SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarter ended November 30, 1996
Commission file number 0-14973
UNICO,INC.
(Exact name of Registrant as specified in its charter)
New Mexico 85-0270072
(State of Incorporation) (IRS Employer ID #)
Registrant's telephone number, including area code 505-326-2668
Securities registered pursuant to Section 12(g) of the Act:
$.20 par value common stock
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
On December 31, 1996, there were 986,590 shares of registrant's $0.20 par
value common stock outstanding.
<PAGE>
INDEX
TO REPORT ON FORM 10-Q
FOR UNICO, INC.
Item in Form 10-Q Page
PART I: FINANCIAL INFORMATION
Item 1. Financial statements
Consolidated balance sheets as of November 30, 1996
and February 29, 1996 3
Consolidated statements of operations for the three and nine
month periods ended November 30, 1996 and 1995 5
Consolidated statements of cash flows for the
nine months ended November 30, 1996 and 1995 6
Notes to consolidated financial statements 7
Item 2. Managements discussion and analysis of financial
condition and results of operations. 7
PART II: OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
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<TABLE>
<CAPTION>
UNICO, INC.
Consolidated Balance Sheets
November 30, February 29,
1996 1996
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 221,948 $ 232,409
Certificate of deposit and short term investments 126,908 356,858
Accounts receivable 108,881 88,392
Accounts receivable from related parties - 17,859
Inventories 20,929 36,316
Tax refund receivable 265,604 -
TOTAL CURRENT ASSETS 744,270 731,834
PROPERTY AND EQUIPMENT
Land, buildings and improvements 434,327 434,327
Equipment 217,349 217,349
Refinery equipment 1,183,333 1,183,333
Co-generation equipment 290,298 263,348
Oil and gas properties 894,400 894,400
Property, plant and equipment (gross) 3,019,707 2,992,757
Accumulated depreciation & depletion (1,846,535) (1,746,015)
1,173,172 1,246,742
OTHER ASSETS
Notes receivable 9,318 10,818
Notes receivable from related parties 187,112 -
Other assets (net) 129,904 131,624
Investment in Chatfield Dean 600,000 500,000
Investment in partnership 541,584 1,800,730
1,467,918 2,443,172
$ 3,385,360 $ 4,421,748
</TABLE>
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<TABLE>
<CAPTION>
Consolidated Balance Sheets - Continued
November 30, February 29,
1996 1996
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 96,759 $ 106,327
Taxes other than income 4,662 4,930
Other accrued expenses 3,090 4,063
Current portion of long-term debt 9,330 76,539
Income taxes payable - 367,151
TOTAL CURRENT LIABILITIES 113,841 559,010
LONG-TERM DEBT, net of current portion 11,663 55,555
CONVERTIBLE SUBORDINATED DEBENTURES PAYABLE
TO RELATED PARTIES 178,000 178,000
DEFERRED TAXES PAYABLE, net of current portion 89,200 101,050
STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value,
authorized 8,000,000 shares,
none outstanding - -
Common stock, $0.20 par value,
authorized 2,500,000 shares,
issued and outstanding 986,590
shares 197,318 197,318
Additional paid in capital 2,042,576 2,042,576
Retained earnings 752,762 1,288,239
2,992,656 3,528,133
$ 3,385,360 $ 4,421,748
<FN>
See notes to consolidated financial statements.
</TABLE>
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<TABLE>
<CAPTION>
UNICO, INC.
Consolidated Statements of Income
For the three months ended For the nine months ended
November 30, November 30, November 30, November 30,
1996 1995 1996 1995
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES
Refined product sales $ 120,421 $ 137,708 $ 369,499 $ 416,510
Electrical capacity and energy 62,385 190,875 195,597 541,107
Rent and miscellaneous income 3,805 59,849 9,742 69,359
Natural gas sales 34,638 31,435 150,067 107,926
Loss from investment in partnership (304,690) (69,480) (940,317) (335,775)
Overhead, management fees, and
other revenues 115,884 95,594 349,484 315,441
32,443 445,981 134,072 1,114,568
COSTS AND EXPENSES
Cost of sales 166,245 389,799 549,421 1,155,298
General and administrative 79,085 79,099 248,743 230,595
Depreciation, depletion
and amortization 30,883 34,449 100,520 107,782
Interest, net 5,230 665 10,319 3,268
281,443 504,012 909,003 1,496,943
INCOME (LOSS) FROM OPERATIONS
BEFORE INCOME TAXES (249,000) (58,031) (774,931) (382,375)
Provision for income taxes:
Current (68,156) (23,900) (227,604) (113,891)
Deferred (3,950) (2,750) (11,850) (8,150)
(72,106) (26,650) (239,454) (122,041)
NET INCOME (LOSS) $(176,894) $ (31,381) $ (535,477) $ (260,334)
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 986,590 986,590 986,590 986,590
EARNINGS (LOSS) PER COMMON SHARE $ (0.1793) $ (0.0318) $ (0.5428) $ (0.2639)
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
UNICO, INC.
Consolidated Statements of Cash Flows
For the nine months ended
November 30, November 30,
1996 1995
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (535,477) $(260,334)
Adjustments to reconcile net income
to cash provided by operating activities:
Depreciation, depletion and amortization 100,520 107,782
Deferred income taxes (11,850) (8,150)
Loss on investment in partnership 940,317 335,775
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (2,630) (29,691)
(Increase) decrease in inventories and
prepaid expenses 15,387 32,144
Increase (decrease) in accounts payable
and accrued expenses (10,809) 16,938
Increase (decrease) in income taxes accrued (632,755) (363,282)
NET CASH FLOW PROVIDED, (USED) BY OPERATING ACTIVITIES (137,297) (168,818)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (26,950) -
Cash distribution received from partnership 318,829 417,554
Increase in certificates of deposit (5,050) (13,129)
Decrease in certificates of deposit 235,000 -
Decrease in other assets 1,720 -
Investment in Chatfield Dean (100,000) -
Increase in notes receivable (187,112) (250,000)
Collections on notes receivable 1,500 4,000
NET CASH FLOW PROVIDED (USED) BY INVESTING ACTIVITIES 237,937 158,425
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in long-term debt 26,950 -
Payments on long term debt (138,051) (64,466)
NET CASH FLOW USED BY FINANCING ACTIVITIES (111,101) (64,466)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ (10,461) $ (74,859)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 232,409 515,195
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 221,948 $ 440,336
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
The consolidated balance sheet as of November 30, 1996, the consolidated
statement of income for the three and nine month periods ended November 30, 1996
and 1995, and the consolidated statement of cash flows for the nine month period
ended November 30, 1996 and 1995, have been prepared by the Company, without
audit. In the opinion of management, all adjustments, (which include only normal
recurring adjustments), necessary to present fairly the financial position,
results of operations and changes in cash at November 30, 1996, and for all
periods presented have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principals
have been condensed or omitted. It is suggested that these consolidated
financial statements be read in conjunction with the Company's Form 10-K, filed
with the Securities and Exchange Commission. The results of operations for the
period ended November 30, 1996, are not necessarily indicative of operating
results for the full year.
Investment in Partnership
During the nine month period ended November 30, 1996, unaudited losses by
SCCLP were $1,567,194. The company's share of loss allocations as of that date
included $347,917 and $592,400 to Gas Technologies Group, Inc. ("GTGI"), and
Intermountain Chemical, Inc. ("IC") respectively. The GTGI and IC shares are
recorded using the equity method and are included in results of operations for
all periods presented.
During the nine month period ended November 30, 1996, the Company received
cash distributions of $318,829 from SCCLP representing the estimated tax
liabilities of the Company associated with income allocations for the year ended
February 29, 1996.
Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations.
Business
The Company was incorporated under the laws of the State of New Mexico in
April, 1979. Company resources are segmented into four categories of business;
petroleum product refining and processing, electrical energy production, natural
gas production, and methanol production. Currently, refining and processing and
electrical energy production are performed by the Company's wholly-owned
subsidiary, Intermountain Refining, Co., Inc. ("IRC"), while natural gas
production is carried-out by the Company under the name Unico Resources. Through
its wholly-owned subsidiary, Intermountain Chemical, Inc., the Company manages
and operates a methanol production facility, owned by others, in Commerce City,
Colorado. Through its wholly owned subsidiary GTGI, the Company maintains a
limited partnership interest in the general partner of the methanol production
facility.
<PAGE>
Refining
The Company in the past refined low-cost, heavy crude oil and other low
gravity refined products into diesel fuel, fuel oils, and asphalt which were
generally marketed on a wholesale basis in the intermountain region. IRC
experienced a sharp reduction in the availability of crude oil from it's
traditional sources and has operated it's refinery only on a limited basis
during the past two years. The Company is hopeful that a long term solution to
the supply shortage can be resolved but thus far has been unsuccessful in
locating raw materials that would allow the economic operation of the facility.
In addition, IRC periodically provides certain asphalt terminalling services
wherein IRC receives a fixed monthly fee and reimbursement of certain operating
expenses directly related to the service provided.
Co-Generation
The co-generation plant produces up to 3,000 kilowatts of electrical energy
that is sold to an electric company in the local area. Additionally, the plant
produces all electricity and a portion of the steam used in the refining process
thereby contributing some savings in refinery operating costs when the refinery
is operating.
Natural Gas Production
In July, 1988, the Company acquired an interest in and began operating 20
natural gas wells located in the Hugoton basin in Southwestern Kansas. Natural
gas and helium produced is sold, under exclusive contract, to K.N. Energy, of
Lakewood, Colorado.
Methanol Production
In July, 1988, the Company initiated a project to construct a 250 ton per
day methanol production facility in the Denver, Colorado area. The facility
converts natural gas into chemical grade methanol which is marketed to refiners
and chemical distributors. The Company, through its subsidiary IC, is the
managing general partner of Sand Creek Chemical Limited Partnership ("SCCLP")
which performs all production and marketing operations associated with the
facility. IC holds the general partnership interest in IC Partners Limited,
("IC-PL"), the general partner of SCCLP. The facility is owned by Fleet Bank,
previously Shawmut Bank Connecticut, who leases the facility to SCCLP under a
fifteen year operating lease. Construction and start-up testing of the facility
was substantially completed in October 1993 and the facility is currently
operating near design capacity. The Company provides management, accounting and
personnel services to the facility and was active in the completion of
construction of the project. The Company has received various payments and
expense reimbursements associated with its services and activities on the
project.
In December 1994, the Company, through its newly formed wholly owned
subsidiary GTGI, acquired a limited partnership interest in IC-PL. The Company
receives allocations of SCCLP income and loss in accordance with it's various
interests in IC-PL.
Other Sources of Revenues
In January 1994, the Registrant agreed to provide credit support to
Consolidated Oil and Transportation, Inc. ("COTI") in the form of guarantees of
commercial credit and stand by letters of credit. COTI is a marketer and
transporter of heavy fuel oils and asphalt. In exchange for the credit support
provided to COTI, the Registrant received 8.75% of gross margins realized by
COTI. The Agreement with COTI was terminated in December 1995.
<PAGE>
Results of Operations
Quarter ended November 30, 1996 compared to quarter ended November 30, 1995
Total revenues, exclusive of SCCLP operating losses, during the current
quarter declined to $337,000, down 37% from $516,000 during the same period last
year. Earnings, exclusive of SCCLP operating loss allocations and before income
taxes for the current quarter increased to $56,000, up 409% from $11,000 during
the second quarter of the prior year. Cash flow from operations increased to
$53,000 during the current year quarter, up 196% from a use of $55,000 during
the third quarter of last year. SCCLP operating loss allocations increased to
$305,000 during the current quarter compared to a loss of $69,000 during the
same period last year.
The decline in revenues includes a decrease in electrical generation
revenue of $128,000 representing a change in the supply arrangements with the
Registrant's electric customer wherein electrical energy is supplied on a
standby basis only. Under the new arrangement, the customer still pays a fixed
standby capacity charge plus a variable charge for electrical energy generated.
However, under normal circumstances, the generators will only be operated in the
event that the customer requires short term emergency power. Revenues from the
sale of brokered crude oil declined slightly from last year due to a reduction
in volumes available. Rent and miscellaneous revenue declined due to the one
time inclusion of certain terminaling revenues received in the prior year.
Revenues from the sale of natural gas improved slightly over those received in
the prior year in spite of a substantial improvement in contract selling prices.
Due to generally warm and wet fall weather in the region and curtailments for
a processing plant shutdown in October, natural gas production was down during
the current quarter compared to last year. Revenues associated with management
of SCCLP increased by $46,000 over last years quarter offset by a reduction of
$25,000 associated with the discontinued COTI Agreement.
Operating income (loss) by industry segment, before allocation of general
corporate overhead for the third quarter of 1997 compared to the same period
during 1996 is as follows:
Increase
Segment 1997 1996 (Decrease)
Refining $ (33,200) $ 96,500 $(129,700)
Electrical generation 42,200 (105,400) 147,600
Gas production 10,800 4,500 6,300
Methanol project (188,700) (700) (189,400)
Corporate overhead
and other (80,100) (54,300) (25,800)
$(249,000) $ (58,000) $(191,000)
The increase in losses associated with refinery operations is due to the
inclusion of terminaling income in the prior year of $59,000 and an increase in
allocated operating costs. Operating costs at the Fredonia facility are
allocated for segment reporting based on total sales. Overall, total operating
costs associated with the facility declined by $17,000 from the prior year
quarter. The substantial improvement in electrical generator earnings is
associated with the favorable emergency standby arrangement along with a
reduction in allocated operating costs as previously mentioned. Taken together,
refinery and electrical generation operating income was $9,000 for the current
quarter compared to a loss of $9,000 in the prior year quarter. The improvement
in natural gas operating income is the result of improved sales prices even
though production was curtailed due to weather and processing constraints
experienced during the current year quarter. The decline in operating income
associated with the management and investment in SCCLP is the result of
increased loss allocations stemming from substantial scheduled and unscheduled
repair costs experienced during the current year quarter compared to last year.
As previously mentioned, management fees and overhead cost reimbursements
associated with the activity increased by $46,000 over the same period last
year. The increase in corporate overhead and other losses is the result of the
discontinuation of the COTI Agreement which had contributed $25,000 to earnings
in the prior year quarter.
<PAGE>
Nine months ended November 30, 1996 compared to nine months
ended November 30, 1995
Revenues, exclusive of SCCLP loss allocations, for the first nine months
of the current year declined to $1,074,000, down 26% from $1,450,000 during the
same period last year. Earnings, exclusive of SCCLP loss allocations and before
income taxes increased to $165,000, up 451% from a loss of $47,000 during the
same period last year. Cash flow from operations increased to a use of
$137,000, up 19% from a use of $169,000 in the prior year period. SCCLP loss
allocations were $940,000 during the first nine months of the year, compared to
$336,000 during the same period last year.
The most notable decline in revenues is attributed to the 64% decline in
electrical generation revenues. During the current year, the Registrant has
supplied electrical energy on an emergency standby basis only resulting in a
sharp decline in revenues associated with this activity. Revenues from the sale
of natural gas production increased 39% over last year due to a significant
improvement of the contracted sales price. Natural gas production however
declined some compared to last year due to diminished demand during the fall.
Revenues associated with petroleum product sales declined by 11% due to a
reduction in the quantities of crude oil available for resale. Rental income
declined by 86% due to a one time receipt of terminalling fees in the prior
year. Overhead reimbursements, management fees and other revenues increased by
11% over last year due to a $138,000 increase in SCCLP management revenues
offset by a $104,000 decline in revenues from the discontinued COTI Agreement.
Loss allocations associated with the Registrants investment in SCCLP increased
substantially over last year due to certain scheduled and unscheduled
maintenance costs during the current year.
Operating income (loss) by industry segment, before allocation of general
corporate overhead for the first nine months of 1997 compared to the same period
during 1996 is as follows:
Increase
Segment 1997 1996 (Decrease)
Refining $(101,600) $ (50,900) $ (50,700)
Electrical generation 114,500 (86,900) 201,400
Gas production 66,400 22,700 43,700
Methanol project (591,100) (125,300) (465,800)
Corporate overhead
and other (263,100) (142,000) (121,100)
$(774,900) $ (382,400) $(392,500)
The increase in operating losses from refinery activities is attributed to
the inclusion in the prior year of $59,000 of terminalling revenues. Without
the one time revenue last year, refining activities operating losses would have
declined by $8,000 due to cost reduction measures implemented and slight
improvements in margins realized on brokered crude oil. The significant
improvement in electrical generation income reflects the favorable terms of
supplying electrical capacity on an emergency stand-by basis compared to the
actual production of energy using high cost fuels. Electrical generation
operating costs have been substantially reduced as the generators are only
operated occasionally. In addition, as the generators were purchased from the
lessor in March of this year, fixed costs have been reduced to minimal levels.
The improvement in natural gas operating income is the direct result of a
substantial improvement in contracted selling prices. Natural gas production
volumes however are down by approximately 20% from last year due to a reduction
in demand during last summer and early fall associated with warm rainy weather
and a processing plant outage during October. The increase in losses associated
with the management of and investment in SCCLP is the result of the incurrance
of certain scheduled and unscheduled repair costs during the current year.
Losses associated with the investment in SCCLP increased $605,000 over last year
offsetting improvements in management related income of $139,000 realized during
the current year. The increase in overhead costs and other is attributed to the
discontinuation of the COTI Agreement which resulted in a reduction of income
of $104,000 from the prior year coupled with an increase in legal costs
associated with the proposed merger with Chatfield Dean.
<PAGE>
Liquidity and Capital Resources
The Registrant had working capital of $630,400 at November 30, 1996
compared to $172,800 at the beginning of the year. The increase in working
capital consists of a $493,500 increase from operations, a reduction in the non-
current portion of long term debt of $43,900, collections of notes receivable
of $1,500, cash distributions from SCCLP of $318,800, the additional investment
in Chatfield Dean preferred stock of 100,000, the issuance of notes receivable
of $187,100, and the purchase of equipment of $27,000. The Registrant believes
that current working capital levels, are adequate to cover expected operating
needs.
Total debt, consisting of notes payable, current portion of long-term debt,
long-term debt, and subordinated debentures, decreased by $111,000 during the
first nine months of the current year. Debt in these categories was 6.6% of
equity at November 30, 1996 compared to 8.8% at the beginning of the current
year.
Inflation, Deflation and Changing Prices
The results of operations and capital expenditures will continue to be
affected by inflation, deflation and changing prices. Prices of natural gas,
and generator fuel could have a materially adverse effect on the Registrant's
operations. Management is unable to predict the full impact of these factors
on the results of operations or working capital.
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
(a) In reference to legal proceedings described in the Registrant's
February 29, 1996 Form 10-K, (Part I, Item 3), there have been no
material changes in the actions that have occurred during the period
covered by this report.
Item 4. Submission of Matters to a Vote of Security Holders
(a) On November 15, 1996 the annual meeting of shareholders was held at
the offices of the Registrant. 686,863 shares were represented at
the meeting which comprised 69.62% of the outstanding shares of the
Registrant.
(b) William N. Hagler and Rick L. Hurt were reelected as the only
directors of the Registrant.
(c) Matters submitted for vote at the meeting and the voting results were
as follows:
(1) Election of Directors
Name For Against Abstained
William N. Hagler 686,863 0 0
Rick L. Hurt 686,863 0 0
(2) Selection of Auditors
Name For Against Abstained
Atkinson & Co. 686,863 0 0
(3) Authorization for management to develop and implement a plan of
reorganization wherein the Registrant would transfer ownership
of Gas Technologies to Intermountain Chemical and then spin-off
Intermountain Chemical to the current shareholders of the
Registrant.
Voting Results For Against Abstained
686,630 233 0
<PAGE>
Item 5. Other Information
(a) On January 15, 1996 the Registrant executed a Letter of Intent with
Chatfield Dean & Co., ("Chad") setting out the terms of a proposed
acquisition, by the Registrant, of all of the outstanding common and
preferred stock of Chad. The Registrant has previously reported
information regarding this proposed acquisition in its Form 8-K filed
as of January 15, 1996, and in its Form 10-K filed for the year ended
February 29, 1996. On July 30, 1995, the Registrant and Chad
executed a definitive merger agreement with respect to the proposed
acquisition as reported by the Registrant in it's Form 8-K filed with
the Commission on August 12, 1996. A summary of the significant
details of the acquisition are contained within that filing. As of
the date of this report, the Registrant and Chad are in the process
of preparing the Form S-4 documents to be filed with the Commission.
The effective date of the acquisition will be set upon receiving
approval of the filed Form S-4.
Item 6. Exhibits and Reports on Form 8-K
(b) There were no submissions on Form 8-K during the period covered by
this report.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in capacities and on the dates indicated:
UNICO, INC.
By: Rick L. Hurt Date: November 14, 1997
Rick L. Hurt, Controller, Secretary,
Treasurer, and Chief Financial Officer
<TABLE> <S> <C>
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<S> <C> <C>
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