<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9. INCOME TAXES--(CONTINUED)
Income tax expense (benefit) was allocated to operations as follows:
<TABLE>
<CAPTION>
1994 1993 1992
----- ------ ----
(IN THOUSANDS)
<S> <C> <C> <C>
Continuing Operations................................. $(494) $3,800 $678
Discontinued Operations............................... 1,068 (150) 82
----- ------ ----
Total............................................. $ 574 $3,650 $760
===== ====== ====
</TABLE>
The provision for deferred taxes results from timing differences in the
recognition of revenues and expenses for tax and financial reporting purposes.
The sources and income tax effects of these differences were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Book depreciation in excess of tax
depreciation................................ $ 616 $(1,379) $(2,077)
Tax deduction related to oil and gas
exploration and production over (under) book
expenses.................................... (6,277) (163) 1,254
Tax gain in excess of book gain on stock
sale........................................ (10,116) (8,065)
Changes to tax carryforwards and other....... 7,806 12,771 1,501
Amortization of intangibles.................. 452
Charge off uncollectible note................ 2,790
------- ------- -------
$(4,729) $ 3,164 $ 678
======= ======= =======
</TABLE>
For federal income tax purposes, Zapata has $16.6 million of investment tax
credit carryforwards expiring in 1995 through 2001, and has $11.4 million of
alternative minimum tax credit carryforwards. The use of tax credits may be
limited as a result of a change of ownership as calculated for tax purposes.
Investment tax credit carryforwards are reflected in the balance sheet as a
reduction of deferred taxes using the flow-through method.
The following table reconciles the income tax provisions for 1994, 1993 and
1992 computed using the U.S. statutory rate of 35%, 34% and 34%, respectively,
to the provisions reflected in the financial statements.
<TABLE>
<CAPTION>
1994 1993 1992
----- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Taxes at statutory rate........................... $(416) $4,627 $1,188
Recovery of nondeductible book losses............. (259)
Amortization of intangibles not deductible for
tax.............................................. 185
Other............................................. (737) (1) (64)
Equity/dividend income not recognized for tax pur-
poses............................................ (176) (567) (446)
State taxes....................................... 650
----- ------ ------
$(494) $3,800 $ 678
===== ====== ======
</TABLE>
49