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 28, 1997
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 #)
1921 Bloomfield Blvd., Farmington, New Mexico 87401
(Registrants Address)
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 Form 10-K X .
The aggregate market value of the registrant's $0.20 par value common
stock held by non-affiliates at March 31, 1997, was $930,000.
On March 31, 1997, 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 stockholders for the year ended February 28, 1997 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 the 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 28,
1997 and information with respect to industry segments on pages 23 through
25 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 28, 1997 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) 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. During fiscal 1997, SCCLP and Conoco
negotiated a settlement agreement and the pending litigation was
dismissed.
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 back
cover of the Registrant's Annual Report to Stockholders for the year ended
February 28, 1997 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 28,
1997 is incorporated herein by reference.
<PAGE>
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 28,
1997 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 28,
1997 are incorporated herein by reference.
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:
Name Age Position Held
Since
William N. Hagler 65 President and Director 1979
603 Merino Kraal
Farmington, New Mexico 87401
Rick L. Hurt 44 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.
<PAGE>
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 (d) of Item 401 of Regulation S-K.
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 1997 fiscal year.
Item 11. Executive Compensation.
The following table sets forth certain information concerning the
remuneration paid by the Registrant for the three most recent fiscal years
ending February 28, 1997.
Annual Compensation
Name Other
and Annual
Principal Compen-
Postion Year Salary Bonus sation
(1)
William N. Hagler 1997 $98,696 $ 0 $ 0
CEO and Director 1996 $94,783 $ 0 $1,441
1995 $91,467 $18,900 $1,435
(1) Includes discretionary employer 401(k) contributions totalling
$2,222 for all officers including $1,441 for Mr. Hagler during
1996. There were no 401(k) contributions made during 1997.
<PAGE>
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 1997, 1996 and 1995, 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.
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 1997, the
Registrant made no contributions to 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. 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 28, 1997, 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:
<PAGE>
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 138,624 shares of 14.05%
common stock Braddock record and beneficially
P.O. Box 403
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.
(b) Security ownership of management.
On February 28, 1997, 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, (1)
NM 87401
$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.
Notation is made however that the previously reported proposed merger
between Registrant and Chatfield Dean & Co. was terminated on May 14, 1997
by mutual agreement of the parties. Notifications of the termination was
made to the Commission in the Registrants Form 8-k filed on May 19, 1997.
<PAGE>
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
except as follows:
On November 1, 1996 the Registrants wholly owned subsidiary IRC, issued
an 8% $325,000 revolving line of credit to Red Hills Manufacturing, Inc.
("RHMCO"), a New Mexico Corporation, which is collectively controlled by
William N. Hagler and Rick L. Hurt who are both officers and directors of
the Registrant. The line of credit was issued to RHMCO for the purpose of
purchasing certain equipment and for start-up working capital required
requirements of RHMCO. During the year ended February 28, 1997, the
minimum balance under the credit line was $310,000 and the balance under
the credit line was $310,000 and the balance due to IRC as of February 28,
1997 is $310,000. The note is secured by cash, accounts receivable,
inventories and equipment owned by RHMCO. During the year ended February
28, 1997 neither Mr. Hagler or Mr. Hurt received any payments in the form
of compensation or dividends from RHMCO.
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 regulations 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 28, 1997 except as follows:
(a) On July 30, 1996, the Registrant filed a Form 8-K with respect to
the signing of a Definitive Agreement and Plan of Merger between
the Registrant and Chatfield Dean & Co., Inc. this agreement was
terminated by mutual agreement of the parties as noted 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 28, 1997 (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).
21. Subsidiaries of the Registrant.
23. (a) Report of Atkinson & Co., Ltd., dated May 1, 1997, on the
consolidated financial statements and schedules of Registrant for
the three years ended February 28, 1997 as listed in Item 14(a)
of this report.
27. Financial Data Schedule pursuant to Item 601(c) of Regulation S-K
for the year ended February 28, 1997.
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, 1996.
(d) (1) Separate financial statements of unconsolidated entities:
(a) Audited financial statements of Sand Creek Chemical Ltd. for
the year ended February 28, 1997.
<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, 1997
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, 1997
William N. Hagler, President,
Director and Chief Executive
Officer
By: Rick L. Hurt Date: May 29, 1997
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 28, 1997,
and February 29, 1996. AR 12
Consolidated Statements of Operations - Years ended
February 28, 1997, February 29, 1996, and
February 28, 1995. AR 14
Consolidated Statements of Cash Flows - Years ended
February 28, 1997, February 29, 1996, and
February 28, 1995. AR 15
Consolidated Statements of Changes in Stockholders'
Equity - Years ended February 28, 1997,
February 29, 1996, and February 28, 1995. AR 16
Notes to Consolidated Financial Statements -
February 28, 1997 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>
UNICO, INC.
SUPPLEMENTAL SCHEDULES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 28, 1997, FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
<TABLE>
<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, 1995 7,260 - - (7,260) -
February 29, 1996 - - - - -
February 28, 1997 - - - - -
</TABLE>
<PAGE>
EXHIBIT 11
STATEMENT REGARDING COMPUTATION OF EARNINGS (LOSS) PER SHARE
OF
UNICO, INC.
<TABLE>
<CAPTION>
Year ended February
1997 1996 1995
Primary Earnings (Loss) Per Common Share:
<S> <C> <C> <C>
Weighted average number of shares outstanding 986,590 986,590 975,132
Primary earnings (loss) per share $ (.74) $ 0.55 $ 0.72
Fully Diluted Earnings (Loss) Per Common Share:
Weighted average number of shares outstanding 1,008,840 1,008,840 997,382
Fully diluted earnings (loss) per share $ (.74) $ 0.55 $ .72
<FN>
Income 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. 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 28, 1997, February 29, 1996, and
February 28, 1995. 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.
</TABLE>
<PAGE>
EXHIBIT 13
UNICO, INC. AND SUBSIDIARIES
ANNUAL REPORT TO STOCKHOLDERS
For the Year Ended February 28, 1997
<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 8
Report of Independent Auditors Page 12
Financial Statements Page 13
Corporate Information Inside Front Cover
<PAGE>
President's Letter to Stockholders
Dear Fellow Stockholder:
NOT AVAILABLE
<PAGE>
NOT AVAILABLE
Very truly yours,
William N. Hagler
<PAGE>
Selected Financial Data
<TABLE>
<CAPTION>
RESULTS OF OPERATIONS
Year ended February
1997 1996 1995 1994 1993
(in thousands except per share data)
<S> <C> <C> <C> <C> <C>
Revenues
Electrical capacity and energy $ 215 $ 666 $ 1,031 $ 1,001 $ 1,249
Processing and terminalling
agreements - 60 17 40 106
Natural gas production 245 141 193 257 266
Petroleum product sales 478 488 675 3,218 11,175
Management fees and overhead
cost recovery 465 329 276 184 89
Commissions - 116 126 - -
Rent and other income 13 15 19 155 9
Income (loss) from partnership
investment (1,347) 1,030 989 (250) -
Total revenues $ 69 $ 2,845 $ 3,326 $ 4,605 $ 12,894
Net income (loss) before
income taxes $(1,044) $ 917 $ 1,024 $ (488) $ 21
Net income (loss) $ (726) $ 542 $ 706 $ (378) $ 23
Net income (loss) per common share $ (0.74) $ 0.55 $ 0.72 $ (0.39) $ 0.02
Cash flow from operations $ 11 $ (44) $ 228 $ (13) $ 403
Dividends declared per common share $ - $ - $ - $ - $ -
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL POSITION
February 28, February 29, February 28, February 28, February 28,
1997 1996 1995 1994 1993
(in thousands)
<S> <C> <C> <C> <C> <C>
Working capital $ 863 $ 173 $ 470 $ 836 $ 913
Current ratio 4.09:1 1.31:1 1.73:1 5.33:1 2.29:1
Total assets $ 3,178 $ 4,422 $ 3,838 $ 2,690 $ 3,493
Long-term debt, including
current portion $ 197 $ 310 $ 396 $ 226 $ 341
Long-term debt, excluding
current portion $ 9 $ 234 $ 122 $ 207 $ 48
Stockholders' equity $ 2,803 $ 3,528 $ 2,986 $ 2,268 $ 2,645
Long-term debt-to-equity ratio .003:1 .07:1 .04:1 .09:1 .02:1
</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 four
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. IRC periodically provides certain asphalt
terminalling services wherein IRC receives fees and reimbursement
of certain operating expenses directly related to the service
provided.
Co-Generation
The co-generation plant is capable of producing up to 3,000
kilowatts of electrical energy that has been sold to an electric
company in the local area. When in operation, 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>
Description of Business Activities, Continued
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
As of February 28, 1997 and after giving effect to certain
restructuring of employment arrangements which were effective on
January 1, 1997, the Company employs 4 people, including officers
of Unico. All of the employees work in the administrative offices
of the Company in Farmington, New Mexico. Three of the employees
are salaried and are employed on a full time basis and one is
employed part time and paid on an hourly basis. On January 1,
1997, 26 full time employees who were employed by the Companies
subsidiary Intermountain Chemical, Inc. were transferred to Sand
Creek Chemical Ltd. Prior to that time, Sand Creek reimbursed the
Company 100% of the employment costs incurred by the Company for
these employees. Also effective on January 1, 1997, 3 employees
who were employed by the Companies subsidiary Intermountain
Refining were laid off. All of the full time employees including
those transferred to Sand Creek Chemical Ltd., 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, the Company
acquired the generators from the lessor for approximately $27,000.
<PAGE>
Description of Business Activities, Continued
The Company owns an interest in and operates 20 producing natural
gas wells located in Southwestern Kansas. Developed proven
reserves are estimated at 2,956 MMCF gross and 2,422 MMCF net to
the Company's interest as of February 28, 1997. 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. There are no
outstanding mortgages on any of the properties owned by the Company
with the excepting of a note for the generators with a monthly
payment of approximately $851.
Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS
Fiscal 1997 compared to fiscal 1996
Revenues decreased to $69,000 during fiscal 1997, down 98% from
$2,845,000 realized in fiscal 1996. Net income decreased to a loss
of $726,000, down 234% from a gain of $542,000 in the prior year.
Cash flow from operations increased to $13,000, up 30% from a use
of $44,000 experienced during fiscal 1996.
The significant reduction in revenues is most notably attributed
to the current period partnership loss allocations of $1,347,000
compared to income allocations of $1,030,000 received in 1996. The
significant loss allocations during the current year are attributed
to extensive scheduled and unscheduled repair cost experienced
during the current year. Additionally, due to problems associated
with the compressor drive system, production capability was limited
during a significant portion of the year and market prices for
methanol were low compared to higher than expected production costs
for part of the year. During the winter months of the current
year, natural gas costs increased to record levels which further
contributed to operating losses and the methanol facility was shut
down for approximately 20 days in January 1997 because it was not
economically feasible to operate during the period of extremely
high gas costs. Mechanical problems which limited production were
resolved in December 1996 and natural gas prices have subsequently
fallen to more traditional levels. In addition, methanol prices
have improved and have remained firm throughout the spring of 1997
which should result in significate improvements in operating income
allocations associated with this activity. Revenues associated
with electric generation declined to $215,000, down from $666,000
in the prior year. The decline is electrical generation income was
due to a change in the current year to providing electrical
generation stand-by capacity operating the generators only when
needed by the local customer. The stand-by generation arrangement
was terminated as of January 1, 1997. Revenues associated with
natural gas production improved to $245,000 during fiscal 1997, an
increase of 74% over $141,000 during fiscal 1996. The increase is
attributed to the renegotiation of the contract selling price
effective in April 1996 and unanticipated high gas prices
experienced during the winter heating season which resulted in a
overall 107% increase in average sales prices. This increase was
partially offset however by a 16% drop in production caused by
lower summer demand and a lengthy processing plant outage in 1996.
Revenues associated with petroleum product sales were relatively
unchanged from the prior year. Management fees and administrative
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations, Continued
salary reimbursements associated with the management of Sand Creek
Chemical Ltd. increased to $465,000 during fiscal 1997 representing
a 41% increase over last year. The increase was due to the
increase in the annual management fee received from Sand Creek from
$100,000 to $250,000 as was allowed under the partnership agreement
upon the payoff of term debt in December 1995. Revenues associated
with the COTI credit support agreement declined to zero from
$116,000 received in fiscal 1996 as the agreement was terminated as
of December 31, 1995. Rental income and other revenues remained
relatively unchanged compared to fiscal 1996.
Operating income (loss), by industry segment, before allocation
of general corporate overhead for 1997 compared to 1996 was as
follows:
Increase
Segment 1997 1996 (Decrease)
Refining $ (114,136) $ (95,412) $ (18,724)
Electrical generation 127,821 (147,733) 275,554
Gas production 135,811 483 135,328
Methanol project (883,010) 1,357,172 (2,240,182)
Corporate overhead and other (310,868) (197,668) (113,200)
$(1,044,382) $ 916,842 $(1,961,224)
The decline in refining income is attributed to a $5,000 decline
in gross profits on sales and terminal fee revenues, and a $20,000
decline in interest earned on the investing of refinery cash
partially offset by a combined $6,000 reduction in refinery
administrative costs and depreciation expense. Effective as of
January 1, 1997, the refinery was placed into a cold shutdown mode
whereby it is anticipated that ongoing maintenance costs will be
minimal. The Company is actively seeking new raw material supplies
and alternative uses for the idle equipment. The substantial
improvement in electrical generation earnings is attributed to the
stand-by mode of operation of the generators which was put into
place effective April 1, 1996. During the period April through
December 1996, the generators were operated only briefly on an "as
needed" basis while the Company received a stand-by capacity fee of
$19,000 per month. In addition, the Company purchased the
generators from the lessor in April 1996 which resulted in a
reduction in monthly lease costs of $7,300 offset of course by a
slight increase in interest expense and depreciation. With the
exception of depreciation and property taxes, operating costs
associated with the stand-by mode of operation were virtually
eliminated. The stand-by arrangement was discontinued effective
January 1, 1997 and the Company is currently seeking alternative
applications for the generators. Earnings from the production and
sale of natural gas increased by $135,000 over fiscal 1996. The
increase is mainly attributed to the substantial improvement in
revenues as previously mentioned. An additional improvement in
natural gas earnings is attributed to the prior year recognition of
a $28,000 loss on the write-off of capitalized investment costs of
non-producing properties in Texas. The substantial decrease in
earnings associated with methanol activities is mainly attributed
to partnership loss allocations during fiscal 1997 compared to
substantial gains reported for fiscal 1996. As previously
reported, income allocations in 1996 included a $2,649,000 gain on
the settlement of a long standing legal action, without which, the
Company's share of loss allocations from 1996 would have been
$1,619,000. Partnership operating losses, net to the Company's
interest for 1997 were $1,347,000 which consisted of approximately
$827,000 in major turnaround and repair costs incurred and $480,000
in losses from on going operations. Certain of the turnaround and
repair costs were anticipated while others were unforseen equipment
failures which resulted not only in additional repair costs but
significant plant down time which contributed to operating losses
associated with normal operations. Exclusive of Partnership loss
allocations, income from methanol activities increased by $94,000
due to an increase in the management fee paid to the Company by
Sand Creek. The $113,000 increase in losses associated with
corporate overhead activities is attributed to the discontinuation
of the COTI credit support agreement in December 1995.
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations, Continued
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 in the prior year. Cash flow from operations decreased to
a use of $44,000, down 119% from $227,000 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.
Operating income (loss), by industry segment, before allocation
of general corporate overhead for 1996, compared to 1995 was as
follows:
Increase
Segment 1996 1995 (Decrease)
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)
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. Efforts were
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 allowed a significant savings in
future costs. 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 was expected to improve earnings
moderately in fiscal 1997. 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 1995.
Steps were 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 were attributed to a slight increase in
overhead costs and a reduction of rental income compared to 1995.
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations, Continued
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents of $349,000 at February
28, 1997 compared to $232,000 at February 29, 1996 representing a
$117,000 increase during the current year. The increase is
comprised of a $13,000 increase from operations, an $218,000
increase from investing activities offset by a $114,000 decrease
from financing activities. Significant sources of cash during
fiscal 1997 consisted of the receipt of $319,000 from Sand Creek
Chemical representing a cash distribution for the payment of income
tax liabilities associated with fiscal 1996 partnership income
allocations, net redemptions of certificates of deposit of
$228,000, the issuance of new debt of $27,000 and a $128,000
decrease in short-term investments previously held as collateral.
Significant uses of cash during fiscal 1997 consisted of the
payment of income taxes for fiscal 1996 of $408,000, the purchase
of the previously leased generators for $27,000, an additional
investment in preferred stock of Chatfield Dean of $100,000, the
retirement of term debt of $140,000, and the issuance of a note
receivable to Red Hills Manufacturing, Inc. for $310,000.
Looking ahead to the coming year, capital requirements are viewed
to be minimal as the Company has relativity little debt and
management believes that cash flow from ongoing operations will be
adequate to meet cash demands at least in the near future. Longer
term, it will be necessary for the Company to final additional
sources of cash flow to avoid depletion of working capital.
Significant sources of cash in the coming year consist of
management fees and administrative salary reimbursements to be
received from Sand Creek Chemical currently amounting to $38,000
per month, cash flow from natural gas production and sales
estimated to be approximately $10,000 per month,and receipt of
income tax refunds attributed to the carryback of current year
operating losses of approximately $340,000. Significant uses of
cash in the coming year consist of monthly operating costs
currently estimated to be $18,000 per month, and debt service of
approximately of $2,500 per month. The Company has cash on hand
sufficient to retire all of it's outstanding debt on a current
basis.
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.
FINANCIAL ACCOUNTING STANDARDS
Transfer and Servicing of Financial Assets and Extinguishment of
Liabilities: The Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 125, "Transfer and
Servicing of Financial Assets and Extinguishment of Liabilities."
This Statement requires that transferred assets could be
derecognized only when control is surrendered, rather than when
risks and rewards related to the asset are passed to another party.
A liability would be extinguished when the creditor no longer has
ultimate responsibility for the liability. This Statement has not
had and is not anticipated to have a material impact on the
Company's financial condition.
Earnings per Share: Recently the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 128,
"Earnings per Share." It simplifies the standards for computing
earnings per share, superseding the standards previously found in
Opinion 15. It replaces the presentation of primary earnings per
share with a presentation of basic earnings per share. It also
requires dual presentation of basic and diluted
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations, Continued
earnings per share on the face of the income statement for all
entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the basic
earnings per share computation to the numerator and denominator of
the earnings per share computation. This Statement will affect the
financial statements issued by the Company after December 15, 1997.
Disclosure of information about an Entity's Capital Structure:
The Financial Accounting Standards Board recently issued Statement
of Financial Accounting Standards No. 129, "Disclosure of
Information about an Entity's Capital Structure." This Statement
applies to all entities. Its requirements are a consolidation of
those found in APB Opinions 10 and 15, and Statement of Financial
Accounting Standards No. 47, and it eliminates the exemption of non
public entities from certain disclosure requirements. This
Statement will affect the financial statements issued by the
Company after December 15, 1997.
<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 28, 1997 and February
29, 1996, 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 28, 1997. 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 28, 1997
and February 29, 1996, and the consolidated results of operations
and cash flows for each of the three years in the period ended
February 28, 1997, in conformity with generally accepted accounting
principles.
Atkinson & Co., Ltd.
Albuquerque, New Mexico
May 1, 1997 (Except Note O, for which the date is May 14, 1997)
<PAGE>
<TABLE>
<CAPTION>
UNICO, INC.
Consolidated Balance Sheets
February 28, February 29,
1997 1996
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents - Note E $ 349,055 $ 232,409
Certificate of deposit and short
term investments - Note E - 356,858
Accounts receivable - Notes B and E 114,685 88,392
Accounts and accrued interest receivable
from related parties - Note H 7,899 17,859
Inventories - Note E 20,861 36,316
Income Tax refund receivable 340,298 -
Notes receivable from related parties - Note H 310,200 -
TOTAL CURRENT ASSETS 1,142,998 731,834
PROPERTY, PLANT AND EQUIPMENT, at cost - Note E
Land, buildings and improvements 434,327 434,327
Equipment 164,930 217,349
Crude oil refining equipment 1,183,333 1,183,333
Co-generation facilities - Note D 290,298 263,348
Oil and gas properties, (successful
efforts method) - Notes L and M 894,400 894,400
2,967,288 2,992,757
Less accumulated depletion and depreciation (1,828,936) (1,746,015)
1,138,352 1,246,742
OTHER ASSETS
Notes receivable - Note B 9,318 10,818
Investment in partnership - Note N 134,663 1,800,730
Investment in Chatfield Dean - Note O 600,000 500,000
Other assets and deferred charges, net - Note C 152,359 131,624
896,340 2,443,172
$ 3,177,690 $ 4,421,748
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheets, Continued
February 28, February 29,
1997 1996
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 87,033 $ 106,327
Taxes other than income taxes 2,566 4,930
Other accrued expenses 3,115 4,063
Income taxes payable - Note G - 367,151
Current portion of convertible subordinated debentures
payable to related parties - Notes F and H 178,000 -
Current portion of long-term debt - Note E 8,892 76,539
TOTAL CURRENT LIABILITIES 279,606 559,010
LONG-TERM DEBT, net of current portion - Note E 9,727 55,555
CONVERTIBLE SUBORDINATED DEBENTURES PAYABLE TO
RELATED PARTIES - Notes F and H - 178,000
DEFERRED TAXES PAYABLE - Note G 85,800 101,050
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 1997 and 1996 - Note A 197,318 197,318
Additional paid in capital - Note A 2,042,576 2,042,576
Retained earnings 562,663 1,288,239
2,802,557 3,528,133
$ 3,177,690 $ 4,421,748
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
UNICO, INC.
Consolidated Statements of Operations
For the year ended
February 28, February 29, February 28,
1997 1996 1995
<S> <C> <C> <C>
REVENUES
Electrical capacity and energy $ 214,697 $ 666,345 $ 1,031,084
Processing and terminalling agreements - 59,944 16,624
Natural gas sales 244,666 140,794 193,101
Petroleum product sales 478,662 488,488 674,712
Income (loss) on investment in partnership - Note N (1,347,238) (1,619,420) 988,548
Income from partnership legal settlement - Note N - 2,649,156 -
Management fees and overhead cost recovery 465,210 328,815 276,747
COTI commissions - 116,051 125,989
Rent and other income 12,947 14,468 19,577
68,944 2,844,641 3,326,382
COSTS AND EXPENSES
Cost of sales 676,637 1,498,676 1,835,327
General and administrative 294,466 294,631 343,569
Depletion, depreciation and amortization 135,340 140,483 128,388
Bad debt expense - - 3,815
Gain on sale of assets - - (2,127)
Interest, net 6,883 (5,991) (6,703)
1,113,326 1,927,799 2,302,269
INCOME (LOSS) BEFORE INCOME TAXES (1,044,382) 916,842 1,024,113
Provision (benefit) for income taxes - Note G
Current (303,556) 374,776 240,169
Deferred (15,250) 150 77,700
(318,806) 374,926 317,869
NET INCOME (LOSS) $ (725,576) $ 541,916 $ 706,244
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 986,590 986,590 975,132
EARNINGS PER COMMON SHARE
Net income (loss) per share $ (0.74) $ 0.55 $ 0.7243
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
UNICO, INC.
Consolidated Statements of Cash Flows
For the year ended
February 28, February 29, February 28,
1997 1996 1995
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (725,576) $ 541,916 $ 706,244
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
Depreciation, depletion and amortization 135,340 140,483 128,388
Deferred income taxes (15,250) 150 77,700
Bad debt expense - - 3,815
Dry hole costs - 28,310 -
Gain on sale of equipment - - (2,127)
(Income) loss on investment in partnership 1,347,238 (1,029,736) (988,548)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (16,333) 99,913 (62,943)
(Increase) decrease in inventories 15,455 46,797 156,703
Increase (decrease) in accounts payable
and accrued expenses (22,606) 663 (59,356)
(Increase) decrease in refundable deposits 1,720 - (211)
Increase (decrease) in income taxes accrued/receivable (707,449) 127,195 267,798
NET CASH FLOW PROVIDED (USED) BY OPERATING ACTIVITIES 12,539 (44,309) 227,463
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (26,950) - (30,433)
Sale of equipment - - 17,418
Increase in cash value of life insurance polices (22,455) (23,015) (16,034)
Increase in certificates of deposit and short-term investments (6,616) (52,309) (12,145)
Decrease in certificates of deposit and short-term investments 128,474 - -
Redemption of certificates of deposit 235,000 - -
Investment in partnership - - (200,000)
Cash distributions from partnership 318,829 417,554 -
Investment in Chatfield Dean (100,000) (500,000) -
Issuance of notes receivable (310,200) (350,000) -
Collections of notes receivable 1,500 355,500 24,129
NET CASH FLOW PROVIDED (USED) BY INVESTING ACTIVITIES 217,582 (152,270) (217,065)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuing common stock - - 12,500
Proceeds from issuing long-term debt 26,950 - 200,000
Payments on long-term debt (140,425) (86,207) (29,362)
NET CASH FLOW PROVIDED (USED) BY FINANCING ACTIVITIES (113,475) (86,207) 183,138
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 116,646 (282,786) 193,536
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 232,409 515,195 321,659
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 349,055 $ 232,409 $ 515,195
<FN>
The Company paid interest of approximately $29,000, $36,600, and $25,000 in 1997, 1996 and 1995, respectively.
The Company paid income taxes of $406,981 in 1997, $251,000 in 1996, and $1,700 in 1995 and received a refund of income taxes
of $1,300 in 1997, $3,400 in 1996, and $27,800 in 1995.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
UNICO, INC.
Consolidated Statements of Changes
in Stockholders' Equity
Additional Total
Common Stock Paid In Retained Stockholders'
Shares Par value Capital Earnings Equity
<S> <C> <C> <C> <C> <C>
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
Net loss - - - (725,576) (725,576)
BALANCE, February 28, 1997 986,590 $ 197,318 $ 2,042,576 $ 562,663 $ 2,802,557
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
UNICO, INC.
Notes to Consolidated Financial Statements
February 28, 1997
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.
The Company's financial statements for the year ended February 28, 1997
have been prepared on a going concern basis which contemplates the
realization of assets and the settlement of liabilities and
commitments in the normal course of business. The Company incurred a net
loss of $725,576 for the year ended February 28, 1997 and several of the
Company's revenue sources have substantially declined over the past
year. Management recognizes that the Company must generate additional
resources to replace its existing depleting revenue base. The Company
has positive working capital and positive stockholders' equity at
February 28, 1997. The Company also has no long-term debt service
requirements at February 28, 1997. The Company's current declining
revenue stream would allow the Company to sustain operations on an
ongoing basis for at least the next fiscal year. Management's plans to
enhance its revenue base include consideration of the sale of its
refinery in Fredonia, Arizona, with a possible continued equity
participation, acquisition of additional refinery equipment in other
locations through a private placement offering, the sale of its interest
in Sand Creek Chemical Limited Partnership, or other business
transactions which would generate sufficient resources to assure
continuation of the Company's operations.
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
in prior years were not considered cash equivalents given that they
could not be liquidated in the near term due to now terminated
collateral arrangements.
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.
<PAGE>
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 and is discussed in Note O to these financial
statements.
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.
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
1996 and 1995 financial statements to conform with the 1997
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 notes receivable, 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.
<PAGE>
Notes receivable consists of a note to a related party for $310,200 (See
Note H), and a $9,318 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.
NOTE C - OTHER ASSETS AND DEFERRED CHARGES
Other assets and deferred charges consist of the following:
February 28, February 29,
1997 1996
Cash value of life insurance contracts $ 149,543 $ 127,088
Utility and license deposits 2,816 4,536
$ 152,359 $ 131,624
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 had 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 had expired and continued on
a month to month basis pending re-negotiation of the lease. In April
1996, the Company acquired the generators from the lessor for $26,950.
In conjunction with the operation of the co-generation facilities, IRC
had 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 $215,000 in 1997,
$666,000 in 1996, and $1,031,000 in 1995, and rental expense under the
operating lease was approximately $7,300 in 1997, $88,000 in 1996, and
$88,000 in 1995.
NOTE E - LONG-TERM DEBT
Long-term debt consists of the following:
February 28, February 29,
1997 1996
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 at February 29, 1996. This note was fully
retired during 1997. $ - $ 9,872
<PAGE>
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 $128,474 money fund investment account, accounts
receivable, inventories, and oil and gas properties. This
note was fully retired during 1997. - 122,222
Note payable to Caterpillar Financial Services, fixed rate of 9%,
due in monthly installments of $851 per month through 03/01/99.
Secured by co-generation equipment with a book value
of $25,100 as of February 28, 1997. $ 18,619 -
18,619 132,094
Less current portion (8,892) (76,539)
$ 9,727 $ 55,555
Maturities of long-term debt at February 28, 1997, are as follows:
February 28
1998 $ 8,892
1999 9,727
$ 18,619
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.
<PAGE>
Interest expense related to these debentures was approximately $18,700
in 1997, $18,700 in 1996 and $18,700 in 1995.
NOTE G - INCOME TAXES
Income tax expense (benefit) differs from income tax at the statutory
rate of 34% as follows:
February 28, February 29, February 28,
1997 1996 1995
Income taxes at statutory rate (34)% 34 % 34 %
State income taxes - 4 % 1 %
Graduated tax rates - % - - %
Expiration (utilization) of investment
tax credit carryforwards 3 % - % (3)%
Other (net) 1 % 3 % (1)%
Income tax expense (benefit) (30)% 41 % 31 %
Income tax expense (benefit) for the periods ended February 28, 1997,
February 29, 1996 and February 28, 1995 consists of the following:
1997 1996 1995
Current
Federal $(308,506) $ 336,666 $ 221,431
State 4,950 38,110 18,738
Deferred
Federal (15,250) 150 77,700
State - - -
$(318,806) $ 374,926 $ 317,869
As of February 28, 1997, there were no net operating loss carry forwards
or unused investment tax credit carry forwards for Federal income tax
purposes. As of February 28, 1997 there were approximately $798,000 in
operating loss carry forwards for state income tax purposes which expire
in 5 to 15 years depending on the State to which the carry forwards are
allocated. No deferred tax assets have been provided for on the state
carryforwards as the realization of those carryforwards is uncertain and
the amount would be immaterial.
Deferred taxes payable as of February 28, 1997 and February 29, 1996
consist of the following:
1997 1996
Deferred tax liability arising from
using accelerated depreciation
for income tax purposes $ 73,950 $ 90,050
Deferred tax liability arising from
bases differences in investment in partnership
for financial and tax reporting purposes 11,850 11,000
Deferred taxes payable $ 85,800 $ 101,050
<PAGE>
NOTE H - RELATED PARTY TRANSACTIONS
The Company is obligated under debentures payable to an officer,
director and stockholder totaling $160,000 at February 28, 1997 and at
February 29, 1996. Interest expense on the debentures was approximately
$17,000 in 1997, 1996 and 1995.
The Company is also obligated under debentures payable to other related
parties in the amount of $18,000 at February 28, 1997 and February 29,
1996.
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 1997, and $8,333
per month from March 1995 through November 1995.
1997 1996 1995
Direct payroll and benefits $ 1,045,426 $ 1,218,879 $ 1,156,741
Management fees and overhead costs 465,210 328,815 276,747
Liquified CO2 sales - 19,997 149,889
CO2 tank rental - - 36,868
$ 1,510,636 $ 1,567,691 $ 1,620,245
Amounts receivable from SCCLP for these transactions were $520 as of
February 28, 1997 and $16,547 as of February 29, 1996.
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. The Company
received $318,829 in 1997 and $417,554 in 1996 representing the
estimated tax liabilities associated with taxable partnership income
allocations through February 1996.
On November 1, 1996, IRC issued an 8%, $325,000 revolving line of credit
to Red Hills Manufacturing, Inc. ("RHMCO)" a New Mexico Corporation
controlled by certain current and former officers and employees of IRC.
The revolving line of credit was established to facilitate the purchase
of certain woodworking equipment and to fund start-up working capital
requirements of RHMCO. The revolving credit line is scheduled to
terminate on December 31, 1997 and is secured by cash, accounts
receivable, inventories and equipment owned by RHMCO. The balance
outstanding on the revolving credit line as of February 28, 1997 was
$310,200. In addition, as of February 28, 1997, RHMCO was indebted to
the Company in the amount of $1,500 for travel expenses and $5,900 in
accrued interest on the revolving credit line. RHMCO is currently
occupying unutilized building space owned by IRC in exchange for certain
maintenance and monitoring services required by IRC.
NOTE I - COMMITMENTS AND CONTINGENCIES
Reservation of Common Stock: At February 28, 1997, 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
<PAGE>
by them, the Company extended the expiration date on the associated
warrants to purchase 11,125 shares of common stock, until September 17,
1997.
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 28, 1997 the Partnership had approximately $1,817,000 of
accounts payable to creditors of the Partnership.
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 one account. As
of the date of this report, commitments to creditors of COTI amount to
approximately $1,944,000 under a railcar lease agreement. The railcar
lease guarantee relates to a 5 year lease of 100 railcars and the limit
of the guarantee is reduced by $648,000 annually as long as COTI is not
in default under the terms of the lease. The Company believes that COTI
has sufficient working capital to satisfy its outstanding obligations
secured by the guarantee.
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 during 1997.
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 1997, 1996, or 1995.
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 $0 for 1997, $11,758 for
1996, and $11,569 for 1995.
<PAGE>
NOTE K - FINANCIAL INFORMATION RELATING TO INDUSTRY SEGMENTS
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:
Years Ended
February 28, February 29, February 28,
1997 1996 1995
(Dollars in thousands)
REVENUES
Petroleum refining and processing $ 478 $ 528 $ 667
Electrical co-generation 215 666 1,031
Natural gas production 245 141 193
Methanol plant operations (882) 1,379 1,415
Other 13 131 20
$ 69 $ 2,845 $ 3,326
OPERATING PROFIT (LOSS)
Petroleum refining and processing $ (91) $ (47) $ (42)
Electrical co-generation 66 (4) -
Natural gas production 60 (43) 2
Methanol plant operations (1,086) 1,016 1,059
Other 7 (5) 5
$(1,044) $ 917 $ 1,024
IDENTIFIABLE ASSETS
Petroleum refining and processing $ 1,008 $ 1,096 $ 1,455
Electrical co-generation 132 179 201
Natural gas production 467 435 506
Methanol plant operations 136 1,893 1,240
Other 1,435 819 436
$ 3,178 $ 4,422 $ 3,838
DEPRECIATION, AMORTIZATION AND DEPLETION
Petroleum refining and processing $ 66 $ 64 $ 73
Electrical co-generation 15 - 8
Natural gas production 39 43 34
Methanol plant operations 14 24 12
Other 1 9 1
$ 135 $ 140 $ 128
Years Ended
February 28, February 29, February 28,
1997 1996 1995
(Dollars in thousands)
CAPITAL EXPENDITURES
Petroleum refining and processing $ - $ - $ -
Electrical co-generation 27 - 29
Natural gas production - - -
Methanol plant operations - - -
Other - - 1
$ 27 $ - $ 30
<PAGE>
Sales of crude oil during 1997 were made substantially to one customer.
Sales to the customer during 1997 were $479,000.
Electrical energy and capacity is sold substantially to one customer.
Sales of energy and capacity to the customer were $215,000 for 1997,
$666,000 for 1996, and $1,031,000 for 1995.
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 $250,000 for 1997, $135,000 for 1996,
and $184,000 for 1995.
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 28, 1997 and February 29, 1996 are as
follows:
1997 1996
Proved gas properties $ 894,400 $ 894,400
Unproved oil and gas properties - -
Less accumulated depletion (505,928) (471,940)
Net capitalized costs $ 388,472 $ 422,460
<PAGE>
Results of Operations: Results of operations of oil and gas producing
activities, excluding overhead and interest allocations, for the years
ended February 28, 1997, February 29, 1996 and February 28, 1995 are as
follows:
1997 1996 1995
Revenues
Natural gas sales $ 244,666 $ 140,794 $ 193,101
Costs and Expenses
Operating costs 72,576 98,384 74,331
General and administrative 2,992 1,703 2,451
Depletion, depreciation and amortization 33,988 40,224 28,303
109,556 140,311 105,085
Pre-tax net income (loss) 135,110 483 88,016
Income tax expense 45,937 164 29,925
Net income (loss) $ 89,173 $ 319 $ 58,091
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 28, 1997, February 29, 1996
and February 28, 1995 are as follows:
1997 1996 1995
Net gas production (Mcf) 211,723 250,568 176,317
Average sales price ($/Mcf) $ 1.1556 $ 0.5619 $ 1.0952
Average production cost ($/Mcf) $ 0.3569 $ 0.2865 $ .4355
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 28, 1997 and February 29, 1996 are as follows:
1997 1996
(MMcf) (MMcf)
Proved developed 2,422 2,634
Proved undeveloped - -
2,422 2,634
Statement of Changes in Quantities of Proved Developed and Undeveloped
Gas Reserves for the years ended February 28, 1997, February 29, 1996
and February 28, 1995 are as follows:
1997 1996 1995
(MMcf) (MMcf) (MMcf)
Proved reserves - beginning of year 2,634 2,884 3,061
Adjustment to reserves - 1 (1)
Production (212) (251) (176)
Proved reserves - end of year 2,422 2,634 2,884
<PAGE>
The Standardized Measure of Discounted Future Net Cash Flows relating to
Proved Gas Reserves as of February 28, 1997 and February 29, 1996 are as
follows:
1997 1996
($/1000) ($/1000)
Future cash inflows $ 2,799 $ 1,480
Future production costs (864) (755)
Future income tax expense (541) (106)
Future net cash flow 1,394 619
Ten percent discount factor (635) (266)
Standardized measure of discounted
future net cash flows $ 759 $ 353
Changes in the Standardized Measure of Discounted Future Net Cash Flows
From Proved Gas Reserve Quantities for the years ended February 28,
1997, February 29, 1996 and February 28, 1995 are as follows:
1997 1996 1995
($/1,000) ($/1000) ($/1000)
Standardized measure - beginning of year $ 353 $ 619 $ 754
Adjustment to reserves - - -
Sales, net of production costs
and income taxes (122) (59) (86)
Accretion of discount (including
changes in present value due to
price changes) 528 (207) (49)
Standardized measure - end of year $ 759 $ 353 $ 619
Developed and Undeveloped Acreage: The following summarizes the
Company's gross and net undeveloped and developed acreage at February
28, 1997 and at February 29, 1996:
1997 1996
Gross Net Gross Net
Developed Acreage
Kansas 11,568 9,324 11,568 9,324
Undeveloped Acreage - - - -
"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 28, 1997 and February
29, 1996, in the following wells, none of which are multiple completion
wells:
1997 1996
Gross Net Gross Net
Producing gas wells 20 16.12 20 16.12
<PAGE>
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 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.
<PAGE>
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.
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>
<CAPTION>
The Company's share of income/loss allocations for the calendar year
ended December 31, 1994, for the two month period ended, February 28,
1995, the fiscal year ended February 29, 1996 and the fiscal year ended
February 28, 1997 are as follows:
INCOME (LOSS) FROM OPERATIONS
IC & GTGI
Partnership SCCLP IC-LP IC & GTGI Effective
Year Ended Income (Loss) Income (Loss) Income (Loss) Allocation %
<S> <C> <C> <C> <C>
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%
February 28, 1997 (2,245,397) (1,571,778) (1,347,238) 60.0%
</TABLE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM SALE OF ASSETS AND LEGAL SETTLEMENT
IC & GTGI
Partnership SCCLP IC-LP IC & GTGI Effective
Year Ended Income (Loss) Income (Loss) Income (Loss) Allocation %
<S> <C> <C> <C> <C>
December 31, 1994 - - - -
2 months ended February 28, 1995
(Unaudited) - - - -
February 29, 1996 6,346,570 4,442,599 4,235,574 66.7%
February 28, 1997 - - - -
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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:
Investment Cash
Fiscal Beginning Income (Loss) Investment Investment
Year Ended of Year Allocations (Distributions) End of Year
(1) (2)
<S> <C> <C> <C>
IC General Partner:
February 28, 1995 - - - -
February 29, 1996 - 1,156,590 (1) (22,244) 1,134,346
February 28, 1997 1,134,346 (848,760) (267,607) 17,979
GTGI - Limited Partner:
February 28, 1995 -988,548 200,000 1,188,548
February 29, 1996 1,188,548 (126,854) (395,310) 666,384
February 28, 1997 666,384 (498,478) (51,222) 116,684
<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
represented 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.
The Company received cash distributions for estimated income tax
liabilities for income allocations of $318,829 in 1997 and $417,534 in
1996.
</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.
Condensed balance sheet information for SCCLP as of February 28, 1997,
February 28, 1996 and February 28, 1995 is as follows:
February February February
1997 1996 1995
(Audited) (Unaudited) (Audited)
$/1000 $/1000 $/1000
Current assets $ 2,381 $ 5,100 $ 8,303
Property, plant and
equipment (net) 461 433 2,173
Other assets (net) 229 250 479
Total Assets $ 3,071 $ 5,783 $ 10,955
Current liabilities $ 1,993 $ 1,614 $ 1,220
Long-term debt (net of
current portion) - - 5,123
Other liabilities - - 3,429
Partners' capital (deficit) 1,078 4,169 1,183
Total liabilities and
partners' capital $ 3,071 $ 5,783 $ 10,955
<PAGE>
Condensed results of operations for SCCLP for the years ended February
28, 1997, and February 29, 1996, the 2 months ended February 28, 1995,
and the year ended December 31, 1994 is as follows:
2 Months
February 28, February 29, Ended
1997 1996 2/28/95 1994
(Audited) (1) (1) (Audited)
$/1000 $/1000 $/1000 $/1000
Revenues $ 9,847$ 7,767 $ 4,618 $ 16,319
Costs and expenses (12,116) (10,192) (1,674) (11,153)
Interest expense (net) 89 (72) (42) (580)
Depreciation and amortization (65) (202) (39) (191)
Income (loss) from operations (2,245) (2,699) 2,863 4,395
Extraordinary item - 6,347 - 479
Net income (loss) $ (2,245) $ 3,648 $ 2,863 $ 4,874
(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.
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. On July 20, 1996, the Company and Chad
executed a definitive merger agreement. On February 10, 1997, the
Company filed a Form S-4 with the Securities and Exchange Commission
("SEC") and received comments on the Form S-4 from the SEC on March 27,
1997. On May 14, 1997, the merger agreement was terminated by mutual
agreement of the parties. There are no current plans to renegotiate the
merger agreement and the Form S-4 currently pending with the SEC will be
withdrawn.
Investment in Chatfield Dean: 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 an 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.
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. During the fiscal year ended
February 28, 1997, the Company received $1,517 in dividends on this
investment.
<PAGE>
Both the 50,000 shares of Series B and the 10,000 shares of Series A
preferred stock were, under the now terminated merger agreement, to be
sold to a third party prior to closing of the merger. In the absence of
the agreement, the Company, through the assistance of Chad, intends to
seek a buyer for or other disposition of the shares. As the shares are
not publicly traded and there is currently no apparent market for the
shares, the liquidity of this investment is questionable. However, it is
believed that the shares can ultimately be sold or disposed of without
material loss to the Company and in the opinion of Management, the
establishment of a valuation allowance is not necessary at this time.
NOTE P - FINANCIAL ACCOUNTING STANDARDS
Transfer and Servicing of Financial Assets and Extinguishment of
Liabilities: The Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 125, "Transfer and Servicing of
Financial Assets and Extinguishment of Liabilities." This Statement
requires that transferred assets could be derecognized only when control
is surrendered, rather than when risks and rewards related to the asset
are passed to another party. A liability would be extinguished when the
creditor no longer has ultimate responsibility for the liability. This
Statement has not had and is not anticipated to have a material impact
on the Company's financial condition.
Earnings per Share: Recently the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128, "Earnings
per Share." It simplifies the standards for computing earnings per
share, superseding the standards previously found in Opinion 15. It
replaces the presentation of primary earnings per share with a
presentation of basic earnings per share. It also requires dual
presentation of basic and diluted
earnings per share on the face of the income statement for all entities
with complex capital structures and requires a reconciliation of the
numerator and denominator of the basic earnings per share computation to
the numerator and denominator of the earnings per share computation.
This Statement will affect the financial statements issued by the
Company after December 15, 1997.
Disclosure of information about an Entity's Capital Structure: The
Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards No. 129, "Disclosure of Information about
an Entity's Capital Structure." This Statement applies to all entities.
Its requirements are a consolidation of those found in APB Opinions 10
and 15, and Statement of Financial Accounting Standards No. 47, and it
eliminates the exemption of non public entities from certain disclosure
requirements. This Statement will affect the financial statements
issued by the Company after December 15, 1997.
<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, 1997, there were
approximately 499 holders of
the Company's common stock,
including 224 holders of record
and an estimated 275 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, is as
follows:
Bid Prices
Quarter Ended High Low
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
May 31, 1996 4 1/8 2 1/2
August 31, 1996 3 1/2 2 1/4
November 30, 1996 3 1/2 2
February 28, 1997 2 1/2 1 3/4
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.
<PAGE>
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 1, 1997,
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 1, 1997
<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 28, 1997 and
February 29, 1996
<PAGE>
CONTENTS
Page
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 1
FINANCIAL STATEMENTS
BALANCE SHEETS as of February 28, 1997
and February 29, 1996 2
STATEMENTS OF OPERATIONS for the year ended
February 28, 1997 and for the fourteen
month period ended February 29, 1996 4
STATEMENTS OF PARTNERS' CAPITAL
for the year ended February 28, 1997 and
for the fourteen month period ended
February 29, 1996 4
STATEMENTS OF CASH FLOWS for the year ended
February 28, 1997 and for the fourteen
month period ended February 29, 1996 5
NOTES TO FINANCIAL STATEMENTS 6-11
<PAGE>
<TABLE>
<CAPTION>
SAND CREEK CHEMICAL LIMITED PARTNERSHIP
Balance Sheets
February 28, February 29,
1997 1996
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents - Notes A, D and H $ 882,511 $ 4,087,719
Certificate of deposit - Note F 35,000 -
Accounts receivable - Notes B and D 1,049,996 608,598
Inventories - Notes A and D 304,577 294,253
Prepaid expenses 109,139 109,200
TOTAL CURRENT ASSETS 2,381,223 5,099,770
PROPERTY AND EQUIPMENT, at cost - Notes A and D
Land 276,000 276,000
Equipment 203,036 131,664
Vehicles 15,011 15,011
Furniture and fixtures 116,955 116,955
611,002 539,630
Less accumulated depreciation and amortization (150,093) (106,197)
460,909 433,433
OTHER ASSETS
Other assets and deferred charges,
net - Notes A and C 229,275 250,205
$ 3,071,407 $ 5,783,408
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Balance Sheets, Continued
February 28, February 29,
1997 1996
<S> <C> <C>
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES
Accounts payable $ 813,127 $ 531,830
Accounts payable to related parties - Note E - 15,912
Property and other taxes payable 412,960 299,898
Accrued plant lease payable - Note G 175,833 175,833
Deferred sales discounts and other
credits - Notes F and I 590,955 590,955
Revolving credit line - Note D - -
TOTAL CURRENT LIABILITIES 1,992,875 1,614,428
COMMITMENTS AND CONTINGENCIES - Note F - -
PARTNERS' CAPITAL - Notes F and J 1,078,532 4,168,980
$ 3,071,407 $ 5,783,408
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SAND CREEK CHEMICAL LIMITED PARTNERSHIP
Statements of Operations
For the For the fourteen
year ended months ended
February 28, February 29,
1997 1996
<S> <C> <C>
REVENUES
Methanol sales $ 9,011,308 $ 11,971,232
Fuel gas sales 285,513 394,489
Other - Note K 550,312 19,635
9,847,133 12,385,356
COSTS AND EXPENSES
Cost of sales - Note E 11,373,361 10,553,400
General and administrative - Note E 743,799 966,366
Depreciation and amortization 64,826 241,337
Litigation expenses - Note F - 46,012
Loss on sale of equipment - 35
Settlement of Conoco litigation - Note F - 300,000
Interest, net (89,456) 113,512
12,092,530 12,220,662
EARNINGS (LOSS) BEFORE EXTRAORDINARY ITEM (2,245,397) 164,694
EXTRAORDINARY ITEM
Settlement of CDK litigation - Note F - 6,346,570
NET EARNINGS (LOSS) $(2,245,397) $ 6,511,264
</TABLE>
<TABLE>
<CAPTION>
Statements of Partners' Capital (Deficit)
General Limited
Partner Partner Total
<S> <C> <C> <C>
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
Cash distributions to partners - Note F (347,286) (497,765) (845,051)
Allocation of loss - year ended
February 28, 1997 (1,571,775) (673,622) (2,245,397)
CAPITAL (DEFICIT), February 28, 1997 $ 1,398,417 $ (319,885) $ 1,078,532
<FN>
The accompanying notes are an integral part of these financial statements.
<FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SAND CREEK CHEMICAL LIMITED PARTNERSHIP
Statements of Cash Flows
For the For the fourteen
year ended months ended
February 28, February 29,
1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) $(2,245,397) $ 6,511,264
Adjustments to reconcile net earnings (loss) to net
cash provided (used) by operating activities:
Depreciation and amortization 64,826 241,337
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 (441,398) 1,353,636
(Increase) decrease in inventories (10,324) 323,981
(Increase) in prepaid expenses 61 54,199
(Increase) decrease in accounts payable 281,297 (236,560)
(Decrease) in accounts payable to
related parties (15,912) (13,261)
(Decrease) in accrued plant lease payable - (175,831)
(Decrease) in accrued interest payable - (114,705)
Increase in property and other taxes payable 113,062 23,529
(Decrease) in litigation expenses payable - (1,450,816)
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES (2,253,785) 648,380
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from CDK litigation - 7,500,000
Purchase of certificate of deposit (35,000) -
Maturity of certificate of deposit - 250,000
Purchases of plant equipment and
leasehold improvements (71,372) (1,981,141)
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (106,372) 5,768,859
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on long-term debt - (5,185,000)
Cash distributions to partners (845,051) (661,822)
Advances on credit line 9,807,000 8,621,120
Payments on credit line (9,807,000) (8,621,120)
NET CASH USED BY FINANCING ACTIVITIES (845,051) (5,846,822)
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (3,205,208) 570,417
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD 4,087,719 3,517,302
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 882,551 $ 4,087,719
<FN>
The Partnership paid interest in cash of approximately $10,147
during the year ended February 28, 1997 and $515,334 during the
fourteen months ended February 29, 1996.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
SAND CREEK CHEMICAL LIMITED PARTNERSHIP
Notes to Financial Statements
February 28, 1997
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 Andrea Chemical, Inc. ("ANDREA"). Andrea acquired its interest in
SCCLP from San Juan Holdings, LLC ("SJH") on November 1, 1996, the sole
limited partner. The Partnership is managed by Intermountain Chemical,
Inc. ("IC"), who is the general partner of ICLP.
The Partnership's financial statements for the year ended February 28,
1997 have been prepared on a going concern basis which contemplates the
realization of assets and the settlement of liabilities and commitments in
the normal course of business. The Partnership incurred a net loss of
$2,245,397 for the year ended February 28, 1997 and the rent payments
required to be made to GECC are scheduled to escalate in November of 1997
to $4,435,000 per year. Management recognizes that the Partnership needs
to improve its operations in order to meet its future rent and other
obligations. The Partnership has positive working capital and positive
partners' capital at February 28, 1997. Mechanical problems which limited
production during fiscal year 1997 have been resolved and natural gas
prices have subsequently declined to more traditional levels than those
prices paid in fiscal 1997. In addition, methanol prices have improved and
have remained stable throughout the spring of 1997 which should result in
significant improvements in operations for the fiscal year 1998.
Management of the Partnership also intends to continue discussions with
GECC to renegotiate the terms of its lease or to seek some other
arrangement to sustain operations. Management believes it will be
successful in doing so.
Cash and Cash Equivalents: For purposes of reporting cash flows, cash and
cash equivalents including 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
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. Gains or losses on disposition of property are
included in results of operations.
Deferred Charges: Deferred charges, consisting of organization costs, 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.
<PAGE>
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.
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 28, February 29,
1997 1996
Organization costs $ 11,387 $ 11,387
Lease closing costs 296,060 296,060
Less accumulated amortization (78,172) (57,242)
$ 229,275 $250,205
Amortization expense for the year ended February 28, 1997 was $20,930 and
$68,033 for the fourteen month period ended February 29, 1996.
In December 1995, capitalized loan fees associated with a 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
Long-Term Debt: The Partnership had no borrowings under any long-term debt
agreements as of February 28, 1997 or February 29, 1996.
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 28, 1997, 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, prior to January
1, 1997 provided 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 year ended February 28, 1997 and the fourteen months ended
February 29, 1996, amounts paid to IC and Unico in connection with the
foregoing activities were as follows:
1997 1996
Operating, maintenance, construction
and administrative wages,
including taxes and benefits $ 1,267,578 $ 1,618,230
Carbon dioxide purchases - 46,009
Carbon dioxide tank rental - 24,578
Management fees 250,000 154,167
Travel expenses 18,910 16,047
$ 1,536,488 $ 1,859,031
At February 28, 1997 and at February 29, 1996, the Partnership had
payables of $520 and $15,912 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. On
November 1, 1996, SJH transferred its interest in the Partnership to
Andrea Chemical, Inc., a company owned and controlled by officers and
directors of Unico and IC. During the year ended February 28, 1997 and
the fourteen months ended February 29, 1996, there were no transactions
between the Partnership and SJH or Andrea.
NOTE F - COMMITMENTS AND CONTINGENCIES
CDK Litigation: During 1991, the Partnership filed a suit for damages
resulting from the breech of contract by CDK Contracting, Inc. for failure
to complete construction of the plant facility. On March 15, 1995, the
Partnership was awarded a judgement of $9,415,559 in conjunction with the
matter. In December 1995 the matter was settled with CDK for a cash
payment of $7,500,000 with the proceeds being used to payoff the then
outstanding term loan to GECC, the payment of litigation expenses accrued,
the distribution of cash to partners for the payment of income taxes,and
for establishment of a rent reserve account with Fleet (See Note H). The
extraordinary gain of $6,346,570 included in net earnings of the
Partnership for the fourteen months ended February 29, 1996 represented
the excess of the settlement proceeds received over the net value of
construction completion costs previously capitalized and off set by
previously retained construction contract obligations.
Litigation Expenses: GECC, the Partnership's lender, 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 $46,012 in additional fees incurred by GECC and
paid $1,496,828 to GECC out of 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. In March 1996, 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 28, 1997
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 had claimed that it was entitled to
receive an additional 300 to 400 barrels per day of methanol under the
agreement. 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, 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. In March 1997 and
subsequent to year end, Conoco and the Partnership executed a final
agreement which encompassed full re-negotiation of methanol and purge gas
sales terms between the parties which provides for the delivery of the
$300,000 of methanol as previously accrued.
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 expired on November 1, 1996 and was renewed and extended
to November 1, 1997.
On March 1, 1996, the Partnership pledged a $35,000 certificate of deposit
to a bank to secure a $35,000 non revocable stand by letter of credit to
a natural gas transportation provider for the purpose of securing natural
gas transportation services. The letter of credit expired on March 1,
1997 and was not requested to be renewed by the gas transportation
provider.
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 28, 1997 are as follows:
1998 2,691,250
1999 4,435,000
2000 4,435,000
2001 4,435,000
2002 4,435,000
Thereafter 29,936,250
TOTAL $50,367,500
Accrued plant rental expense payable was $175,833 as of February 28, 1997
and as of February 29, 1996. Plant rental expense included in results of
operations was $2,110,000 for the year ended February 28, 1997 and
$2,461,669 for the fourteen months ended February 29, 1996.
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 was an outstanding balance on the term loan from GECC,
contingent rentals were not applicable. No contingent rentals were either
due or payable during the year ended February 28, 1997 or the fourteen
months ended February 29, 1996.
Carbon Dioxide Tank Rent: The Partnership reimbursed IC for the cost of
leased carbon dioxide storage tanks that were 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 passed 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, was 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.
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 28, 1997
are as follows:
1998 49,500
Railcar lease expense included in results of operations was $66,000 for
the year ended February 28, 1997 and $77,000 for the fourteen months ended
February 29, 1996.
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, and the "Rent Account" which is an
established reserve for future rent payments. Disbursements from these
accounts require prior authorization from GECC in accordance with
applicable agreements.
Cash balances in the aforementioned accounts, as of February 28, 1997,
were as follows:
Concentration Account $ 25,032
Rent Account (1) $ 795,963
<PAGE>
(1) During fiscal 1997, the Partnership, in accordance with the various
agreements between the Partnership, GECC and Fleet, established the Rent
Account with transfers from other Fleet accounts of available funds from
the CDK Legal Settlement (See Note F), and from business interruption
insurance proceeds received (See Note K). During fiscal 1997, the
Partnership used $1,408,489 from the Rent Account to pay accrued plant
rental obligations which were in excess of available cash flow from
operations as provided in the various agreements with GECC and Fleet.
Additional accounts have been 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 28, February 29,
1997 1996
Deferred sales discounts (1) $ 290,955 $ 290,955
Conoco Methanol credit (2) 300,000 300,000
$ 590,955 $ 590,955
(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 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, 1998.
NOTE J - PARTNERS' CAPITAL (DEFICIT)
For the year ended February 28, 1997 and the fourteen months ended
February 29, 1996, Partnership earnings were allocated 70% to the general
partner and 30% to the limited partner, in accordance with the Partnership
Agreement.
NOTE K - OTHER INCOME
During fiscal 1997, the Partnership received 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.
NOTE L - EMPLOYEE 401(K) PLAN
Beginning January 1, 1997, the Partnership became a member of Unico,
Inc.'s 401(k) Plan (the Plan) for the benefit of all of its full time
employees. Partnership contributions to the Plan are determined at the
discretion of Unico as determined annually by its Board of Directors.
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
Partnership contributions is on a six year graded basis applied
retroactive as of the effective date of the plan. Partnership
contributions to the Plan were $0 for 1997, and $7,488 for 1996.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27 FINANCIAL DATA SCHEDULE
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 12-MOS
<FISCAL-YEAR-END> FEB-28-1997 FEB-28-1997
<PERIOD-END> FEB-28-1997 FEB-28-1997
<CASH> 349055 349055
<SECURITIES> 0 0
<RECEIVABLES> 114685 114685
<ALLOWANCES> 0 0
<INVENTORY> 20861 20861
<CURRENT-ASSETS> 1142998 1142998
<PP&E> 2967288 2992757
<DEPRECIATION> (1828936) (1828936)
<TOTAL-ASSETS> 3177690 3177690
<CURRENT-LIABILITIES> 279606 279606
<BONDS> 9727 9727
0 0
0 0
<COMMON> 197318 197318
<OTHER-SE> 2042576 2042576
<TOTAL-LIABILITY-AND-EQUITY> 3177690 3177690
<SALES> 341793 1416182
<TOTAL-REVENUES> (65128) 68944
<CGS> 127216 676637
<TOTAL-COSTS> 207759 1106443
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (3436) 6883
<INCOME-PRETAX> (269451) (1044382)
<INCOME-TAX> (79352) (318806)
<INCOME-CONTINUING> (190099) (725576)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (190099) (725576)
<EPS-PRIMARY> (.20) (.74)
<EPS-DILUTED> (.20) (.74)
</TABLE>
