By: Jaris Tilstra MSM-630

1. Demise of Resources Unlimited Corporation By: Jaris Tilstra MSM-630

2. Content • Attempt to Avoid Bankruptcy • Corporate Senior Management Style • Accounting Practices • Lines of Communication • History • Deregulation / Merger • Derivatives and Hedges • Unrealistic Profits • Discrimination

3. History • Resources Unlimited was formed in 1985 • Merger of two natural pipeline companies • Was the largest gas distribution network in the U.S. • Comprised of 38,000 miles of pipeline • Went bankrupt in 1994

4. Deregulation / Merger • Originally regulated by the federal government • Regulation made it easy to make money • Post merger, steadiness and certainty changed for the worse • With deregulation prices began to swing wildly

5. Derivatives / Hedges • CEO’s vision included using derivatives and hedges • Statistically very complex • Used to absorb risk • Hedges offset derivative contracts

6. Unrealistic Profits • Incomplete and skewed data • Wall Street had reluctance to the baseline • 1988 there was 32 gas and 64 oil accounts • 1990 there was 86 oil accounts, but they didn’t know how many gas accounts • To stay with the 50% of oil account trend the gas accounts would be 43

7. Discrimination • Three men made $50,000, $52,000 and $55,000 • Mean for the three men’s salary is $52,333 • One woman made $32,000 • For this not to be discriminatory, the woman would have to have make $47,300 (a $15,300 raise) • The calculation is $52,333 - $5,033 (2 SD’s) = $47,300 • There is no information to base how they determine salaries for entry level management • The only salary information given is from accountants

8. Attempt to Avoid Bankruptcy • Dwindling gas accounts • 500 gas accounts would maintain cash flow for 30 days • CEO transferred accounts to dummy hedge fund • This was done to lessen cash demands • This action was done too late • There were only 43 gas accounts in 1990 so the scenario doesn’t quite make sense

9. Corporate Senior Management Style • CEO ignored information provided by the accountants • Allowed discrimination with pay • This management style trickled down to others • Ultimately failed

10. Accounting Practices • The accountants wanted to do things right • Submitted a memo of concern • There was discrimination in this department and likely others

11. Profit Structure • The baseline profits were skewed causing problems • Provided incomplete data • Public traded company • Wall Street was reluctant

12. Lines of Communication • CEO neglected communication from Accountants • CEO wanted to use complex instruments • Too many mysteries and not enough facts