Resources Unlimited Corporation Corporate Failure Analysis MSM 630

Resources Unlimited Corporation Corporate Failure Analysis MSM 630: Management of Metrics And Measurements Case Study May 21, 2015 Professor: Dr. Henry Dorr. Prepared By: Dale Hill

Resources Unlimited Corporation was formed in 1985 through the merger of two natural pipeline companies which resulted in the largest gas distribution network in the United States.

This network consists of 38, 000 miles of pipeline stretching from the production sites in the southwestern and mountain states to the industrial users and residential customers in the northeastern and Midwestern regions.

The issues: In 1994 Resources Unlimited filed for bankruptcy after more than four years of posting what some internal accountants deemed as unrealistic profits.

On top of declining profits. The company also experienced several poor management decisions regarding profit allocation. In addition a suit was filed claiming potential discriminatory salary issues based on gender.

Baseline Determination • Using the reported quarterly earnings we graphed the data and then projected a trend line based on the available date. • We then projected the trend line an additional 2 quarters. • Data indicates Resources Unlimited Corporation will continue to see a decline in profits

Projected Profits with Trend Projection 400 350 Dollars (Millions) 300 250 Quarterly Profits (Millions) 200 Projected Base Line Profit Trend Projection 150 100 50 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 In the absence of a reported base line. A Base line was established by calculating the mean value of the reported quarterly earnings from 1986 to 1988. This graph shows Insolvency was realized in 1992.

Oil and Gas accounts • Statements of Oil and gas accounts from reported data in 1998 and oil accounts from 1990 allowed for projection of the number of accounts each quarter from 1988 to 1994 at the time of bankruptcy. • Understanding there is a direct variance between oil and gas accounts allowed for projecting the data.

Oil and Gas Accounts 1988 to 1994 700 141. 308 - 1994 600 Number of accounts 500 108. 6 - 1992 400 344 - 1992 300 86 - 1990 200 100 0 500 - 1994 Gas Accounts Oil Accounts 188 - 1990 64 - 1988 32 - 1988 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 • Oil and gas accounts projected based on constant variability with each two year increment identified. • Further data analysis indicated 23 gas accounts were transferred to Hedge funds just prior to bankruptcy

Employee Compensation • Resources Unlimited faced a pay based gender discrimination suit from a member of their accounting staff. • The suit would have been avoided if all staff member starting salaries were grouped within a typical 2 X standard deviation with beginning salary and caps established.

$60 000 Male 1, $52, 000 $55 000 $50 000 Required Salary $48, 000 Male 2, $50, 000 5 $50 000 $45 000 salary Mean 2 X STD Dev $40 000 $35 000 Female 1, $32, 000 $30 000 $25 000 Chart displays existing salary curve with the mean salary and 2 X standard Deviation Identified. Also identified are three highest paid employees and the claimants' salaries Included in the chart as well as the recommended minimum salary for the claimant.

Questions ?