<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 September 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 [X] No [ ]
Class Outstanding at November 12, 1997
----- --------------------------------
Common stock, par value
$.01 per share 7,099,225
<PAGE> 2
JLM INDUSTRIES, INC.
INDEX
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE NUMBER
- ------ --------------------- -----------
<S> <C>
Item 1 Consolidated Financial Statements:
Consolidated Balance Sheets at December 31, 1996 and September 30, 1997
(unaudited) 3
Unaudited Consolidated Statements of Income for the Three and Nine
Months Ended September 30, 1996 and 1997 4
Unaudited Consolidated Statements of Cash Flows for the Nine Months
Ended September 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 10
PART II OTHER INFORMATION
- ------- -----------------
Item 1 Legal Proceedings 16
Item 2 Changes in Securities 16
Item 3 Defaults upon Senior Securities 16
Item 4 Submission of Matters to a Vote of Security Holders 16
Item 5 Other Information 16
Item 6 Exhibits and Reports on Form 8-K 16
</TABLE>
2
<PAGE> 3
ITEM 1 - FINANCIAL STATEMENTS
JLM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS December 31, 1996 September 30, 1997
----------------- ------------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 4,792,473 $ 7,089,639
Accounts receivable:
Trade 25,721,911 35,706,324
Other 1,864,084 1,945,832
Inventories 13,283,576 11,188,380
Prepaid expenses and other current assets 3,699,913 3,693,471
Assets held for sale 1,924,394 669,286
------------ ------------
Total current assets 51,286,351 60,292,932
Other investments 1,881,066 2,945,227
Note receivable from Olefins Terminal Corporation 2,320,313 --
Property and equipment, net 29,368,360 29,240,388
Other assets 1,530,565 1,580,418
------------ ------------
Total assets $ 86,386,655 $ 94,058,965
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 39,648,727 $ 41,994,581
Current portion of long-term debt 3,962,385 744,741
Loans payable 8,366,520 5,891,014
Income taxes payable 33,322 65,950
Deferred revenue 300,475 --
------------ ------------
Total current liabilities 52,311,429 48,696,286
Long-term debt less current portion 17,808,872 4,981,977
Deferred income taxes 2,538,980 3,373,759
Minority interest 137,802 --
Other liabilities 145,140 --
------------ ------------
Total liabilities 72,942,223 57,052,022
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 and 7,099,225, respectively
50,112 70,992
Additional paid-in capital 489,888 21,168,454
Retained earnings 13,467,898 15,808,506
Foreign currency translation adjustment (41,266) (41,009)
------------ ------------
13,966,632 37,006,943
Less treasury stock at cost - 267,264 shares (522,200) --
------------ ------------
Total stockholders' equity 13,444,432 37,006,943
------------ ------------
Total liabilities and stockholders' equity $ 86,386,655 $ 94,058,965
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
JLM INDUSTRIES,INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
1996 1997 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 54,600,789 $ 63,464,228 $ 175,555,765 $ 225,904,844
Cost of sales 47,775,675 55,661,571 155,216,026 203,950,706
------------- ------------- ------------- -------------
Gross profit 6,825,114 7,802,657 20,339,739 21,954,138
Selling, general and administrative expenses 4,214,597 4,152,642 11,972,616 12,016,191
------------- ------------- ------------- -------------
Operating income 2,610,517 3,650,015 8,367,123 9,937,947
Interest expense - net (693,449) (451,639) (1,983,456) (1,836,806)
Other expense - net (138,111) (39,866) (169,211) (99,596)
Foreign currency exchange (loss) gain - net (259,823) (8,471) (585,317) 77,968
------------- ------------- ------------- -------------
Income before minority interest and income taxes 1,519,134 3,150,039 5,629,139 8,079,513
Minority interest in (income) loss of subsidiaries (13,477) 12,591 (44,505) 61,878
------------- ------------- ------------- -------------
Income from continuing operations before income
taxes, discontinued operations and extraordinary item 1,505,657 3,162,630 5,584,634 8,141,391
------------- ------------- ------------- -------------
Income tax provision:
Current 532,408 810,125 1,377,019 2,142,086
Deferred 341,487 324,203 1,067,454 834,779
------------- ------------- ------------- -------------
Total income tax provision 873,895 1,134,328 2,444,473 2,976,865
------------- ------------- ------------- -------------
Income from continuing operations before
discontinued operations and extraordinary item 631,762 2,028,302 3,140,161 5,164,526
Loss from operation of discontinued operations, net
of tax (123,675) (18,567) (308,390) (178,492)
------------- ------------- ------------- -------------
Income before extraordinary item 508,087 2,009,735 2,831,771 4,986,034
Extraordinary loss on extinguishment of debt, net of tax (385,842) (385,842)
------------- ------------- ------------- -------------
Net income $ 508,087 $ 1,623,893 $ 2,831,771 $ 4,600,192
============= ============= ============= =============
Income per share:
Income from continuing operations before
discontinued operations and extraordinary item $ .13 $ .32 $ .63 $ .97
Discontinued operations (.03) -- (.06) (.03)
Extraordinary item -- (.06) -- (.07)
------------- ------------- ------------- -------------
Net income per share $ .10 $ .26 $ .57 $ .87
============= ============= ============= =============
Weighted average number of shares
outstanding 4,833,992 6,403,521 4,951,482 5,319,599
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
JLM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------
1996 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,831,771 $ 4,600,192
Adjustments to reconcile net income to net cash (used
in) provided by operating activities:
Deferred income taxes 1,067,454 834,779
Minority interest in income (loss) of subsidiaries 44,501 (61,878)
(Gain) loss on disposal of assets (43,500) 250,367
Depreciation and amortization 1,621,936 2,158,417
Loss from partnerships 36,000 36,000
Loss from investment in Olefins Terminal Corporation - net 43,904 418,428
Noncash management fee and interest income from OTC (215,836) (133,818)
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 5,514,124 (10,066,161)
Decrease in inventories 2,138,197 2,095,196
Decrease in assets held for sale (266,626) --
Increase in prepaid expenses and other current assets (1,692,926) (97,375)
(Increase) decrease in other assets (585,289) (159,235)
(Decrease) increase in accounts payable and accrued expenses (13,376,173) 4,304,011
(Decrease) increase in income taxes payable (948,860) 32,628
Decrease in deferred revenue (20,400) (300,475)
Increase (decrease) in other liabilities 326,409 (145,140)
------------ ------------
Net cash (used in) provided by operating activities (3,525,314) 3,765,936
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of assets held for sale 103,000 1,192,128
Purchase of minority interest -- (110,526)
Proceeds from sale of common stock -- 21,846,828
Stock issuance cost -- (1,144,710)
Capital expenditures (5,171,496) (1,970,031)
Other investments (35,310) (1,022,615)
------------ ------------
Net cash (used in) provided by investing activities (5,103,806) 18,791,074
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from (repayments of) loans payable 6,984,508 (2,475,506)
Proceeds from long-term debt 4,035,903 1,750,335
Repayments of long-term debt (2,614,580) (17,794,874)
Distributions to stockholders (263,837) (1,740,056)
Repayments of stockholder loan
(69,417) --
------------ ------------
Net cash provided by (used in) financing activities 8,072,577 (20,260,101)
Effect of foreign exchange rates on cash (6,022) 257
------------ ------------
Net (decrease) increase in cash and cash equivalents (562,565) 2,297,166
Cash and cash equivalents, beginning of period 4,710,483 4,792,473
------------ ------------
Cash and cash equivalents, end of period $ 4,147,918 $ 7,089,639
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 1,953,985 $ 2,274,525
============ ============
Income taxes $ 1,602,731 $ 1,528,283
============ ============
Noncash investing activities:
Capital lease obligations $ 133,295 $ 50,335
============ ============
Forgiveness of accounts payable for joint venture restructuring $ -- $ 1,958,157
============ ============
Treasury stock purchased by satisfaction of accounts receivable $ 522,200 $ --
============ ============
</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 NINE MONTHS
ENDED SEPTEMBER 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. The Company's cost of sales was adjusted to
reflect a proportionate share of the estimated LIFO provision for the fiscal
year ending December 31, 1997 and a proportionate share of the actual LIFO
provision for the year ended December 31, 1996. 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 included
in the Company's Prospectus dated July 23, 1997.
NOTE 3 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. In addition, on September 2,
1997, the Underwriters of the Company's initial public offering exercised
190,000 of their options to purchase additional shares of common stock for the
purpose of covering over-allotments. For the three months and nine months ended
September 30, 1997, the weighted average shares outstanding used in the
calculation of primary earnings per share is 6,403,521 and 5,319,599,
respectively. For the same period the weighted average shares outstanding used
in the calculation of earnings per share assuming full dilution is 6,457,743 and
5,373,822, respectively. Fully diluted net earnings per common share for the
nine months ended September 30, 1997 is not materially different from primary
earnings per common share, therefore, only the primary earnings per share are
presented.
6
<PAGE> 7
The following unaudited computation of pro forma primary earnings per
share assumes that the sale of the 2,156,000 shares of common stock and the
exercise of 190,000 of the Underwriter's options 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 dates. In
addition, all pro forma per share data reflects the stock split as described in
Note 6. For the three months and nine months ended September 30, 1997, the
weighted average shares outstanding used in the pro forma calculation of primary
earnings per share is 7,123,977 and 7,120,061, respectively. For the same period
the weighted average shares outstanding used in the pro forma calculation of
earnings per share assuming full dilution is 7,178,200 and 7,174,284,
respectively. On a pro forma basis, fully diluted net earnings per common share
for the nine months ended September 30, 1997 is not materially different from
primary earnings per common share, therefore, only the primary earnings per
share are presented.
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
1996 1997 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Pro Forma Income Per Share:
Income from continuing operations before
discontinued operations and extraordinary item $ .09 $ .29 $ .44 $ .73
Discontinued operations (.02) -- (.04) (.03)
Extraordinary item -- (.05) -- (.05)
------------- ------------- ------------- -------------
Pro forma net income per share $ .07 $ .24 $ .40 $ .65
============= ============= ============= =============
Pro forma weighted average number
of shares outstanding 7,179,992 7,123,977 7,297,482 7,120,061
</TABLE>
NOTE 4 INCOME TAXES
The provision for income tax expense for the three months and nine
months ended September 30, 1996 and 1997 was calculated through the use of the
estimated annual income tax rates based on projected annualized income.
NOTE 5 EXTRAORDINARY ITEM
On August 1, 1997 and August 8, 1997, the Company prepaid debt
consisting of (i) approximately $13.2 million incurred to finance the
acquisition of the Blue Island, Illinois, Plant and related capital expenditures
associated with the QMAX Catalyst technology and (ii) approximately $0.8 million
incurred to finance the acquisition of the Cape Fear, North Carolina, Terminal,
respectively. As a result of the early extinguishment of debt, the Company
recognized approximately $386,000 of extraordinary loss consisting primarily of
prepayment penalties, net of income tax benefits of approximately $257,000.
7
<PAGE> 8
NOTE 6 SIGNIFICANT EVENTS
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.
During September 1997, employees of the Company purchased 3,415 shares of the
Company's common stock under the Plan.
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 29, 1997, the Company sold 2,156,000 shares of common stock at
an initial public offering price of $10 per share. In addition, on September 2,
1997, the Underwriters of the Company's initial public offering exercised
190,000 of an over-allotment option and purchased additional shares of common
stock for the purpose of covering over-allotments. The proceeds from the sale of
such common stock received by the Company was $21,817,800.
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, excluding severance cost.
On September 16, 1997, the Company signed an agreement, with one of its
current lending institutions, to increase its line of credit by $19 million to
$30 million. A portion of the line of credit will be available to finance future
acquisitions.
NOTE 7 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 nine month periods ended September 30, 1996 and 1997, primary and
fully diluted earnings per share are not significantly different than the basic
and diluted earnings per share.
8
<PAGE> 9
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 nine months periods ended September 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.
NOTE 8 RECLASSIFICATION
Certain amounts in the 1996 consolidated financial statements have been
reclassified to conform to the 1997 presentation.
9
<PAGE> 10
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 continued to operate at full capacity. The average selling
price for phenol showed continued strength over the 1996 levels. This factor,
combined with a reduction in manufacturing costs associated with the successful
implementation of the QMAX technology and a reduction in the cost of certain raw
materials resulted in improved operating profitability.
On July 24, 1997 and September 2, 1997, the Company raised
approximately $21.8 million from the sale of 2,346,000 shares of its common
stock in an initial public offering. In August 1997 the Company used
approximately $14.0 million of the proceeds to repay certain long-term debt.
This reduction in debt resulted in decreased interest expense for the nine
months ending September 30, 1997 as compared to the same period in 1996.
In May 1997, the Company and its joint venture partners agreed to
restructure their investments in Olefins Terminal Corporation ("OTC") whereby
OTC bought out the interest of a third joint venture partner making the Company
and Ultramar Diamond Shamrock each a 50% owner of OTC. 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. Under the new arrangement, effective January 1,
1997, the Company pays terminaling fees only when it utilizes the terminaling
facility.
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 the first nine months of 1997, Venezuelan operations have
experienced steady improvement in sales volumes and margins.
10
<PAGE> 11
Set forth below for the periods indicated, is certain unaudited segment
information for the Company's manufacturing and marketing segments.
<TABLE>
<CAPTION>
Nine Months Ended September 30, Three Months Ended September 30,
------------------------------- --------------------------------
(in thousands, except percentages)
1996 1997 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Marketing $ 126,137 71.9% $ 176,878 78.3% $ 39,013 71.4% $ 47,748 75.2%
Manufacturing 49,419 28.1% 49,027 21.7% 15,588 28.6% 15,716 24.8%
--------- ------ --------- ------ --------- ----- --------- -----
$ 175,556 100.0% $ 225,905 100.0% $ 54,601 100.0% $ 63,464 100.0%
========= ====== ========= ====== ========= ===== ========= =====
Gross profit:
Marketing $ 10,633 52.3% $ 10,090 46.0% $ 3,707 54.3% $ 3,150 40.4%
Manufacturing 9,707 47.7% 11,864 54.0% 3,118 45.7% 4,653 59.6%
--------- ------ --------- ------ --------- ----- --------- -----
$ 20,340 100.0% $ 21,954 100.0% $ 6,825 100.0% $ 7,803 100.0%
========= ====== ========= ====== ========= ===== ========= =====
Segment operating income:
Marketing $ 3,992 41.8% $ 4,061 35.4% $ 1,280 42.9% $ 937 23.0%
Manufacturing 5,548 58.2% 7,396 64.6% 1,703 57.1% 3,138 77.0%
--------- ------ --------- ------ --------- ----- --------- -----
Total segment operating income 9,540 $100.0% 11,457 $100.0% $ 2,983 100.0% $ 4,075 100.0%
Corporate expenses (1,173) -- (1,519) -- (372) -- (425) --
--------- ----- --------- -----
Total operating income $ 8,367 100.0% $ 9,938 100.0% $ 2,611 100.0% $ 3,650 100.0%
========= ====== ========= ====== ========= ===== ========= =====
</TABLE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1996
Revenues: Revenues increased $8.9 million to $63.5 million for the
three months ended September 30, 1997 from $54.6 million for the comparable
period in 1996, an increase of 16.3%. Revenues for the marketing segment
increased $8.8 million to $47.8 million for the three months ended September 30,
1997 from $39.0 million for the comparable period in 1996, an increase of 22.6%.
The increase in marketing revenues was generally the result of increased sales
of propylene, principally between Latin America and Europe. Revenues for the
manufacturing segment increased by $.1 million to $15.7 million for the three
months ended September 30, 1997 from $15.6 million for the comparable period in
1996, an increase of 1%. The increase in manufacturing segment revenues was
primarily due to an increase in overall sales volumes of phenol partially offset
by a decrease in the average selling price of acetone.
Gross Profit: Gross profit increased $1.0 million to $7.8 million for
the three months ended September 30, 1997 from $6.8 million for the comparable
period in 1996, an increase of 14.7%. As a percentage of revenues, gross profit
decreased to 12.3% for the three months ended September 30, 1997 from 12.5% for
the comparable period in 1996. Gross profit for the marketing segment decreased
$.5 million to $3.2 million for the three months ended September 30, 1997 from
$3.7 million for the comparable period in 1996, a decrease of 13.5%. The
decrease was principally the result of a decline in the price of acetone offset
by higher propylene sales, which historically have lower gross margins, and the
impact of the new OTC terminaling agreement mentioned above. While propylene
sales were profitable, the Company's overall gross margin would have been 13.5%
and 13.0% during the three months ended September 30, 1997 and 1996,
respectively, without any propylene in the sales product mix. Gross profit for
the manufacturing segment increased by $1.6 million to $4.7 million for the
three months ended September 30, 1997 from $3.1 million for the comparable
period in 1996, an increase of 51.6%. The increase in total gross profit was
principally the result of favorable prices in certain raw
11
<PAGE> 12
material costs, an increase in the selling price for phenol in 1997 and a
reduction in manufacturing costs associated with the successful implementation
of the QMAX technology in the production of cumene at the Blue Island Plant.
Selling, General and Administrative Expenses: Selling, general and
administrative expenses remained at $4.2 million for the three months ended
September 30, 1997 and 1996. During the three months ended September 30, 1997
depreciation and amortization expense increased due to capital improvements in
the fourth quarter of 1996 related principally to the QMAX technology. This
increase was principally offset by reductions in various selling, general and
administrative expenses in several of the Company's operations.
Operating Income: Operating income increased $1.1 million to $3.7
million for the three months ended September 30, 1997 from $2.6 million for the
comparable period in 1996, a increase of 42.3%. This increase was principally as
a result of the factors that increased gross profit as discussed above.
Interest Expense - Net: Net interest expense decreased by $241,000 to
$452,000 for the three months ended September 30, 1997 from $693,000 for the
comparable period in 1996, an decrease of 34.8%. This decrease in interest
expenses was principally due to the Company's early retirement of debt in August
of 1997 as discussed above.
Other Expense - Net: Other expense consists of, principally, the
Company's proportionate share of income or loss from the operations of OTC.
Foreign Currency Exchange Gain (Loss): Foreign currency exchange loss
decreased $252,000 to approximately $8,000 for the three months ended September
30, 1997 from $260,000 for the comparable period in 1996. The decrease in the
foreign currency exchange loss was principally the result of the Company's
activities in Venezuela.
Income Tax Provision: The Company's provision for income taxes
increased $0.2 million to $1.1 million for the three months ended September 30,
1997 from $.9 million for the comparable period in 1996, an increase of 22.2%.
The Company's effective tax rate for the three months ended September 30, 1997
was 35.9 % as compared to 58.1% for the comparable period in 1996. The effective
tax rate for 1996 was significantly higher than that of the current year due to
the increased proportion of Venezuelan pre-tax loss in 1996 compared to 1997 for
which no tax benefit was recorded. The Company's Venezuelan operations have not
recorded any income tax benefit in 1996 and 1997 due to the uncertainty of
utilizing the income tax loss carryforwards. Excluding Venezuelan operations,
the effective tax rate for the three months ended September 30, 1997 would have
been approximately 35.5% compared to the effective tax rate for the three months
ended September 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 through the use of the
Company's Foreign Sales Corporation which has an effective tax rate of 11.8%.
Extraordinary Loss on Extinguishment of Debt - Net: The extraordinary
loss on extinguishment of debt in the three months ended September 30, 1997
primarily represents prepayment penalties associated with the Company's early
extinguishment of certain of its debt in August 1997 as discussed above.
12
<PAGE> 13
Net Income: Net income increased $1.1 million to $1.6 million for the
three months ended September 30, 1997 from $.5 million for the comparable period
in 1996. The increase in net income was due to the factors stated above.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1996
Revenues: Revenues increased $50.4 million to $225.9 million for the
nine months ended September 30, 1997 from $175.5 million for the comparable
period in 1996, an increase of 28.7%. Revenues for the marketing segment
increased $50.8 million to $176.9 million for the nine months ended September
30, 1997 from $126.1 million for the comparable period in 1996, an increase of
40.3%. The increase in marketing revenues was generally the result of increased
sales of propylene, principally in Asia. Revenues for the manufacturing segment
decreased by $0.4 million to $49.0 million for the nine months ended September
30, 1997 from $49.4 million for the comparable period in 1996, a decrease of
1.0%. The decrease in manufacturing segment revenues was principally due to a
decrease in the average selling price of acetone partially offset by an increase
in both sales volumes and selling prices for phenol.
Gross Profit: Gross profit increased $1.7 million to $22.0 million for
the nine months ended September 30, 1997 from $20.3 million for the comparable
period in 1996, an increase of 8.4%. As a percentage of revenues, gross profit
decreased to 9.7% for the nine months ended September 30, 1997 from 11.6% for
the comparable period in 1996. Gross profit for the marketing segment decreased
by $.5 million to $10.1 million for the nine months ended September 30, 1997
from $10.6 million for the comparable period in 1996, a decrease of 4.7%. The
decrease was principally the result of higher propylene sales, which
historically have lower gross margins. The Company's overall gross margin would
have been 12.0% and 11.7% during the nine months ended September 30, 1997 and
1996, respectively, had there been no propylene in the sales product mix. Gross
profit for the manufacturing segment increased by $2.2 million to $11.9 million
for the nine months ended September 30, 1997 from $9.7 million for the
comparable period in 1996, an increase of 22.7%. The increase in total gross
profit was principally the result of favorable prices in certain raw material
costs, increases in the selling prices for phenol, reductions in manufacturing
costs associated with the successful implementation of the QMAX technology 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 remained at $12.0 million for the nine months ended
September 30, 1997 and 1996. During the nine months ended September 30, 1997
depreciation and amortization expense increased due to capital improvements in
the fourth quarter of 1996 related principally to the QMAX technology. This
increase was principally offset by reductions in various selling, general and
administrative expenses in several of the Company's operations.
13
<PAGE> 14
Operating Income: Operating income increased $1.5 million to $9.9
million for the nine months ended September 30, 1997 from $8.4 million for the
comparable period in 1996, an increase of 17.9%. This increase was principally
as a result of the factors that increased gross profit as discussed above.
Interest Expense - Net: Net interest expense decreased by
approximately $146,000 to $1,837,000 for the nine months ended September 30,
1997 from $1,983,000 for the comparable period in 1996, a decrease of 7.4%.
This decrease in interest expenses was principally due to the Company's early
retirement of debt in August of 1997 as 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 $663,000 to a gain of $78,000 for the nine months ended
September 30, 1997 from a loss of $585,000 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 $0.6 million to $3.0 million for the nine months ended September 30,
1997 from $2.4 million for the comparable period in 1996, an increase of 25.0%.
The Company's effective tax rate for the nine months ended September 30, 1997
was 36.6% as compared to 43.8% for the comparable period in 1996. The effective
tax rate for 1996 was significantly higher than that of the current year due to
the increased proportion of Venezuelan pre-tax loss in 1996 compared to 1997 for
which no tax benefit was recorded. The Company's Venezuelan operations have not
recorded any income tax benefit in 1996 and 1997 due to the uncertainty of
utilizing the income tax loss carryforwards. Excluding Venezuelan operations,
the effective tax rate for the nine months ended September 30, 1997 would have
been approximately 36.0% compared to the effective tax rate for the nine months
ended September 30, 1996 of 37.3%. 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%.
Extraordinary Loss on Extinguishment of Debt - Net: The extraordinary
loss on extinguishment of debt in the nine months ended September 30, 1997
primarily represents prepayment penalties associated with the Company's early
extinguishment of certain of its debt in August 1997 as discussed above.
Net Income: Net income increased $1.8 million to $4.6 million for the
nine months ended September 30, 1997 from $2.8 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 provided by operating activities increased by approximately
$7.3 million to $3.8 million for the nine months ended September 30, 1997 as
compared to the same period of 1996. This increase was due primarily to
increases in the Company's working capital generated from higher net income for
the period. Net cash provided by investing activities increased by approximately
$23.9 million to $18.8 million for the nine month period September 30, 1997
compared to cash used in investing activities of
14
<PAGE> 15
approximately $5.1 million during the same period in 1996. This increase was due
primarily to proceeds from the sale of the Company's common stock during its
initial public offering, lower capital expenditures and proceeds from the sale
of assets held for sale from the Company's discontinued operations. In addition,
the Company's cash from financing activities decreased by approximately $28.3
million to a net cash used in financing activities of approximately $20.3
million during the nine months ended September 30, 1997 compared to cash
provided by financing activities of approximately $8.1 million during the same
period in 1996. The decrease was due primarily to the repayment of approximately
$17.8 million in long-term debt provided by the increased cash from investing
activities.
During the third quarter of 1997, the Company raised approximately
$21.8 million through an initial public offering of its common stock. In August
1997, approximately $14.0 million was used to repay certain outstanding
indebtedness. After the repayment of such indebtedness, the Company now has a
total borrowing capacity of approximately $72.8 million. The Company believes
that the remaining funds available from this public offering, cash flow
generated by operations, existing cash and the Company's borrowing capacity, are
sufficient to meet the Company's business strategies through 1998 as outlined in
the Company's Prospectus dated July 23, 1997.
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.
15
<PAGE> 16
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
None.
ITEM 5 - OTHER INFORMATION
None.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - 27 - Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K - None.
16
<PAGE> 17
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.
Dated: November 12, 1997 /s/ John L. Macdonald
--------------------------------------------
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)
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF JLM INDUSTRIES, INC. FOR THE NINE MONTHS ENDED NOVEMBER
6, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-06-1997
<PERIOD-END> NOV-06-1997
<CASH> 7,090
<SECURITIES> 0
<RECEIVABLES> 37,652
<ALLOWANCES> 0
<INVENTORY> 11,188
<CURRENT-ASSETS> 60,293
<PP&E> 35,117
<DEPRECIATION> 5,877
<TOTAL-ASSETS> 94,059
<CURRENT-LIABILITIES> 48,696
<BONDS> 4,982
0
0
<COMMON> 71
<OTHER-SE> 36,936
<TOTAL-LIABILITY-AND-EQUITY> 94,059
<SALES> 225,905
<TOTAL-REVENUES> 225,905
<CGS> 203,951
<TOTAL-COSTS> 203,951
<OTHER-EXPENSES> 12,016
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,837
<INCOME-PRETAX> 8,141
<INCOME-TAX> 2,977
<INCOME-CONTINUING> 5,165
<DISCONTINUED> (178)
<EXTRAORDINARY> (386)
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<NET-INCOME> 4,600
<EPS-PRIMARY> .87
<EPS-DILUTED> .87
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