Arc Hydro LEVEL DEM Z Value Error

Hello, I have started using Arc Hydro and was following tutorial by esri to learn arc hydro, But when i click LEVEL DEM i get an error stating that "Spatial reference does not have a Z Unit". I tried making changes in adf.prj file where my DEM file was present as my DEM was in UTM i tried making Z Units to 1 m or 100 cm but still I get this error .
Could you please help.??