SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
Date of Amendment: June 23, 1999
JLM INDUSTRIES, INC.
------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
DELAWARE
-----------------------------
(State or Other Jurisdiction)
0-22687 06-1163710
------------------------ ------------------------------------
(Commission File Number) (I.R.S. Employer Identification No.)
8675 HIDDEN RIVER PARKWAY, TAMPA FLORIDA 33637
---------------------------------------- --------
(Address of principal executive offices) (Zip Code)
(813) 632 - 3300
----------------------------------------------------
(Registrant's telephone number, including area code)
AMENDMENT NO. 2
---------------
The undersigned registrant hereby amends its Current Report on Form
8-K, filed on May 27, 1998 and Amended on July 27, 1998 to amend Item 7 as set
forth herein.
<PAGE>
Item 7. Financial Statements and Exhibits
(a) Financial statements of businesses acquired:
Effective April 1, 1998 (the "Acquisition Date"), certain subsidiaries
of JLM Industries, Inc. ("JLM" or the "Company") completed the acquisition of
Tolson Transport B.V., a Dutch Company, Tolson Holland B.V., a Dutch Company,
and Tolson Asia Pte., Ltd., a Singapore Company, (the "Acquisition") through the
purchase of all of the outstanding shares of capital stock of the three
companies (the "Acquired Companies") from their parent Tolson Holding, B.V., a
Dutch Company. The total purchase price for the Acquired Companies was
$5,750,000, less excluded receivables as defined in the Share Purchase
Agreement. Additionally, JLM was guaranteed a combined equity of the Acquired
Companies of zero as of the effective date of the purchase with any negative
equity to be reimbursed back to JLM at time of closing. As part of the purchase,
JLM executed a $2,850,000 promissory note payable in five semi-annual
installments of $350,000 with a lump-sum payment of $1.1 million due in May
2001. The following audited combined financial statements of the Acquired
Companies and the related independent auditors' report are included in Exhibit
10.41 appearing after the signature page to this Form 8-K/A:
TOLSON HOLLAND B.V., TOLSON TRANSPORT B.V. AND TOLSON ASIA PTE., LTD.
Independent Auditors' Report Combined Balance Sheets as of December 31,
1997 and 1996 Combined Statements of Operations for the Years Ended
December 31, 1997, 1996 and 1995 Combined Statements of Cash Flows for
the Years Ended December 31, 1997, 1996 and 1995 Notes to the Combined
Financial Statements
(b) Unaudited Pro Forma Consolidated Financial Information:
The unaudited pro forma consolidated financial information is presented
for informational purposes only and is not necessarily indicative of the
consolidated operating results or consolidated financial position that would
have occurred, nor is it necessarily indicative of the future operating results
or financial position of JLM following the Acquisition.
The following tables set forth certain unaudited pro forma consolidated
financial information of JLM after giving effect to the Acquisition of the
Acquired Companies. The unaudited pro forma consolidated balance sheet as of
March 31, 1998 set forth below was prepared as if the Acquisition had been
consummated on March 31, 1998. The unaudited pro forma consolidated statements
of operations for the year ended December 31, 1997 and the three months ended
March 31, 1998 set forth below were prepared as if the Acquisition had been
consummated at the beginning of each period presented.
The unaudited pro forma consolidated financial information presented
below has been prepared by applying the purchase method of accounting.
Accordingly, the unaudited pro forma consolidated balance sheet assumes that the
aggregate purchase price of the Acquired Companies is allocated to the assets
and liabilities based on their actual fair values. The adjustment to goodwill in
the unaudited consolidated balance sheet reflects the final goodwill and other
intangible assets created from the purchase of the Acquired Companies.
Additionally, as part of the Share Purchase Agreement, the seller guaranteed
that net assets would have a minimum value of zero on the acquisition date. The
Acquired Companies' combined audited financial information for the year ended
December 31, 1997 and combined unaudited financial information as of March 31,
1998, is presented in accordance with Dutch generally accepted accounting
principles ("GAAP"). Pro forma adjustments have been made to reflect the
approximate effects of applying U.S. GAAP to the information prepared in Dutch
GAAP. For the three months ended March 31, 1998, the adjustment is an estimate
of the amount needed to convert the unaudited pro forma consolidated financial
information from Dutch GAAP to U.S. GAAP.
The unaudited pro forma consolidated financial information presented
below reflects the pro forma adjustments that are directly attributable to the
Acquisition. It also considers financing obtained by the Company to effect the
transaction. The accompanying unaudited pro forma consolidated statements of
operations do not reflect the anticipated revenues, gross profit and operating
expenses from the Acquisition. Accordingly, the unaudited pro forma consolidated
statements of
2
<PAGE>
operations for the year ended December 31, 1997 and the three months ended March
31, 1998 are not necessarily indicative of the consolidated results of
operations as they might have been had the Acquisition actually occurred on the
dates indicated nor are they necessarily indicative of future results.
3
<PAGE>
<TABLE>
<CAPTION>
JLM INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1998
ACQUIRED PRO FORMA PRO FORMA
ASSETS JLM COMPANIES ADJUSTMENTS NOTES FINAL BALANCE
------------- ----------- ------------- ----- -------------
<S> <C> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents $ 5,833,633 $ -- $ -- $ 5,833,633
Accounts receivable:
Trade 26,225,047 26,508,095 (6,079,351) (1) 46,653,791
Other 3,750,374 1,278,882 -- 5,029,256
Due from Tolson Holding, B.V -- 2,616 6,079,351 (1)
-- (270,251 (2)
-- -- (2,900,000) (3) 2,911,716
Inventories 14,705,513 2,906,750 -- 17,612,263
Prepaid expenses and other current assets 2,356,831 -- -- 2,356,831
Assets held for sale 147,523 -- -- 147,523
------------- ------------- ------------- -------------
Total current assets 53,018,921 30,696,343 (3,170,251) 80,545,013
Other investments 10,973,480 -- -- 10,973,480
Property and equipment, net 29,194,512 348,313 -- 29,542,825
Other assets 1,795,536 -- -- 1,795,536
Goodwill and other intangibles assets -- -- 5,750,000 (3) 5,750,000
------------- ------------- ------------- -------------
Total assets $ 94,982,449 $ 31,044,656 $ 2,579,749 $ 128,606,854
============= ============= ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 28,160,442 $ 30,734,675 $ -- $ 58,895,117
Current portion of long-term debt 855,943 -- 350,000 (3) 1,205,943
Loans payable 7,498,161 39,730 -- 7,537,891
Income taxes payable 1,412,487 -- -- 1,412,487
------------- ------------- ------------- -------------
Total current liabilities 37,927,033 30,774,405 350,000 69,051,438
Long-term debt less current portion 11,988,770 -- 2,500,000 (3) 14,488,770
Deferred income taxes 4,306,490 -- -- 4,306,490
Other liabilities 2,138 -- -- 2,138
------------- ------------- ------------- -------------
Total liabilities 54,224,431 30,774,405 2,850,000 87,848,836
Stockholders' Equity:
Preferred stock -- -- -- --
Common stock 71,099 550,516 (550,516) (2) 71,099
Additional paid-in capital 21,093,055 -- -- 21,093,055
Retained earnings (deficit) 19,614,084 (280,265) 280,265 (2) 19,614,084
Accumulated other comprehensive income:
Foreign currency translation adjustment (20,220) -- -- (20,220)
------------- ------------- ------------- -------------
Total stockholders' equity 40,758,018 270,251 (270,251) 40,758,018
------------- ------------- ------------- -------------
Total liabilities and stockholders' equity $ 94,982,449 $ 31,044,656 $ 2,579,749 $ 128,606,854
============= ============= ============= =============
</TABLE>
See accompanying notes to unaudited pro forma consolidated financial
information.
4
<PAGE>
<TABLE>
<CAPTION>
JLM INDUSTRIES,INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
ACQUIRED PRO FORMA PRO FORMA
JLM COMPANIES ADJUSTMENTS NOTES FINAL BALANCE
------------- ------------- ------------- ---- -------------
<S> <C> <C> <C> <C> <C>
Revenues $ 286,822,166 $ 233,113,338 $ -- $ 519,935,504
Cost of sales 256,030,337 231,803,736 -- 487,834,073
------------- ------------- ------------- -------------
Gross profit 30,791,829 1,309,602 -- 32,101,431
Selling, general and administrative expenses 16,889,268 5,064,725 29,136 (4)
-- -- (331,654) (5)
-- -- 303,751 (6) 22,955,226
------------- ------------- ------------- -------------
Operating income (loss) 13,902,561 (3,755,123) (1,233) 10,146,205
Interest expense - net (2,082,986) (583,224) (170,665) (7) (2,836,875)
Other expense - net (583,409) -- -- (583,409)
Foreign currency exchange gain - net 83,852 686,667 -- 770,519
------------- ------------- ------------- -------------
Income (loss) before minority interest and
income taxes 11,320,018 (3,651,680) (171,898) 7,496,440
------------- ------------- ------------- -------------
Minority interest in loss of subsidiaries 61,878 -- -- 61,878
Income (loss) from continuing operations
before income taxes 11,381,896 (3,651,680) (171,898) 7,558,318
------------- ------------- ------------- -------------
Income tax provision:
Current 2,880,263 -- -- (8) 2,880,263
Deferred 1,410,930 -- -- 1,410,930
------------- ------------- ------------- -------------
Total income tax provision 4,291,193 -- -- 4,291,193
------------- ------------- ------------- -------------
Income (loss) from continuing operations $ 7,090,703 $ (3,651,680) $ (171,898) $ 3,267,125
============= ============= ============= =============
Basic Income Per Share:
Income from continuing operations $ 1.23 $ 0.57
------------- ------------
Diluted Income Per Share:
Income from continuing operations $ 1.22 $ 0.56
------------- -------------
Weighted average number of shares
outstanding used for:
Basic income per share 5,752,579 5,752,579
Diluted income per share 5,789,988 5,789,988
</TABLE>
See accompanying notes to unaudited pro forma consolidated financial
information.
5
<PAGE>
<TABLE>
<CAPTION>
JLM INDUSTRIES,INC. AND SUBSIDIARIES
UNAUDITED PRO FORMACONSOLIDATED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1998
ACQUIRED PRO FORMA PRO FORMA
JLM COMPANIES ADJUSTMENTS NOTES FINAL BALANCE
------------- ------------- ------------- ----- -------------
<S> <C> <C> <C> <C>
Revenues $ 58,565,101 $ 43,153,994 $ -- $ 101,719,095
Cost of sales 50,631,222 43,952,237 -- 94,583,459
------------- ------------- ------------- -------------
Gross profit 7,933,879 (798,243) -- 7,135,636
Selling, general and administrative expenses 4,357,858 1,442,723 7,284 (4)
-- -- (82,914) (5)
-- -- 75,937 (6) 5,800,888
------------- ------------- ------------- -------------
Operating income (loss) 3,576,021 (2,240,966) (307) 1,334,748
Interest expense - net (204,275) (28,328) (33,863) (7) (266,466)
Other income - net 131,581 -- -- 131,581
Foreign currency exchange gain - net 10,973 181,121 -- 192,094
------------- ------------- ------------- -------------
Income (loss) before minority interest and income
taxes 3,514,300 (2,088,173) (34,170) 1,391,957
Minority interest in income of subsidiaries -- -- -- --
------------- ------------- ------------- -------------
Income (loss) from continuing operations before
income taxes 3,514,300 (2,088,173) (34,170) 1,391,957
------------- ------------- ------------- -------------
Income tax provision (benefit):
Current 1,244,223 -- -- (8) 1,244,223
Deferred 356,580 -- -- 356,580
------------- ------------- ------------- -------------
Total income tax provision 1,600,803 -- -- 1,600,803
------------- ------------- ------------- -------------
Income (loss) from continuing operations $ 1,913,497 $ (2,088,173) $ (34,170) $ (208,846)
============= ============= ============= =============
Basic income (loss) per share:
Income (loss) from continuing operations $ 0.27 $ (0.03)
============= =============
Diluted income (loss) per share:
Income (loss) from continuing operations $ 0.27 $ (0.03)
============= =============
Weighted average number of shares outstanding
used for:
Basic income (loss) per share 7,106,080 7,106,080
Diluted income (loss) per share 7,129,700 7,129,700
</TABLE>
See accompanying notes to unaudited pro forma consolidated financial
information.
6
<PAGE>
JLM INDUSTRIES,INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
BASIS OF PRESENTATION
The accompanying unaudited pro forma consolidated financial information
is derived from and should be read in conjunction with the historical
consolidated financial statements and the related notes thereto of JLM's Form
10-K filed with the Securities and Exchange Commission ("SEC") on March 25, 1998
and Form 10-Q for the period ended March 31, 1998 Filed with the SEC on May 14,
1998. The unaudited pro forma consolidated financial information for the year
ended December 31, 1997 should also be read in conjunction with the Acquired
Companies' audited combined financial statements appearing in Exhibit 10.41 on
this Form 8-K/A. The unaudited combined financial statements of the Acquired
Companies for the period ended March 31, 1998 were derived from the combined
accounting records of the Acquired Companies.
The unaudited pro forma consolidated balance sheet as of March 31, 1998
was prepared as if the Acquisition had been consummated on March 31, 1998. The
unaudited pro forma consolidated statements of operations for the year ended
December 31, 1997 and three months ended March 31, 1998, were prepared as if the
Acquisition had been consummated on January 1, 1997.
The unaudited pro forma financial information presented below has been
prepared by applying the purchase method of accounting. Accordingly, the
unaudited pro forma consolidated balance sheet assumes that the aggregate
purchase price of the Acquired Companies is allocated to the assets and
liabilities based on their estimated fair values. Additionally, as part of the
purchase agreement, the seller guaranteed that net assets would have a minimum
value of zero on the Acquisition Date.
The unaudited pro forma consolidated financial information reflects pro
forma adjustments that are directly attributable to the Acquisition and the use
of the purchase method of accounting. It also considers financing obtained to
effect the transaction. The accompanying unaudited pro forma consolidated
statements of operations do not reflect the revenues, gross profit and operating
expenses anticipated from the Acquisition. Accordingly, the unaudited pro forma
consolidated statements of operations for the year ended December 31, 1997 and
the three months ended March 31, 1998 are not necessarily indicative of the
consolidated results of operations as they might have been had the Acquisition
actually occurred on the dates indicated, nor are they necessarily indicative of
future results.
NOTES
(1) Certain identifiable accounts receivable balances included in the March
31, 1998 balance sheet of the Acquired Companies were not acquired by
JLM. Those accounts receivable have been eliminated and are reflected
as an increase in the receivable due from Tolson Holding, B.V. (the
"Seller").
(2) The receivable is a net contribution to be made by the Seller caused by
an agreement with the Seller that net assets acquired by JLM would have
a guaranteed minimum value of zero. Any excess or deficiency in the
equity of the Acquired Companies was an adjustment to the
receivable/payable of the Seller. The equity accounts of the Acquired
Companies were eliminated by adjusting the net receivable due from the
Seller.
(3) A purchase price of $5,750,000 was negotiated in exchange for assets
and liabilities having a net book value of zero. The excess purchase
price of $5,750,000 resulted in goodwill and other intangible assets.
The cost basis of the assets and liabilities acquired approximate their
fair market value. Therefore, the entire excess purchase price over the
fair value of the net assets acquired was allocated to goodwill and
other intangibles. The Acquisition was to be funded by $2,900,000 in
cash to be paid at closing unless the receivable due from the Seller
was greater than the amount owed by the Company and a $2,850,000 note
payable. The $2,900,000 in cash was offset against the receivable due
from the Seller. The $2,850,000 note payable was executed on the
Acquisition Date with an interest rate of LIBOR plus one point. The
effective interest rate on the note payable is approximately 6.0%. The
net receivable due from the Seller was collected by the Company in
August 1998.
7
<PAGE>
(4) The Acquired Companies' combined audited financial information for the
year ended December 31, 1997 and combined unaudited financial
information as of March 31, 1998, is presented in accordance with Dutch
generally accepted accounting principles. Pro forma adjustments have
been made to reflect the approximate effects of applying U.S. GAAP to
the information prepared in Dutch GAAP. See footnote 8 of the Acquired
Companies' December 31, 1997 combined audited financial statements,
presented in Exhibit 10.41, for a complete description of the
adjustment for the unaudited pro forma consolidated statement of income
for the year ended December 31, 1997. For the three months ended March
31, 1998, the adjustment is an estimate of the amount needed to convert
the unaudited pro forma consolidated financial information from Dutch
GAAP to U.S. GAAP.
(5) Adjustment represents the reduced salaries for certain employees of the
Acquired Companies that were not employed by JLM after the Acquisition.
For the three months ended March 31, 1998, the adjustment reflects a
pro rata reduction in the salaries expense.
(6) Adjustments relate to goodwill and other intangibles, as discussed in
Note (3) above, for the related estimated amortization expense that
would have been incurred had the transaction been consummated on
January 1, 1997. The average estimated useful life for goodwill and
other intangibles created from the acquisition of the Acquired
Companies is approximately 20 years. For the year ended December 31,
1997, the adjustment reflects a full year of amortization expense. For
the three months ended March 31, 1998, the adjustment reflects a
partial year of amortization expense.
(7) Adjustments are made to the unaudited pro forma statements of
operations due to the executed note payable, discussed in Note (3)
above, for interest expense that would have been incurred had the
transaction been consummated at the beginning of each period presented.
The effective interest rate on the note payable is approximately 6.0%.
(8) No adjustment has been made to the income tax provision for any of the
periods presented as the Acquired Companies have a $3.75 million tax
credit carryforward as of the effective date of the Acquisition Date.
8
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.41 Tolson Holland B.V., Tolson Transport B.V. and Tolson Asia Pte Ltd
combined financial statements for the three-year period ended December
31, 1997.
9
<PAGE>
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: June 23, 1999 /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)
10
EXHIBIT 10.41
TOLSON HOLLAND B.V., TOLSON TRANSPORT B.V. AND TOLSON ASIA PTE LTD
COMBINED FINANCIAL STATEMENTS FOR THE THREE-YEAR PERIOD ENDED DECEMBER 31, 1997
CONTENTS
Independent Auditors' Report 2
Combined Balance Sheets 3
Combined Statements of Operations 4
Combined Statements of Cash Flows 5
Notes to the Combined Financial Statements 6
11
<PAGE>
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS AND SHAREHOLDERS
TOLSON HOLLAND B.V., TOLSON TRANSPORT B.V. AND TOLSON ASIA PTE LTD
We have audited the accompanying combined balance sheets of Tolson Holland B.V.,
Tolson Transport B.V. and Tolson Asia Pte Ltd. (the "Company") as of December
31, 1997 and 1996 and the related combined statements of operations and cash
flows for each of the years in the three-year period ended December 31, 1997.
These combined financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these combined
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in The Netherlands, which are substantially equivalent to auditing standards
generally accepted in the United States. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
financial statements presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the Combined Financial Statements referred to above present
fairly, in all material respects, the combined financial position of Tolson
Holland B.V., Tolson Transport B.V. and Tolson Asia Pte Ltd. as of December 31,
1997 and 1996 and the results of their operations and their cash flows for each
of the years in the three-year period ended December 31, 1997 in conformity with
generally accepted accounting principles in The Netherlands.
Accounting principles generally accepted in The Netherlands vary in certain
significant respects from generally accepted accounting principles in the United
States. Application of accounting principles generally accepted in the United
States would have affected results of operations and shareholders' equity as of
and for the years ended December 31, 1997 and 1996 to the extent summarised in
Note 8 to the Combined Financial Statements.
KPMG ACCOUNTANTS N.V.
THE HAGUE, THE NETHERLANDS
JULY 23, 1998
12
<PAGE>
<TABLE>
<CAPTION>
COMBINED BALANCE SHEETS
- ---------------------------------------------------------------------------------------------------------
DECEMBER 31, 1997 DECEMBER 31, 1996
- ---------------------------------------------------------------------------------------------------------
(in NLG)
CURRENT ASSETS
<S> <C> <C> <C> <C>
Inventory 16,300,387 21,671,725
Receivable from Vitol group companies 21,648,589 16,402,347
Accounts receivable 27,068,978 41,149,131
Other receivables 3,158,106 3,875,185
Cash and cash equivalents 2,767,467 1,150,605
----------- -----------
70,943,527 84,248,993
Tangible fixed assets 960,817 1,351,865
----------- -----------
ASSETS 71,904,344 85,600,858
----------- -----------
CURRENT LIABILITIES
Bank overdrafts 14,775,336 19,119,315
Accounts payable 29,845,837 33,784,560
Payable to Vitol group companies 29,905,866 29,295,872
Amounts owed in respect of taxes and social
securities 470,215 58,763
Accrued expenses and other liabilities 2,240,881 2,918,416
----------- -----------
77,238,135 85,176,926
Long term loan 33,112 99,334
SHAREHOLDERS' EQUITY
Share capital 1,067,500 1,067,500
Accumulated deficit (6,434,403) (742,902)
----------- -----------
(5,366,903) 324,598
------------ -----------
LIABILITIES AND SHAREHOLDERS' EQUITY 71,904,344 85,600,858
- ---------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
COMBINED STATEMENTS OF OPERATIONS
- ------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------
(in NLG)
<S> <C> <C> <C> <C> <C> <C>
Net turnover 456,381,522 370,856,672 641,984,836
Cost of sales 452,510,561 359,724,634 631,398,561
Provision on inventory and
trading positions 1,307,067 233,920 711,473
----------- ----------- -----------
Gross operating income 2,563,894 10,898,118 9,874,802
Other operating income - 3,647 922,590
----------- ----------- -----------
2,563,894 10,901,765 10,797,392
Salaries and bonuses 3,591,116 4,231,463 4,089,331
Social security costs 841,002 792,060 751,910
Depreciation 467,135 523,621 408,612
Other operating expenses 5,016,296 4,675,730 4,834,117
----------- ----------- -----------
9,915,549 10,222,874 10,083,970
----------- ---------- ----------
Interest income (118,342) (120,562) (363,580)
Interest expenses 1,260,159 1,754,759 1,834,465
Exchange rate differences (1,344,333) (380,142) (32,271)
---------- ---------- ----------
Net other (income) expense (202,516) 1,254,055 1,438,614
---------- ---------- ----------
Income (loss) before taxation (7,149,139) (575,164) (725,192)
Taxation (benefit) expense - (397,711) 397,711
---------- ---------- ----------
NET INCOME (LOSS) FOR THE YEAR (7,149,139) (177,453) (1,122,903)
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
COMBINED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOW BY OPERATING ACTIVITIES
Net income (loss) (7,149,139) (177,453) (1,122,903)
Adjustment to reconcile net income (loss) to cash flow
(used in) provided by operating activities:
Depreciation 467,135 523,621 408,612
Changes in operating assets and liabilities:
o inventories 5,373,995 7,796,574 15,169,747
o accounts receivable and other receivables 15,168,890 (5,191,778) 33,738,162
o receivable from Vitol group companies (5,783,140) 15,293,098 (6,051,254)
o Accounts payable and accrued liabilities (3,682,217) 10,166,154 (41,231,876)
o Payable to Vitol group companies 584,617 (4,659,137) (4,917,919)
--------------------------------------------------------
CASH FLOW (USED IN) PROVIDED BY OPERATING ACTIVITIES 4,980,141 23,751,079 (4,007,431)
CASH FLOW USED IN INVESTING ACTIVITIES
Purchase of tangible fixed assets (238,628) (465,483) (585,738)
Proceeds of sale of tangible fixed assets 79,219 58,254 9,812
--------------------------------------------------------
CASH FLOW USED IN INVESTING ACTIVITIES (159,409) (407,229) (575,926)
CASH FLOW USED IN FINANCING ACTIVITIES
Decrease in long term loans (66,222) (66,222) (66,222)
Increase (decrease) in bankoverdrafts (3,364,472) (18,207,786) 4,795,243
Increase (decrease) in current account with Tolson
Holding B.V. (696,016) (5,207,983) 1,425,158
Capital contributions 920,961 120,384 -
Dividends paid - (858,990) (9,687,969)
--------------------------------------------------------
CASH FLOW USED IN FINANCING ACTIVITIES (3,205,749) (24,220,597) (3,533,790)
Effect of exchange rate changes on cash 1,879 2,965 (1,610)
--------------------------------------------------------
CASH AND CASH EQUIVALENTS
Net increase (decrease) during the year 1,616,862 (873,782) (8,118,757)
Balance at the beginning of the year 1,150,605 2,024,387 10,143,144
--------------------------------------------------------
BALANCE AT THE END OF THE YEAR 2,767,467 1,150,605 2,024,387
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
NOTES TO THE COMBINED FINANCIAL STATEMENTS
BASIS OF PREPARATION OF THE COMBINED FINANCIAL STATEMENTS
The accompanying Combined Financial Statements present the combined financial
position and combined results of operations and cash flows of Tolson Holland
B.V., Tolson Transport B.V. and Tolson Asia Pte Ltd (the "Company"). Each of
these legal entities were wholly owned subsidiaries of Tolson Holding B.V. which
is a subsidiary of Vitol Holding B.V. (the "Parent"). The common stock of each
of these legal entities was acquired by JLM Industries (Europe) B.V. and JLM
International Inc. (collectively "JLM") pursuant to a Share Purchase Agreement
dated April 28, 1998.
All intercompany balances and transactions between the entities have been
eliminated.
The Company is a global distributor and trader of methanol, solvents, aromatics
and olefins.
The Combined Financial Statements have been prepared in accordance with
generally accepted accounting principles in the Netherlands ("Dutch GAAP"). Note
8 includes a summary of differences between Dutch GAAP and US GAAP that have a
material effect on net income (loss) and shareholder's equity.
Effectively 1 January 1998, Tolson Holland B.V. sold its Polymers Business to
Tolson Polymers B.V.. a subsidiary of the Parent. As the Polymers Business was
not acquired by JLM, the financial information of the Polymers Business has been
carved out of the historical financial results of Tolson Holland B.V. for
purposes of these Combined Financial Statements.
The Combined Financial Statements exclude the assets, liabilities, net turnover,
costs of sales, salaries and other operating expenses that related directly to
the Polymers Business. Additionally, certain allocated costs attributable to the
Polymers Business have been excluded from the Combined Statements of Operations
to present the Company's results of operations as if it had been operated on a
stand-alone basis during the periods presented. The basis for presenting the
allocated expense items is as follows: (a) interest expense was allocated by
first determining the percentage relationship between the net assets of the
Polymers Business versus the total net assets of Tolson Holland B.V. which
percentage is then applied to the actual net interest expenses incurred to
determine the allocation to the Company, (b) corporate income taxes were
allocated assuming the Company was a stand-alone Company for all periods
presented and (c) depreciation and overhead expenses were allocated based on the
number of days worked by personnel of the Polymers Business and the number of
days worked by personnel of the other businesses.
The accompanying Combined Financial Statements do not represent Dutch or
Singapore's statutory financial statements as the combined businesses were not
conducted as a separate single legal entity.
The statutory accounts of Tolson Holland B.V., Tolson Transport B.V. and Tolson
Asia Pte Ltd for the period ended December 31, 1996 are the latest accounts to
have been delivered to the Register of Companies in The Netherlands and
Singapore.
Management believes the above allocations to be reasonable under the
circumstances, however, there can be no assurances that such allocations will be
indicative of future results of operations of the combined businesses nor
reflective of historical results had the combined businesses been a separate,
stand-alone entity during the periods covered.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
The principles applied in respect of the valuation of assets and liabilities and
determination of the result are based on historical cost.
Insofar as not stated otherwise, monetary assets and liabilities are shown at
nominal value.
PRINCIPLES FOR THE TRANSLATION OF FOREIGN CURRENCIES
Assets and liabilities in foreign currencies are translated into Dutch guilders
at exchange rates prevailing at year end.
The Company enters into foreign currency contracts in order to reduce the impact
of certain foreign currency fluctuations. Gains and losses on contracts that are
hedges of foreign currency transactions are recognised in income when the hedged
16
<PAGE>
transactions occur. Gain and losses on foreign currency transactions that are
not hedges are recognised in income in the period in which the exchange rate
changes.
PRINCIPLES FOR THE TRANSLATION OF FOREIGN ENTITIES
The financial statements of all entities included in the Combined Financial
Statements are translated into Dutch Guilders as follows:
1. assets and liabilities are translated at the rate of exchange prevailing at
the balance sheet date;
2. income and expense accounts of the foreign entities are translated using a
weight average exchange rate during the year.
Exchange gains and losses resulting from this translation process are included
in shareholders' equity.
TANGIBLE FIXED ASSETS
Machinery and equipment and other fixed assets are valued at acquisition costs.
Depreciation is calculated according to the straight-line method on the basis of
useful life.
INVENTORY
Inventory consist of chemical products in storage or sailing which are valued at
the lower of individual historical costs and net realisable value. Historical
costs include the costs of transport, insurance and storage.
RECEIVABLES
Receivables are stated at nominal value after the deduction of a provision
deemed necessary for doubtful debts.
CASH AND CASH EQUIVALENTS
Cash and banks are stated at nominal value.
LONG-TERM AND CURRENT LIABILITIES
The long-term and current liabilities are stated at nominal value.
NET TURNOVER
Net turnover represents the invoiced value, excluding valued added tax, of
products shipped by the Company.
EXPENSES
Expenses are charged against income in the year in which the related revenues
are recognised.
TAXATION ON THE RESULT
The provision for income tax included in the accompanying Combined Financial
Statements has been determined as if the Company was a stand alone entity during
the periods covered. The provision for income taxes consists entirely of current
tax expense. The Company has no deferred tax liabilities. Deferred tax assets
consist of net operating loss carryforwards. Management has assessed whether it
is more likely than not that some portion or all of the deferred tax assets will
not be realised. Based on that assessment, the Company has established a
valuation allowance equal to the full amount of deferred taxes for all periods
presented.
17
<PAGE>
<TABLE>
<CAPTION>
NOTES TO THE BALANCE SHEETS
TANGIBLE FIXED ASSETS
- ------------------------------------------------------------------------------------------
1997 1996
- ------------------------------------------------------------------------------------------
(in NLG)
<S> <C> <C>
Office and furniture equipment:
Cost at January 1 3,911,454 3,516,980
Capital expenditure during the year 238,628 465,483
Capital disposal during the year (846,712) (133,591)
Exchange rate difference (22,121) 62,582
-------------------------------
Cost at December 31 3,281,249 3,911,454
Cumulative depreciation at January 1 2,559,589 1,994,552
Cumulative depreciation on disposal during the year (767,493) (75,337)
Depreciation charge Polymers Business 80,536 81,164
Depreciation charge 467,135 523,621
Exchange rate difference (19,335) 35,589
-------------------------------
Cumulative depreciation at December 31 2,320,432 2,559,589
-------------------------------
BOOK VALUE AT DECEMBER 31 960,817 1,351,865
- ------------------------------------------------------------------------------------------
INVENTORY
- ------------------------------------------------------------------------------------------
DECEMBER 31, DECEMBER 31,
1997 1996
- ------------------------------------------------------------------------------------------
(in NLG)
Products for sale at cost 13,786,866 17,266,836
Russian conversion products 3,649,267 4,520,432
Provision for valuation at lower net realisable value (1,135,746) (115,543)
-------------------------------
16,300,387 21,671,725
- ------------------------------------------------------------------------------------------
</TABLE>
Russian conversion products represent net amount due from inventory suppliers in
Russia. In 1997 a provision of NLG 938,746 was recorded to reserve for
potentially uncollectible balances.
18
<PAGE>
RECEIVABLE FROM VITOL GROUP COMPANIES
- ----------------------------------------------------------------------------
DECEMBER 31, DECEMBER 31,
1997 1996
- ----------------------------------------------------------------------------
(in NLG)
Investment in Polymers Business 9,305,661 16,117,044
Tolson USA Inc. 8,435,465 279,505
Vitol USA 3,868,233 -
Other Vitol companies. 39,230 5,798
------------------------------
21,648,589 16,402,347
- ----------------------------------------------------------------------------
Receivables from Tolson USA, Vitol USA and other Vitol companies primarily
relate to trade receivables from intercompany sales.
ACCOUNTS RECEIVABLE
- ----------------------------------------------------------------------------
DECEMBER 31, DECEMBER 31,
1997 1996
- ----------------------------------------------------------------------------
(in NLG)
Accounts receivable 37,518,213 41,633,293
Provision for doubtful accounts (10,449,235) (484,162)
------------------------------
27,068,978 41,149,131
- ----------------------------------------------------------------------------
All receivables are due within one year.
CASH AND CASH EQUIVALENTS
- ----------------------------------------------------------------------------
DECEMBER 31, DECEMBER 31,
1997 1996
- ----------------------------------------------------------------------------
(in NLG)
Cash in banks 2,736,600 1,134,004
Cash in hand 30,867 16,601
------------------------------
2,767,467 1,150,605
- ----------------------------------------------------------------------------
Bank balances are available on demand.
19
<PAGE>
<TABLE>
<CAPTION>
SHAREHOLDERS' EQUITY
Changes in shareholders' equity during the period are specified as follows:
- ------------------------------------------------------------------------------------------
SHARE CAPITAL ACCUMULATED TOTAL
DEFICIT
- ------------------------------------------------------------------------------------------
(in NLG)
<S> <C> <C> <C> <C>
Balance at January 1, 1996 1,067,500 144,837 1,212,337
Capital contribution - 120,384 120,384
Dividend declaration - (858,990) (858,990)
Net income (loss) for the year - (177,453) (177,453)
Exchange rate difference - 28,320 28,320
-------------------------------------------
Balance at December 31, 1996 1,067,500 (742,902) 324,598
Capital contribution - 920,961 920,961
Net income (loss) for the year - (7,149,139) (7,149,139)
Exchange rate difference - 536,677 536,677
-------------------------------------------
BALANCE AT DECEMBER 31, 1997 1,067,500 (6,434,403) (5,366,903)
- ------------------------------------------------------------------------------------------
</TABLE>
LONG TERM LOANS
A long term loan of NLG 331,112 was provided on office furniture. During the
year ended December 31, 1997 an amount of NLG 231,778 was redeemed. The
redeemable amount of NLG 66,222 for 1998 is classified under current
liabilities.
<TABLE>
<CAPTION>
PAYABLE TO VITOL GROUP COMPANIES
- ------------------------------------------------------------------------------------------
DECEMBER 31, DECEMBER 31,
1997 1996
- ------------------------------------------------------------------------------------------
(in NLG)
<S> <C> <C>
Current account with Tolson Holding B.V. 27,812,271 28,508,287
Other Vitol Companies 2,093,595 787,585
----------------------------
29,905,866 29,295,872
- ------------------------------------------------------------------------------------------
</TABLE>
Payables to other Vitol companies primarily relate to trade payables for
intercompany purchases. The current account with Tolson Holding B.V. represents
intercompany financing. No interest has been charged to the Company on this
debt. The average balance of this debt was NLG 27,958,369, NLG 33,335,301 and
NLG 35,139,957 for the years ended December 31 1997, 1996 and 1995 respectively.
20
<PAGE>
<TABLE>
<CAPTION>
Movements in the current account with Tolson Holding B.V. can be specified as
follows:
- ------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------
(in NLG)
<S> <C> <C> <C> <C>
Balance at January 1 (28,508,287) (33,716,270) (31,979,121)
Capital contribution 920,961 120,384 -
Dividend declaration - (858,990) (9,687,969)
Income tax (216,857) 9,764,161 2,980,545
Office Rent (434,565) (426,044) (417,690)
Paid to (received from) Tolson Holding B.V. (8,763,625) (134,585) 6,569,956
Contributions (dividends) related to Polymers Business 9,190,102 (3,256,943) (1,181,991)
--------------------------------------------
BALANCE AT DECEMBER 31 (27,812,271) (28,508,287) (33,716,270)
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
CURRENT LIABILITIES
All current liabilities fall due within one year.
Bank overdrafts are secured by the assignment of inventory, trade receivable and
shipping - and storage documents.
NOTES TO THE STATEMENTS OF OPERATIONS
GEOGRAPHICAL SUBDIVISION OF NET TURNOVER
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------
(in NLG)
<S> <C> <C> <C>
Netherlands 36,744,388 51,229,153 129,207,046
Other countries of the European Community 124,159,220 138,836,633 196,068,980
Other European countries 44,194,397 30,561,726 53,521,768
United States of America 109,246,691 17,186,262 39,310,171
Rest of the World 142,036,826 133,042,898 223,876,871
---------------------------------------------------
456,381,522 370,856,672 641,984,836
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
COSTS OF SALES
The costs of sales include:
o the purchase price of products;
o transportation costs;
o storage;
o insurance;
o foreign exchange results.
In 1997 costs of sales includes an amount of NLG 7,729,954 for an allowance for
doubtful receivables. The allowance was recorded to provide for potentially
uncollectible receivables from three customers in Thailand. The financial
stability of such customers has been significantly affected by the down-turn in
the Thai economy. Accordingly, management believes that ultimate collectability
of amounts from these customers is doubtful.
21
<PAGE>
EXCHANGE RATE DIFFERENCES
The exchange rate differences in 1997 resulted primarily from an unhedged
long-position in US-dollars.
CONTINGENT LIABILITIES
The company was party to a joint and several liability agreement together with
its holding company and fellow subsidiary for bank overdraft facilities with the
Hollandsche Bank Unie N.V. On account of trading activities letters of credit,
bank guarantees and drafts/collections were provided up to US$ 18.4 million
(1996: US$ 18.8 million ). This agreement was ended effective April 28, 1998 and
amounts were repaid in full to the Hollandsche Bank Unie N.V. On account of the
Banque Paribas Nederland N.V. bank guarantees were provided up to nil (1996: DM
1.3 million ).
The Company is involved in various other claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's combined financial position, results of operations or liquidity.
AVERAGE NUMBER OF EMPLOYEES
The average number of staff employed by the Company was in:
1995: 58 employees
1996: 55 employees
1997: 51 employees
RELATED PARTY TRANSACTIONS
Significant transactions with related parties were as follows:
<TABLE>
<CAPTION>
- --------------------------------------- ----------------------- ----------------------- -----------------------
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
- --------------------------------------- ----------------------- ----------------------- -----------------------
<S> <C> <C> <C>
Purchase from Tolson USA Inc. 7,979,840 8,752,195 26,020,103
Purchase from Vitol Energy - - 744,689
Purchase from Vitol USA - 1,488,508 -
Purchase from Vitol Asia 523,694 1,252,528 4,950,917
Sales to Tolson USA Inc. 40,076,603 11,060,732 39,098,386
Sales to Vitol Asia 1,693,228 1,421,431 1,430,980
Sales to Vitol USA 60,663,614 3,431,137 -
Sales to Vitol Energy 1,928,701 937,607 6,297,659
Sales to Vitol Refining - 7,671,034 -
Sales to Tolson UK - - 305,949
Office rent paid to Tolson Holding
B.V. (based on a market rate rental
agreement) 434,565 426,044 417,690
- --------------------------------------- ----------------------- ----------------------- -----------------------
</TABLE>
RECONCILIATION TO US GAAP
The financial statements are prepared in accordance with Dutch GAAP which
differs in certain significant respects from Generally Accepted Accounting
Principles in the United States. (US GAAP).
Pension costs included in the Combined Financial Statements are computed in
accordance with Dutch GAAP. For defined benefit plans, those amounts are based
on the premiums which Tolson Holland B.V. is required to pay to the Vitol
Pension Fund (the "Fund"). The premiums are calculated using actuarial
assumptions which among others do not take into account future salary increases
or employee turnover due to resignations dismissals or disability. The present
value is calculated by applying a discount rate of 4%. These amounts are not
reduced by credits relating to overfunding of the Fund which under
20
<PAGE>
Dutch GAAP is computed by valuing assets at fair market value less a prudence
provision unless refunds are actually received from the Fund.
Pension costs have also been calculated in accordance with SFAS 87 under U.S.
GAAP. SFAS 87 is generally more prescriptive than Dutch GAAP and service costs
are based on calculations using actuarial assumptions which among others include
estimated future salary increases and estimated employee turnover related
resignations dismissals and disability and the present value is calculated by
applying a discount rate of 6%. Moreover net periodic pension costs are reduced
by credits representing amortisation of overfunding of the Fund which is
calculated by valuing plan assets at fair market value.
The difference between the pension cost computed under SFAS 87 (U.S. GAAP) and
the one computed under Dutch GAAP is shown below and relates principally to the
difference in accounting treatment for overfunded plans.
The approximate effect of applying US GAAP principles to net income and
shareholders' equity is set out below.
Reconciliation of net income
<TABLE>
<CAPTION>
- ----------------------------------------------------------------- --------------- ----------------
1997 1996
- ----------------------------------------------------------------- --------------- ----------------
<S> <C> <C>
Net loss for the year in accordance with Dutch GAAP (7,149,139) (177,453)
Adjustments to reported result for the year:
Pensions (57,043) 84,740
Income tax effect of above adjustments 19,965 (29,659)
--------------- ----------------
NET LOSS FOR THE YEAR IN ACCORDANCE WITH U.S. GAAP (7,186,217) (122,372)
- ----------------------------------------------------------------- --------------- ----------------
Reconciliation of shareholders' equity per 31 December:
- ----------------------------------------------------------------- --------------- ----------------
1997 1996
- ----------------------------------------------------------------- --------------- ----------------
Shareholders' equity in accordance with Dutch GAAP (5,366,903) 324,598
Adjustments to reported shareholders' equity:
Pensions (43,820) 13,223
Income tax effect of above adjustments 15,337 (4,628)
--------------- ----------------
SHAREHOLDERS' EQUITY IN ACCORDANCE WITH U.S. GAAP (5,395,386) 333,193
- ----------------------------------------------------------------- --------------- ----------------
</TABLE>
SUBSEQUENT EVENTS (UNAUDITED)
On May 13, 1998 , JLM completed the acquisition of the Company through the
purchase of all of the outstanding shares of capital stock of the three
companies from their parent Tolson Holding B.V. The total purchase price for the
Company was US$ 5,750,000 subject to certain adjustments as described below.
The purchase price was determined based on closing valuation date of March 31,
1998 and was paid through an initial cash payment of US$ 2,900,000 at the time
of closing less excluded receivables as defined in the Share Purchase Agreement
and the execution of a US$ 2,850,000 promissory note that accrues interest at
the LIBOR-rate plus 1%. The promissory note is payable in five semi-annual
instalments of US$ 350,000 with a lump-sum payment of US$ 1.1 Million due in May
2001. If the combined shareholders' equity of the Company is less than zero at
the effective closing date, Tolson Holding B.V. will pay JLM for any deficit.
Conversely, if the combined shareholders' equity of the Company is in excess of
zero at the time of the effective closing date, then JLM is required to pay
Tolson Holding B.V. for such excess. Should JLM pay any excess to Tolson Holding
B.V., JLM will fund all required amounts to Tolson Holding B.V. using its line
of credit. The acquisition line has an available borrowing capacity of US$ 7.5
million.
The purchase of the Company will exclude certain receivables, as defined in the
Share Purchase Agreement. For such excluded receivables, JLM will collect such
receivables on a best efforts basis and JLM will receive commission as defined
in the Share Purchase Agreement for actual collections made.
23
<PAGE>
To assist Tolson Holding B.V. and Vitol Holding B.V. in the wind-down process of
Tolson USA's business Tolson USA Inc.'s assets of US$ 7,743,647 and liabilities
of US$ 19,805,300 were transferred to Tolson Holland B.V. effective March 31,
1998 at net bookvalue. Such assets and liabilities were transferred to the books
of Tolson Holland B.V. as per the effective date.
JLM will not continue the Tolson USA business.
Any negative financial effect of the wind-down of Tolson USA's operations will
be recorded by Tolson Holding B.V. and is covered by a guarantee of Vitol
Holding B.V.
24
