565 | — | — | 1,853 | ||||||||||||||||
| (A) | Allowance for Doubtful Accounts — uncollectible accounts written off |
96
Table of Contents
INDEX TO EXHIBITS
| 10(c)† | Zapata Amended and Restated 1996 Long-Term Incentive Plan. | |||
| 21 | Subsidiaries of the Registrant. | |||
| 23 | Consent of PricewaterhouseCoopers LLP. | |||
| 24 | Powers of attorney. | |||
| 31 | .1 | Certification of CEO Pursuant to Rule 13a-14 or 15d-14 of the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
| 31 | .2 | Certification of CFO Pursuant to Rule 13a-14 or 15d-14 of the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
| 32 | .1 | Certification of CEO Pursuant to 18 U.S.C Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
| 32 | .2 | Certification of CFO Pursuant to 18 U.S.C Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
| † | Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to the requirements of Item 15(a)(3) of Form 10-K. |
97
Exhibit 10(c)
AMENDED AND RESTATED
1996 LONG-TERM INCENTIVE PLAN
OF
ZAPATA CORPORATION
1. Objective. The 1996 Long-Term Incentive Plan (the
“Plan”) of Zapata Corporation, a Nevada
corporation (the “Company”), is designed to
retain key executives and other selected employees and reward
them for making major contributions to the success of the
Company and its Subsidiaries (as hereinafter defined). These
objectives are to be accomplished by making awards under the
Plan and thereby providing Participants (as hereinafter defined)
with a proprietary interest in the growth. and performance of
the Company and its Subsidiaries.
2. Definitions. As used herein, the terms set forth
below shall have the following respective meanings:
| “Award” means the grant of any form of stock option, stock appreciation right stock award or cash award, whether granted singly, in combination or in tandem, to a Participant pursuant to any applicable terms, conditions and limitations as the Committee may establish in order to fulfill the objectives of the Plan. | |
| “Award Agreement” means a written agreement between the Company and a Participant that sets forth the terms, conditions and limitations applicable to an Award. | |
| “Board” means the Board of Directors of the Company. | |
| “Code” means the Internal Revenue Code of 1986, as amended from time to time. | |
| “Committee” means such committee of the Board as is designated by the Board to administer the Plan, except that if the Board elects to administer the Plan itself, “Committee” shall refer to the Board. The Committee shall be constituted to permit the Plan to comply with Rule 16b-3, as hereinafter defined. | |
| “Common Stock” means the Common Stock par value $.01 per share, of the Company. | |
| “Director” means an individual serving as a member of the Board. | |
| “Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time. | |
| “Fair Market Value” means, as of a particular date, (i) if the shares of Common Stock are fisted on a national securities exchange, the closing sales price per share of Common Stock on the consolidated transaction reporting system for the principal national securities exchange on which such shares are so listed on that date, or, if there shall have been no such sale so reported on that date, on the last preceding date on which such a sale was so reported, (ii) if the shares of Common Stock are not so listed but are quoted in the NASDAQ National Market System, the closing sales price per share of Common Stock on the NASDAQ National Market System on that date, or, if there shall have been no such sale so reported on that date, on the last preceding date on which such a sale was so reported or (iii) if the Common Stock is not so listed or quoted, the mean between the closing bid and asked price on that date, or, if there are no quotations available for such date, on the last preceding date on which such quotations shall be available, as reported by NASDAQ, or, if not reported by NASDAQ, by the National Quotation Bureau, Inc. | |
| “Participant” means an employee of the Company or any of its Subsidiaries to whom an Award has been made under this Plan. | |
| “Rule 16b-3” means Rule 16b-3 promulgated under the Exchange Act, or any successor rule. | |
| “Subsidiary” means any corporation of which the Company directly or indirectly owns shares representing more than 50% of the voting power of all classes or series of capital stock of such corporation |
98
| which have the right to vote generally on matters submitted to a vote of the stockholders of such corporation. |
3. Eligibility. Employees of the Company and its
Subsidiaries eligible for an Award under this Plan are those who
hold positions of responsibility and whose performance, in the
judgment of the Committee, can have a significant effect on the
success of the Company and its Subsidiaries.
4. Common Stock Available for Awards. There shall be
available for Awards granted wholly or partly in Common Stock
(including rights or options may be exercised for or settled in
Common Stock) during the term of this Plan an aggregate of
8,000,000 shares of Common Stock. Notwithstanding the
foregoing, not more than an aggregate of 7,250,000 shares
of Common Stock shall be available in the form of an incentive
stock option (“ISO”) and 750,000 shares of
Common Stock shall be available for Awards other than stock
options and stock appreciation rights granted at an exercise or
strike price not less than the Fair Market Value on the date of
grant. The Board and the appropriate officers of the Company
shall from time to time take whatever actions are necessary to
file required documents with governmental authorities and stock
exchanges and transaction reporting systems to make shares of
Common Stock available for issuance pursuant to Awards. Common
Stock related to Awards that are forfeited or terminated, expire
unexercised, are settled in cash in lieu of Common Stock or in a
manner such that all or some of the shares covered by an Award
are not issued to a Participant, or are exchanged for Awards
that do not involve Common Stock, shall immediately become
available for Awards hereunder.
5. Administration. This Plan shall be administered
by the Committee, which shall have full and exclusive power to
interpret this Plan and to adopt such rules, regulations and
guidelines for carrying out this Plan as it may deem necessary
or proper, all of which powers shall be exercised in the best
interests of the Company and in keeping with the objectives of
this Plan. Unless otherwise provided in an Award Agreement with
respect to a particular award, the Committee may, in its
discretion, provide for the extension of the exercisability of
an Award, accelerate the vesting or exercisability of an Award,
eliminate or make less restrictive any restrictions contained in
an Award, waive any restriction or other provision of this Plan
or an Award or otherwise amend or modify an Award in any manner
that is either (i) not adverse to the Participant holding
such Award or (ii) consented to by such Participant, (but
only to the extent such change does not cause the Plan to fail
to meet the requirements of Sections 409A(a)(2), 409A(a)(3)
and 409A(a)(4) of the Code). The Committee may correct any
defect or supply any omission or reconcile any inconsistency in
this Plan or in any Award in the manner and to the extent the
Committee deems necessary or desirable to carry it into effect.
Any decision of the Committee in the interpretation and
administration of this Plan shall lie within its sole and
absolute discretion and shall be final, conclusive and binding
on all parties concerned. No member of the Committee or officer
of the Company to whom it has delegated authority in accordance
with the provisions of Paragraph 6 of this Plan shall be
liable for anything done or omitted to be done by him or her, by
any member of the Committee or by any officer of the Company in
connection with the performance of any duties under this Plan,
except for his or her own willful misconduct or as expressly
provided by statute.
6. Delegation of Authority. The Committee may
delegate to the Chief Executive Officer and to other senior
officers of the Company its duties under this Plan pursuant to
such conditions or limitations as the Committee may establish.
except that the Committee may not delegate to any person the
authority to grant Awards to, or take other action with respect
to, Participants who are subject to Section 16 of the
Exchange Act.
7. Awards. The Committee shall determine the type or
types of Awards to be made to each Participant under this Plan.
Each Award made hereunder shall be embodied in an Award
Agreement, which shall contain such terms, conditions and
limitations as shall be determined by the Committee in its sole
discretion and shall be signed by the Participant and by the
Chief Executive Officer, the Chief Operating Officer or any Vice
President of the Company for and on behalf of the Company.
Awards may consist of those listed in this Paragraph 7 and
may be granted singly, in combination or in tandem. Awards may
also be made in combination or in tandem with, in replacement
of, or as alternatives to, grants or rights under this Plan or
any other employee plan of the Company or any of its
Subsidiaries, including the plan of any acquired entity, but
only if such Award, in replacement of, or as alternatives to
grants or rights under this Plan (a) would not
99
constitute an acceleration of deferred compensation for purposes
of Section 409A(a)(3) of the Code, and (b) meets the
requirements of Sections 409A(a)(2), 409A(a)(3) and
409A(a)(4) of the Code. An Award may provide for the granting or
issuance of additional, replacement or alternative Awards upon
the occurrence of specified events, including the exercise of
the original Award. An Award may provide that to the extent that
the acceleration of vesting or any payment made to a Participant
under this Plan in the event of a change of control of the
Company is subject to federal income, excise or other tax at a
rate above the rate ordinarily applicable to like payments paid
in the ordinary course of business (“Penalty
Tax”), whether as a result of the provisions of
Sections 280G and 4999 of the Code, any similar or
analogous provisions of any statute adopted subsequent to the
date hereof, or otherwise, then the Company shall be obligated
to Pay such Participant an additional amount of cash (the
“Additional Amount”) such that the net amount
received by such Participant, after paying any applicable
Penalty Tax and any federal or state income tax on such
Additional Amount, shall be equal to the amount that such
Participant would have received if such Penalty Tax were not
applicable, provided, however, that if an event that constitutes
a change in control does not constitute a “change in
control” under Section 409A of the Code (or the
regulations promulgated thereunder), no payments with respect to
the award shall be made under this paragraph until such payments
would not constitute an impermissible acceleration under
Section 409A of the Code. Notwithstanding anything herein
to the contrary, no Participant may be granted, during any
three-year period, Awards consisting of stock options or stock
appreciation rights exercisable for more than 12.5% of the
shares of Common Stock reserved for issuance under the Plan.
(a) Stock Option. An Award may consist of a right to
purchase a specified number of shares of Common Stock at a
specified price that is not less than the greater of
(i) the Fair Market Value of the Common Stock on the date
of grant and (ii) the par value of the Common Stock on the
date of grant. A stock option may be in the form of an ISO
which, in addition to being subject to applicable terms,
conditions and limitations established by the Committee,
complies with Section 422 of the Code.
(b) Stock Appreciation Right. An Award may consist
of a right to receive a payment, in cash or Common Stock, equal
to the excess of the Fair Market Value or other specified
valuation of a specified number of shares of Common Stock on the
date the stock appreciation right (“SAR”) is
exercised over a specified strike price as set forth in the
applicable Award Agreement.
(c) Stock Award. An Award may consist of Common
Stock or may be denominated in units of Common Stock. All or
part of any stock award may be subject to conditions established
by the Committee, and set forth in the Award Agreement, which
may include, but are not limited to, continuous service with the
Company and its Subsidiaries, achievement of specific business
objectives, increases in specified indices, attaining specified
growth rates and other comparable measurements of performance.
Such Awards may be based on Fair Market Value or other specified
valuations. The certificates evidencing shares of Common Stock
issued in connection with a stock award shall contain
appropriate legends and restrictions describing the terms and
conditions of the restrictions applicable thereto.
(d) Cash Award. An Award may be denominated in cash
with the amount of the eventual payment subject to future
service and such other restrictions and conditions as may be
established by the Committee, and set forth in the Award
Agreement including, but not limited to, continuous service with
the Company and its Subsidiaries, achievement of specific
business objectives, increases in specified indices, attaining
specified growth rates and other comparable measurements of
performance.
8. Payment of Awards.
(a) General. Payment of Awards may be made in the
form of cash or Common Stock or combinations thereof and may
include such restrictions as the Committee shall determine,
including in the case of Common Stock, restrictions on transfer
and forfeiture provisions. As used herein, “Restricted
Stock” means Common Stock that is restricted or subject
to forfeiture provisions.
(b) Deferral. The Committee may permit selected
Participants to elect to defer payments of some or all types of
Awards in accordance with procedures established by the
Committee which comply with the following: A Participant must
elect by written notice to the Company, which notice must be
made before the
100
later of (i) the close of the tax year preceding the year
in which the Award is granted or (ii) 30 days of first
becoming eligible to participate in the Plan (or, if earlier,
the last day of the tax year in which the participant first
becomes eligible to participate in the Plan) and on or prior to
the date the Award is granted, to defer the receipt of all or a
portion of the payment of an Award; provided that the Committee
may impose such additional restrictions with respect to the time
at which a participant may elect to defer receipt of Common
Stock subject to the deferral election. Any election after the
period described above (a “subsequent election”)
cannot be effective for at least twelve (12) months after
the date of such subsequent election. Further, the payment date
elected pursuant to the subsequent election must not occur
earlier than the date which is at least five (5) years from
the date that the original payment would have been made.
Finally, the subsequent election cannot be made less than twelve
(12) months prior to the date of the first scheduled
payment. Any deferred payment, whether elected by the
Participant or specified by the Award Agreement or by the
Committee, may be forfeited if and to the extent that the Award
Agreement so provides.
(c) Dividends and Interest. Dividends or dividend
equivalent rights may be extended to and made part of any Award
denominated in Common Stock or units of Common Stock, subject to
such terms, conditions and restrictions as the Committee may
establish. The Committee may also establish rules and procedures
for the crediting of interest on deferred cash payments and
dividend equivalents for deferred payments denominated in Common
Stock or units of Common Stock.
(d) Substitution of Awards. At the discretion of the
Committee, a Participant may be offered an election to
substitute an Award for another Award or Awards of the same or
different type.
9. Stock Option Exercise. The Price at which shares
of Common Stock may be purchased under a stock option shall be
paid in full at the time of exercise in cash or, if permitted by
the Committee, by means of tendering Common Stock or
surrendering another Award, including Restricted Stock, valued
at Fair Market Value on the date of exercise, or any combination
thereof. The Committee shall determine acceptable methods for
tendering Common Stock or other Awards to exercise a stock
option as it deems appropriate. If permitted by the Committee,
payment may be made by successive exercises by the Participant.
The Committee may provide for loans from the Company to permit
the exercise or purchase of Awards and may provide for
procedures to permit the exercise or purchase of Awards by use
of the proceeds to be received from the sale of Common Stock
issuable pursuant to an Award, provided the same are permissible
under applicable laws. Unless otherwise provided in the
applicable Award Agreement, in the event shares of Restricted
Stock are tendered as consideration for the exercise of a stock
option, a number of the shares issued upon the exercise of the
stock option, equal to the number of shares of Restricted Stock
used as consideration therefor, shall be subject to the same
restrictions as the Restricted Stock so submitted as well as any
additional restrictions that may be imposed by the Committee.
10. Tax Withholding. The Company shall have the
right to deduct applicable taxes from any Award payment and
withhold, at the time of delivery or vesting of cash or shares
of Common Stock under this Plan, an appropriate amount of cash
or number of shares of Common Stock or a combination thereof for
payment of taxes required by law or to take such other action as
may be necessary in the opinion of the Company to satisfy all
obligations for withholding of such taxes. The Committee may
also permit withholding to be satisfied by the transfer to the
Company of shares of Common Stock theretofore owned by the
holder of the Award with respect to which withholding is
required. If shares of Common Stock are used to satisfy tax
withholding, such shares shall be valued based on the Fair
Market Value when the tax withholding is required to be made.
11. Amendment, Modification, Suspension or
Termination. The Board may amend, modify, suspend or
terminate this Plan for the purpose of meeting or addressing any
changes in legal requirements or for any other purpose permitted
by law except that (i) no amendment or alteration that
would impair the rights of any Participant under any Award
previously granted to such Participant shall be made, without
such Participant’s consent and (ii) no amendment or
alteration shall be effective prior to approval by the
Company’s stockholders to the extent such approval is
required by applicable legal requirements. In addition, the
Board expressly reserves the right to amend the Plan, as
required, to comply with any requirements of the Code including
any regulatory guidance issued with respect to Section 409A
of the Code.
101
12. Termination of Employment. Upon the termination
of employment by a Participant, any unexercised, deferred or
unpaid Awards shall be treated as provided in the specific Award
Agreement evidencing the Award. In the event of such a
termination. the Committee may, in its discretion, provide for
the extension of the exercisability of an Award, accelerate the
vesting or exercisability of an Award, eliminate or make less
restrictive any restrictions contained in an Award, waive any
restriction or other provision of this Plan or an Award or
otherwise amend or modify the Award in any manner that is either
(i) not adverse to such Participant or (ii) consented
to by such Participant but only to the extent permitted by
Sections 409A(a)(2), 409A(a)(3) and 409A(a)(4) of the Code.
13. Assignability. Unless otherwise determined by
the Committee and provided in the Award Agreement, no Award or
any other benefit under this Plan constituting a derivative
security within the meaning of
Rule 16a-l(c)
under the Exchange Act shall be assignable or otherwise
transferable except by will or the laws of descent and
distribution or pursuant to a qualified domestic relations order
as defined by the Code or Title I of the Employee
Retirement Income Security Act, or the rules thereunder. The
Committee may prescribe and include in applicable Award
Agreements other restrictions on transfer. Any attempted
assignment of an Award or any other benefit under this Plan in
violation of this Paragraph 13 shall be null and void.
14. Adjustments.
(a) The existence of outstanding Awards shall not affect in
any manner the right or power of the Company or its stockholders
to make or authorize any or all adjustments, recapitalizations,
reorganizations or other changes in the capital stock of the
Company or its business or any merger or consolidation of the
Company, or any issue of bonds, debentures, preferred or prior
preference stock (whether or not such issue is prior to, on a
parity with or junior to the Common Stock) or the dissolution or
liquidation of the Company, or any sale or transfer of all or
any part of its assets or business, or any other corporate act
or proceeding of any kind, whether or not of a character similar
to that of the acts or proceedings enumerated above.
(b) In the event of any subdivision or consolidation of
outstanding shares of Common Stock or declaration of a dividend
payable in shares of Common Stock or capital reorganization or
reclassification or other transaction involving an increase or
reduction in the number of outstanding shares of Common Stock,
the Committee may adjust proportionally (i) the number of
shares of Common Stock reserved under this Plan and covered by
outstanding Awards denominated in Common Stock or units of
Common Stock; (ii) the exercise or other price in respect
of such Awards; and (iii) the appropriate Fair Market Value
and other price determinations for such Awards. In the event of
any consolidation or merger of the Company with another
corporation or entity or the adoption by the Company of a plan
of exchange affecting the Common Stock or any distribution to
holders of Common Stock of securities or property (other than
normal cash dividends or dividends payable in Common Stock), the
Committee shall make such adjustments or other provisions as it
may deem equitable, including adjustments to avoid fractional
shares, to give proper effect to such event. In the event of a
corporate merger, consolidation, acquisition of property or
stock, separation, reorganization or liquidation, the Committee
shall be authorized to issue or assume stock options, regardless
of whether in a transaction to which Section 424(a) of the
Code applies, by means of substitution of new options for
previously issued options or an assumption of previously issued
options, or to make provision for the acceleration of the
exercisability of, or lapse of restrictions with respect to,
Awards and the termination of unexercised options in connection
with such transaction, but only if such substitution,
assumption, acceleration or lapse (a) would not constitute
a distribution of deferred compensation for purposes of
Section 409A(a)(3) of the Code or (b) constitutes a
distribution of deferred compensation that is permitted under
regulations issued pursuant to Section 409A(a)(3) of the
Code.
15. Restrictions. No Common Stock or other form of
payment shall be issued with respect to any Award unless the
Company shall be satisfied based on the advice of its counsel
that such issuance will be in compliance with applicable federal
and state securities laws. Certificates evidencing shares of
Common Stock delivered under this Plan may be subject to such
stop transfer orders and other restrictions as the Committee may
deem advisable under the rules, regulations and other
requirements of the Securities and Exchange Commission, any
securities exchange or transaction reporting system upon which
the Common Stock is then listed and any applicable federal and
state securities law. The Committee may cause a legend or
legends to be placed upon any such certificates to make
appropriate reference to such restrictions.
102
16. Unfunded Plan. Insofar as it provides for Awards
of cash, Common Stock or rights thereto, this Plan shall be
unfunded. Although bookkeeping accounts may be established with
respect to Participants who are entitled to cash, Common Stock
or rights thereto under this Plan, any such accounts shall be
used merely as a bookkeeping convenience. The Company shall not
be required to segregate any assets that may at any time be
represented by cash, Common Stock or rights thereto, nor shall
this Plan be construed as providing for such segregation, nor
shall the Company or the Board or the Committee be deemed to be
a trustee of any cash, Common Stock or rights thereto to be
granted under this Plan. Any liability or obligation of the
Company to any Participant with respect to a grant of cash,
Common Stock or rights thereto under this Plan shall be based
solely upon any contractual obligations that may be created by
this Plan and any Award Agreement, and no such liability or
obligation of the Company shall be deemed to be secured by any
pledge or other encumbrance on any property of the Company.
Neither the Company nor the Board nor the Committee shall be
required to give any security or bond for the performance of any
obligation that may be created by this Plan.
17. Claims Procedure.
(a) In the event the Company fails to make any payments
under the Plan as agreed, to obtain payment under the Plan, the
Participant must file a written claim with the Company on such
forms as shall be furnished to him by the Company. If a claim
for payment is denied by the Company, in whole or in part, the
Company shall provide adequate notice in writing to the
Participant within ninety (90) days after receipt of the
claim unless special circumstances require an extension of time
for processing the claim. If such an extension of time for
processing is required, written notice indicating the special
circumstances and the date by which a final decision is expected
to be rendered shall be furnished to the Participant. In no
event shall the period of extension exceed one hundred eighty
(180) days after receipt of the claim. The notice of denial
of the claim shall set forth (i) the specific reason or
reasons for the denial; (ii) specific reference to
pertinent provisions of the Agreement on which the denial is
based; (iii) a description of any additional material or
information necessary for the claimant to perfect the claim and
an explanation of why such material or information is necessary;
and (iv) a statement that any appeal of the denial must be
made by giving to the Company, within sixty (60) days after
receipt of the notice of the denial, written notice of such
appeal, such notice to include a full description of the
pertinent issues and basis of the claim. The Participant may
review pertinent documents and submit issues and comments in
writing to the Company. If the Participant fails to appeal such
action to the Company in writing within the prescribed period of
time, the Company’s adverse determination shall be final,
binding and conclusive.
(b) If the Participant appeals the denial of a claim for
payment within the appropriate time, the Participant must submit
the notice of appeal and all relevant materials to the
Committee. The Committee may hold a hearing or otherwise
ascertain such facts as it deems necessary and shall render a
decision which shall be binding upon both parties. The decision
of the Committee shall be made within sixty (60) days after
the receipt of the notice of appeal, unless special
circumstances require an extension of time for processing, in
which case a decision shall be rendered as soon as possible but
not later than one hundred twenty (120) days after receipt
of the request for review. If such an extension of time is
required, written notice of the extension shall be furnished to
the Participant prior to the commencement of the extension. The
decision of the Committee shall be in writing, shall include
specific reasons for the decision, written in a manner
calculated to be understood by the claimant, as well as specific
references to the provisions of the Plan on which the decision
is based and shall be promptly furnished to the Participant.
18. Governing Law. This Plan and all determinations
made and actions taken pursuant hereto, to the extent not
otherwise governed by mandatory provisions of the Code, the
securities laws of the United States, or the Employee Retirement
Income Security Act of 1974, shall be governed by and construed
in accordance with the laws of the State of Nevada.
19. Effective Date of Plan. The adoption of this
Plan is expressly conditioned upon the approval by the holders
of a majority of shares of Common Stock and the Company’s
$.01 Preference Stock present, or represented and entitled to
vote on the matter, voting together as a single class. If the
stockholders of the Company should fail so to approve this Plan,
this Plan shall be of no force or effect.
103
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
| Name | Place of Incorporation | |||
|
Charged Productions, Inc.
|
Nevada | |||
|
Omega Protein Corporation
|
Nevada | |||
|
Zap.Com Corporation
|
Nevada | |||
The foregoing does not constitute a complete list of all
subsidiaries of the registrant. The subsidiaries that have been
omitted do not, if considered in the aggregate as a single
subsidiary, constitute a “Significant Subsidiary” as
defined by the Securities Exchange Commission.
104
EXHIBIT 23
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the
Registration Statements on
Form S-8
(Nos. 333-43223
and 333-45568) of
Zapata Corporation of our report dated April 5, 2006
relating to the financial statements, financial statement
schedules, management’s assessment of the effectiveness of
internal control over financial reporting and the effectiveness
of internal control over financial reporting, which appears in
this Form 10-K.
PricewaterhouseCoopers LLP
Rochester, NY
April 5, 2006
105
EXHIBIT 24
POWER OF ATTORNEY
WHEREAS, Zapata Corporation, a Nevada corporation (the
“Company”), intends to file with the Securities and
Exchange Commission (the “Commission”) under the
Securities Exchange Act of 1934, as amended (the
“Act”), an annual report of
Form 10-K for the
fiscal year ended December 31, 2005 (the
“Form 10-K”)
pursuant to the Act of the rules and regulations of the
Commission promulgated thereunder;
NOW, THEREFORE, the undersigned in the capacity of a director,
officer or both a director and officer of the Company, as the
case may be, does hereby appoint Leonard DiSalvo as his true and
lawful attorney or
attorney-in-fact with
full power of substitution and resubstitution, to execute in his
name, place and stead, in his capacity as director, officer or
both, as the case may be, the
Form 10-K and any
and all documents necessary or incidental in connection
therewith, including, without limitation, any amendments to the
Form 10-K, and to
file the same with the Commission. Said
attorney-in-fact shall
have full power and authority to do and perform in the name and
on behalf of the undersigned in any and all capacities, every
act whatsoever necessary or desirable to be done in the premises
as fully and to all intents and purposes as the undersigned
might or could do in person, the undersigned hereby ratifying
and confirming the acts that said
attorney-in-fact or his
substitutes or substitute, may lawfully do or cause to be done
by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of
Attorney as of the 5th day of April, 2006.
| /s/ Warren H. Gfeller | |
|
|
| Warren H. Gfeller | |
| /s/ Bryan G. Glazer | |
|
|
| Bryan G. Glazer | |
| /s/ Edward S. Glazer | |
|
|
| Edward S. Glazer | |
| /s/ Darcie S. Glazer | |
|
|
|
| Darcie S. Glazer | |
| /s/ Robert V. Leffler, Jr. | |
|
|
| Robert V. Leffler, Jr. | |
| /s/ John R. Halldow | |
|
|
| John R. Halldow |
106
EXHIBIT 31.1
CERTIFICATION PURSUANT TO
RULE 13a-14 OR
15d-14 OF THE
SECURITIES
EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302
OF THE
SARBANES-OXLEY ACT OF 2002
I, Avram A. Glazer, certify that:
| 1. I have reviewed this annual report on Form 10-K of Zapata Corporation; | |
| 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
| 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
| 4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| (b) Designed such internal control over financial reporting or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| /s/ Avram A. Glazer | |
|
|
|
| Avram A. Glazer | |
| President and CEO |
Date: April 5, 2006
107
EXHIBIT 31.2
CERTIFICATION PURSUANT TO
RULE 13a-14 OR
15d-14 OF THE
SECURITIES
EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302
OF THE
SARBANES-OXLEY ACT OF 2002
I, Leonard DiSalvo, certify that:
| 1. I have reviewed this annual report on Form 10-K of Zapata Corporation; | |
| 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
| 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
| 4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| (b) Designed such internal control over financial reporting or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| /s/ Leonard DiSalvo | |
|
|
|
| Leonard DiSalvo | |
| Vice President — Finance and CFO |
Date: April 5, 2006
108
EXHIBIT 32.1
CERTIFICATION OF CEO PURSUANT TO 18 U.S.C.
SECTION 1350, AS ADOPTED PURSUANT
TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Zapata Corporation (the
“Company”) on
Form 10-K for the
year ended December 31, 2005 as filed with the Securities
and Exchange Commission on the date hereof (the
“Report”), I, Avram A. Glazer, as Chief Executive
Officer of the Company, hereby certify, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 to the best
of my knowledge, that:
| (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
| (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
| /s/ Avram A. Glazer | |
|
|
|
| Avram A. Glazer | |
| Chairman of the Board, | |
| President and Chief Executive Officer |
April 5, 2006
This Certification accompanies this Report pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 and shall not
be deemed filed by the Company for purposes of Section 18
of the Securities Exchange Act of 1934, as amended.
109
EXHIBIT 32.2
CERTIFICATION OF CFO PURSUANT TO 18 U.S.C.
SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Zapata Corporation (the
“Company”) on
Form 10-K for the
year ended December 31, 2005 as filed with the Securities
and Exchange Commission on the date hereof (the
“Report”), I, Leonard DiSalvo, as Chief Financial
Officer of the Company, hereby certify, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 to the best
of my knowledge, that:
| (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
| (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
| /s/ Leonard DiSalvo | |
|
|
|
| Leonard DiSalvo | |
| Vice President — Finance and Chief Financial Officer |
April 5, 2006
This Certification accompanies this Report pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 and shall not
be deemed filed by the Company for purposes of Section 18
of the Securities Exchange Act of 1934, as amended.
110