SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarter ended August 31, 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 telephone number, including area code 505-326-2668
Securities registered pursuant to Section 12(g) of the Act:
$.20 par value common stock
(Title of class)
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 .
On June 30, 1996, there were 986,590 shares of registrant's $0.20 par value
common stock outstanding.
<PAGE>
INDEX
TO REPORT ON FORM 10-Q
FOR UNICO, INC.
Item in Form 10-Q Page
PART I: FINANCIAL INFORMATION
Item 1. Financial statements
Consolidated balance sheets as of August 31, 1996
and February 29, 1996 3
Consolidated statements of operations for the six
month period ended August 31, 1996 and 1995 5
Consolidated statements of cash flows for the
six months ended August 31, 1996 and 1995 6
Notes to consolidated financial statements 7
Item 2. Managements discussion and analysis of financial
condition and results of operations. 7
PART II: OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 6. Exhibits and Reports on Form 8-K 11
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<TABLE>
<CAPTION>
UNICO, INC.
Consolidated Balance Sheets
August 31, February 29,
1996 1996
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 284,747 $ 232,409
Certificate of deposit and short term investments 125,343 356,858
Accounts receivable 76,552 88,392
Accounts receivable from related parties - 17,859
Inventories 22,988 36,316
Tax refund receivable 195,797 -
TOTAL CURRENT ASSETS 705,427 731,834
PROPERTY AND EQUIPMENT
Land, buildings and improvements 434,327 434,327
Equipment 217,349 217,349
Refinery equipment 1,183,333 1,183,333
Co-generation equipment 290,298 263,348
Oil and gas properties 894,400 894,400
Property, plant and equipment (gross) 3,019,707 2,992,757
Accumulated depreciation & depletion (1,815,652) (1,746,015)
1,204,055 1,246,742
OTHER ASSETS
Notes receivable 9,318 10,818
Other assets (net) 251,477 131,624
Investment in Chatfield Dean 600,000 500,000
Investment in partnership 846,274 1,800,730
1,707,069 2,443,172
$ 3,616,551 $ 4,421,748
</TABLE>
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<TABLE>
<CAPTION>
Consolidated Balance Sheets - Continued
August 31, February 29,
1996 1996
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 84,087 $ 106,327
Taxes other than income 18,847 4,930
Other accrued expenses 3,467 4,063
Current portion of long-term debt 53,900 76,539
Income taxes payable - 367,151
TOTAL CURRENT LIABILITIES 160,301 559,010
LONG-TERM DEBT, net of current portion 15,550 55,555
CONVERTIBLE SUBORDINATED DEBENTURES PAYABLE
TO RELATED PARTIES 178,000 178,000
DEFERRED TAXES PAYABLE, net of current portion 93,150 101,050
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 197,318 197,318
Additional paid in capital 2,042,576 2,042,576
Retained earnings 929,656 1,288,239
3,169,550 3,528,133
$ 3,616,551 $ 4,421,748
<FN>
See notes to consolidated financial statements.
</TABLE>
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UNICO, INC.
<TABLE>
<CAPTION>
Consolidated Statements of Income
For the three months ended For the six months ended
August 31, August 31, August 31, August 31,
1996 1995 1996 1995
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES
Refined product sales $ 108,304 $ 107,481 $ 249,078 $ 278,802
Electrical capacity and energy 57,300 147,031 133,212 350,232
Rent and miscellaneous income 2,832 4,155 5,937 9,510
Natural gas sales 64,302 42,724 115,429 76,491
Loss from investment in partnership (571,698) (166,738) (635,627) (266,295)
Overhead, management fees, and other revenues 116,200 118,062 233,600 219,847
(222,760) 252,715 101,629 668,587
COSTS AND EXPENSES
Cost of sales 154,709 334,448 383,176 765,499
General and administrative 65,713 70,716 169,658 151,496
Depreciation, depletion
and amortization 35,159 38,599 69,637 73,333
Interest, net 1,899 1,330 5,089 2,603
257,480 445,093 627,560 992,931
INCOME (LOSS) FROM OPERATIONS
BEFORE INCOME TAXES (480,240) (192,378) (525,931) (324,344)
Provision for income taxes:
Current (142,448) (44,191) (159,448) (89,991)
Deferred (4,000) (2,700) (7,900) (5,400)
(146,448) (46,891) (167,348) (95,391)
NET INCOME (LOSS) $(333,792) $ (145,487) $ (358,583) $ (228,953)
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 986,590 986,590 986,590 986,590
EARNINGS (LOSS) PER COMMON SHARE $ (0.3383) $ (0.1475) $ (0.3635) $ 0.2321
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
UNICO, INC.
Consolidated Statements of Cash Flows
For the six months ended
August 31, August 31,
1996 1995
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (358,583) $(228,953)
Adjustments to reconcile net income
to cash provided by operating activities:
Depreciation, depletion and amortization 69,637 73,333
Deferred income taxes (7,900) (5,400)
Loss on investment in partnership 635,627 266,295
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 29,699 7,236
(Increase) decrease in inventories and
prepaid expenses 13,328 13,141
Increase (decrease) in accounts payable
and accrued expenses (8,919) (9,980)
Increase (decrease) in income taxes accrued (562,948) (339,691)
NET CASH FLOW PROVIDED, (USED) BY OPERATING ACTIVITIES (190,059) (224,019)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (26,950) -
Cash distribution received from partnership 318,829 417,554
Increase in certificates of deposit (3,485) (8,876)
Decrease in certificates of deposit 235,000 -
Increase in other assets (119,853) -
Investment in Chatfield Dean (100,000) -
Collections on notes receivable 1,500 2,500
NET CASH FLOW PROVIDED (USED) BY INVESTING ACTIVITIES 305,041 411,178
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in long-term debt 26,950 -
Payments on long term debt (89,594) (42,855)
NET CASH FLOW USED BY FINANCING ACTIVITIES (62,644) (42,855)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ 52,338 $ 144,304
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 232,409 515,195
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 284,747 $ 659,499
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
The consolidated balance sheet as of August 31, 1996, the consolidated
statement of income for the six month period ended August 31, 1996 and 1995, and
the consolidated statement of cash flows for the six month period ended August
31, 1996 and 1995, have been prepared by the Company, without audit. In the
opinion of management, all adjustments, (which include only normal recurring
adjustments), necessary to present fairly the financial position, results of
operations and changes in cash at August 31, 1996, and for all periods presented
have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principals
have been condensed or omitted. It is suggested that these consolidated
financial statements be read in conjunction with the Company's Form 10-K, filed
with the Securities and Exchange Commission. The results of operations for the
period ended August 31, 1996, are not necessarily indicative of operating
results for the full year.
Investment in Partnership
During the six month period ended August 31, 1996, unaudited losses by
SCCLP were $1,059,375. The company's share of loss allocations as of that date
included $235,182 and $400,445 to Gas Technologies Group, Inc. ("GTGI"), and
Intermountain Chemical, Inc. ("IC") respectively. The GTGI and IC shares are
recorded using the equity method and are included in results of operations for
all periods presented.
During the six month period ended August 31, 1996, the Company received
cash distributions of $318,829 from SCCLP representing the estimated tax
liabilities of the Company associated with income allocations for the year ended
February 29, 1996.
Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations.
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., the Company
manages and operates a methanol production facility, owned by others, in
Commerce City, Colorado. Through its wholly owned subsidiary GTGI, the Company
maintains a limited partnership interest in the general partner of the methanol
production facility.
Refining
The Company in the past refined low-cost, heavy crude oil and other low
gravity refined products into diesel fuel, fuel oils, and asphalt which were
generally marketed on a wholesale basis in the intermountain region. IRC
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 two years. The Company is hopeful that a long term solution to
the supply shortage can be resolved but thus far has been unsuccessful in
<PAGE>
locating raw materials that would allow the economic operation of the facility.
In addition, IRC periodically 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 when the refinery
is operating.
Natural Gas Production
In July, 1988, the Company acquired an interest in and began operating 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,
previously 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 was 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
GTGI, acquired a limited partnership interest in IC-PL. The Company receives
allocations of SCCLP income and loss in accordance with it's various interests
in IC-PL.
Other Sources of Revenues
In January 1994, the Registrant 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. In exchange for the credit support
provided to COTI, the Registrant received 8.75% of gross margins realized by
COTI. The Agreement with COTI was terminated in December 1995.
Results of Operations
Quarter ended August 31, 1996 compared to quarter ended August 31, 1995
Total revenues, exclusive of SCCLP operating losses, during the current
quarter declined to $349,000, down 10% from $419,000 during the same period last
year. Earnings, exclusive of SCCLP operating loss allocations and before income
taxes for the current quarter increased to $91,000, up 450% from a loss of
$26,000 during the second quarter of the prior year. Cash flow from operations
increased to $132,000 during the current year quarter, up 513% from a use of
$32,000 during the second quarter of last year. SCCLP operating loss
<PAGE>
allocations increased to $572,000 during the current quarter compared to a loss
of $167,000 during the same period last year.
The decline in revenues includes a decrease in electrical generation
revenue of $90,000 representing a change in the supply arrangements with the
Registrants electric customer wherein electrical energy is supplied on a standby
basis only. Under the new arrangement, the customer still pays a fixed standby
capacity charge plus a variable charge for electrical energy generated.
However, under normal circumstances, the generators will only be operated in the
event that the customer requires short term emergency power. The decline in co-
generation revenues was partially offset by a $22,000 increase in natural gas
sales associated with an increase in the contracted selling price negotiated
earlier during the current year. Revenues from all other sources remained
relatively unchanged when compared to the prior year quarter except it should
be noted revenues associated with SCCLP management fees and overhead cost
reimbursements increased by $46,000 while revenues associated with the now
discontinued COTI agreement decline by $48,000.
<TABLE>
<CAPTION>
Operating income (loss) by industry segment, before allocation of general corporate overhead for the second quarter of 1997
compared to the same period during 1996 is as follows:
Increase
Segment 1997 1996 (Decrease)
<S> <C> <C> <C>
Refining $ (29,600) $ (114,100) $ 84,500
Electrical generation 43,100 40,700 2,400
Gas production 34,300 9,200 25,100
Methanol project (455,600) (96,500) (359,100)
Corporate overhead
and other (72,400) (31,700) (40,700)
$(480,200) $ (192,400) $(287,800)
</TABLE>
The decline in operating losses associated with refining operations is
attributed to the substantial reduction in operating and maintenance costs
associated with labor force reductions instituted earlier in the year. The
improvement in earnings from natural gas production is attributed substantially
to improved contract selling prices negotiated earlier in the year. The
increase in losses associated with operation of the SCCLP methanol facility
includes an increase of partnership loss allocations of $405,000 offset by an
improvement of management fee increase of $46,000. The increase in losses
associated with other activities is directly a result of the discontinuation of
the COTI agreement in December 1995.
Six months ended August 31, 1996 compared to six months ended August 31, 1995
Revenues, exclusive of SCCLP loss allocations, for the first six months of
the current year declined to $737,000, down 21% from $935,000 during the same
period last year. Earnings, exclusive of SCCLP loss allocations and before
income taxes increased to $110,000, up 290% from a loss of $58,000 during the
same period last year. Cash flow from operations increased to a use of
$190,000, up 15% from a use of $224,000 in the prior year period. SCCLP loss
allocations were $636,000 during the first half of the year, compared to
$266,000 during the same period last year.
The reduction in revenues is most notably associated with a reduction in
electrical energy sales compared to last year. The Registrant is presently
supplying electrical energy on an emergency stand-by basis wherein a monthly
capacity charge is received but the generators are only operated on an as needed
basis. Revenues from the sale of natural gas improved substantially over those
during the same period last year due to an increase in the negotiated selling
price of natural gas. Other revenues improved slightly during the current year,
however, it should be noted that revenues associated with the management of
SCCLP increased by $93,000 over those realized during the first half of last
year, while revenues associated with the discontinued COTI agreement declined
<PAGE>
by $79,000. SCCLP loss allocations increased substantially over last year
mainly due to the inclusion of certain major scheduled maintenance costs
associated with the annual turnaround performed during July and August of the
current year.
<TABLE>
<CAPTION>
Operating income (loss) by industry segment, before allocation of general corporate overhead for the first
half of 1997 compared to the same period during 1996 is as follows:
Increase
Segment 1997 1996 (Decrease)
<S> <C> <C> <C>
Refining $ (68,400) $ (147,400) $ 79,000
Electrical generation 72,300 18,500 53,800
Gas production 55,600 18,200 37,400
Methanol project (402,400) (126,000) (276,400)
Corporate overhead
and other (183,000) (87,700) (95,300)
$(525,900) $ (324,400) $(201,500)
</TABLE>
The decline in operating losses from refining activities is the direct
result of implementing cost saving measures at the Fredonia facility coupled
with slightly improved profit margins realized on the sale of brokered crude oil
compared to the previous year. The substantial improvement in operating income
associated with electrical generation is the result of reduced operating costs
under the current emergency standby arrangement and a reduction of monthly cost
of the generators which were purchased from the lessor earlier this year. The
improvement in natural gas production income is the result of much improved
natural gas sales prices realized as a result of renegotiating the sales
contract earlier this year. The increase in losses associated with the
management of and investment in SCCLP is substantially the result of increased
partnership loss allocations associated with the inclusion of certain scheduled
repair costs realized during the current year. Allocation of operating losses
associated with the investment in SCCLP increased by $369,000 over last year,
while earnings associated with the management of SCCLP increased by $93,000.
The increase in losses associated with other activities is mainly attributed to
the discontinuation of the COTI agreement which resulted in a reduction of
income of $79,000 from last year, coupled with a slight increase in general and
administrative costs.
Liquidity and Capital Resources
The Registrant had working capital of $545,000 at August 31, 1996 compared
to $172,800 at the beginning of the year. The increase in working capital
consists of a $339,000 increase from operations, a reduction in the non-current
portion of long term debt of $40,000, collections of notes receivable of $1,500,
cash distributions from SCCLP of $319,000, the additional investment in
Chatfield Dean preferred stock of 100,000, and the acquisition of other assets
of $120,000. The Registrant believes that current working capital levels, are
adequate to cover expected operating needs.
Total debt, consisting of notes payable, current portion of long-term debt,
long-term debt, and subordinated debentures, decreased by $63,000 during the
first six months of the current year. Debt in these categories was 2.2% of
equity at August 31, 1996 compared to 8.8% at the beginning of the current year.
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 Registrant's
operations. Management is unable to predict the full impact of these factors
on the results of operations or working capital.
<PAGE>
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
(a) In reference to legal proceedings described in the Registrant's
February 29, 1996 Form 10-K, (Part I, Item 3), there have been no
material changes in the actions that have occurred during the
period covered by this report.
Item 5. Other Information
(a) 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. The Registrant has previously
reported information regarding this proposed acquisition in its
Form 8-K filed as of January 15, 1996, and in its Form 10-K filed
for the year ended February 29, 1996. On July 30, 1995, the
Registrant and Chad executed a definitive merger agreement with
respect to the proposed acquisition as reported by the Registrant
in it's Form 8-K filed with the Commission on August 12, 1996. A
summary of the significant details of the acquisition are contained
within that filing. As of the date of this report, the Registrant
and Chad are in the process of preparing the Form S-4 documents to
be filed with the Commission. It is anticipated that the Form S-4
will be filed with the Commission by the end of October 1996. The
effective date of the acquisition will be set upon receiving
approval of the filed Form S-4.
Item 6. Exhibits and Reports on Form 8-K
(a) On August 12, 1996 the Registrant filed its Form 8-K reporting the
execution of a definitive merger agreement with Chatfield Dean &
Co. See Item 5(a) of this report for a discussion of the proposed
acquisition.
<PAGE>
SIGNATURES
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 capacities and on the dates indicated:
UNICO, INC.
By: Rick L. Hurt Date: October 11, 1996
Rick L. Hurt, Controller, Secretary,
Treasurer, and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> FEB-28-1997 FEB-28-1997
<PERIOD-END> AUG-31-1996 AUG-31-1997
<CASH> 284747 284747
<SECURITIES> 125343 125343
<RECEIVABLES> 76552 76552
<ALLOWANCES> 0 0
<INVENTORY> 22988 22988
<CURRENT-ASSETS> 705427 705427
<PP&E> 3019707 3019707
<DEPRECIATION> (1815652) (1815652)
<TOTAL-ASSETS> 3616551 3616551
<CURRENT-LIABILITIES> 160301 160301
<BONDS> 15550 15550
0 0
0 0
<COMMON> 197318 197318
<OTHER-SE> 2972232 2972232
<TOTAL-LIABILITY-AND-EQUITY> 3616551 3616551
<SALES> 348938 737256
<TOTAL-REVENUES> (222760) 101629
<CGS> 154709 383176
<TOTAL-COSTS> 255581 622471
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<INTEREST-EXPENSE> 1899 5089
<INCOME-PRETAX> (480240) (525931)
<INCOME-TAX> (146448) (146448)
<INCOME-CONTINUING> (333792) (358583)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (333792) (358583)
<EPS-PRIMARY> (0.338) (0.364)
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</TABLE>
