<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
-------------
Commission File No. 000-22687
---------
JLM INDUSTRIES, INC.
(Exact name of registrant as specified in its charter.)
Delaware 06-1163710
- -------- ----------
(State of Incorporation) (IRS Employer Identification No.)
8675 Hidden River Parkway, Tampa, FL 33637
- ------------------------------------ -----
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (813) 632-3300
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 [ ] No [X]
Class Outstanding at August 26, 1997
----- ------------------------------
Common stock, par value
$.01 per share 6,899,936
<PAGE> 2
JLM INDUSTRIES, INC.
INDEX
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE NUMBER
- ------ --------------------- -----------
<S> <C> <C>
Item 1 Consolidated Financial Statements:
Consolidated Balance Sheets at December 31, 1996 and
June 30, 1997 (unaudited) 3
Unaudited Consolidated Statements of Income for the
Three and Six Months Ended June 30, 1996 and 1997 4
Unaudited Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 1996 and 1997 5
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II OTHER INFORMATION
- ------ -----------------
Item 1 Legal Proceedings 14
Item 2 Changes in Securities 14
Item 3 Defaults upon Senior Securities 14
Item 4 Submission of Matters to a Vote of Security Holders 14
Item 5 Other Information 14
Item 6 Exhibits and Reports on Form 8-K 14
</TABLE>
2
<PAGE> 3
ITEM 1 - FINANCIAL STATEMENTS
JLM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS December 31, 1996 June 30, 1997
----------------- -------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 4,792,473 $ 3,937,099
Accounts receivable:
Trade 25,721,911 28,599,982
Other 2,769,232 2,669,951
Inventories 13,283,576 11,280,881
Prepaid expenses and other current assets 3,699,913 4,281,612
Assets held for sale 1,924,394 690,439
----------- -----------
Total current assets 52,191,499 51,459,964
Other investments 1,881,066 2,998,650
Note receivable from Olefins Terminal Corporation 2,320,313 -
Property and equipment, net 29,368,360 29,127,362
Other assets 1,530,565 1,580,493
----------- -----------
Total assets $87,291,803 $85,166,469
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $39,590,106 $37,981,525
Current portion of long-term debt 3,962,385 3,823,313
Loans payable 8,366,520 8,375,955
Income taxes payable 33,322 814,342
Deferred revenue 300,475 2,400
----------- -----------
Total current liabilities 52,252,808 50,997,535
Long-term debt less current portion 17,808,872 15,645,309
Deferred income taxes 2,538,980 2,824,268
Loan payable to shareholder 905,148 905,148
Minority interest 137,802 88,508
Other liabilities 203,761 58,794
----------- -----------
Total liabilities 73,847,371 70,519,562
Stockholders' Equity:
Preferred stock - authorized 5,000,000 shares;
0 shares issued and outstanding - -
Common stock, $.01 par value, authorized
30,000,000 shares; issued and outstanding
5,011,200 shares 50,112 50,112
Additional paid-in capital 489,888 489,888
Retained earnings 13,467,898 14,691,274
Foreign currency translation adjustment (41,266) (62,167)
----------- -----------
13,966,632 15,169,107
Less treasury stock at cost - 267,264 shares (522,200) (522,200)
----------- -----------
Total stockholders' equity 13,444,432 14,646,907
----------- -----------
Total liabilities and stockholders' equity $87,291,803 $85,166,469
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
JLM INDUSTRIES,INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
-------------- --------------
1996 1997 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 63,093,678 $ 81,922,833 $ 120,954,976 $ 162,440,616
Cost of sales 56,269,188 74,617,973 107,440,351 148,289,135
------------- ------------- ------------- -------------
Gross profit 6,824,490 7,304,860 13,514,625 14,151,481
Selling, general and administrative expenses 3,742,816 3,945,880 7,758,019 7,863,549
------------- ------------- ------------- -------------
Operating income 3,081,674 3,358,980 5,756,606 6,287,932
Interest expense - net (648,521) (757,257) (1,290,007) (1,385,167)
Other expense - net (95,182) (100,499) (31,100) (59,730)
Foreign currency exchange gain (loss) - net 473,521 23,531 (325,494) 86,432
------------- ------------- ------------- -------------
Income before minority interest and income taxes 2,811,492 2,524,755 4,110,005 4,929,467
Minority interest in (income) loss of subsidiaries (23,666) 57,955 (31,028) 49,294
------------- ------------- ------------- -------------
Income from continuing operations before income
taxes and discontinued operations 2,787,826 2,582,710 4,078,977 4,978,761
------------- ------------- ------------- -------------
Income tax provision:
Current 245,866 733,672 844,611 1,281,961
Deferred 355,262 273,069 725,967 560,576
------------- ------------- ------------- -------------
Total income tax provision 601,128 1,006,741 1,570,578 1,842,537
------------- ------------- ------------- -------------
Income from continuing
operations before discontinued operations 2,186,698 1,575,969 2,508,399 3,136,224
Loss from operation of discontinued operations,
net of tax (102,445) (75,246) (184,715) (159,925)
------------- ------------- ------------- -------------
Net income $ 2,084,253 $ 1,500,723 $ 2,323,684 $ 2,976,299
============= ============= ============= =============
Income per share:
Income from continuing operations before
discontinued operations $ .44 $ .33 $ .50 $ .66
Discontinued operations (.02) (.01) (.04) (.03)
------------- ------------- ------------- -------------
Net income per share $ .42 $ .32 $ .46 $ .63
============= ============= ============= =============
Weighted average number of shares
outstanding 5,011,200 4,743,936 5,011,200 4,743,936
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
JLM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Six Months Ended
June 30,
1996 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,323,684 $ 2,976,299
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Deferred income taxes 725,967 285,288
Minority interest in income (loss) of subsidiaries 31,028 (49,294)
(Gain) loss on disposal of assets (43,500) 215,765
Depreciation and amortization 1,066,132 1,418,896
Loss from partnerships 24,000 24,000
Loss from investment in Olefins Terminal Corporation - net 98,599 272,021
Noncash management fee and interest income from OTC (134,539) (133,818)
Changes in assets and liabilities:
Increase in accounts receivable (695,441) (2,778,790)
Decrease in inventories 3,713,682 2,002,695
Decrease in assets held for sale 108,374 --
Increase in prepaid expenses and other current assets (369,161) (581,699)
Decrease (increase) in other assets 134,928 (151,285)
(Decrease) increase in accounts payable and accrued expenses (10,499,208) 349,576
(Decrease) increase in income taxes payable (876,906) 781,020
Increase (decrease) in deferred revenue 91,127 (298,075)
Decrease in other liabilities (16,632) (144,967)
------------ ------------
Net cash (used in) provided by operating activities (4,317,866) 4,187,632
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of assets held for sale 103,000 1,192,128
Capital expenditures (3,105,958) (1,250,479)
Other investments (35,000) (917,631)
------------ ------------
Net cash used in investing activities (3,037,958) (975,982)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds of loans payable 6,127,311 9,435
Proceeds from long-term debt 3,325,769 1,750,335
Repayments of long-term debt (3,217,390) (4,052,970)
Distributions to shareholders (177,536) (1,752,923)
Repayments of shareholder loan (87,682) --
------------ ------------
Net cash provided by (used in) financing activities 5,970,472 (4,046,123)
Effect of foreign exchange rates on cash (6,042) (20,901)
------------ ------------
Net decrease in cash and cash equivalents (1,391,394) (855,374)
Cash and cash equivalents, beginning of period 4,710,483 4,792,473
------------ ------------
Cash and cash equivalents, end of period $ 3,319,089 $ 3,937,099
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 1,320,443 $ 1,592,602
============ ============
Income taxes $ 507,343 $ 875,586
============ ============
Noncash investing activities:
Capital lease obligations $ 133,295 $ 50,335
============ ============
Forgiveness of accounts payable for joint venture
restructuring $ -- $ 1,958,157
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
JLM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS AND SIX MONTHS
ENDED JUNE 30, 1996 AND 1997
(UNAUDITED)
NOTE 1 DESCRIPTION OF BUSINESS
JLM Industries, Inc. and subsidiaries ("JLM" or the "Company") is a
leading marketer and distributor and a manufacturer of certain commodity
chemicals, principally acetone and phenol. JLM is headquartered in Tampa,
Florida. The Company believes it is the second largest marketer of acetone and
the fifth largest marketer of phenol in North America. JLM is also a global
distributor of olefins, principally propylene, as well as a variety of other
commodity and specialty chemicals. In order to provide stable and reliable
sources of supply for its products, the Company (i) maintains long-established
supplier relationships with several major chemical companies, (ii) manufactures
phenol and acetone at its Blue Island, Illinois Plant and (iii) sources acetone
from its joint venture manufacturing operation in Mt. Vernon, Indiana. The
Company's principal products are used in the production of adhesives, coatings,
forest product resins, paints, pharmaceuticals, plastics, solvents and synthetic
rubbers. The Company sells its products worldwide to over 600 customers.
NOTE 2 BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of the
Company have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete consolidated financial statements. In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included. Income results
for the interim periods are not necessarily indicative of the results that may
be expected for an entire year. These unaudited consolidated financial
statements should be read in conjunction with the Company's audited consolidated
financial statements for the year ended December 31, 1996 filed in the Company's
Prospectus dated July 23, 1997.
NOTE 3 PRO FORMA EARNINGS PER SHARE DATA
On July 24, 1997, the Company sold 2,156,000 shares of common stock at
an initial public offering price of $10 per share. The following unaudited
computation of pro forma primary earnings per share assumes that the sale of the
2,156,000 shares of common stock had occurred at the beginning of the periods
presented and does not purport to be indicative of what would have occurred had
the sale of stock actually been made as of such date. In addition, all pro forma
per share data reflects the stock split as described in note 5.
6
<PAGE> 7
<TABLE>
<CAPTION>
For the Three For the Three For the Six For the Six
Months Ended Months Ended Months Ended Months Ended
June 30, June 30, June 30, June 30,
1996 1997 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Pro Forma Income Per Share:
Income from continuing operations before
discontinued operations $ .31 $ .23 $ .35 $ .45
Discontinued operations (.02) (.01) (.03) (.02)
----- ----- ----- -----
Pro forma net income per share $ .29 $ .22 $ .32 $ .43
===== ===== ===== =====
Pro forma weighted average number of
shares outstanding 7,167,200 6,899,936 7,167,200 6,899,936
</TABLE>
NOTE 4 INCOME TAXES
The provision for income tax expense for the three months and six
months ended June 30, 1996 and 1997 were calculated through the use of the
estimated annual income tax rates based on projected annualized income.
NOTE 5 SUBSEQUENT EVENT
On July 2, 1997, the Company approved the retirement of the shares of
common stock held in treasury and approved a stock split resulting in an
exchange of 1 share for 5,568 shares of common stock issued and outstanding. All
share and per share amounts have been retroactively adjusted for this split.
On July 2, 1997, the Company approved an employee stock purchase plan
(the "Plan") whereby an aggregate of 75,000 shares of Common Stock are reserved
for issuance under the Plan. Under the Plan, all employees will be given an
opportunity to purchase shares of JLM Common Stock two times a year at a price
equal to 85% of the market price of the Common Stock immediately prior to the
beginning of each offering period. The Plan provides for two offering periods,
the months of March and September, in each of the years 1997 through 2006.
On July 2, 1997, the Company approved a long-term incentive plan (the
"LTIP") whereby 750,000 shares of Common Stock are reserved for issuance under
the LTIP. Under the LTIP, restricted stock, incentive stock options,
nonqualified stock options and stock appreciation rights or any combination
thereof may be granted to JLM employees.
On July 2, 1997, the Company approved 25,000 shares of Common Stock
under its Non-Employee Directors' Stock Option Plan ("Directors Plan"). Under
the Directors Plan, each non-employee Director will receive options to purchase
1,000 shares of Common Stock each year at the conclusion of the Annual Meeting
of Stockholders. The options will vest fully at the end of one year and will
expire after five years.
On July 31, 1997, the Company completed the purchase of the 45%
minority interest of its European subsidiary, JLM (Europe) B.V. The purchase
price of such minority interest was approximately $111,000 cash and was based on
the net book value of the subsidiary at that date.
On August 1, 1997 and August 8, 1997, the Company repaid approximately
$13. 2 million and $.8 million, respectively, of certain long-term debt and
interest to various financial institutions as outlined in the Company's
Prospectus filed with the Securities and Exchange Commission on July 23, 1997
under the caption "Use of Proceeds."
7
<PAGE> 8
NOTE 6 IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board (the "FASB") has issued
Statement of Financial Accounting Standards ("SFAS") 128, Earnings Per Share,
which is required to be adopted for financial statement periods ending after
December 15, 1997. SFAS 128 requires that the primary and fully diluted earnings
per share be replaced by "basic" and "diluted" earnings per share, respectively.
The basic calculation computes earnings per share based only on the weighted
average number of shares outstanding as compared to primary earnings per share
which includes common stock equivalents. The diluted earnings per share
calculation is computed similarly to fully diluted earnings per share. For the
three and six month periods ended June 30, 1996 and 1997, primary and fully
diluted earnings per share are not significantly different than the basic and
diluted earnings per share.
In June 1997, the FASB issued SFAS 130, Reporting Comprehensive Income,
which establishes standards for reporting and display of comprehensive income
and its components in a full set of general-purpose financial statements and
will be required to be effective for fiscal years beginning after December 15,
1997. SFAS 130 requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. SFAS 130 does not require a specific format for that
financial statement but requires that an enterprise display an amount
representing total comprehensive income for the period in that financial
statement. SFAS 130 requires that an enterprise (i) classify items of other
comprehensive income by their nature and (ii) display the accumulated balance of
other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of a statement of financial position.
Management does not believe that the adoption of SFAS 130 will have a
significant impact on the Company's consolidated financial statements.
In June 1997, the FASB issued SFAS 131, Segment Data, which will
require companies to report selected segment information in their quarterly
reports issued to shareholders for fiscal years beginning after December 31,
1997. It also requires entity-wide disclosure about the products and services an
entity provides, the material countries in which it holds assets and reports
revenues and its major customers. SFAS 131 also requires disclosure as to how
management makes decisions about allocating resources to segments and measuring
their performance. For the three and six month periods ended June 30, 1996 and
1997, management does not believe that the requirements of SFAS 131 will have a
significant impact on the Company's consolidated financial statements.
*********************
8
<PAGE> 9
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION
The following discussion and analysis provides information which
management believes is relevant to an assessment and understanding of the
Company's results of operations and financial condition. This discussion should
be read in conjunction with the unaudited Consolidated Financial Statements
appearing in Item 1.
JLM is a leading marketer and distributor and a manufacturer of certain
commodity chemicals principally acetone and phenol. The Company believes it is
the second largest marketer of acetone and the fifth largest marketer of phenol
in North America. The Company's business consists of a manufacturing and
marketing segment. The Company's manufacturing segment includes the operations
of the Blue Island Plant and the sale of acetone manufactured at the Mt. Vernon
Plant. The Company's marketing segment includes its distribution, storage and
terminaling operations and all other sourcing operations.
Within the Company's manufacturing segment, the Blue Island
phenol/acetone plant continues to operate at full capacity. The average selling
price for phenol showed continued strength over the 1996 levels. This combined
with a reduction in manufacturing costs associated with the successful
implementation of the QMAX technology and a reduction in the cost of natural gas
resulted in improved operating profitability.
In May 1997, the Company and its joint venture partners agreed to
restructure their investments in Olefins Terminal Corporation ("OTC"). As a
result, OTC bought out the interest of a third joint venture partner thereby
making the Company and Ultramar Diamond Shamrock each a 50% owner of OTC. The
Company accounts for its investment in OTC through the equity method of
accounting. As part of the restructuring, the take-or-pay terminaling
arrangement between OTC and the Company's olefins marketing operations was
canceled and a new terminaling arrangement was implemented. The original
take-or-pay terminaling agreement resulted in charges to the Company's pre-tax
income of $1.4 million in 1996. Under the new arrangement, effective January 1,
1997, the Company will pay terminal fees only when it utilizes the terminaling
facility. The impact of this new terminaling agreement and significantly
increased business activity resulted in substantial profit contribution from the
olefins marketing division during the first six months of 1997 as compared to
losses generated for the same period of 1996.
During 1996, the results of the Company's Venezuelan operations were
adversely influenced by a number of factors, including economic conditions,
exchange controls and currency devaluation. The lifting of exchange controls in
April 1996 resulted in a stabilized currency followed by a strengthening
economy. During 1997, Venezuelan operations have experienced steady improvement
in sales volumes and margins.
Set forth below, for the periods indicated, is certain unaudited
segment information for the Company's manufacturing and marketing segments.
<TABLE>
<CAPTION>
Six Months Ended June 30, Three Months Ended June 30,
-------------------------------------------- --------------------------------------------
1996 1997 1996 1997
------------------- ------------------- ------------------- -------------------
(in thousand, except percentages)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Marketing $ 87,124 72.0% $ 129,130 79.5% $ 47,141 74.7% $ 64,943 79.3%
Manufacturing 33,831 28.0% 33,311 20.5% 15,953 25.3% 16,979 20.7%
--------- ----- --------- ----- --------- ----- --------- -----
$ 120,955 100.0% $ 162,441 100.0% $ 63,094 100.0% $ 81,922 100.0%
========= ===== ========= ===== ========= ===== ========= =====
Gross profit:
Marketing $ 6,926 51.2% $ 6,940 49.0% $ 3,873 56.8% $ 3,675 50.3%
Manufacturing 6,589 48.8% 7,211 51.0% 2,951 43.2% 3,630 49.7%
--------- ----- --------- ----- --------- ----- --------- -----
$ 13,515 100.0% $ 14,151 100.0% $ 6,824 100.0% $ 7,305 100.0%
========= ===== ========= ===== ========= ===== ========= =====
Segment operating
income:
Marketing $ 2,712 41.4% $ 3,124 42.3% $ 1,753 51.4% $ 1,757 45.3%
Manufacturing 3,845 58.6% 4,258 57.7% 1,659 48.6% 2,121 54.7%
--------- ----- --------- ----- --------- ----- --------- -----
Total segment operating
income $ 6,557 100.0% $ 7,382 100.0% $ 3,412 100.0% $ 3,878 100.0%
Corporate expenses (800) - (1,094) - (331) - (519) -
--------- ----- --------- ----- --------- ----- --------- -----
Total operating
income $ 5,757 100.0% $ 6,288 100.0% $ 3,081 100.0% $ 3,359 100.0%
========= ===== ========= ===== ========= ===== ========= =====
</TABLE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE
30, 1996
Revenues. Revenues increased $18.8 million to $81.9 million for the
three months ended June 30, 1997 from $63.1 million for the comparable period in
1996, an increase of 29.8%. Revenues for the marketing segment increased $17.8
million to $64.9 million for the three months ended June 30, 1997 from $47.1
million for the comparable period in 1996, an increase of 37.8%. The increase in
marketing revenues was generally the result of increased sales of propylene,
principally in Asia. Revenues for the manufacturing segment increased by $1.0
million to $17.0 million for the three months ended June 30, 1997 from $16.0
million for the comparable period in 1996, an increase of 6.3%. The increase
in
9
<PAGE> 10
manufacturing segment revenues was primarily due to an increase in the sales
price of phenol and an increase in overall sales volumes of acetone partially
offset by a decrease in the average sale price of acetone.
Gross Profit. Gross profit increased $0.5 million to $7.3 million for
the three months ended June 30, 1997 from $6.8 million for the comparable period
in 1996, an increase of 7.4%. As a percentage of revenues, gross profit
decreased to 8.9% for the three months ended June 30, 1997 from 10.8% for the
comparable period in 1996. Gross profit for the marketing segment decreased $0.2
million to $3.7 million for the three months ended June 30, 1997 from $3.9
million for the comparable period in 1996 a decrease of 5.1%, principally as a
result of a decline in the price of acetone partially offset by higher
propylene sales which historically have lower gross margins. While propylene
sales were profitable, the Company's overall gross margin would have been 11.3%
and 11.4% during the three months ended June 30, 1997 and 1996, respectively,
without any propylene in the sales product mix. Gross profit for the
manufacturing segment increased by $0.7 million to $3.6 million for the three
months ended June 30, 1997 from $2.9 million for the comparable period in 1996,
an increase of 24.1%. The increase in total gross profit was principally the
result of increases in the selling prices for phenol in 1997 and a reduction in
manufacturing costs associated with the successful implementation of a new
manufacturing technique in the production of cumene at the Blue Island Plant.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $.2 million to $3.9 million for the three
months ended June 30, 1997 from $3.7 million for the comparable period in 1996,
an increase of 5.4%. This increase was principally as a result of higher
depreciation and amortization during the period due to capital improvements in
the fourth quarter of 1996 related principally to the QMAX technology.
Operating Income. Operating income increased $0.3 million to $3.4
million for the three months ended June 30, 1997 from $3.1 million for the
comparable period in 1996, an increase of 9.7%. This increase was principally as
a result of the factors that increased gross profit discussed above offset by an
increase in selling, general and administrative expenses discussed above.
Interest Expense - Net. Net interest expense increased by $109,000 to
$757,000 for the three months ended June 30, 1997 from $648,000 for the
comparable period in 1996, an increase of 16.8%. This increase was principally
due to financing costs associated with increased sales activities discussed
above.
Other Expense - Net. Other expense consists of, among other items, the
Company's proportionate share of income or loss from the operations of OTC. As
noted above, on May 7, 1997, OTC refinanced its existing long-term debt and
replaced it with an unsecured term loan. Concurrent with this refinancing, OTC
incurred approximately $.6 million of one time charges related to the
refinancing of which the Company recorded its proportionate share of
approximately $.3 million.
Foreign Currency Exchange Gain (Loss). Foreign currency exchange
decreased $450,000 to a gain of $24,000 for the three months ended June 30, 1997
from a gain of $474,000 for the comparable period in 1996. The reduction of the
foreign currency exchange gain was principally the result of the Company's
activities in Venezuela.
Income tax Provision. The Company's provision for income taxes
increased $0.4 million to $1.0 million for the three months ended June 30, 1997
from $0.6 million for the comparable period in 1996, an increase of 66.7%. The
Company's effective tax rate for the three months ended June 30, 1997 was 38.9%
as compared to 21.6% for the comparable period in 1996. The effective tax rate
for the second quarter 1996 was
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<PAGE> 11
significantly lower than that of the current period due to the increased
proportion of Venezuelan pre-tax income for which no tax expense was recorded
due to net operating loss carryforwards. Excluding Venezuelan operations, the
effective tax rate for the three months ended June 30, 1997 would have been
approximately 38.2% compared to the effective tax rate for the three months
ended June 30, 1996 of 37.8%. In addition, the Company's consolidated effective
tax rate is lower than the statutory rate due to the Company's ability to reduce
its taxable income on U.S. export sales by way of the Company's Foreign Sales
Corporation which has an effective tax rate of 11.8%.
Net Income. Net income decreased $.6 million to $1.5 million for the
three months ended June 30, 1997 from $2.1 million for the comparable period in
1996. The decrease in net income was due to the factors stated above.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30,
1996
Revenues. Revenues increased $41.5 million to $162.4 million for the
six months ended June 30, 1997 from $120.9 million for the comparable period in
1996, an increase of 34.3%. Revenues for the marketing segment increased $42.0
million to $129.1 million for the six months ended June 30, 1997 from $87.1
million for the comparable period in 1996, an increase of 48.2%. The increase in
marketing revenues was generally the result of increased sales of propylene,
principally in Asia. Revenues for the manufacturing segment decreased by $0.5
million to $33.3 million for the six months ended June 30, 1997 from $33.8
million for the comparable period in 1996, a decrease of 1.5%. The decrease in
manufacturing segment revenues was principally due to a decrease in the price of
acetone partially offset by an increase in selling prices for phenol.
Gross Profit. Gross profit increased $0.6 million to $14.1 million for
the six months ended June 30, 1997 from $13.5 million for the comparable period
in 1996, an increase of 4.4%. As a percentage of revenues, gross profit
decreased to 8.7% for the six months ended June 30, 1997 from 11.2% for the
comparable period in 1996. Gross profit for the marketing segment remained at
$6.9 million for the six months ended June 30, 1997 and 1996. The Company's
overall gross margin would have been 10.9% and 11.4% during the six months ended
June 30, 1997 and 1996, respectively, had there been no propylene in the sales
product mix. Gross profit for the manufacturing segment increased by $0.6
million to $7.2 million for the six months ended June 30, 1997 from $6.6 million
for the comparable period in 1996, an increase of 9.1%. The increase in total
gross profit was principally the result of increases in the selling prices for
phenol, reductions in manufacturing costs associated with the successful
implementation of a new manufacturing technique in the production of cumene at
the Blue Island Plant and a reduction in raw material costs resulting from a
successful hedge of its propylene purchases. During the first quarter of 1997,
approximately 13 million pounds of propylene purchases were covered by a fixed
financial hedge for which the Company had a gain of $492,970 which reduced its
cost of sales for this period by a corresponding amount. The reduction in cost
of sales resulting from the propylene hedge was partially offset by an increase
in the cost of benzene, which the Company elected not to hedge. Gross profit in
both the manufacturing and marketing segments was also adversely impacted by
decreases in acetone selling prices.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $0.1 million to $7.9 million for the six
months ended June 30, 1997 from $7.8 million for the comparable period in 1996,
an increase of 1.3%. This increase was principally as a result of higher
depreciation and amortization during the period due to capital improvements in
the fourth quarter of 1996 related principally to the QMAX technology.
11
<PAGE> 12
Operating Income. Operating income increased $0.5 million to $6.3
million for the six months ended June 30, 1997 from $5.8 million for the
comparable period in 1996, an increase of 9.2%. This increase was principally as
a result of the factors that increased gross profit discussed above offset by
the increase in selling, general and administrative expenses discussed above.
Interest Expense - Net. Net interest expense increased by approximately
$95,000 to $1,385,000 for the six months ended June 30, 1997 from $1,290,000 for
the comparable period in 1996, an increase of 7.4%. This increase was
principally due to financing costs associated with increased sales activities
discussed above.
Other Expense - Net. Other expense consists of, among other items, the
Company's proportionate share of income or loss from the operations of OTC. As
noted above, on May 7, 1997, OTC refinanced its existing long-term debt and
replaced it with an unsecured term loan. Concurrent with this refinancing, OTC
incurred approximately $.6 million of one time charges related to the
refinancing of which the Company recorded its proportionate share of
approximately $.3 million.
Foreign Currency Exchange Gain (Loss). Foreign currency exchange
increased approximately $412,000 to a gain of $86,000 for the six months ended
June 30, 1997 from a loss of $326,000 for the comparable period in 1996. The
gain was principally the result of the Company's activities in Venezuela.
Income tax Provision. The Company's provision for income taxes
increased $0.3 million to $1.8 million for the six months ended June 30, 1997
from $1.5 million for the comparable period in 1996, an increase of 20.0%. The
Company's effective tax rate for the six months ended June 30, 1997 was 37.0% as
compared to 38.5% for the comparable period in 1996. Excluding Venezuelan
operations, the effective tax rate for the six months ended June 30, 1997 would
have been approximately 36.3% compared to the effective tax rate for the three
months ended June 30, 1996 of 37.1%. In addition, the Company's consolidated
effective tax rate is lower than the statutory rate due to the Company's ability
to reduce its taxable income on U.S. export sales by way of the Company's
Foreign Sales Corporation which has an effective tax rate of 11.8%.
Net Income. Net income increased $0.7 million to $3.0 million for the
six months ended June 30, 1997 from $2.3 million for the comparable period in
1996. The increase in net income was due to the factors stated above.
Liquidity and Capital Resources
Net cash from operating activities increased by approximately $8.5
million to $4.2 million for the six month period ended June 30, 1997 as
compared to the same period of 1996. This increase was due primarily to
increases in the Company's working capital in addition to higher net income for
the period. Net cash used in investing activities decreased by approximately
$2.1 to $1 million for the six month period June 30, 1997 from approximately
$3.1 million during the same period in 1996. This decrease was due primarily to
lower capital expenditures and proceeds from the sale of assets held for sale
from the Company's discontinued operations. In addition, the Company's net cash
from financing activities decreased by approximately $10 million to a net cash
used in financing activities of $4 million during the six months ended June 30,
1996 compared to cash provided by financing activities of $6 million during the
same period in 1996. The decrease was due primarily to the increase in the
Company's working capital which allowed the Company to repay certain long-term
debt and incur less net borrowings on its loans payable.
12
<PAGE> 13
On July 29, 1997, the Company received proceeds of $20,050,800
through an initial public offering of its common stock the funds of which were
used to repay $14.0 million of outstanding indebtedness. After the repayment of
such indebtedness, the Company will have a borrowing capacity of approximately
$72.8 million. The Company believes that the remaining funds available from this
public offering together with cash flow generated by operations and existing
cash and the Company's ability to borrow additional amounts under its credit
agreements, are sufficient to the meet the Company's needs through 1998 and to
permit the Company to implement its business strategy as outlined in the
Company's Prospectus dated July 23, 1997.
The Company has received a commitment letter for a $30.0 million credit
facility which will be available for either working capital or acquisition
financing and that would replace an existing $11 million line of credit which
expires on September 15, 1997. The proposed facility would contain customary
covenants and terms similar to those provided under the Company's existing line
of credit.
Effects of Inflation
Inflation generally affects the Company by increasing the cost of
labor, equipment and raw materials. The Company does not believe that inflation
has had any material effect on the Company's business over the last three years.
Forward Looking Information
This report contains forward-looking statements based on current
expectations that involve a number of risks and uncertainties. The potential
risks and uncertainties that could cause actual results to differ materially
include: the cyclical nature of the worldwide chemical market; the possibility
of excess capacity; fluctuations in the cost and availability of raw material
prices; the political and economic uncertainties associated with international
operations; fluctuations of foreign exchange; the risks associated with
potential acquisitions, and the ability to implement other features of the
Company's business strategy.
13
<PAGE> 14
JLM INDUSTRIES, INC.
PART II
OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings.
The Company at times does have routine litigation incidental to its business. In
the opinion of the Company's management, such proceedings should not,
individually or in the aggregate, have a material adverse effect on the
Company's results of operation or financial condition. The Company maintains
insurance in such amounts and with such coverage and deductibles as management
believes are reasonable.
ITEM 2 - CHANGES IN SECURITIES
None.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
In connection with the Company's proposed initial public offering of
common stock the Company's stockholders approved by unanimous written consent
the adoption and approval of certain matters. The matters approved included an
increase in the Company's authorized capital from 3,000 shares of common stock
to 30,000,000 shares of common stock and 5,000,000 shares of preferred stock and
the adoption of the Company's Restated Certificate of Incorporation and
Amended and Restated Bylaws, the Company's Employee Stock Purchase Plan, Long
Term Incentive Plan and Non-Employee Directors' Stock Plan. All of the shares of
common stock then outstanding were voted through written consent in favor of
such matters, and the increase in the Company's authorized capital was approved
May 22, 1997 and all other matters were approved July 3, 1997, prior to the
effectiveness of the registration of the Registrant's Common Stock under the
Securities Act of 1933 and prior to the effectiveness of the registration of the
Registrant's Common Stock under the Securities Exchange Act of 1934.
ITEM 5 - OTHER INFORMATION
None.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits 27 Financial Data Schedule (for SEC use only)
(a) Reports on Form 8-K - None.
14
<PAGE> 15
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
JLM INDUSTRIES, INC.
By: /s/ JOHN L. MACDONALD
Dated: August 26, 1997 -----------------------------------------
John L. Macdonald
President and Chief Executive Officer
/s/ FRANK A. MUSTO
-----------------------------------------
Frank A. Musto
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
15
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