1. The Demise of Resources Unlimited
Presentation by Sheila R West
Dr. Henry Dorr, Instructor
Bellevue University

2. .
• Company formed in 1985 through merger of two natural
pipelines
• Largest gas distribution network covering southwestern and
mountain states to northeastern and Midwestern regions
• Federal de-regulation of gas industry occurred after merger
• Much uncertainty and unsteadiness; daily changes in supply
and demand
• Purchase costs and sales prices began to swing wildly
.

3. .
• Envisions de-regulation of gas industry as an opportunity, not
a problem.
• Vision is to resolve gas industry uncertainties by using
derivatives and hedges to absorb risk of the cost and price
swings.
• Not able to baseline projected earnings due to incomplete data
furnished to analyst in New York.
• Company could not estimate the variant number of gas
accounts expected in the period from 1988-1990.
.

4. .
• Memo to Senior Mgt. expressed concern about
unrealistic corporate profits cited by national media.
• Questioned CEO regarding the construction of the
derivative model
• Concerned about accuracy of quarterly sales reported
by media and possibility of skewed data
• CEO took no action
.

5. • Accurate - Baseline average of eight quarters of data.
• Skewed - Baseline average of five quarters of data
 Quarterly Profits (in millions) - $342, $267, $321, $157, $33, $349, $132, and $289

7.  Resources Unlimited could not estimate variant number of
accounts.
 Our Assumption –Oil accounts estimated at 34% increase for 1990;
same increase estimated for gas accounts.
 Based on assumption above, gas accounts for 1990 forecasted as
43.

8. .
• 500 gas accounts to produce enough revenue for 30 days
• In six days, company lost 1/5 or 100 of its gas accounts
• After six days, CEO transfers 400 gas accounts to dummy
hedge fund

9. Mean Salary of 3 Highest Paid Accountants
(All Males)
($50000 + $52000 + $55000)/3 =$52,333
Variance
=(2333sq + 333sq + 2667sq)/3
=(5442889 + 110889 + 7112889)/3
=4222222.3
Standard Deviation
=Square Root of 4222222.3
=2054.81
Two Standard Deviations = 4109.62
Mean Salary minus Two Standard
Deviations
= $52,333 - 4,109.62
= $48,223.38 (Appropriate Salary to
Avoid Discrimination Suit)
Appropriate Raise to Female Accountant
= $48,223.38 - $32,000
= $16, 223.38
= $16,000 (nearest thous.)

10. ACCOUNTANT SALARIES/POTENTIAL
DISCRIMINATION SUIT
Male 1 - $55,000
Male 2 - $52,000
Male 3 - $50,000
Female - $32,000
Criteria for Discrimination Suit
More than two standard
deviations from the mean
salary of top three paid
employees in a job.

11. .
Resources Unlimited went into bankruptcy in June, 1994
What contributed to the demise of Resources Unlimited?
• Lack of competent or technically trained people to develop
the derivative model
• Incomplete data submitted to Wall Street analyst for reporting
• Lack of adequate communication with Wall Street Analyst
• Senior Management’s non-adherence to the Accounting
Departments concerns
• Senior Management’s lack of communication with the
Accounting Department
• Senior Management’s non-inclusive style of management.
.