SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended February 29, 1996
Commission file number 0-14973
UNICO,INC.
(Exact name of Registrant as specified in its charter)
New Mexico 85-0270072
(State of Incorporation) (IRS Employer ID #)
Registrant's address: 1921 Bloomfield Blvd.,
Farmington, New Mexico 87401
Registrant's telephone number, including area code: 505-326-2668
Securities registered pursuant to Section 12(g) of the Act:
Name of exchange
Title of class on which registered
$0.20 par value common stock NASDAQ
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
Indicate by check mark if disclosure of delinquent filers in response to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrants knowledge, in definitive proxy or information
statements incorporated by reference in part III of this Form 10-K or any
amendment to this From 10-K X .
The aggregate market value of the registrant's $0.20 par value common
stock held by non-affiliates at April 30, 1996, was $2,590,000.
On April 30, 1996, there were 986,590 shares of Registrant's $0.20 par
value common stock outstanding.
Documents incorporated by reference: Portions of the Registrant's annual
report to shareholders for the year ended February 28, 1996 are incorporated by
reference to Parts I and II.
<PAGE>
INDEX
TO REPORT ON FORM 10-K
FOR UNICO, INC.
Item in Form 10-K Page
PART I
Item 1. Business 3
Item 2. Properties 3
Item 3. Legal Proceedings 3
Item 4. Submission of Matters to a Vote of Security Holders 4
PART II
Item 5. Market for Registrant's Common Stock and Related
Stockholder Matters 4
Item 6. Selected Financial Data 4
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 4
Item 8. Financial Statements and Supplementary Data 4
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 5
PART III
Item 10. Directors and Executive Officers of Registrant 5
Item 11. Executive Compensation 6
Item 12. Security Ownership of Certain Beneficial
Owners and Management 7
Item 13. Certain Relationships and Related Transactions 9
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K. 9
<PAGE>
PART I
Item 1. Business:
Information relative to Registrant's business on pages 5 and 6 of the
Registrant's Annual Report to Stockholders for the year ended February 29, 1996
and information with respect to industry segments on pages 23 through 24 of the
Annual Report are incorporated herein by reference.
Item 2. Properties.
Information relative to properties owned by the Registrant on page 6 of
the Registrant's Annual Report to Stockholders for the year ended February 29,
1996 is incorporated herein by reference.
Item 3. Legal Proceedings
Other than collection actions or other actions arising in the ordinary
course of the Registrant's business, no legal proceedings to which the
Registrant is a party or of which any of its property is subject are pending or
known to be contemplated, and the Registrant knows of no legal proceedings
pending or threatened, or judgment against any director or officer of the
Registrant in their capacity as such, except the following:
(a) In connection with the Registrant's participation with Sand Creek
Chemical Limited Partnership, ("SCCLP"), Intermountain Chemical, Inc.
("IC"), as managing general partner, was named in a legal action
filed by CDK Contracting Inc. ("CDK"), against SCCLP. In December
1991, CDK, the general contractor constructing SCCLP's methanol
facility in Commerce City, Colorado, informed SCCLP that it was
impossible to continue the construction of the plant due to the
financial failure of a major subcontractor. CDK indicated that it
was willing to continue construction activities if SCCLP would agree
to terminate the existing construction agreement, pay CDK time and
materials on future construction activity, and release CDK from all
obligations concerning late completion and process guarantees. SCCLP
declined CDK's request and CDK subsequently discontinued all
construction activity. In order to insure the timely completion of
the facility, SCCLP took over management of the construction
activity. SCCLP filed a claim against CDK and its bonding company
seeking recovery of damages for breach of contract by CDK. CDK filed
a counter claim seeking recovery of $5,000,000 in damages for work
performed under the contract including $1,980,000 retained from
progress billings by SCCLP. CDK also claimed that SCCLP and IC
committed fraud in the inducement with respect to certain matters
arising under the contract. IC and SCCLP denied that they breached
the terms of any contract with CDK or that they perpetrated any type
of fraud on CDK. A trial was held in July 1992 to determine the
liability, if any, of the parties to the action. The court
determined that CDK couldn't be relieved of its obligations under the
construction agreement by claiming a defense of impossibility. The
decision cleared the way for SCCLP to seek recovery of damages as
provided under the contract. With respect to CDK's counter claim of
fraud in the inducement, the court essentially dismissed the claim
but allowed CDK to present additional evidence at the hearing for
damages showing how CDK could have mitigated damages if CDK had
knowledge of certain financial information of a subcontractor that
CDK claimed was not provided to CDK by SCCLP. In December 1992, a
hearing was held on a motion, brought by SCCLP, asking for
reconsideration of the previous judgement which allowed CDK to
present additional evidence with respect to CDK's fraud claim.
SCCLP's motion was granted there-by completely dismissing CDK's fraud
claim. On February 16, 1993 a trial to determine damages was started
with SCCLP presenting its damage claim amounting to approximately
<PAGE>
$8,923,000. CDK presented its defense to SCCLP's claim representing
that SCCLP was only entitled to $3,210,000 for completion of
construction less $3,709,000 in amounts claimed to be owed to CDK for
work previously performed by CDK. Final arguments were submitted in
writing on March 15, 1993 as requested by the judge hearing the
matter. On April 10, 1995 a judgement in favor of SCCLP was entered
in the amount of $9,415,558, net of counter claim offsets allowed,
and including pre judgement interest. On April 27, 1995, CDK filed
an application for stay of execution on the judgement pending appeal
by CDK. CDK posted a bond in the amount of $9,416,000 as required in
anticipation of their appeal. In December 1995, SCCLP settled all
outstanding claims related to the matter for a cash payment from CDK
of $7,500,000.
(b) On September 13, 1994, Conoco, Inc. filed a suit in the Jefferson
County Colorado District Court naming Intermountain Chemical, Inc.
and Sand Creek Chemical Limited Partnership. The action seeks
specific performance, and monetary damages based on Conoco's claim
that SCCLP has breached the contract between Conoco and SCCLP by
SCCLP refusing to sell additional quantities of methanol to Conoco
under the contract. SCCLP and Conoco have been negotiating a
settlement agreement and have mutually agreed to dismiss the pending
litigation in anticipation of finalizing those negotiations.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders, through the solicitation
of proxies or otherwise.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Information relative to Registrant's common stock on the inside front
cover of the Registrant's Annual Report to Stockholders for the year ended
February 29, 1996 is incorporated herein by reference.
Item 6. Selected Financial Data
Information relative to selected financial data on page 4 of the
Registrant's Annual Report to Stockholders for the year ended February 29, 1996
is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Information relative to management's discussion and analysis of financial
condition and results of operations on pages 7 through 10 of the Registrant's
Annual Report to Stockholders for the year ended February 29, 1996 is
incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data.
The consolidated financial statements on pages 12 through 32 of the
Registrant's Annual Report to Stockholders for the year ended February 29, 1996
are incorporated herein by reference.
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
There has not been any disagreement between the Registrant and its
Accountants of a nature which would require disclosure in compliance with Item
304 of Regulation S-K.
PART III
Item 10. Directors and Executive Officers of Registrant.
The directors and executive officers of the Registrant, their ages and
positions held in the Registrant are as follows:
Held
Name Age Position Since
William N. Hagler 64 President and Director 1979
603 Merino Kraal
Farmington, New Mexico 87401
Rick L. Hurt 43 Controller, Secretary, 1985
5701 Tee Dr. Treasurer and Director
Farmington, New Mexico 87401
Background information concerning the Officers and Directors is as
follows:
William N. Hagler received a B.S. degree in Industrial Engineering from
North Carolina State University in 1955. From 1955 to 1968, he was employed by
Esso Standard Oil, Cities Service Oil Co. and Riffe Petroleum Co. in various
phases of the petroleum refining and marketing industry. In July of 1968, he
became assistant to the president and later vice president of Plateau, Inc., of
Farmington, New Mexico, a regional refining and marketing firm. His
responsibilities have included refinery management, marketing, corporate
development, economics and planning, crude oil supply, negotiation and
administration of processing arrangements, labor relations, coordination of
refinery acquisition and expansion programs, and relations with state and
federal regulatory bodies. In 1979 Mr. Hagler organized the Registrant and has
served as its president and as a director at all times since organization.
Rick L. Hurt received a BBA degree in Accounting from the University of
New Mexico in 1979. From 1979 to 1982, he was employed as a staff accountant
and later as a senior accountant by the accounting firm of Fox & Company in its
Albuquerque, New Mexico, offices. From 1982 until March of 1985 he was
employed as chief accountant for the law firm of Davis and Davis in Austin,
Texas. Mr. Hurt is certified as a public accountant in the states of New
Mexico and Texas. Mr. Hurt joined the Registrant as Assistant Controller in
March of 1985, and became its Controller, Secretary, Treasurer and a Director
on May 20, 1985.
Mr. Hagler and Mr. Hurt devote substantially all of their time to the
affairs of the Registrant and will continue to do so in the future.
No family relationship exists between any officer or director of the
Registrant and no officer or director has been involved in any proceeding of
the nature described in paragraph (f) of Item 401 of Regulation S-K.
<PAGE>
In April 1993, William N. Hagler accepted an appointment as a director of
Saba Petroleum Company which is registered under section 12 of the Exchange
Act.
No officer or director of the registrant has been subject, during the
preceding 5 years, to any of the events set forth in paragraph (f) of Item 401
of Regulation S-K.
Since the Common Stock of the Registrant is registered pursuant to Section
12(g) of the Securities Exchange Act of 1934 (the"Exchange Act"), the executive
officers and directors of the Registrant and beneficial owners of greater than
10% of the Registrant's Common Stock ("10% beneficial owners") are required to
file beneficial ownership reports, pursuant to Section 16(a) of the Exchange
Act, with both the Securities and Exchange Commission ("SEC") and the
Registrant, disclosing changes in beneficial ownership of the Common Stock. SEC
rules, pursuant to Section 16, require disclosure by the Registrant of the
failure of an executive officer, director or 10% beneficial owner of the
Registrant to file beneficial ownership reports on a timely basis. Based on the
Registrants review of such ownership reports, no executive officer or director
of the Registrant failed to file such an ownership report on a timely basis
during the 1996 fiscal year.
Item 11. Executive Compensation.
The following table sets forth certain information concerning the
remuneration paid by the Registrant for the last three fiscal years to
executives of Registrant who, except for the CEO, received compenstaion in
excess of $100,000:
Annual Compensation
Other
Name Annual
and Compen-
Principal sation
Postion Year Salary ($) Bonus ($) ($)
(1)
William N. Hagler 1996 94,783 0 1,441
CEO and Director 1995 91,467 18,900 1,435
1994 86,608 1,624 0
(1) Includes discretionary employer 401(k) contributions totalling $1,441
and $1,435 in 1996 and 1995 respectively.
The Registrant's employees, including the Registrant's officers, may also
receive such bonuses and salary increases as the Board of Directors, in its
sole discretion, may award.
The Registrant provides health insurance benefits to the officers and directors
and all other full time employees.
No Registrant Director is compensated for attending meetings of the Board of
Directors.
Effective for the year ended February 28, 1989, the Registrant adopted an
Employee Stock Ownership Plan ("ESOP"), for the benefit of all of its
employees, including those of wholly owned subsidiaries. Contributions to the
plan are made at the sole discretion of the Board of Directors and are limited
to the maximum amount deductible for income tax purposes. Eligible employees
include all full time employees with a minimum of six months of service as of
any anniversary date of the plan and vesting shall take place on a six year
graded basis applied retroactive as of the effective date of the plan. During
1996, 1995 and 1994, the Registrant made no contributions to the ESOP. A copy
of the plan was filed with the Commission as an exhibit to the Registrant's
Form 10-K filed for the fiscal year ended February 28, 1989.
<PAGE>
Amounts accrued pursuant to the ESOP for the accounts of executive
officers, the vesting of which are not subject to future events, are as
follows:
Beneficial
Name Position Shares
William N. Hagler President, Director 11,304
All Officers and Directors as 17,703
a group (2 People)
Effective for the year ended February 28, 1994, the Registrant adopted a
401(k) Plan for the benefit of all of its full time employees, including those
of wholly owned subsidiaries. Employees meeting certain minimal eligibility
requirements may make voluntary contributions to the Plan subject to
limitations set by Internal Revenue Regulations. The Registrant, at it's sole
discretion, may make both matching and discretionary contributions for the
benefit of participants of the Plan limited by the maximum amounts deductible
for income tax purposes. Employees are automatically 100% vested in voluntary
contributions and vesting in Registrant contributions is on a six year graded
basis applied retroactive as of the effective date of the Plan. During 1996,
the Registrant contributed $11,754 to the Plan which was allocated based on
elective deferrals made by employees during the year not to exceed 1.52% of
gross earnings. During 1995, the Registrant contributed $11,569 to the Plan
which was allocated based on elective deferrals made by employees during the
year not to exceed 1.3% of gross earnings. The Registrant did not make any
contributions to the Plan during 1994. A copy of the 401(k) Plan was filed
with the Commission as an exhibit to its Form 10-K filed for the year ended
February 28, 1995.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) Security ownership of certain owners.
On February 29, 1996, the only persons known to the Registrant to own 5%
or more of the issued and outstanding Registrant common stock, its only voting
security, are as follows:
Name and address Amount and nature
Title of of of Percent
Class Beneficial owner Beneficial ownership of class
$0.20 par value William N. Hagler 417,679 shares of 42.34%
common stock 603 Merino Kraal record and beneficially
Farmington, NM 87401 (1)
$0.20 par value William & Helen Braddock 138,624 shares of 14.05%
common stock P.O. Box 403 record and beneficially
Dorado, PR 00646
(1) Includes 406,375 shares of record and 11,304 shares held for the
benefit of Mr. Hagler by the Registrant's ESOP.
<PAGE>
(b) Security ownership of management.
On February 29, 1996, the ownership by the Registrant's management of its
common stock, its only voting security, was as follows:
Name and address Amount and nature
Title of of of Percent
Class Beneficial owner Beneficial ownership of class
$0.20 par value William N. Hagler 417,679 shares of 42.34%
common stock 603 Merino Kraal record and beneficially
Farmington, NM 87401 (1)
$0.20 par value all officers and 424,578 shares of 43.03%
common stock directors (2 People) record and beneficially
(2)
(1) Includes 406,375 shares of record and 11,304 shares held by
the Registrant's ESOP on behalf of Mr. Hagler.
(2) Includes 406,875 shares of record and 17,703 shares held by the
Registrant's ESOP on behalf of included officers.
No shares of the Registrant's Series A Preferred Stock are presently
issued and outstanding.
(c) Changes in control.
There are no arrangements known to the Registrant, including any pledge by
any person of securities of the Registrant, the operation of which may at a
subsequent date result in a change of control of the Registrant, except as
follows:
On January 15, 1996 the Registrant executed a Letter of Intent with
Chatfield Dean & Co., ("Chad") setting out the terms of a proposed acquisition,
by the Registrant, of all of the outstanding Common and Preferred stock of
Chad. Chad is a full service investment banking firm based in Englewood
Colorado. Under the terms contemplated by this agreement, majority control of
the Registrant will vest with the current shareholders of Chad if the proposed
merger is completed. In order to achieve the objectives contemplated by the
parties, certain adjustments to the exchange of capital stock set forth in the
Letter of Intent may be made.
It is anticipated that the Registrant will issue approximately 2,512,000
new shares of its Common Stock in exchange for all outstanding common stock of
Chad, including all shares issued to participants in Chad's Employee Stock
Bonus Plan (the "Chad Plan"). Additional shares of Registrant's Common Stock
will be reserved for issuance to Chad Plan participants.
In addition, the Registrant will issue new Preferred Stock in exchange for
all of the outstanding shares of Chad's Series A 7% Cumulative Convertible
Preferred Stock issued in a recently completed private placement and all of the
outstanding shares of Chad's Series B Preferred Stock, other than any shares of
Chad preferred stock held by the Registrant or its subsidiaries.
<PAGE>
A copy of the Letter of Intent as executed by both parties was filed as an
Exhibit 28 to the Registrants Form 8-K filed with the Commission as January 15,
1996. As of the date of this report, the Registrant and Chad are proceeding
with the due diligence process in contemplation of preparing a definite
agreement as to this proposed merger.
Item 13. Certain Relationships and Related Transactions.
Since the beginning of the Registrant's last fiscal year, there were no
transactions, or series of similar transactions, or currently proposed
transactions, to which the Registrant or its subsidiaries was or is to be a
party, in which the amount involved exceeds $60,000, and in which any director
or executive officer, nominee for election as a director, security holder known
by Registrant to own 5% or more of any class of the Registrant's voting
securities or any member of the immediate family of any of the foregoing, had
or will have a direct or indirect material interest:
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) Financial Statements and Schedules:
The financial statements and schedules listed in the accompanying
Index to Financial Statements and Schedules are filed as part of this
report.
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions, are inapplicable, or have been
provided elsewhere in this report, and therefore have been omitted.
(b) No reports on Form 8-K were filed by the Registrant during the fiscal year
ended February 29, 1996 except as follows:
(a) On December 8, 1996, the Registrant filed a Form 8-K with respect to
the settlement of legal proceedings as described in Part I, Item 3(a)
of this Form 10-K.
(b) On January 15, 1996, the Registrant filed a Form 8-K with respect to
the acquisition of 50,000 shares of Chatfield Dean & Co. series B
Preferred Stock for $500,000 and with respect to the reporting of the
execution of a Letter of Intent for the proposed acquisition of
Chatfield Dean & Co. by the Registrant as described in Part III.
Item 12(c) of this Form 10-K.
(c) (3) Exhibits required by Rule 601 of Regulation S-K
3. Articles of Incorporation and bylaws are incorporated by
reference to the Registrant's registration statement on Form
10 filed September 9, 1986 and amendments thereto filed on
July 29, 1994 on Form 8-K.
4. Instruments defining the rights of security holders including
indentures are incorporated by reference to the Registrant's
registration statement on Form 10 filed September 9, 1986.
<PAGE>
10. 401(k) Profit Sharing Plan adopted effective March 1, 1993 is
incorporated by referral to the Registrants Form 10-K filed
for the year ended February 28, 1995. Other material
contracts are incorporated by reference to the Registrant's
Form 8-K filed on June 13, 1990.
11. Statement regarding computation of per share earnings.
13. The Annual Report to Stockholders of the Registrant for the
fiscal year ended February 29, 1996 (except for pages and
information thereof expressly incorporated by reference in
this report is provided solely for the information of the
Securities and Exchange Commission and is not deemed "filed"
as part of this report).
22. Subsidiaries of the Registrant.
24. (a) Report of Atkinson & Co., Ltd., dated May 3, 1996, on
the consolidated financial statements and schedules of
Registrant for the three years ended February 29, 1996 as
listed in Item 14(a) of this report.
All other exhibits required by Rule 601 are not applicable to this
Registrant or this report.
Incorporated by reference are the following documents:
a. Quarterly Reports on Form 10-Q for the quarters ended May 31,
August 31, and
November 30, 1995.
(d) (1) Separate financial statements of unconsolidated entities:
(a) Audited financial statements of Sand Creek
Chemical Ltd. for the fourteen months ended
February 29, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15d 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:
UNICO, INC
May 29, 1996
By William N. Hagler
William N. Hagler, President
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:
By: William N. Hagler Date: May 29, 1996
William N. Hagler, President,
Director and Chief Executive
Officer
By: Rick L. Hurt Date: May 29, 1996
Rick L. Hurt, Controller,
Secretary, Treasurer,
Director, and Chief Financial
Officer.
<PAGE>
UNICO, INC.
ANNUAL REPORT ON FORM 10-K
ITEM 8, ITEM 14(a)
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
The following consolidated financial statements of Unico, Inc. and subsidiaries
are contained in the Registrant's Annual Report to Stockholders included in
Exhibit 13 of the report. Page numbers listed herein correspond to the page
number in the annual report:
Page No.
in Annual
Report ("AR")
Consolidated Balance Sheets - February 29, 1996,
and February 28, 1995. AR 12
Consolidated Statements of Operations - Years ended
February 29, 1996, February 28, 1995, and February 28, 1994. AR 14
Consolidated Statements of Cash Flows - Years ended
February 29, 1996, February 28, 1995, and February 28, 1994. AR 15
Consolidated Statements of Changes in Stockholders' Equity -
Years ended February 29, 1996, February 28, 1995, and
February 28, 1994. AR 16
Notes to Consolidated Financial Statements -
February 29, 1996 AR 17
The following consolidated financial statement schedules of Unico, Inc., and
subsidiaries are included in a separate section hereto:
Page No.
Schedule II - Valuation and qualifying accounts 13
<PAGE>
<TABLE>
UNICO, INC.
SUPPLEMENTAL SCHEDULES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 29, 1996, FEBRUARY 28, 1995 AND FEBRUARY 28, 1994
<CAPTION>
SCHEDULE II - Valuation and Qualifying Accounts
Account: Balance at Charges to Charges to Balance at
beginning costs and other end of
Year ended of period expense accounts Deductions period
Accumulated Amortization - Deferred Charges:
<S> <C> <C> <C> <C> <C>
February 28, 1994 6,776 484 - - 7,260
February 28, 1995 7,260 - - (7,260) -
February 29, 1996 - - - - -
</TABLE>
<PAGE>
EXHIBIT 11
STATEMENT REGARDING COMPUTATION OF EARNINGS (LOSS) PER SHARE
OF
UNICO, INC.
Year ended
February
1996 1995 1994
Primary Earnings (Loss) Per Common Share:
Weighted average number of shares outstanding 986,590 975,132 974,090
Primary earnings (loss) per share $0.5493 $0.7243 $(0.3879)
Fully Diluted Earnings (Loss) Per Common Share:
Weighted average number of shares outstanding 1,008,840 997,382 996,340
Fully diluted earnings (loss) per share $0.5492 $0.7203 $(0.3671)
Income per share is based on the weighted average number of common shares
outstanding during each period. The Registrant authorized a 1:20 reverse split
of its common stock during 1995 and the weighted average shares outstanding and
corresponding earnings per share amounts previously reported for prior years
have been restated to reflect the reverse split. Stock warrants are not
included in primary earnings per share because they are antidilutive. Fully
diluted earnings per share assumes the exercise of subordinated debentures into
stock thereby increasing net income by the related interest savings net of
income taxes. The number of shares assumed to be converted was 22,250 shares
for the years ended February 29, 1996, February 28, 1995, and February 29,
1994. Fully diluted earnings per share were not presented in the audited
financial statements because it results in a higher per share earnings than
primary earnings per share or the reduction from primary earnings per share is
not significant.
<PAGE>
EXHIBIT 13
UNICO, INC. AND SUBSIDIARIES
ANNUAL REPORT TO STOCKHOLDERS
For the Year Ended February 29, 1996
<PAGE>
Table of Contents
President's Letter to Stockholders . . . . . . . . . . . . . . . . . . .Page 2
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . .Page 4
Description of Business . . . . . . . . . . . . . . . . . . . . . . . .Page 5
Management's Discussion and Analysis of
Results of Operations and Financial Condition . . . . . . . . . . . . .Page 7
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . .Page 11
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . .Page 12
Corporate Information . . . . . . . . . . . . . . . . . . . Inside Front Cover
<PAGE>
President's Letter to Stockholders
Dear Fellow Stockholder:
NOT AVAILABLE
<PAGE>
NOT AVAILABLE
Very truly yours,
May , 1996 William N. Hagler
<PAGE>
<TABLE>
Selected Financial Data
<CAPTION>
RESULTS OF OPERATIONS Year Ended February
1996 1995 1994 1993 1992
(in thousands except per share data)
<S> <C> <C> <C> <C> <C>
Revenues
Electrical capacity and energy $ 666 $ 1,031 $ 1,001 $ 1,249 $ 1,312
Processing and terminalling
agreements 60 17 40 106 106
Natural gas production 141 193 257 266 281
Refined product and other sales 1,978 2,085 3,307 11,273 10,914
Total revenues $ 2,845 $ 3,326 $ 4,605 $ 12,894 $ 12,613
Net income (loss) before income taxes $ 917 $ 1,024 $ (488) $ 21 $ 26
Change in accounting for
income taxes $ - $ - $ - $ - $ 32
Net income (loss) $ 542 $ 706 $ (378) $ 23 $ 54
Net income (loss) per common share $0.5493 $ 0.7243 $(0.3879) $ 0.0234 $ 0.0560
Cash flow from operations $ (44) $ 228 $ (13) $ 403 $ 362
</TABLE>
<TABLE>
FINANCIAL POSITION
<CAPTION>
February 29, February 28, February 28, February 28, February 29,
1996 1995 1994 1993 1992
(in thousands)
<S> <C> <C> <C> <C> <C>
Working capital $ 173 $ 470 $ 836 $ 913 $ 898
Current ratio 1.31:1 1.73:1 5.33:1 2.29:1 1.87:1
Total assets $ 4,422 $ 3,838 $ 2,690 $ 3,493 $ 3,938
Long-term debt, including
current portion $ 310 $ 396 $ 226 $ 341 $ 423
Long-term debt, excluding
current portion $ 234 $ 122 $ 207 $ 48 $ 178
Stockholders' equity $ 3,528 $ 2,986 $ 2,268 $ 2,645 $ 2,623
Debt-to-equity ratio .07:1 .04:1 .09:1 .02:1 .07:1
</TABLE>
<PAGE>
Description of Business Activities
BUSINESS
The Company was incorporated under the laws of the State of New Mexico in
April, 1979. Company resources are segmented into four categories of business;
petroleum product refining and processing, electrical energy production,
natural gas production, and methanol production. Currently, refining and
processing and electrical energy production are performed by the Company's
wholly-owned subsidiary, Intermountain Refining Co., Inc. ("IRC"), while
natural gas production is carried-out by the Company under the name Unico
Resources. Through its wholly-owned subsidiary, Intermountain Chemical, Inc.
("IC"), the Company manages and operates a methanol production facility, owned
by others, in Commerce City, Colorado.
Refining
The Company refines low-cost, heavy crude oil and other low gravity refined
products into diesel fuel, fuel oils, and asphalt that are generally marketed
on a wholesale basis in the intermountain region. IRC has experienced a sharp
reduction in the availability of crude oil from it's traditional sources and
has operated it's refinery only on a limited basis during the past three years.
The Company is hopeful that a long term solution to the supply shortage can be
resolved, but thus far has been unsuccessful in locating raw materials that
would allow the economic operation of the facility. In addition, IRC provides
certain asphalt terminalling services wherein IRC receives a fixed monthly fee
and reimbursement of certain operating expenses directly related to the service
provided.
Co-Generation
The co-generation plant produces up to 3,000 kilowatts of electrical energy
that is sold to an electric company in the local area. Additionally, the plant
produces all electricity and a portion of the steam used in the refining
process thereby contributing some savings in refinery operating costs.
Natural Gas Production
The Company has an interest in and operates 20 natural gas wells located in
the Hugoton basin in Southwestern Kansas. Natural gas and helium produced is
sold, under exclusive contract, to K.N. Energy, of Lakewood, Colorado.
Methanol Production
In July, 1988, the Company initiated a project to construct a 250 ton per day
methanol production facility in the Denver, Colorado area. The facility
converts natural gas into chemical grade methanol which is marketed to refiners
and chemical distributors. The Company, through its subsidiary IC, is the
managing general partner of Sand Creek Chemical Limited Partnership ("SCCLP")
which performs all production and marketing operations associated with the
facility. IC holds the general partnership interest in IC Partners Limited,
("IC-PL"), the general partner of SCCLP. The facility is owned by Fleet Bank,
formerly Shawmut Bank Connecticut, who leases the facility to SCCLP under a
fifteen year operating lease. Construction and start-up testing of the facility
was substantially completed in October 1993 and the facility is currently
operating near design capacity. The Company provides management, accounting
and personnel services to the facility and has been active in the completion of
construction of the project. The Company has received various payments and
expense reimbursements associated with its services and activities on the
project.
In December 1994, the Company, through its newly formed wholly-owned subsidiary
Gas Technologies Group, Inc. ("GTGI"), acquired a limited partnership interest
in IC-PL. The Company receives allocations of SCCLP income and losses in
accordance with its various interests in IC-PL.
<PAGE>
Competition
The Company competes in the purchase of raw materials and the sale of its
products with other refiners, as well as many large independent petroleum
marketers, many of whom have been established longer and have access to greater
financial and other resources than the Company.
The Company competes with other electrical power producers in the Utah and
Arizona general market areas.
The Company competes with other producers of natural gas in the Southwestern
Kansas area. Gas supply is abundant, but gathering and marketing resources in
the area are somewhat limited. The Company has not had any problems selling
its gas production.
SCCLP competes in the purchase of natural gas and the sale of methanol with
other purchasers of natural gas and marketers of methanol, many of whom have
been established longer and have access to greater financial and other
resources.
Employees
The Company employs 33 people on a full time basis, including officers. Of
that total, 9 are salaried and 24 are paid on an hourly basis. Four of the
employees work in the main offices of the Company in Farmington, New Mexico, 5
are employed at the refinery in Fredonia, Arizona, and 24 are located at the
methanol production facility in Commerce City, Colorado. All of the full time
employees are eligible to participate in the Company's Employee Stock Ownership
Plan, ("ESOP") and 401(k) Plan. None of the employees are represented by a
union and the Company believes its employee relations to be satisfactory.
Regulations and Taxes
All operations of the Company are regulated by the United States
Environmental Protection Agency and various state environmental and health
departments. The Company is responsible for the payment of applicable Federal
and State excise taxes on the sale of refined products. Severance taxes on
natural gas production in Kansas are collected and paid by K.N. Energy, the
purchaser of the gas.
PROPERTIES
All properties used by the Company in the conduct of its business are owned
in fee. The Company's refinery is located on approximately 21 acres of fee-
owned land in Fredonia, Arizona. Facilities include: a 4,000 barrel per day
crude and vacuum distillation unit, a 3,000 kilowatt co-generation plant,
boilers, cooling towers, offices, shops, control and electrical buildings,
loading racks, storage tanks and associated ancillary facilities. In addition,
the plant contains a reforming unit which is not currently employed in the
refining operation. The co-generation plant was previously held under a 36
month lease requiring payments of $7,300 per month. The lease expired during
1996 and was carried on a month to month basis thereafter. In April, 1996 and
subsequent to the current year end, the Company acquired the generators from
the lessor for approximately $27,000.
The Company owns an interest in and operates 20 producing natural gas wells
located in Southwestern Kansas. Developed proven reserves are estimated at
3,221 MMCF gross and 2,634 MMCF net to the Company's interest as of February
29, 1996. No reserve estimates have been filed with any Federal authorities or
agencies.
The Company owns a 7,000 square foot office building in Farmington, New
Mexico. Approximately 30 percent of the office building is being fully
utilized by the Company for its corporate office, tenants are leasing another
20 percent, while the rest is currently vacant and offered for lease to others.
Mortgage payments on all of the properties owned by the Company are
approximately $1,800 per month.
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS
Fiscal 1996 compared to fiscal 1995
Revenues decreased to $2,845,000 down 15% from $3,326,000 in fiscal 1995.
Net income decreased to $542,000, down 23% from $706,000 last year. Cash flow
from operations decreased to a use of $44,000, down 119% from $228,000 provided
by operations during the previous year.
The decline in sales corresponds to a 28% decline in refined product sales
mainly associated with reduced levels of brokered crude oil sales, a 35%
reduction in electrical energy and capacity sales due to lower customer demand,
and a 27% decline in natural gas production due to significantly lower prices
experienced during the current year. Terminalling fee income increased by 260%
over last year due to a short term tank lease agreement during the summer of
1995, and other revenues increased by 9% in association with an increase in
management fees received from SCCLP in December 1995. Operating income (losses)
allocations from the Company's investment in IC-LP declined by 264% but was
offset by a one time gain allocation in conjunction with a legal settlement.
<TABLE>
Operating income (loss), by industry segment, before allocation of general
corporate overhead for 1996, compared to 1995 is as follows:
<CAPTION>
Increase
Segment 1996 1995 (Decrease)
<S> <C> <C> <C>
Refining $ (95,412) $ 19,382 $ (114,794)
Electrical generation (147,733) 2,843 (150,576)
Gas production 483 88,016 (87,533)
Methanol project 1,357,172 1,083,737 339,057
Corporate overhead and other (197,668) (169,865) (27,803)
$ 916,842 $1,024,113 $ (41,649)
</TABLE>
The decline in refining income is mainly associated with the increase in the
allocation of refining and co-generation operating costs due to a reduction in
sales of electrical energy and capacity. The decline in electrical generation
earnings is attributed to the significate decline in customer demand during
1996 coupled with higher fuel purchase costs experienced in the current year.
Efforts have been implemented to reduce both operating costs for refining and
co-generation activities including a renegotiation of the electric energy
supply arrangement with the customer, a slight reduction in force due to
attrition, and the acquisition of the electrical generators in March 1996 which
should allow a significant savings in costs going forward. The reduction in
natural gas production earnings is attributed to a significant decline in
natural gas prices during 1996. The Company renegotiated its natural gas sales
agreement to become effective April 1996 which is expected to improve earnings
moderately in the next fiscal year. The improvement in earnings from the
methanol production operation is attributed almost entirely to income
allocations from the SCCLP partnership. During 1996, SCCLP experienced
significant operating losses due to several unplanned mechanical problems with
the methanol plant along with the rapid return to more traditional methanol
product prices compared to the unusually high prices experienced during the
latter part of last year. Steps have been taken to minimize unexpected
mechanical problems with the plant, but product prices continue to be rather
soft and it is anticipated that earnings associated with the partnership
investment will be only break even in the coming year. The operating loss
allocations recognized in 1996 were offset by income allocations from the
partnership associated with the final settlement of litigation concerning the
original construction of the facility. Losses associated with corporate
overhead increased slightly during 1996 and are attributed to a slight increase
in overhead costs and a reduction of rental income compared to last year.
<PAGE>
Fiscal 1995 compared to fiscal 1994
Revenues decreased to $3,326,000 in fiscal 1995, down 28% from $4,605,000 in
fiscal 1994. Net income increased to $706,000, up 287% from a loss of $378,000
in 1994. Cash flow from operations increased to $228,000, up 1,854% from a use
of $13,000 in the prior year.
The decrease in sales corresponds to a 79% decline in refined product sales.
The Company did not operate its crude oil refinery during fiscal 1995 and
accordingly had few sales of refined products compared to fiscal 1994 where the
facility was operated during a portion of the year.
Revenues associated with sales of electrical energy increased slightly during
fiscal 1995 due to increased availability of the generator units compared to
1994. However, increases back to 1993 levels were not seen due to reduced
customer demand.
Natural gas revenues declined by 25% from 1994 due to a decline in market
prices as well as a decline in demand. Prior to December 1994, gas was
marketed under a fixed price contract that was substantially above the
prevailing spot market price, which resulted in reduced gas takes by the buyer.
In December 1994, the contract was renegotiated to reflect a monthly price that
floats with published market prices and customer gas takes were then increased
to more historical levels.
Income allocations for the investment in ICLP increased to $988,000, a 495%
increase over a loss of $250,000 recognized in 1994. The increase was
attributed to much higher than expected methanol prices experienced during the
winter months.
Revenues from other activities increased by 25% over the prior year. Other
revenues in 1994 consisted of management fees and overhead cost reimbursements
received from SCCLP, building and equipment rental income and a gain on the
settlement of a law suit. Management fees and overhead cost reimbursements
increased by 57% over last year while rental income remained relatively
unchanged.
<TABLE>
Operating income (loss), by industry segment, before allocation of general
corporate overhead for 1995 compared to 1994 is as follows:
<CAPTION>
Increase
Segment 1995 1994 (Decrease)
<S> <C> <C> <C>
Refining $ 19,382 $ (535,555) $ 554,937
Electrical generation 2,843 329,712 (326,869)
Gas production 88,016 118,788 (30,772)
Methanol project 1,083,737 (203,469) 1,287,206
Corporate overhead and other (169,865) (197,306) 27,441
$1,024,113 $ (487,830) $1,511,943
</table
The increase in refining income is attributed to the avoidance of losses
experienced in 1994 when the Company incurred losses on crude oil purchased
during a period of rapidly declining crude oil and refined product prices. The
improvement during 1995 indicated some success in reducing operating costs
associated with maintaining the refinery in a non-operating mode, a change in
the allocation of some fixed operating costs from refining activities to co-
generation activities, and income associated with the COTI agreement of
approximately $125,000 for 1995. The decline in electrical generation
operating income reflects a $100,000 reduction from the one time settlement of
a lawsuit which was recognized during 1994. In addition, income associated
with electrical generation was further reduced by increased generator fuel
costs due to the use of purchased fuels during 1995 compared to those of
substantially lower cost fuel refined by the Company during a portion of 1994,
and a change in the allocation of certain fixed operating costs which were
previously categorized under refining activities.
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations, Continued
The decline in operating income from gas production is associated with reduced
production and reduced selling price experienced during 1995 as previously
discussed. The substantial increase in operating income associated with the
Methanol project is most notably associated with partnership income allocations
recognized during 1995 in conjunction with the Company's acquisition of a
limited partnership interest in IC-PL compared with the substantial loss
recognized in 1994 associated with the sale/leaseback of the SCCLP plant
facility. Income allocations of $989,000 during 1995 from the Company's
investments in the project have not resulted in cash flow improvements due to
restrictions placed on SCCLP cash under its various agreements with the lender
and lessor. However operating income and cash flow improvements have been made
during 1995 with respect to management fees and overhead cost reimbursement
associated with the project as compared to 1994. The decrease in losses
associated with general overhead and other activities is attributed to an
increase in overhead cost reimbursements from SCCLP offset by slight increases
in management salaries and general overhead expenses.
Management's Discussion and Analysis of Financial
Condition and Results of Operations, Continued
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $173,000 on February 29, 1996 compared
with $470,000 of working capital on February 28, 1995. The $297,000 decrease
in working capital is mainly attributed to a use of $347,000 from operations,
the reduction of long term debt of $67,000 and the investment in Chatfield Dean
of $500,000, off-set by cash distributions from partnership investments of
$418,000, and the extension of debentures moving $178,000 from current
liabilities to long term.
Total debt consisting of the revolving credit line, current portion of long-
term debt, long-term debt, and subordinated debentures decreased by $86,000
during fiscal 1996.
Since 1990, the Company has periodically utilized a revolving line of credit
for the purpose of maintaining its investment in inventories and receivables.
During 1994 and 1995, the maximum credit limit established was $750,000 which
was used solely for the purpose of providing letters of credit for the purchase
of crude oil and guarantees on behalf of Consolidated Oil and Transportation,
Inc. During 1995, the credit line was reduced to $300,000. The credit line
expired in November 1995 and was not renewed at the Company's request.
Management feels that working capital provided by operations will be adequate
to meet working capital needs in the coming year. Term loan agreements that
have short-term maturities are expected to be retired or extended as they
become due.
INFLATION, DEFLATION AND CHANGING PRICES
The results of operations and capital expenditures will continue to be
affected by inflation, deflation and changing prices. Prices of natural gas
and generator fuel could have a materially adverse effect on the Company's
operations. Management is unable to determine the full impact of inflation,
deflation and changing prices on the results of operations or working capital.
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations, Continued
FINANCIAL ACCOUNTING STANDARDS
Long-Lived Asset Impairment: In March 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 121,
"Accounting for the impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of." Companies are required to adopt the Statement for
financial statements for fiscal years beginning after December 31, 1995. The
Statement requires that long-lived assets and certain identifiable intangibles
to be held and used by an entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. The Statement also requires that long-lived assets and certain
identifiable intangibles to be disposed of be reported at the lower of carrying
amount of fair value less cost to sell. The Company as not evaluated the
impact, if any, that this Statement will have on its financial statements.
<PAGE>
Report of Independent Auditors
Stockholders and Board of Directors
Unico, Inc.
We have audited the accompanying consolidated balance sheets of Unico, Inc. and
subsidiaries as of February 29, 1996 and February 28, 1995, and the related
consolidated statements of operations, changes in stockholders' equity, and
cash flows for each of the three years in the period ended February 29, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted accounting
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Unico, Inc. and
subsidiaries as of February 29, 1996 and February 28, 1995, and the
consolidated results of operations and cash flows for each of the three years
in the period ended February 29, 1996, in conformity with generally accepted
accounting principles.
Atkinson & Co., Ltd.
Albuquerque, New Mexico
May 3, 1996
<PAGE>
</TABLE>
<TABLE>
UNICO, INC.
Consolidated Balance Sheets
<CAPTION>
February 29, February 28,
1996 1995
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents - Note E $ 232,409 $ 515,195
Certificate of deposit and short term investments - Note E 356,858 304,549
Accounts receivable - Notes B and E 88,392 201,594
Accounts receivable from related parties - Note H 17,859 4,570
Inventories - Note E 36,316 83,113
TOTAL CURRENT ASSETS 731,834 1,109,021
PROPERTY, PLANT AND EQUIPMENT, at cost - Note E
Land, buildings and improvements 434,327 434,327
Equipment 217,349 217,349
Crude oil refining equipment 1,183,333 1,183,333
Co-generation facilities - Note D 263,348 263,348
Oil and gas properties, (successful efforts method) - Notes L and M 894,400 922,710
2,992,757 3,021,067
Less accumulated depletion and depreciation (1,746,015) (1,605,532)
1,246,742 1,415,535
OTHER ASSETS
Notes receivable - Note B 10,818 16,318
Investment in partnership - Note N 1,800,730 1,188,548
Investment in Chatfield Dean - Note O 500,000 -
Other assets and deferred charges, net - Note C 131,624 108,609
2,443,172 1,313,475
$ 4,421,748 $ 3,838,031
</TABLE>
<PAGE>
<TABLE>
Consolidated Balance Sheets, Continued
<CAPTION>
February 29, February 28,
1996 1995
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 106,327 $ 75,670
Accounts payable to related parties - Note H - 32,508
Taxes other than income taxes 4,930 1,776
Other accrued expenses 4,063 4,703
Income taxes payable - Note G 367,151 239,956
Current portion of deferred taxes payable - Note G - 10,800
Current portion of convertible subordinated debentures
payable to related parties - Notes F and H - 178,000
Current portion of long-term debt - Note E 76,539 96,079
TOTAL CURRENT LIABILITIES 559,010 639,492
LONG-TERM DEBT, net of current portion - Note E 55,555 122,222
CONVERTIBLE SUBORDINATED DEBENTURES PAYABLE TO
RELATED PARTIES - Notes F and H 178,000 _
DEFERRED TAXES PAYABLE, net of current portion - Note G 101,050 90,100
COMMITMENTS AND CONTINGENCIES - Notes D, E, I and N - -
STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value,
authorized 8,000,000 shares, none
outstanding
Common stock, $0.20 par value,
authorized 2,500,000 shares,
issued and outstanding 986,590
shares in 1996 and 1995 - Note A 197,318 197,318
Additional paid in capital - Note A 2,042,576 2,042,576
Retained earnings 1,288,239 746,323
3,528,133 2,986,217
$ 4,421,748 $ 3,838,031
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
UNICO, INC.
Consolidated Statements of Operations
<CAPTION>
For the year ended
February 29, February 28, February 28,
1996 1995 1994
<S> <C> <C> <C>
REVENUES
Electrical capacity and energy $ 666,345 $ 1,031,084 $ 1,001,310
Processing and terminalling agreements 59,944 16,624 40,294
Natural gas sales 140,794 193,101 257,169
Petroleum product sales 488,488 674,712 3,218,243
Income (loss) on investment in partnership - Note N (1,619,420) 988,548 (250,000)
Income from partnership legal settlement - Note N 2,649,156 - -
Gain on settlement of lawsuit - - 100,000
Other 459,334 422,313 237,992
2,844,641 3,326,382 4,605,008
COSTS AND EXPENSES
Cost of sales 1,498,676 1,835,327 4,588,085
General and administrative 294,631 343,569 332,738
Depletion, depreciation and amortization 140,483 128,388 145,764
Bad debt expense - 3,815 14,498
Gain on sale of assets - (2,127) -
Interest, net (5,991) (6,703) 11,753
1,927,799 2,302,269 5,092,838
INCOME (LOSS) BEFORE INCOME TAXES 916,842 1,024,113 (487,830)
Provision for income taxes - Note G
Current 374,776 240,169 (32,772)
Deferred 150 77,700 (77,200)
374,926 317,869 (109,972)
NET INCOME (LOSS) $ 541,916 $ 706,244 $ (377,858)
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 986,590 975,132 974,090
EARNINGS PER COMMON SHARE
Net Income (loss) per share $ 0.5493 $ 0.7243 $ (0.3879)
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
UNICO, INC.
Consolidated Statements of Cash Flows
<CAPTION>
For the year ended
February 29, February 28, February 28,
1996 1995 1994
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 541,916 $ 706,244 $ (377,858)
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
Depreciation, depletion and amortization 140,483 128,388 145,764
Deferred income taxes 150 77,700 (77,200)
Bad debt expense - 3,815 14,498
Dry hole costs 28,310 - -
Gain from legal settlement - - (100,000)
Gain on sale of equipment - (2,127) -
(Income) loss on investment in partnership (1,029,736) (988,548) 250,000
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 99,913 (62,943) 398,252
(Increase) decrease in inventories and prepaid expenses 46,797 156,703 (6,707)
Increase (decrease) in accounts payable
and accrued expenses 663 (59,356) (226,205)
Increase (decrease) in income taxes accrued 127,195 267,798 (33,407)
NET CASH FLOW PROVIDED (USED) BY
OPERATING ACTIVITIES (44,309) 227,674 (12,863)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment - (30,433) (4,225)
Sale of equipment - 17,418 -
Increase in cash value of life insurance polices (23,015) (16,034) (71,016)
Increase in certificates of deposit and short-term investments (52,309) (12,145) (5,716)
Investment in partnership - (200,000) -
Cash distributions from partnership 417,554 - -
Investment in Chatfield Dean (500,000) - -
Increase in notes receivable (350,000) - (16,950)
Collections of notes receivable 355,500 24,129 14,815
NET CASH FLOW (USED) BY INVESTING ACTIVITIES (152,270) (217,065) (83,092)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuing common stock - 12,500 -
Proceeds from long-term debt - 200,000 -
Payments on long-term debt (86,207) (29,362) (115,502)
Increase in deferred charges - (211) -
NET CASH FLOW PROVIDED (USED) BY
FINANCING ACTIVITIES (86,207) 182,927 (115,502)
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (282,786) 193,536 (211,457)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR 515,195 321,659 533,116
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 232,409 $ 515,195 $ 321,659
<FN>
The Company paid interest of approximately $36,600, $25,000 and $30,000 in 1996, 1995 and 1994, respectively.
The Company paid income taxes of $251,000 in 1996, $1,700 in 1995 and $7,200 in 1994 and received a refund of
income taxes of $3,400 in 1996, $27,800 in 1995 and $11,500 in 1994.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
UNICO, INC.
Consolidated Statements of Changes
in Stockholders' Equity
<CAPTION>
Additional Total
Common Stock Paid In Retained Stockholders'
Shares Par value Capital Earnings Equity
<S> <C> <C> <C> <C> <C>
BALANCE, February 28, 1993 974,090 $ 194,818 $ 2,032,576 $ 417,937 $ 2,645,331
Net loss - - - (377,858) (377,858)
BALANCE, February 28, 1994 974,090 194,818 2,032,576 40,079 2,267,473
Issuance of common stock 12,500 2,500 10,000 - 12,500
Net income - - - 706,244 706,244
BALANCE, February 28, 1995 986,590 197,318 2,042,576 746,323 2,986,217
Net income - - - 541,916 541,916
BALANCE, February 29, 1996 986,590 $ 197,318 $ 2,042,576 $ 1,288,239 $ 3,528,133
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
UNICO, INC.
Notes to Consolidated Financial Statements
February 29, 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Activity: The Company operates a petroleum products refinery and a
3,000 kilowatt co-generation facility. The Company owns an interest in certain
natural gas producing properties located in southwestern Kansas and is the
operator of the properties. The Company is the general partner and a limited
partner of a partnership which is engaged in the operation of a 250 ton per day
methanol production facility in Commerce City, Colorado.
Basis of Presentation: The accompanying consolidated financial statements
include the operations of Unico's wholly-owned subsidiaries, Intermountain
Refining Co., Inc. ("IRC"), Intermountain Chemical, Inc., ("IC") and Gas
Technologies Group, Inc., ("GTGI"). All significant intercompany accounts and
transactions have been eliminated.
Cash and Cash Equivalents: For purposes of reporting cash flows, cash and cash
equivalents include cash on hand, cash in depository institutions, and interest
bearing over-night cash investments. The Company maintains its cash balances
and certificates of deposit in various local financial institutions. The
balances maintained are in excess of the maximum insurance provided by the
Federal Deposit Insurance Corporation.
Certificate of deposit and short-term investments: Although considered cash
equivalents, the certificate of deposit and short-term investments have not
been considered cash equivalents given that they can not be liquidated in the
near term.
Inventories: Raw materials, refined products, materials, and supplies
inventories of IRC are stated at the lower of cost (first-in, first-out) or
market.
Property, Plant and Equipment: Property, plant and equipment is stated at
cost. Depreciation of property and equipment is provided on the straight-line
method over the following useful lives:
Buildings 15-20
Equipment 3-20
Crude Oil Refining Equipment 5-20
Co-generation Facilities 5-15
Maintenance, repairs and renewals which neither materially add to the value of
the property nor appreciably prolong its life are charged to expense as
incurred. Electrical generator repair expenses are accrued based on machine
hours utilized. Actual repair costs are charged against the accrued liability
when incurred. Gains or losses on disposition of property are included in
results of operations.
Investment in Partnership and Chatfield Dean: The investment in IC Partners
Limited Partnership is accounted for under the equity method. The Company's
share of the results of operations of the Partnership, when material, are
reflected in the results of operations of the Company. Cash distributions from
the Partnership are reflected as a reduction of the investment in the
Partnership. Summarized financial information for IC Partners Limited
Partnership has been presented in Note N to these financial statements. The
investment in Chatfield Dean is reported at cost.
Oil and Gas Properties: The successful efforts method of accounting for the
acquisition, exploration, development and production of oil and gas properties
is utilized. Costs of acquiring undeveloped oil and gas leases are capitalized.
All development costs of proved properties are capitalized as incurred and all
exploration costs are expensed. The capitalized costs of oil and gas wells and
related equipment are amortized by the units-of-production method based on the
estimated proved oil and gas reserves.
<PAGE>
Notes to Consolidated Financial Statements, Continued
Deferred Charges: Deferred charges are carried at cost. Amortization of
deferred charges is computed on the straight-line method over the estimated
useful lives of the assets.
Reverse Stock Split: The stockholders of the Company approved a reverse
stock split of 1 new share of $.20 par value common stock for 20 outstanding
shares of $.01 par value common stock effective on July 28, 1994. Fractional
shares were rounded up to the next whole share which resulted in the issuance
of 34 new shares. All references in the Company's financial statements to the
number of shares, earnings per share, warrants out-standing, and conversion
price of debentures have been restated to reflect the reverse stock split.
Income Taxes: Deferred income taxes are provided on temporary differences
arising primarily from the use of straight-line depreciation for financial
reporting purposes and accelerated depreciation on certain assets for income
tax purposes. The Company files a consolidated income tax return with its
wholly-owned subsidiaries. Taxes are allocated to each subsidiary as if
separate returns are filed. Investment tax credits are accounted for on the
flow-through method.
Earnings Per Share: Income (loss) per share is based on the weighted average
number of common shares outstanding during each period. Stock warrants are not
included in primary earnings per share because they are antidilutive. The
conversion of subordinated debentures into common stock is not included in
fully diluted earnings per share because they are also antidilutive or the
amount of dilution is not material.
Reclassifications: Certain reclassifications have been made to the 1995 and
1994 financial statements to conform with the 1996 presentation.
Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that effect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
Fair Value of Financial Instruments: The carrying amount of cash and cash
equivalents, certificates of deposit and short-term investments, accounts
receivable, accounts payable, and accrued expenses approximate fair value
because of the short maturity of theses amounts. The carrying amount of the
Company's long-term debt and debentures approximate fair value because the
interest rates are at or near market value.
NOTE B - ACCOUNTS AND NOTES RECEIVABLE
Accounts receivable consists of amounts due from customers for sales of
petroleum products, natural gas, and electrical energy and capacity. Such
credit sales are generally made on terms ranging from net 10 days to net 30
days in accordance with normal industry practice. The Company performs
periodic credit evaluations of its customers' financial condition and generally
does not require collateral. Management does not believe that an allowance for
bad debts on accounts receivable is necessary.
Notes receivable consists of one note, due in monthly installments through
2000, secured by various collateral including real estate and equipment. The
Company uses the specific write-off method of accounting for bad debts.
Credit sales of petroleum products to wholesale distributors and other refiners
represents a concentration of credit risk as such customers are subject to the
same regional and industry wide economic conditions as the Company. Credit
losses relating to this segment have generally been within management's
expectations.
<PAGE>
Notes to Consolidated Financial Statements, Continued
NOTE C - OTHER ASSETS AND DEFERRED CHARGES
Other assets and deferred charges consist of the following:
February 29, February 28,
1996 1995
Cash value of life insurance contracts $ 127,088 $ 104,073
Utility and license deposits 4,536 4,536
Less accumulated amortization - -
$ 131,624 $ 108,609
NOTE D - CO-GENERATION FACILITIES
IRC installed energy co-generation facilities at its refinery and commenced
operations of the co-generation equipment in February 1986. The co-generation
facilities and certain ancillary equipment have been acquired under an
operating lease with the manufacturer of the equipment. In January 1993, the
original lease of the co-generation facilities expired and a new operating
lease was negotiated. The new lease had a term of three years with fixed
monthly lease payments of $7,300. As of February 29, 1996, the lease has
expired and continues on a month to month basis pending re-negotiation of the
lease. In April 1996,subsequent to year end, the Company acquired the
generators from the lessor for approximately $27,000.
In conjunction with the operation of the co-generation facilities, IRC has
entered into an agreement with a local utility company for the sale of
electrical capacity and energy. Revenues from the sale of electrical generating
capacity and energy were approximately $666,000 in 1996, $1,031,000 in 1995 and
$1,001,000 in 1994 and rental expense under the operating lease was
approximately $88,000 in 1996, $88,000 in 1995 and $88,000 in 1994.
There are no future rental obligations under the operating lease.
In 1994, the Company settled a legal dispute with a former electrical customer
wherein the Company received title to a power substation and a power line
connected to the co-generation facility. The Company currently uses the
substation in connection with its electrical sales activity but the power line
had been disconnected and was sold during 1995. During the fiscal year ended
February 28, 1994, the Company recognized $90,000 estimated fair value of the
substation and $10,000 estimated salvage value of the power line. The power
line was sold in 1995 for $17,000.
NOTE E - LONG-TERM DEBT
Long-term debt consists of the following:
February 29, February 28,
1996 1995
Prime rate plus 1.05% variable rate,
(9.3% at 2/29/96), note payable to a bank,
payable in monthly installments of $1,800
including interest, with remaining principal
due on 08/17/96, secured by real estate with
approximate net book value of $145,000. $ 9,872 $ 29,412
<PAGE>
Notes to Consolidated Financial Statements, Continued
Bank rate plus 1% variable rate,
(9.25% at 2/29/96), note payable to a bank,
due on 11/30/97, payable in monthly
installments of $5,557 plus interest,
secured by a $356,858 money fund investment
account, accounts receivable, inventories,
and oil and gas properties. 122,222 188,889
132,094 218,301
Less current portion (76,539) (96,079)
$ 55,555 $ 122,222
Maturities of long-term debt at February 29, 1996, are as follows:
February 28
1997 $ 76,539
1998 55,555
$132,094
Line of credit: In February 1992, a bank credit line was established for
$250,000 with an interest rate of prime plus 1%. In November 1994, the credit
line was amended to $300,000. During 1995, a portion of the line of credit had
been utilized to secure letters of credit issued on behalf of an unrelated
third party, (See Note I). The credit line expired in November 1995 and was
not renewed at the Company's request.
NOTE F - CONVERTIBLE SUBORDINATED DEBENTURES
The Company issued $450,000 of four year 10.5% subordinated convertible
debentures in September 1986. Proceeds from the issuance of the debentures were
used to retire Company debt. In April 1987, the Company issued an additional
$28,000 of the debentures in exchange for notes payable to individuals related
to a stockholder. In January 1988, the Company retired $115,000 of the
debentures which were held by an officer, director and stockholder of the
Company. The Company retired $50,000 and $25,000 face value of the debentures
in December 1988 and February 1989, respectively. The original maturity date
of the debentures was September 17, 1990. The Company redeemed $100,000 face
value of the debentures at maturity and agreed to extend $188,000 face value of
debentures held by related parties until September 1993. In October 1991, the
Company redeemed $10,000 face value of the debentures held by a related party.
The debentures may be redeemed by the Company at any time upon thirty days
written notice to the debenture holders. In 1994, the Company agreed to extend
the remaining $178,000 face value of debentures held by related parties until
September 1995. In 1995, the Company agreed to extend the remaining debentures
until September 1997. The remaining debentures are convertible at any time
until September 16, 1997, at an exercise price of $8.00 per share. Warrants to
purchase common stock of the Company were issued with the debentures.
The warrants became exercisable on September 17, 1987, at a purchase price of
$5.00 per share and expired on September 17, 1990 with the exception of 11,125
warrants that were extended along with the debenture maturity previously
discussed.
Interest expense related to these debentures was approximately $18,700 in
1996, $18,700 in 1995 and $18,700 in 1994.
<PAGE>
Notes to Consolidated Financial Statements, Continued
NOTE G - INCOME TAXES
Income tax expense (benefit) differs from income tax at the statutory rate of
34% as follows:
February 29, February 28, February 28,
1996 1995 1994
Income tax at statutory rate 34% 34% (34%)
Permanent differences - - 1%
State income taxes 4% 1% (2%)
Graduated tax rates - - 4%
Expiration (utilization) of
investment tax credit
carryforwards - (3%) 7%
Other (net) 3% (1%) 2%
Income tax expense (benefit) 41% 31% (22%)
Income tax expense (benefit) for the periods ended February 29, 1996, February
28, 1995 and February 28, 1994 consists of the following:
1996 1995 1994
Current
Federal $ 336,666 $ 221,431 $ (21,753)
State 38,110 18,738 (11,019)
Deferred
Federal 150 77,700 (77,200)
State - - -
$ 374,926 $ 317,869 $(109,972)
As of February 28, 1996, there were no net operating loss carry forwards or
unused investment tax credit carryforwards for income tax purposes.
Deferred taxes payable as of February 29, 1996 and February 28, 1995 consist of
the following:
1996 1995
Deferred tax liability arising from
using accelerated depreciation
for income tax purposes $ 90,050 $ 100,900
Deferred tax liability arising from
bases differences in investment in partnership
for financial and tax reporting purposes 11,000 -
Deferred taxes payable $ 101,050 $ 100,900
NOTE H - RELATED PARTY TRANSACTIONS
The Company is obligated under debentures payable to an officer, director and
stockholder totaling $160,000 at February 29, 1996 and at February 28, 1995.
Interest expense on the debentures was approximately $17,000 in 1996, 1995 and
1994.
<PAGE>
Notes to Consolidated Financial Statements, Continued
The Company is also obligated under debentures payable to other related parties
in the amount of $18,000 at February 29, 1996 and February 28, 1995.
In conjunction with the Company's management of SCCLP's Commerce City, Colorado
methanol production facilities, the company receives certain payments and
reimbursements of payroll and related costs. All payments, with the exception
of a basic monthly management fee are based on actual costs accrued by the
Company. Management fees paid to the Company were $20,833 per month from
December 1995 through February 1996, and $8,333 per month from March 1994
through November 1995.
1996 1995 1994
Direct payroll and benefits $ 1,218,879 $ 1,156,741 $ 1,638,522
Management fees and overhead costs 328,815 276,747 176,257
Liquified CO2 sales 19,997 149,889 43,463
CO2 tank rental - 36,868 6,145
$ 1,567,691 $ 1,620,245 $ 1,864,387
Amounts receivable from SCCLP for these transactions were $16,547 as of
February 29, 1996 and $4,570 as of February 28, 1995. Amounts payable to SCCLP
for credits associated with prior overcharges on CO2 sales were $32,508 as of
February 28, 1995.
In addition to payments received from SCCLP in conjunction with the Company's
management of SCCLP, the Company has also received cash distributions
associated with its investment in SCCLP. During 1996, the Company received
$417,554 from SCCLP representing the estimated tax liabilities associated with
taxable partnership income allocations through February 1995.
On November 1, 1993, William N. Hagler and Rick L. Hurt, both officers and
directors of the Company formed San Juan Holdings, LLC, a Colorado limited
liability corporation for the purpose of acquiring the 30% interest in SCCLP
originally held by General Electric Capital Corporation. The transaction was
structured as an accommodation to allow GECC to withdraw as a partner to SCCLP
prior to execution of the sale/leaseback of the methanol facility, (See Note
N).
Effective December 1, 1994, William N. Hagler, president, director, and
stockholder of the Company acquired a 14.3% limited partnership interest in IC-
PL, the general partner of SCCLP, from Public Service Company of Colorado.
NOTE I - COMMITMENTS AND CONTINGENCIES
Reservation of Common Stock: At February 29, 1996, the Company has 11,125
shares of common stock reserved for issuance under stock purchase warrants
outstanding and 22,250 shares of common stock reserved for the contingent
conversion of subordinated debentures. Holders of convertible debentures were
issued warrants to purchase common stock at $5.00 per share that expired on
September 17, 1990. In consideration to those holders that agreed to extend
the maturity date of debentures held by them, the Company extended the
expiration date on the associated warrants to purchase 11,125 shares of common
stock, until September 17, 1996.
Contingent Liability for Partnership Obligations: The Company's wholly-
owned subsidiary Intermountain Chemical, Inc. ("IC"), serves as the general
partner to Sand Creek Chemical Limited Partnership. Accordingly, IC is
contingently liable to creditors of the Partnership for debt, other than non-
recourse debt, incurred by the Partnership. As of February 29, 1996 the
Partnership had approximately $1,023,000 of accounts payable to creditors of
the Partnership.
<PAGE>
Notes to Consolidated Financial Statements, Continued
Guarantee of Debt of Others: In January 1994, the Company agreed to
provide credit support to Consolidated Oil and Transportation, Inc. ("COTI") in
the form of guarantees of commercial credit and stand by letters of credit.
COTI is a marketer and transporter of heavy fuel oils and asphalt. The
agreement between the parties provided for the Company to obtain a collateral
position in COTI, subordinated to commercial lenders to COTI. In exchange for
credit support provided to COTI, the Company received a commission of 8.75% of
the gross profits of COTI. The Company does not have an ownership interest in
COTI. The Agreement expired on December 31, 1995 and has not been renewed.
However, the Company continues to be the guarantor on several accounts and is
currently in the process of withdrawing such guarantees as stand alone credit
is approved for COTI. As of the date of this report, commitments to creditors
of COTI are estimated as follows:
Railcar lease $ 2,592,000
Vendors 620,000
$ 3,212,000
The railcar lease guarantee relates to a 5 year lease of 100 railcars and the
limit of the guarantee shall be reduced by $648,000 annually as long as COTI is
not in default under the terms of the lease. Commitments under guarantees to
vendors are estimated based on current levels of credit extended to COTI by
those vendors. The Company believes that COTI has sufficient working capital
to satisfy its outstanding obligations secured by the guarantees.
During 1996, the Company provided a $35,000 certificate of deposit to a bank as
security for the issuance of a standby letter of credit to a natural gas
transportation provider for Sand Creek Chemical Limited Partnership. Sand Creek
subsequently provided it's own certificate as security for the letter of credit
and the bank returned the $35,000 certificate of deposit to the Company.
The Company has been involved in the manufacture, storage, and sale of
petroleum products since 1979, which exposes the Company to potential claims
for environmental remediation costs, if any, of sites previously operated by
the Company. The Company is not aware of any claims pending for such sites.
NOTE J - EMPLOYEE STOCK OWNERSHIP AND 401(k) PLANS
Effective for the year ended February 28, 1989, the Company adopted an ESOP for
the benefit of all of its full time employees. Company contributions to the
plan are determined at the discretion of the Company and are limited to the
maximum amount deductible for income tax purposes. Eligible employees include
all full time employees with a minimum of six months of service as of any
anniversary date of the plan and vesting shall take place on a six year graded
basis applied retroactive as of the effective date of the plan. The Company
made no contributions to the ESOP during 1996, 1995, or 1994.
In 1994, the Company adopted a 401(k) Plan for the benefit of all its full time
employees. Company contributions to the Plan are determined at the discretion
of the Company and are limited to the maximum amount deductible for income tax
purposes. Eligible employees include all full time employees with a minimum of
six months of service as of a semi-annual anniversary date of the plan.
Employees are 100% vested in all voluntary contributions and vesting in Company
contributions is on a six year graded basis applied retroactive as of the
effective date of the plan. Company contributions to the Plan were $11,758 for
1996, $11,569 for 1995, and $0 for 1994.
<PAGE>
Notes to Consolidated Financial Statements, Continued
NOTE K - FINANCIAL INFORMATION RELATING TO INDUSTRY SEGMENTS
<TABLE>
The Company's major industry segments are petroleum refining and processing,
electrical co-generation, natural gas production, and methanol plant
operations. Selected financial information relating to these segments is as
follows:
<CAPTION>
Years Ended
--------------------------------------------
February 29, February 28, February 28,
1996 1995 1994
(Dollars in thousands)
<S> <C> <C> <C>
REVENUES
Petroleum refining and processing $ 528 $ 667 $ 3,259
Electrical co-generation 666 1,031 1,101
Natural gas production 141 193 257
Methanol plant operations 1,379 1,415 (30)
Other 131 20 18
$ 2,845 $ 3,326 $ 4,605
OPERATING PROFIT (LOSS)
Petroleum refining and processing $ (47) $ (42) $ (681)
Electrical co-generation (4) - 281
Natural gas production (43) 2 107
Methanol plant operations 1,016 1,059 (213)
Other (5) 5 18
$ 917 $ 1,024 $ (488)
IDENTIFIABLE ASSETS
Petroleum refining and processing $ 1,096 $ 1,455 $ 1,541
Electrical co-generation 179 201 179
Natural gas production 435 506 572
Methanol plant operations 1,893 1,240 43
Other 819 436 355
$ 4,422 $ 3,838 $ 2,690
DEPRECIATION, AMORTIZATION AND DEPLETION
Petroleum refining and processing $ 64 $ 73 $ 89
Electrical co-generation - 8 16
Natural gas production 43 34 40
Methanol plant operations 24 12 1
Other 9 1 -
$ 140 $ 128 $ 146
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements, Continued
<TABLE>
<CAPTION>
Years Ended
--------------------------------------------
February 29, February 28, February 28,
1996 1995 1994
(Dollars in thousands)
<S> <C> <C> <C>
CAPITAL EXPENDITURES
Petroleum refining and processing $ - $ - $ 1
Electrical co-generation - 29 100
Natural gas production - - -
Methanol plant operations - - 2
Other - 1 1
$ - $ 30 $ 104
</TABLE>
Effective for 1995 and subsequent periods, the Company changed its method of
allocating overhead costs for purposes of reporting results of operations of
industry segments. The new method allocates corporate overhead based on gross
profit percentages as opposed to percentage of revenues used prior to 1995.
Electrical energy and capacity is sold substantially to one customer. Sales of
energy and capacity to the customer were $666,000 for 1996, $1,031,000 for 1995
and $1,001,000 for 1994.
The Company sells substantially all natural gas produced from the Kansas gas
properties to one customer. Natural gas sales to the customer, net to the
Company's interest, totaled $167,000 for 1996, $184,000 for 1995 and $254,000
for 1994.
NOTE L - OIL AND GAS PROPERTIES
Kansas Gas Properties: On July 1, 1988, the Company acquired certain natural
gas producing properties from Methanol Production Corporation (MPC), a
privately held Denver firm. The assets, valued at $902,000, included an
estimated 2,850,000 Mcf, net to the Company's interest, of proven and developed
natural gas reserves and related production equipment located in Southwestern
Kansas. In exchange for the assets, the Company gave $180,000 in cash, issued
106,851 shares of its common stock, and incurred a $290,000 note payable to a
bank.
Oil and Gas Leases: In September 1988, the Company acquired a 25% revenue
interest in certain unproven oil and gas leases located in Hardeman County,
Texas, for $22,500. In conjunction with the acquisition, the Company agreed to
participate, to the extent of a 33 1/3% working interest, in the drilling of
one test well. Drilling activity on the test well was completed and initial
results indicated that the well would not produce sufficient quantities
of oil or gas to warrant final completion. During 1996, the Company determined
that it had no further interest in the lease and accordingly, wrote off the
remaining capitalized costs in the project.
Capitalized Costs: Capitalized costs relating to oil and gas producing
activities, as of February 29, 1996 and February 28, 1995 are as follows:
1996 1995
Proved gas properties $ 894,400 $ 894,400
Unproved oil and gas properties - 28,310
Less accumulated depletion (471,940) (431,716)
Net capitalized costs $ 422,460 $ 490,994
<PAGE>
Notes to Consolidated Financial Statements, Continued
Results of Operations: Results of operations of oil and gas producing
activities for the years ended February 29, 1996, February 28, 1995 and
February 28, 1994 are as follows:
1996 1995 1994
Revenues
Natural gas sales $ 140,794 $ 193,101 $ 257,169
Costs and Expenses
Operating costs 98,384 74,331 98,092
General and administrative 38,494 78,561 10,144
Depletion, depreciation and
amortization 43,260 33,772 40,463
Interest expense (net) 4,151 4,841 1,148
184,289 191,505 149,847
Pre-tax net income (loss) (43,495) 1,596 107,322
Income tax expense (14,788) 540 36,500
Net income (loss) $(28,707) $ 1,056 $ 70,822
NOTE M - GAS RESERVE DATA AND SUPPLEMENTAL DATA (UNAUDITED)
In accordance with Statement of Financial Accounting Standards No. 69, the
following unaudited information is presented with regard to the Company's
proved gas reserves. Information for gas is presented in million cubic feet
(MMcf) except where otherwise indicated in thousand cubic feet (Mcf).
Production: The Company's net gas production, average sales price and
production cost for the years ended February 29, 1996, February 28, 1995 and
February 28, 1994 are as follows:
1996 1995 1994
Net gas production (Mcf) 250,568 176,317 243,425
Average sales price ($/Mcf) $ 0.5619 $ 1.0952 $ 1.0565
Average production cost ($/Mcf) $ 0.2865 $ .4355 $ 0.4079
Reserves: On July 1, 1988 the Company acquired certain natural gas producing
properties, (See Note L).The gas reserves are located primarily in Western
Kansas and are based upon the Jerry R. Bergeson & Associates Petroleum
Engineers Reserve Report, dated May 10, 1991 and reserve information developed
internally by the Company. Estimated net quantities of proved developed and
proved undeveloped gas reserves as of February 29, 1996 and February 28, 1995
are as follows:
1996 1995
(MMcf) (MMcf)
Proved developed 2,634 2,884
Proved undeveloped - -
2,634 2,884
Statement of Changes in Quantities of Proved Developed and Undeveloped Gas
Reserves for the years ended February 29, 1996, February 28, 1995 and February
28, 1994 are as follows:
1996 1995 1994
(MMcf) (MMcf) (MMcf)
Proved reserves - beginning of year 2,884 3,061 3,304
Adjustment to reserves 1 (1) -
Production (251) (176) (243)
Proved reserves - end of year 2,634 2,884 3,061
<PAGE>
Notes to Consolidated Financial Statements, Continued
The Standardized Measure of Discounted Future Net Cash Flows relating to Proved
Gas Reserves as of February 29, 1996 and February 28, 1995 are as follows:
1996 1995
($/1000) ($/1000)
Future cash inflows $ 1,480 $ 3,159
Future production costs (755) (1,256)
Future income tax expense (106) (504)
Future net cash flow 619 1,399
Ten percent discount factor (266) (780)
Standardized measure of discounted
future net cash flows $ 353 $ 619
Changes in the Standardized Measure of Discounted Future Net Cash Flows From
Proved Gas Reserve Quantities for the years ended February 29, 1996, February
28, 1995 and February 28, 1994 are as follows:
1996 1995 1994
($/1,000) ($/1000) ($/1000)
Standardized measure - beginning of year $ 619 $ 754 $ 837
Adjustment to reserves - - -
Sales, net of production costs and
income taxes (59) (86) (116)
Accretion of discount (207) (49) 33
Standardized measure - end of year $ 353 $ 619 $ 754
Developed and Undeveloped Acreage: The following summarizes the Company's
gross and net undeveloped and developed acreage at February 29, 1996 and at
February 28, 1995:
1996 1995
Gross Net Gross Net
Developed Acreage
Kansas 11,568 9,324 11,568 9,324
Undeveloped Acreage
Texas - - 873 218
"Gross Acres" refers to the number of acres in which the Company owns a working
interest. "Net Acres" refers to the sum of the fractional working interest
owned by the Company in gross acres.
Other: The Company held interests, at February 29, 1996 and February 28, 1995,
in the following wells, none of which are multiple completion wells:
1996 1995
Gross Net Gross Net
Producing gas wells 20 16.12 20 16.12
<PAGE>
Notes to Consolidated Financial Statements, Continued
NOTE N - METHANOL PLANT DEVELOPMENT
In July 1989, the Company initiated a project to construct and operate a 250
ton per day methanol production facility in the Denver, Colorado area. In
December 1989, the Company accepted a proposal from General Electric Capital
Corporation ("GECC"), for financing and third party equity investment for the
$26,000,000 facility. In accordance with the proposal, GECC provided a
$24,000,000 construction loan which, upon completion of the facility, was to be
replaced by a $20,000,000 term loan. Ownership of the facility was to vest in
Sand Creek Chemical Limited Partnership ("SCCLP"), a Colorado limited
partnership, with the Company acting as the managing general partner. The
initial partnership equity contributions were to consist of $4,000,000 in cash
to be provided by the GECC limited partner upon completion of construction, and
$2,000,000 in cash, capitalized costs and equipment provided by the general
partner and funded upon closing of the construction loan. The construction
loan was closed effective on May 31, 1990.
The general partner of SCCLP is IC Partners Limited ("IC-PL"), a Colorado
limited partnership, the initial ownership of which consisted of the Company as
the general partner and Public Service Company of Colorado ("PSCO"), as the
limited partner. The initial equity contributions to IC-PL consisted of
capitalized costs and equipment valued at $500,000 provided by the Company and
$1,500,000 provided by PSCO. On December 1, 1994, PSCO sold it's 46% interest
in IC-PL, 31.7% to Gas Technologies Group, Inc., ("GTGI") a wholly owned
subsidiary of the Company, and 14.3% to William N. Hagler, president, director,
and stockholder of the Company.
The Company's investment in IC-PL through ICI was recorded at the book value of
the equipment and capitalized costs contributed to the partnership totalling
$250,000, but was valued at $500,000 for purposes of establishing ownership and
profit sharing percentages in IC-PL and SCCLP. No gain was recognized by the
Company on the transaction. The Company's investment in IC-PL through GTGI was
recorded at cost of $200,000.
Construction of the facility was originally scheduled to be completed during
December 1991. However, in late November 1991, amid concerns regarding the
financial stability of a major subcontractor, the general contractor terminated
it's contract with the subcontractor and advised SCCLP that it was unable to
complete the project under the terms of the existing construction contract with
SCCLP. SCCLP advised the general contractor that it expected full performance
under the construction contract without amendment. On December 11, 1991, the
general contractor discontinued all construction activity on the project. Upon
notice to the general contractor and its bonding company, SCCLP took over
construction activities on the project. Funding for the project continued
under the terms of the construction loan agreement, as amended, to cover
additional costs associated with the general contractor's abandonment of the
project.
SCCLP initiated a legal claim against the general contractor claiming damages
for the costs to complete construction of the facility plus delay penalties and
interest in accordance with the construction contract. In March 1995, SCCLP
was awarded a judgement in the net amount of $9,415,559. In December 1995,
SCCLP settled the claim for a cash payment of $7,500,000.
During 1993, numerous design deficiencies were corrected and the plant was
operated, on a start-up basis, until October 31, 1993, wherein all costs, net
of start-up revenues, were capitalized as part of the construction cost of the
plant. Effective November 1, 1993, the plant was declared operational.
As the cost to complete the facility materially exceeded the budgeted
construction funding and it was uncertain as to the amount and timing of the
receipt of damages from the legal claim against the contractor, SCCLP and GECC
agreed that it was necessary to restructure the existing financing arrangements
for the project. Effective on November 1, 1993, substantially all of the
<PAGE>
Notes to Consolidated Financial Statements, Continued
facility assets were sold to Fleet Bank, formerly Shawmut Bank Connecticut, for
$34,600,000 who then leased the facility back to SCCLP under a 15 year
operating lease. The sale transaction resulted in a loss to SCCLP of
approximately $7,578,000. The proceeds from the sale were applied entirely to
outstanding construction debt owed to GECC.
Immediately prior to the sale to Fleet, GECC transferred its limited
partnership interest in SCCLP to San Juan Holdings, ("SJH"), a Colorado limited
liability corporation owned by William Hagler and Rick Hurt, who are officers
and directors of the Company. (See Note H).
Simultaneous with the sale to Fleet, GECC loaned $7,800,000, non-recourse term
debt to SCCLP, the proceeds of which were applied first to the remaining
construction loan and credit line then outstanding and then deposited the
remainder in a restricted account to be used by SCCLP for future capacity and
safety modifications and such other purposes as may be approved by GECC. In
addition, GECC provided a $1,000,000 credit line to SCCLP for the purpose of
funding working capital as needed to operate the facility. Both of the credit
facilities are secured by cash, accounts receivable, inventories, and other
property and equipment held by SCCLP. During 1995 the term loan to GECC was
paid in its entirety out of cash flow from operations and proceeds from the
legal settlement.
The Company is allocated income and losses from SCCLP through its investment in
IC-LP based on allocation percentages contained in the partnership agreements.
In accordance with the currently operative sections of the SCCLP and IC-LP
partnership agreements, IC's effective allocation percentage for distributions
and income/loss allocations from SCCLP is approximately 38% and approximately
60% for allocation of income associated with SCCLP's receipt of proceeds
resulting from the contractor litigation. GTGI's effective allocation
percentage for distributions and income/loss allocations from SCCLP is
approximately 22% and approximately 7% for allocation of income associated with
SCCLP's receipt of proceeds resulting from the contractor litigation.
<TABLE>
The Company's share of income/loss allocations for the calendar year ended
December 31, 1993 and 1994, for the two month period ended, February 28, 1995
and the fiscal year ended February 29, 1996 are as follows:
<CAPTION>
INCOME (LOSS) FROM OPERATIONS
------------------------------------
IC & GTGI
Partnership SCCLP IC-LP IC & GTGI Effective
Year Ended Income Income Income Alloca-
(Loss) (Loss) (Loss) tion %
<S> <C> <C> <C> <C>
December 31, 1993 (Unaudited) $ (762,946) $ (461,700) $ (264,643) 34.7%
December 31, 1994 4,873,925 3,411,748 2,208,397 45.6%
2 months ended
February 28, 1995 (Unaudited) 2,863,726 2,004,609 1,717,951 60.0%
February 29, 1996 (2,699,032) (1,889,322) (1,619,420) 60.0%
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements, Continued
<TABLE>
<CAPTION>
INCOME (LOSS) FROM SALE OF ASSETS AND LEGAL SETTLEMENT
--------------------------------------------------------
IC & GTGI
Partnership SCCLP IC-LP IC & GTGI Effective
Year Ended Income Income Income Alloca-
(Loss) (Loss) (Loss) tion %
<S> <C> <C> <C> <C>
December 31, 1993 (Unaudited) $(7,535,444) $(5,298,045) $(4,508,461) 59.6%
December 31, 1994 - - - -
2 months ended
February 28, 1995 (Unaudited) - - - -
February 29, 1996 6,346,570 4,442,599 4,235,574 66.7%
</TABLE>
<TABLE>
Changes in the Company's investment in IC-LP, accounted for using the equity
method, for the three most recent fiscal years is as follows:
<CAPTION>
Investment Income Cash Investment
Fiscal Beginning (Loss) Investment End of
Year Ended of Year Allocations (Distributions) Year
(2)
<S> <C> <C> <C> <C>
IC General Partner:
February 28, 1994 $ 248,866 $ (248,866)(1) $ - $ -
February 28, 1995 - - - -
February 29, 1996 - 1,156,590 (1) (22,244) 1,134,346
GTGI - Limited Partner:
February 28, 1994 $ - $ - $ - $ -
February 28, 1995 - 988,548 200,000 1,188,548
February 19, 1996 1,188,548 (126,854) (395,310) 666,384
<FN>
(1) Total losses allocated to the IC through the year ended February 28, 1994
totaled $4,774,218. The allocated losses recognized in 1994 represent only
allocated losses to the extent of its basis in the investment. Income
allocated to IC for the year ended February 28, 1995 totaled $2,924,733. The
remaining unrecognized loss of $1,599,385 as of February 28, 1995 was carried
forward and utilized to offset allocations of income from the legal settlement
of $3,776,209 in 1996. The net amount of income allocations recognized for
1996 includes an allocated operating loss of $1,020,234.
(2) Cash distributions to partners are restricted until such time as the note
payable to GECC is fully paid and cash reserves for future plant rental
payments have been established at contractually established levels. However,
cash distributions are made to partners to the extent that income allocations
result in taxable income to individual partners. During 1996, the Company
received cash distributions for estimated income tax liabilities for income
allocations through February 28, 1995.
</TABLE>
Although the Company owns a greater than 50% ownership in IC-PL through its
wholly owned subsidiaries, management has determined that control does not rest
with the Company and therefore IC-PL has not been consolidated with the
Company's financial statements.
Financial statements for IC-LP consist only of its investment in SCCLP and
specific disclosure herein is not considered necessary.
<PAGE>
Notes to Consolidated Financial Statements, Continued
<TABLE>
Condensed balance sheet information for SCCLP as of February 29, 1996, February
29, 1995 and December 31, 1994 is as follows:
<CAPTION>
February February
1996 1995 1994
(Audited) (Unaudited) (Audited)
$/1000 $/1000 $/1000
<S> <C> <C> <C>
Current assets $ 5,100 $ 8,303 $ 6,511
Property, plant and equipment (net) 433 2,173 1,764
Other assets (net) 250 479 490
Total Assets $ 5,783 $ 10,955 $ 8,765
Current liabilities $ 1,614 $ 1,220 $ 1,881
Long-term debt (net of current portion) - 5,123 5,135
Other liabilities - 3,429 3,429
Partners' capital (deficit) 4,169 1,183 (1,680)
Total liabilities and partners' capital $ 5,783 $ 10,955 $ 8,765
</TABLE>
<TABLE>
Condensed results of operations for SCCLP for the years ended February 29,
1996, the 2 months ended February 28, 1995, December 31, 1994 and 1993 is as
follows:
<CAPTION>
2 Months
February 29, Ended
1996 2/28/95 1994 1993
(1) (1) (Audited) (Unaudited)
$/1000 $/1000 $/1000 $/1000
<S> <C> <C> <C> <C>
Revenues $ 7,767 $ 4,618 $ 16,319 $ 1,619
Costs and expenses (10,192) (1,674) (11,153) (2,170)
Interest expense (net) (72) (42) (580) (88)
Depreciation and amortization (202) (39) (191) (81)
Income (loss) from operations (2,699) 2,863 4,395 (720)
Extrodinary item 6,347 - 479 -
Loss on sale of assets - - - (7,578)
Net income (loss) $ 3,648 $ 2,863 $ 4,874 $ (8,298)
<FN>
(1) Effective as of January 1, 1995, SCCLP changed its year end to February
28. while the 2 month stub period ended February 28, 1995 and the 12 month
period ended February 29, 1996 have not separately been subjected to an
independent audit, the combined 14 month period ended February 29, 1996 has
been audited.
</TABLE>
NOTE O - INVESTMENT IN CHATFIELD DEAN
Proposed Merger:
On January 15, 1996 the Company executed a Letter of Intent with Chatfield
Dean & Co., ("Chad") setting out the terms of a proposed acquisition, by the
Company, of all of the outstanding Common and Preferred stock of Chad. Chad is
a full service investment banking firm based in Englewood Colorado. Under the
terms contemplated by this agreement, majority control of the Company will vest
with the current stockholders of Chad if the proposed merger is completed.
<PAGE>
Notes to Consolidated Financial Statements, Continued
Initially, it is anticipated that the Company will issue 1,500,000 new shares
of it's common stock and up to 1,160,000 shares of a Class C Junior
Convertible Preferred stock in exchange for all outstanding stock of Chad. The
Class C shares will be convertible on a one-to-one basis into Unico Common
shares and will be issued to participants of Chad's Employee Stock Bonus Plan.
In addition, the Company will reserve up to 2,000,000 shares of Series A
Convertible Preferred stock to be held for exchange of Chad Series A Preferred
shares under a private placement currently in process. The exchange ratio for
the Series A Preferred will be 2.666 shares of Unico, to 1 share of Chad Series
A Preferred. The Company will also reserve up to $2,000,000 worth of Series B
Preferred shares and up to 200,000 warrants with a strike price of $3.00 for
exchange of Chad Series B Preferred and Warrants.
On January 13, 1996, the Company acquired 50,000 shares of Chatfield Dean &
Co., Inc., (Chatfield Dean) Series B 7% commutative preferred stock directly
from Chatfield Dean for $500,000. The shares have not been registered with the
SEC and are therefore restricted. The shares are redeemable by Chatfield Dean
upon the occurrence of certain events for and amount equal to $10 per share,
plus unpaid accumulated dividends plus a premium ranging from $1 to $5 per
share depending upon the length of time the shares are outstanding. In
addition to the shares acquired, the Company received 50,000 warrants to
purchase 50,000 shares of Chatfield Dean common stock with an exercise price of
$0.01 per share. The warrants are exercisable at any time for ten years after
January 1, 1997.
Subsequent to year end, on March 8, 1996, the Company purchased 10,000 shares
of Chatfield Dean Series A 7% cumulative, convertible preferred stock directly
from Chatfield Dean for $100,000. The shares have not been registered with the
SEC and are therefore restricted. The shares are convertible into Chatfield
Dean common stock at any time at the option of the Company at the ratio of 1
share for 3.33 shares of common stock subject to certain events. The shares
may be redeemed by Chatfield Dean for the original issue price of $1 per share
plus $1 per share for each year after issuance up to a maximum of $15 per
share.
<PAGE>
Corporate Information
QUARTERLY STOCK PRICES
The Company's $0.20 par value common
stock is traded over the counter and
is quoted on NASDAQ as "UNRC". On
April 30, 1996, there were
approximately 519 holders of the
Company's common stock, including 269
holders of record and an estimated 250
holders whose shares are held in
"street-name". No dividends have been
declared on the Company's common stock
and there are no plans to pay any
dividends in the foreseeable future.
The quarterly range of the high and
the low bid information for the
Company's common stock for the most
recent two fiscal years, (prices
quoted by NASDAQ for periods reported
prior to August 1994 have been
restated to reflect the 1:20 reverse
stock split), is as follows:
Bid Prices
Quarter Ended High Low
February 28, 1994 1 7/8 1 1/4
May 31, 1994 2 1/2 1 7/8
August 31, 1994 2 1/2 1 1/2
November 30, 1994 2 1 3/4
February 28, 1995 2 1/8 2
May 31, 1995 2 5/8 2
August 31, 1995 2 5/8 2 1/4
November 30, 1995 2 3/4 2 1/4
February 29, 1996 3 2
FORM 10-K
A copy of the Company's Annual Report
on Form 10-K, as filed with the
Securities and Exchange Commission, is
available upon request. Please direct
your request to Rick L. Hurt,
Secretary, at the Corporate office.
OFFICERS AND DIRECTORS
William N. Hagler
Chairman of the Board, President and
Chief Executive Officer
Rick L. Hurt
Secretary, Treasurer and Director
Thois Chatterley
Vice President, Intermountain Refining
Co., Inc.
Franklin B. Carlson
Executive Vice President,
Intermountain Chemical, Inc.
COUNSEL
Thad H. Turk
P.O. Box 27560
Albuquerque, New Mexico 87125
AUDITORS
Atkinson & Co., Ltd.
P.O. Box 25246
Albuquerque, New Mexico 87125
TRANSFER AGENT
Corporate Stock Transfer, Inc.
Republic Plaza
370 17th Street, Suite 2350
Denver, Colorado 80202-4614
CORPORATE OFFICES
1921 Bloomfield Blvd.
P.O. Box 35
Farmington, New Mexico 87499
<PAGE>
EXHIBIT 22
LIST OF SUBSIDIARIES
OF
UNICO, INC.
NAME OF SUBSIDIARY STATE OF INCORPORATION
1. Intermountain Refining Co., Inc. New Mexico
2. Intermountain Chemical, Inc. Colorado
3. Gas Technologies Group, Inc. Colorado
The Registrant has three subsidiaries. Each does business only under
their individual corporate name.
<PAGE>
EXHIBIT 24
REPORT OF INDEPENDENT AUDITORS
<PAGE>
ATKINSON & CO., Ltd.
Certified Public Accountants
Report of Independent Auditors on Schedules
Stockholders and Board of Directors
Unico, Inc.
In connection with our audit of the consolidated financial statements of Unico,
Inc. and subsidiaries referred to in our report dated May 3, 1996, which is
included in the annual report to security holders and incorporated by reference
in Part II of this form, we have also audited Schedule II for each of the
three years in the period then ended. In our opinion, this schedule presents
fairly, in all material respects, the information required to be set forth
therein.
Atkinson & Co., Ltd.
Albuquerque, New Mexico
May 3, 1996
<PAGE>
EXHIBIT
Item 14 (d) (1)
SEPARATE FINANCIAL STATEMENTS OF UNCONSOLIDATED ENTITIES
<PAGE>
FINANCIAL STATEMENTS AND REPORT OF
INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
SAND CREEK CHEMICAL LIMITED PARTNERSHIP
February 29, 1996 and
December 31, 1994
<PAGE>
CONTENTS
Page
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 1
FINANCIAL STATEMENTS
BALANCE SHEETS as of February 29, 1996
and December 31, 1994 2
STATEMENTS OF EARNINGS for the fourteen
month period ended February 29, 1996
and year ended December 31, 1994 4
STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
for the fourteen month period ended
February 29, 1996 and year ended
December 31, 1994 4
STATEMENTS OF CASH FLOWS for the fourteen
month period ended February 29, 1996 and
year ended December 31, 1994 5
NOTES TO FINANCIAL STATEMENTS 6-11
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Partners
Sand Creek Chemical Limited Partnership
We have audited the accompanying balance sheet of Sand Creek Chemical Limited
Partnership (a Colorado limited partnership) as of February 29, 1996 and
December 31, 1994, and the related statements of earnings, partners' capital
(deficit), and cash flows for the fourteen months ended February 29, 1996 and
the year ended December 31, 1994. These financial statements are the
responsibility of Sand Creek Chemical Limited Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Sand Creek Chemical Limited
Partnership as of February 29, 1996 and December 31, 1994, and the results of
its operations and its cash flows for the fourteen months ended February 29,
1996 and the year ended December 31, 1994 in conformity with generally accepted
accounting principles.
Atkinson & Co.,Ltd.
Albuquerque, New Mexico
May 3, 1996
<PAGE>
<TABLE>
SAND CREEK CHEMICAL LIMITED PARTNERSHIP
Balance Sheets
<CAPTION>
February 29, December 31,
1996 1994
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents - Notes A, D and H $ 4,087,719 $ 3,517,302
Certificate of deposit - Notes D and F - 250,000
Accounts receivable - Notes B and D 608,598 1,962,234
Inventories - Notes A and D 294,253 618,234
Prepaid expenses 109,200 163,399
TOTAL CURRENT ASSETS 5,099,770 6,511,169
PROPERTY AND EQUIPMENT, at cost - Notes A and D
Land 276,000 276,000
Equipment 131,664 131,664
Vehicles 15,011 15,011
Furniture and fixtures 116,955 112,275
Leasehold improvements - 1,227,198
Construction in process - 158,498
539,630 1,920,646
Less accumulated depreciation and amortization (106,197) (156,803)
433,433 1,763,843
OTHER ASSETS
Other assets and deferred charges, net - Notes A and C 250,205 489,667
$ 5,783,408 $ 8,764,679
</TABLE>
<PAGE>
<TABLE>
Balance Sheets, Continued
<CAPTION>
February 29, December 31,
1996 1994
<S> <C> <C>
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 531,830 $ 768,390
Accounts payable to related parties - Note E 15,912 29,173
Property and other taxes payable 299,898 276,369
Accrued interest payable - 114,705
Accrued plant lease payable - Note G 175,833 351,664
Deferred sales discounts and other credits - Notes F and I 590,955 290,955
Revolving credit line - Note D - -
Current portion of long-term debt - Note D - 50,000
TOTAL CURRENT LIABILITIES 1,614,428 1,881,256
LONG-TERM DEBT, net of current portion - Note D - 5,135,000
COMMITMENTS AND CONTINGENCIES - Note F
Accrued litigation expenses - 1,450,816
Retainage from construction contract - 1,978,069
TOTAL COMMITMENTS AND CONTINGENCIES - 3,428,885
PARTNERS' CAPITAL (DEFICIT) - Note K 4,168,980 (1,680,462)
$ 5,783,408 $ 8,764,679
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
SAND CREEK CHEMICAL LIMITED PARTNERSHIP
Statements of Earnings
<CAPTION>
For the fourteen For the
months ended year ended
February 29, December 31,
1996 1994
<S> <C> <C>
REVENUES
Methanol sales $ 11,971,232 $ 15,856,626
Fuel gas sales 394,489 286,571
Other - Note L 19,635 175,539
12,385,356 16,318,736
COSTS AND EXPENSES
Cost of sales 10,553,400 9,470,052
General and administrative 966,366 171,664
Depreciation and amortization 241,337 190,641
Litigation expenses - Note F 46,012 1,511,207
Loss on sale of equipment 35 -
Settlement of Conoco litigation - Note F 300,000 -
Interest, net 113,512 580,038
12,220,662 11,923,602
EARNINGS BEFORE EXTRAORDINARY ITEMS 164,694 4,395,134
EXTRAORDINARY ITEMS
Refund of property taxes - Note J - 478,791
Settlement of CDK litigation - Note F 6,346,570 -
NET EARNINGS $ 6,511,264 $ 4,873,925
</TABLE>
<TABLE>
Statements of Partners' Capital (Deficit)
<CAPTION>
General Limited
Partner Partner Total
<S> <C> <C> <C>
CAPITAL (DEFICIT), December 31, 1993 $(4,011,054) $(2,543,333) $(6,554,387)
Allocation of earnings - year ended December 31, 1994 3,411,748 1,462,177 4,873,925
CAPITAL (DEFICIT), December 31, 1994 (599,306) (1,081,156) (1,680,462)
Cash distributions to partners - Note F (641,100) (20,722) (661,822)
Allocation of earnings - fourteen months ended
February 29, 1996 4,557,884 1,953,380 6,511,264
CAPITAL, February 29, 1996 $ 3,317,478 $ 851,502 $ 4,168,980
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
SAND CREEK CHEMICAL LIMITED PARTNERSHIP
Statement of Cash Flows
<CAPTION>
For the fourteen For the
months ended year ended
February 29, December 31,
1996 1994
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 6,511,264 $ 4,873,925
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 241,337 190,641
Gain on settlement of CDK litigation (6,346,570) -
Loss on sale of equipment 35 -
Settlement of Conoco litigation 300,000 -
Write-off of other capitalized costs 178,142 -
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 1,353,636 (1,030,059)
(Increase) decrease in inventories 323,981 (497,004)
Increase in prepaid expenses 54,199 (9,817)
(Decrease) in accounts payable (236,560) (167,897)
(Decrease) in accounts payable to related parties (13,261) (8,148)
Increase (decrease) in accrued plant lease payable (175,831) 351,664
Increase (decrease) in accrued interest payable (114,705) 18,223
Increase (decrease) in property and other taxes payable 23,529 (195,756)
Increase (decrease) in litigation expenses payable (1,450,816) 1,450,816
Increase in deferred charges - (250,327)
NET CASH PROVIDED BY OPERATING ACTIVITIES 648,380 4,726,261
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from CDK litigation 7,500,000 -
Maturity of certificate of deposit 250,000 -
Purchases of plant equipment and leasehold improvements (1,981,141) (983,613)
NET CASH USED BY INVESTING ACTIVITIES 5,768,859 (983,613)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on long-term debt (5,185,000) (2,615,000)
Cash distributions to partners (661,822) -
Advances on credit line 8,621,120 9,590,163
Payments on credit line (8,621,120) (9,716,680)
NET CASH USED BY FINANCING ACTIVITIES (5,846,822) (2,741,517)
INCREASE IN CASH AND CASH EQUIVALENTS 570,417 1,001,131
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 3,517,302 2,516,171
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,087,719 $ 3,517,302
<FN>
The Partnership paid interest in cash of approximately $515,334 during the
fourteen months ended February 29, 1996 and $641,077 during the year ended
December 31, 1994.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
SAND CREEK CHEMICAL LIMITED PARTNERSHIP
Notes to Financial Statements
February 29, 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Activity: Sand Creek Chemical Limited Partnership, ("the
Partnership"), is a Colorado Limited Partnership which was formed in 1990 for
the purpose of constructing and operating a 250 ton per day methanol production
facility located in Commerce City, Colorado. The methanol production facility
is owned by Fleet Bank, ("Fleet") formerly Shawmut Bank NA, as owner trustee,
and General Electric Capital Corporation, ("GECC"), as owner participant. The
facility is leased by the Partnership from Fleet/GECC under a 15 year operating
lease. The ownership of the Partnership is held by IC Partners Limited
("ICLP"), the general partner, and San Juan Holdings LLC ("SJH"), the sole
limited partner. The Partnership is managed by Intermountain Chemical, Inc.
("IC"), who is the general partner of ICLP.
Cash and Cash Equivalents: For purposes of reporting cash flows, cash and cash
equivalents include cash on hand, cash in depository institutions, and interest
bearing over-night cash investments. The balances maintained are in excess of
the maximum insurance provided by the Federal Deposit Insurance Corporation of
$100,000.
Inventories: Refined methanol product inventories of the Partnership are
stated at the lower of cost (first-in, first-out) or market.
Property and Equipment: Property and equipment are stated at cost.
Depreciation of property and equipment is provided on the straight-line method
over the following useful lives:
Automobile 5
Office furniture and equipment 5-10
Machinery and equipment 10
Methanol facility leasehold improvements 9.5
Maintenance, repairs and renewals which neither materially add to the value of
the property nor appreciably prolong its life are charged to expense as
incurred. Construction in process represents capitalized costs incurred in
conjunction with improvements to leased process equipment that have not been
placed in service as of the date of the 1994 financial statements. Gains or
losses on disposition of property are included in results of operations.
Deferred Charges: Deferred charges, consisting of organization costs,
capitalized loan fees, and lease closing costs, are carried at cost.
Amortization of deferred charges is computed on the straight-line method over
the estimated useful lives ranging from 5 to 15 years.
Income Taxes: Results of operations of the Partnership are allocated directly
to the individual partners for inclusion in their individual income tax
returns. Accordingly, the Partnership does not reflect a provision for income
taxes in its financial statements.
Environmental Matters: On-going environmental compliance costs, including
maintenance and monitoring costs, are expensed as incurred.
Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that effect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
Fair Value of Financial Instruments: The carrying amount of cash and cash
equivalents, accounts receivable, accounts payable and accrued expenses
approximate fair value because of the short maturity of these amounts.
<PAGE>
NOTE B - ACCOUNTS RECEIVABLE
Accounts receivable consist of amounts due from customers for sales of
methanol, methanol by-products, and hydrogen. Such credit sales are generally
made on terms ranging from net 10 days to net 30 days in accordance with normal
industry practice. The Partnership performs periodic credit evaluations of its
customers' financial condition and generally does not require collateral.
Management does not believe that an allowance for bad debts on accounts
receivable is necessary. If amounts become uncollectible, they will be charged
to operations when that determination is made.
Credit sales of methanol are made under long-term sales agreements to two major
energy industry companies. Such sales represent a concentration of credit risk
as such customers are subject to the same regional and industry wide economic
conditions as the Partnership.
NOTE C - OTHER ASSETS AND DEFERRED CHARGES
Other assets and deferred charges consist of the following:
February 29, December 31,
1996 1994
Organization costs $ 11,387 $ 11,387
Capitalized loan fees - 300,000
Lease closing costs 296,060 296,060
Less accumulated amortization (57,242) (117,780)
$ 250,205 $ 489,667
Amortization expense for the fourteen month period ended February 29, 1996 was
$68,033 and $66,064 for the
year ended December 31, 1994.
In December 1995, capitalized loan fees associated with the note payable to
GECC with a net book value of $171,429, were charged off to results of
operations in conjunction with the early payoff of the loan.
NOTE D - LONG-TERM DEBT AND REVOLVING CREDIT LINE
<TABLE>
<CAPTION>
Long-Term Debt: Long-term debt consists of the following:
February 29, December 31,
1996 1994
<S> <C> <C>
Commercial Paper rate plus 4.15%, Variable rate, (10.15% at 12/31/94),
note payable to GECC, payable in quarterly installments of variable
amounts, plus interest, through 2008, secured by cash, accounts
receivable, inventories, and property and equipment. Variable quarterly
installments were based on scheduled payments plus contingent payments
based on cash flow from operations and had a priority over distributions
to partners. The note was retired in December 1995 from proceeds from the
CDK litigation settlement. $ - $ 5,185,000
Less current portion - (50,000)
$ - $ 5,135,000
</TABLE>
Revolving Credit Line: In November 1993, GECC extended the Partnership a
$1,000,000 Commercial Paper rate plus 4.15%, revolving credit facility for the
purpose of funding working capital. The revolving credit line is secured by
cash, accounts receivable, inventories, and property and equipment. The
facility is established such that all operating cash requirements of the
Partnership are processed as advances under the revolving credit line and cash
available for operations is applied on a daily basis against outstanding
balances of the revolving credit line. At February 29, 1996, the Partnership
had no outstanding borrowings on the line. However, $500,000 is currently
reserved from the credit line in support of the standby letter of credit issued
to a natural gas supplier, (See Note F).
<PAGE>
NOTE E - RELATED PARTY TRANSACTIONS
Intermountain Chemical, Inc., the managing general partner for the Partnership,
and Unico, Inc., the parent company of IC, provide all employment, at cost, for
the operation and administration of the methanol facility. IC has sold liquid
carbon dioxide, at cost, to the Partnership, and has provided related carbon
dioxide storage tanks, which were leased to IC from a third party. In
addition, IC receives a management fee in accordance with the Partnership
Agreement. Certain restrictions on the management fee paid to IC are provided
under the term loan agreement with the Partnership's lender, GECC. The
Partnership further reimburses IC and Unico for travel expenses incurred in
conjunction with performing services for the Partnership. During the fourteen
months ended February 29, 1996 and the year ended December 31, 1994, amounts
paid to IC and Unico in connection with the foregoing activities were as
follows:
1996 1994
Operating, maintenance, construction and administrative
wages, including taxes and benefits $1,618,230 $1,352,436
Carbon dioxide purchases 46,009 213,879
Carbon dioxide tank rental 24,578 36,868
Management fees 154,167 100,000
Travel expenses 16,047 12,134
$1,859,031 $1,715,317
At February 29, 1996 and at December 31, 1994, the Partnership had payables of
$15,912 and $29,173 respectively, associated with the above services still
owing to Unico and IC.
San Juan Holdings, LLC, the sole limited partner of the Partnership, is owned
and controlled by officers and directors of Unico and IC. During the fourteen
months ended February 29, 1996, and the year ended December 31, 1994, there
were no transactions between the Partnership and SJH.
NOTE F - COMMITMENTS AND CONTINGENCIES
Construction Contract Retainage: The Partnership contracted the services of
CDK Contracting, Inc. as the general contractor for the construction of the
methanol production facility. Under the agreement, retainage in the amount of
$1,978,069 was withheld from payments on progress billings submitted by CDK
pending satisfactory completion of the project. In December 1991, CDK
discontinued construction activities on the project and the Partnership filed
suit against CDK for breech of contract, seeking damages for costs incurred by
the Partnership in completing construction of the facility, penalties for late
completion as provided under the contract, and interest as awarded by the
court, ("The Litigation"). On March 15, 1995, the Partnership was awarded a
judgement of $9,415,559, net of the $1,978,069 retainage, and including pre-
judgement interest of $1,715,398. In December 1995 the Partnership settled the
matter with CDK for a cash payment of $7,500,000 and the retainage was included
in results of operations as part of the gain recognized in conjunction with the
settlement.
Accrued Litigation Expenses: GECC, the Partnership's lender, has utilized
the services of it's own outside counsel in connection with the aforementioned
CDK litigation. In accordance with it's agreements with GECC, reimbursement
for such services by the Partnership were to be made at such time as proceeds
were received in conjunction with the CDK legal settlement. As of December 31,
1994, unpaid obligations to GECC in conjunction with the legal fee amounted to
$1,450,816. During 1996, the partnership was invoiced $46,000 in additional
fees incurred by GECC and paid $1,496,828 to GECC out the legal proceeds and
operating cash flow.
<PAGE>
Tax Payments to Partners: Under the Partnership Agreement, the Partnership is
obligated to remit, in the form of cash distributions to partners, amounts
representing income tax liabilities incurred by the individual partners
attributable to allocations of income of the Partnership. During the fourteen
months ended February 29, 1996 the Partnership distributed a total of $661,822
to partners representing the estimated tax liabilities of individual partners
attributed to allocations of earnings reported and filed on partnership tax
returns for the year ended December 31, 1994, and for the two month period
ended February 29, 1995. There were no tax distributions to partners made
during the year ended December 31, 1995 or previous years. In March 1996,
subsequent to current year end, the Partnership distributed a total of $845,051
to partners representing estimated tax liabilities associated with income
allocations for the year ended February 29, 1996. As of the date of this
report the Partnership tax returns for the year ended February 29, 1996 have
not been prepared.
Other Litigation: In September 1994, Conoco, Inc., a customer of the
Partnership, commenced a legal action against the Partnership seeking specific
performance under the methanol sales agreement made between Conoco and the
Partnership. Conoco has claimed that it is entitled to receive an additional
300 to 400 barrels per day of methanol under the agreement. The Partnership
and Conoco have been in the process of negotiating a settlement of this matter
which, in effect, will serve as a complete renegotiation of the methanol and
hydrogen purge gas sales contract between the two parties. In February 1996,
the Partnership recognized a deferred credit representing a commitment to
Conoco under the terms of a preliminary agreement of understanding, whereas the
Partnership will rateably deliver, over six months, $300,000 worth of
methanol, valued at the Conoco transfer price in effect at the time of
delivery. In April 1996, subsequent to year end, the legal action was
dismissed in contemplation that a definitive settlement agreement would be
executed pending finalization of certain terms associated with hydrogen purge
gas supply requirements. The matter can be refiled by Conoco in the unlikely
event that the definitive settlement agreement is not finalized in a reasonable
amount of time.
Letters of Credit: GECC has issued, on behalf of the Partnership, a $500,000
non revocable standby letter of credit to a natural gas supplier for the
purpose of securing natural gas purchases utilized for the production of
methanol. The letter of credit is secured by a $500,000 reservation against
the revolving credit facility, (See Note D). The letter of credit expires on
November 1, 1996.
NOTE G - LEASES
Methanol Facility Lease: The Partnership was originally established to own and
operate the methanol production facility in Commerce City, Colorado. However,
as a direct result of the failure of the general contractor to complete
construction of the project under the terms of the construction contract, cost
overruns incurred by the Partnership in completing construction exceeded the
partnership's ability to obtain and carry the increased amount of debt that
would have been required to retain ownership of the facility. Accordingly, on
November 1, 1993, the Partnership entered into a sale/leaseback agreement with
Fleet and GECC wherein the Partnership sold substantially all of its assets
associated with the production facility to Fleet, who then leased the facility
back to the Partnership under a 15 year operating lease. The proceeds from the
sale, amounting to $34,600,000, were applied to the then outstanding
Construction Loan to GECC. For a nominal consideration, Fleet leases the land
on which the plant is located, from the Partnership for a term that coincides
with that of the plant lease. In addition, GECC, loaned the Partnership
$7,800,000, which first was applied to the remaining balance on the
Construction Loan and to the then outstanding balance on a Revolving Credit
Line, with the remaining proceeds deposited into a cash account maintained by
the Partnership for the purpose of funding certain improvements and safety
modifications to the facility and such other costs as may be authorized from
time to time by GECC.
<PAGE>
The future minimum lease payments due under the methanol facility lease, as of
February 29, 1996 are as follows:
1997 $2,110,000
1998 2,691,250
1999 4,435,000
2000 4,435,000
2001 4,435,000
Thereafter 34,371,250
TOTAL $52,477,500
Accrued plant rental expense payable was $175,833 as of February 29, 1996.
Plant rental expense included in results of operations was $2,461,669 for the
fourteen months ended February 29, 1996 and $1,871,664, for the year ended
December 31, 1994.
In addition to scheduled minimum lease payments, the methanol facility lease
provides for contingent rentals to be paid to Fleet, based on 45% of quarterly
cash flows from operations, adjusted for reservations of cash for specific
purposes as provided in the various lease and loan documents. As long as there
is an outstanding balance on the term loan from GECC, contingent rentals are
not applicable. No contingent rentals were either due or payable during the
fourteen months ended February 29, 1996 or year ended December 31, 1994.
Carbon Dioxide Tank Rent: The Partnership reimburses IC for the cost of leased
carbon dioxide storage tanks that are used in conjunction with the production
of methanol. IC entered into a three year operating lease with a supplier of
liquid carbon dioxide and IC passes the monthly lease payment cost through to
the Partnership at it's cost. During 1995, it was determined that the purchase
of CO2 was not economic or feasible in the long term and supply of CO2 by IC
was discontinued. The tank lease agreement was terminated and, as of February
29, 1996, is no longer in effect.
Carbon dioxide tank rental expense included in results of operations was
$21,506 for the fourteen months ended February 29, 1996 and $36,868 for the
year ended December 31, 1994.
Rail Car Lease: The Partnership is obligated under a 5 year operating lease to
a third party railcar leasing company, for 10 railcars used solely for the
transportation of methanol. Currently, the railcars are being subleased to a
customer under a verbal agreement where as the customer reimburses the
Partnership for its cost associated with obligations under the lease.
Minimum future lease payments due under the lease as of February 29, 1996 are
as follows:
1997 $66,000
1998 49,500
Railcar lease expense included in results of operations was $77,000 for the
fourteen months ended February 29, 1996 and $66,000 for the year ended December
31, 1994.
<PAGE>
NOTE H - RESTRICTIONS ON CASH
The Partnership, in conjunction with it's various agreements with Fleet and
GECC, maintains certain cash accounts that are specifically restricted as to
access and usage by the Partnership. The accounts, maintained at Fleet,
include the "Concentration Account," which is used to accumulate cash receipts
from operations, the "Warranty Work Account," which is used to reserve cash for
future improvements and safety modifications to the plant facility and such
other uses as may be approved from time to time by GECC, and the "Litigation
Proceeds Account" which contains the currently remaining balance of proceeds
from the CDK settlement. Disbursements from these accounts require prior
authorization from GECC in accordance with applicable agreements.
Cash balances in the aforementioned accounts, as of February 29, 1996, were as
follows:
Concentration Account $ 1,062,266
Warranty Work Account $ 503,809
Litigation Proceeds Account $ 2,464,146
Additional accounts may be established from time to time in order to satisfy
requirements as set forth in the various agreements among the Partnership,
GECC, and Fleet.
NOTE I - DEFERRED SALES DISCOUNTS AND OTHER DEFERRED CREDITS
Deferred sales discounts and other deferred credits consist of the following:
February 29, December 31,
1996 1996
Deferred sales discounts (1) $ 290,955 $ 290,955
Conoco Methanol credit (2) 300,000 -
$ 590,955 $ 290,955
(1) Deferred sales discounts relate to discounts earned, but not allowed, under
a prior pricing agreement with a customer. Negotiation is pending with the
customer as to the ultimate disposition of the discounts.
(2) Conoco Methanol credits related to the proposed settlement agreement
between Conoco and Partnership (See Note - F) whereas the Partnership will
deliver $300,000 worth of methanol to Conoco ratably over a period of six
months from the execution of the agreement. It is anticipated that this credit
will be fully recognized during the year ended February 28, 1997.
NOTE J - EXTRAORDINARY ITEMS
During 1994, the Partnership applied for and received a refund of property
taxes which were previously assessed and paid by the Partnership. The refunds
were based on revisions to personal property declarations previously filed with
the County Assessors office. The $6,346,570 gain on the settlement of the CDK
litigation is discussed in detail in Note F to these financial statements.
NOTE K - PARTNERS' CAPITAL (DEFICIT)
For the fourteen months ended February 29, 1996, and the year ended December
31, 1994, Partnership earnings were allocated 70% to the general partner and
30% to the limited partner, in accordance with the Partnership Agreement.
<PAGE>
NOTE L - OTHER INCOME
Included in other income for the year ended December 31, 1994 is $164,664 in
net insurance proceeds received due to fire damage incurred at the facility
during 1994. As of the date of this report, SCCLP has filed a business
interruption claim of approximately $550,000, net of deductibles, relating to
an equipment failure during December 1995 which resulted in the facility being
out of service for approximately 46 days. The claim filed for the December
1995 equipment failure is currently being investigated by an adjustor for the
insurance carrier. While it is the opinion of management that the claim, as
filed, is reasonable, the amount is subject to adjustment based on the findings
of the insurance carrier and the ultimate settlement reached by the parties.
[ARTICLE] 5
<TABLE>
<S> <C> <C>
[PERIOD-TYPE] 3-MOS 12-MOS
[FISCAL-YEAR-END] FEB-29-1996 FEB-29-1996
[PERIOD-END] FEB-29-1996 FEB-29-1996
[CASH] 232409 232409
[SECURITIES] 356858 356858
[RECEIVABLES] 106251 106251
[ALLOWANCES] 0 0
[INVENTORY] 36316 36316
[CURRENT-ASSETS] 731834 731834
[PP&E] 2992757 2992757
[DEPRECIATION] 1746015 1746015
[TOTAL-ASSETS] 4421748 4421748
[CURRENT-LIABILITIES] 559010 559010
[BONDS] 55555 55555
[PREFERRED-MANDATORY] 0 0
[PREFERRED] 0 0
[COMMON] 197318 197318
[OTHER-SE] 2042576 2042576
[TOTAL-LIABILITY-AND-EQUITY] 4421748 4421748
[SALES] 364562 1814905
[TOTAL-REVENUES] 1198813 2649156
[CGS] 680029 1835237
[TOTAL-COSTS] 440115 1933790
[OTHER-EXPENSES] (335775) 0
[LOSS-PROVISION] 0 0
[INTEREST-EXPENSE] (9259) (5991)
[INCOME-PRETAX] 1299217 916842
[INCOME-TAX] 496967 374926
[INCOME-CONTINUING] 802250 541916
[DISCONTINUED] 0 0
[EXTRAORDINARY] 0 0
[CHANGES] 0 0
[NET-INCOME] 802250 541916
[EPS-PRIMARY] .813 .549
[EPS-DILUTED] .813 .549
</TABLE>
