SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
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)
(813) 632-3300
(Registrant's telephone number, including area code)
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 May 11, 2000
----- ---------------------------
Common stock, par value $0.01 per share 6,554,205
<PAGE> 2
JLM INDUSTRIES, INC.
INDEX
PAGE
PART I FINANCIAL INFORMATION NUMBER
- ------ --------------------- ------
Item 1 Consolidated Financial Statements:
Consolidated Balance Sheets at December 31, 1999 and
March 31, 2000 (unaudited) 3
Unaudited Consolidated Statements of Operations and
Comprehensive Loss for the Three Months
Ended March 31, 1999 and 2000 4
Unaudited Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 1999 and 2000 5
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Item 3 Quantitative and Qualitative Disclosures about Market Risk 13
Part II OTHER INFORMATION
- ------- -----------------
Item 1 Legal Proceedings 15
Item 6 Exhibits and Reports on Form 8-K 15
<PAGE> 3
JLM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
December 31, March 31,
1999 2000
-------------- --------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 1,419,568 $ 940,338
Accounts Receivable:
Trade 52,063,858 48,905,937
Other 4,595,630 4,638,964
Inventories 20,557,450 25,604,875
Prepaid expenses and other current assets 4,383,263 4,282,337
Income tax receivable 3,877,942 5,869,141
-------------- --------------
Total current assets 86,897,711 90,241,592
Other investments 6,725,834 6,741,245
Property and equipment, net 27,900,465 25,793,900
Goodwill and other intangibles 11,692,139 11,327,374
Other assets 6,805,828 6,823,697
-------------- --------------
Total assets $ 140,021,977 $ 140,927,808
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 62,638,192 $ 64,244,666
Current portion of long-term debt 2,904,166 3,223,518
Deferred income taxes - current 127,194 127,194
Deferred revenue 435,497 560,079
-------------- --------------
Total current liabilities 66,105,049 68,155,457
Long-term debt less current portion 24,872,156 24,620,136
Deferred income taxes 7,525,641 7,557,980
Minority interest 543,085 638,641
Deferred revenue and other liabilities 3,487,144 4,523,119
-------------- --------------
Total liabilities 102,533,075 105,495,333
Commitments and Contingencies (Note 4)
Stockholders' Equity:
Preferred stock - 5,000,000 shares authorized;
0 shares issued and outstanding - -
Common stock - $.01 par value; 30,000,000 shares
Authorized; 7,151,151 shares issued 71,511 71,511
Additional paid-in capital 21,550,453 21,550,453
Retained earnings 19,883,927 18,391,827
Accumulated other comprehensive loss
Foreign currency translation adjustment (985,820) (1,484,338)
-------------- --------------
40,520,071 38,529,453
Less treasury stock at cost - 573,636 and
593,336 shares, respectively (3,031,169) (3,096,978)
-------------- --------------
Total stockholders' equity 37,488,902 35,432,475
-------------- --------------
Total liabilities and stockholders' equity $ 140,021,977 $ 140,927,808
============== ==============
</TABLE>
See notes to consolidated financial statements.
<PAGE> 4
JLM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------
1999 2000
------------- -------------
<S> <C> <C>
Revenues $ 65,837,540 $ 87,406,578
Cost of sales 60,564,887 83,883,136
------------- -------------
Gross profit 5,272,653 3,523,442
Selling, general and administrative expenses 5,613,262 5,728,787
------------- -------------
Operating loss (340,609) (2,205,345)
Interest expense - net (432,789) (612,090)
Other income (expense) - net (274,915) 569,688
Foreign currency exchange loss - net (8,019) (41,134)
------------- -------------
Loss before minority interest and
income taxes (1,056,332) (2,288,881)
Minority interest in income of Subsidiaries (103,285) (95,556)
------------- -------------
Loss before income taxes (1,159,617) (2,384,437)
------------- -------------
Income tax provision (benefit)
Current (678,973) (1,153,895)
Deferred 375,990 261,558
------------- -------------
Total income tax benefit (302,983) (892,337)
------------- -------------
Net loss (856,634) (1,492,100)
Other comprehensive loss
Foreign currency translation adjustments (236,278) (498,518)
------------- -------------
Comprehensive loss $ (1,092,912) $ (1,990,618)
============= =============
Basic and diluted earnings (loss) per share $ (0.13) $ (0.23)
Weighted average shares outstanding 6,694,612 6,567,225
Diluted weighted average shares outstanding 6,694,612 6,567,225
</TABLE>
See notes to consolidated financial statements.
<PAGE> 5
JLM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------
1999 2000
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (856,634) $ (1,492,100)
Adjustments to reconcile net loss to net
cash used in operating activities:
Deferred income taxes 595,065 261,558
Minority interest in income of subsidiaries 103,285 95,556
Depreciation and amortization 955,272 1,054,390
Loss from partnerships 12,000 -
Loss (gain) on asset disposal 336,008 (325,841)
Bad debt expense 18,000 -
Changes in assets and liabilities (exclusive of acquisitions):
Decrease in accounts receivable 878,563 3,114,587
Decrease (increase) in inventories 792,374 (5,047,425)
Increase in prepaid expenses and other current assets (2,468,183) (490,875)
Increase in income taxes receivable (839,966) (1,991,200)
Increase in other investments - (15,411)
Increase in other assets (8,351) (68,045)
(Decrease) increase in accounts payable and
accrued expenses (3,849,956) 1,606,475
Increase in deferred revenue 4,144,778 1,121,237
Increase in other liabilities 2,329 39,320
------------ ------------
Net cash used in operating activities (185,416) (2,137,774)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets - 2,530,000
Capital expenditures (223,632) (374,461)
Other investments (40,433) -
------------ ------------
Net cash (used in) provided by investing activities (264,065) 2,155,539
CASH FLOW FROM FINANCING ACTIVITIES:
Net proceeds loans payable 421,258 -
Proceeds from long-term debt - 16,597,400
Principal payments of long-term debt (487,044) (16,530,068)
Purchase of treasury shares (144,561) (65,809)
------------ ------------
Net cash (used in) provided by financing activities (210,347) 1,523
Effect of foreign exchange rates on cash (236,278) (498,518)
------------ ------------
Net decrease in cash and cash equivalents (896,106) (479,230)
Cash and cash equivalents, beginning of period 2,480,566 1,419,568
------------ ------------
Cash and cash equivalents, end of period $ 1,584,460 $ 940,338
============ ============
</TABLE>
See notes to consolidated financial statements.
<PAGE> 6
JLM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. DESCRIPTION OF BUSINESS
JLM is a leading global marketer and distributor of performance chemicals,
olefins, and specialty plastics. The Company is listed in "Purchasing"
magazine's "Top 100 Chemical Distributors" as the eighth largest chemical
distributor in North America. The Company is also a manufacturer and merchant
marketer of acetone and phenol. The Company will continue to strengthen its
position in its core chemical businesses, and will aggressively expand its
capabilities in specialty chemicals and plastics. The Company continues to
maintain and expand long-term supplier relationships with many global chemical
companies, manufactures phenol and acetone at its Blue Island plant, and
constantly adds new product capabilities through new distribution agreements
and acquisition and investment opportunities. The Company sells its products
worldwide to over 1000 customers, including major global companies such as
Ashland Chemical, B.F. Goodrich, Celanese AG, DuPont, Eli Lilly, 3M and Shell
Chemicals.
2. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and pursuant to the rules and regulations of the
Securities and Exchange Commission. Accordingly, certain information and
footnote disclosures normally included in annual financial statements prepared
in accordance with generally accepted accounting principles have been omitted.
These unaudited consolidated financial statements should be read in conjunction
with the Company's audited consolidated financial statements for the year ended
December 31, 1999 included in the Company's Form 10-K filed with the Securities
and Exchange Commission on March 30, 2000.
In the opinion of management, the consolidated financial statements
include all adjustments (consisting only of normal recurring adjustments)
considered necessary to present fairly the financial position of the Company as
of March 31, 2000 and the results of its operations and its cash flows for the
respective three months ended March 31, 1999 and 2000. Interim results for the
three months ended March 31, 2000 are not necessarily indicative of results
that may be expected for the fiscal year ending December 31, 2000.
Basic income (loss) per share is computed by dividing income available to
common shareholders by the weighted average number of common shares outstanding
for the period. Diluted income (loss) per share reflects the potential
dilutive effect of securities (which can consist of stock options and
restricted stocks) that could share in earnings of the Company, unless the
inclusion of these potential dilutive effects results in antidilution.
<PAGE> 7
JLM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
3. LONG-TERM DEBT
The Company's bank loans contain financial certain financial covenants
which must be met with respect to , among other things, minimum consolidated
net income levels, minimum current ratio and debt service. The Company was not
in compliance with certain of such financial covenants as of March 31, 2000.
The Company is currently working with the respective financial institution in
amending the debt agreement and a waiver for non-compliance has also been
requested.
4. COMMITMENTS AND CONTINGENCIES
During 1999, the Company entered into a sales contract with a third party
to sell phenol on a formula based price. Upon entering the contract, the
Company received $4.16 million as a prepayment towards future purchases by the
third party. Volume purchase commitments by the third party were 18 million
pounds in 1999 and 30 million pounds annually for each of the years 2000
through 2008. The prepayment was recorded as deferred revenue and will be
applied against future purchases. Sales exceeding the yearly volume under the
contract will be sold at market price. Additionally, the third party has an
option to increase the volume up to 45 million pounds in 2002 for an additional
prepayment of $1.7 million by December 31, 2001. In March 2000, the parties
amended the agreement which revised the formula based price. In return, the
Company received an additional $1.0 million from the third party.
5. SEGMENT DATA
JLM's business consists of a marketing and a manufacturing segment. JLM's
manufacturing segment consists of JLM Chemicals, Inc. JLM's marketing segment
includes its distribution, storage and terminaling operations and all other
sourcing operations. Marketing segment revenues include an assumed selling
commission determined in accordance with industry standards for the sale of
products manufactured at JLM Chemicals, Inc. The marketing segment also
includes an assumed allocation of revenues, costs of goods sold and expenses
associated with the sale of products sourced from the Mt. Vernon Phenol Plant,
which allocation is determined on a basis consistent with the commission for
sale of products manufactured at JLM Chemicals, Inc. March 31, 1999 segment
information has been reclassified to conform to the March 31, 2000
presentation, which excludes the allocation of the General Electric Acetone
business from the Marketing segment to the Manufacturing segment.
<PAGE> 8
JLM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
5. SEGMENT DATA
The following schedule presents information about JLM's operating segments
and geographic locations for the three months ended March 31:
INDUSTRY SEGMENT 1999 2000
------------ ------------
Revenues:
Marketing $ 60,876,509 $ 84,415,832
Manufacturing 4,961,031 2,990,746
------------ ------------
$ 65,837,540 $ 87,406,578
============ ============
Operating Income (Loss):
Marketing $ 442,050 $ (111,128)
Manufacturing (237,451) (1,496,765)
Corporate (545,208) (597,452)
------------ ------------
$ (340,609) $ (2,205,345)
============ ============
Depreciation and Amortization:
Marketing $ 476,808 $ 542,774
Manufacturing 423,703 439,616
Corporate 54,761 72,000
------------ ------------
$ 955,272 $ 1,054,390
============ ============
Identifiable Assets:
Marketing $ 68,798,698 $103,968,252
Manufacturing 24,579,212 23,444,049
Corporate 9,631,306 13,515,507
------------ ------------
$103,009,216 $140,927,808
============ ============
GEOGRAPHIC LOCATION
Revenues:
United States $ 34,694,942 $ 34,049,241
Holland 12,764,032 30,301,323
Singapore 13,955,868 12,771,749
South Africa - 5,549,835
Venezuela 1,465,885 1,354,862
Other nations 2,956,813 3,379,568
------------ ------------
$ 65,837,540 $ 87,406,578
============ ============
Operating Income (Loss):
United States $ (79,718) $ (3,395,560)
Holland (177,577) 750,431
Singapore 113,598 286,111
South Africa - 35,250
Venezuela (55,748) (85,700)
Other nations 404,044 383,716
Corporate (545,208) (179,593)
------------ ------------
$ (340,609) $ (2,205,345)
============ ============
<PAGE> 9
JLM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
5. SEGMENT DATA - Continued
GEOGRAPHIC LOCATION 1999 2000
------------ ------------
Identifiable Assets:
United States $ 76,527,638 $ 81,385,943
Holland 9,613,913 25,722,043
Singapore 11,011,447 14,302,157
South Africa - 8,157,654
Venezuela 878,956 3,633,559
Other nations 4,977,262 7,726,452
------------ ------------
$103,009,216 $140,927,808
============ ============
6. SUBSEQUENT EVENTS
Effective May 1, 2000, JLM Industries de Venezuela, C.A. was closed for
business. However, in order to maintain a presence in Venezuela, the Company
has purchased a minority equity interest in an established distribution
business which was a direct competitor of JLM in the local markets. Management
believes joining forces will not only reduce competition, but will also allow
the new entity to take advantage of cost synergies, generating positive results
for both partners. The agreement calls for the Company's Venezuela subsidiary
to transfer selective assets and liabilities at book value (receivables,
inventory, payables) into the venture in exchange for an equity interest.
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
JLM is a leading global marketer and distributor of performance chemicals,
olefins, and specialty plastics. The Company is listed in "Purchasing"
magazine's "Top 100 Chemical Distributors" as the eighth largest chemical
distributor in North America. The Company is also a manufacturer and merchant
marketer of acetone and phenol. The Company will continue to strengthen its
position in its core chemical businesses, and will aggressively expand its
capabilities in specialty chemicals and plastics. The Company continues to
maintain and expand long-term supplier relationships with many global chemical
companies, manufactures phenol and acetone at its Blue Island plant, and
constantly adds new product capabilities through new distribution agreements
and acquisition and investment opportunities.
The Company's business consists of manufacturing and marketing segments.
The Company's manufacturing segment includes the operations of the Blue Island
Plant and the sale of acetone manufactured at the Mt. Vernon Phenol Plant. The
Company's marketing segment includes its distribution, storage and terminaling
operations and all other sourcing operations.
The marketing segment revenues are influenced largely by the volume of new
and existing products sold by the Company. The volume of products sold depends
on a number of factors, including growth in the homebuilding and automobile
sectors and the overall economic environment. The Company's supply agreements,
primarily relating to acetone, frequently contain a term providing for a fixed
percentage profit per unit of product sold. In addition, the Company's
supplier and customer contracts have a provision permitting the Company to
purchase or sell additional product at the Company's option, typically plus or
minus 5.0% of the contractual volume amount. As a result, during a period of
pricing volatility, the Company has the opportunity to improve its
profitability by exercising the appropriate option to either build inventory in
a rising price environment or to sell product for future delivery in a
declining price environment.
The results of operations of the Company's manufacturing segment are
influenced by a number of factors, including economic conditions, competition
and the cost of raw materials, principally propylene and benzene. The
Company's ability to pass along raw material price increases to its customers
is limited because the commodity nature of the chemicals manufactured at the
Blue Island Plant restricts the Company's ability to increase prices.
<PAGE> 11
Set forth below for the periods indicated, is certain unaudited segment
information for the Company's manufacturing and marketing segments.
<TABLE>
<CAPTION>
Three Months Ended March 31,
(In Thousands, Except Percentages)
-------------------------------------------------
1999 2000
----------------------- -----------------------
<S> <C> <C> <C> <C>
Segment revenues:
Marketing $ 60,877 92.5% $ 84,416 96.6%
Manufacturing 4,961 7.5% 2,991 3.4%
----------- ------- ----------- -------
Total segment revenues $ 65,838 100.0% $ 87,407 100.0%
Segment gross profit (loss):
Marketing $ 4,109 77.9% $ 4,554 129.3%
Manufacturing 1,164 22.1% (1,031) -
----------- ------- ----------- -------
Total segment gross profit $ 5,273 100.0% $ 3,523 100.0%
Segment operating income (loss):
Marketing $ 411 216.2% $ (111) -
Manufacturing (237) - (1,497) -
----------- ------- ----------- -------
Total segment operating income (loss) 204 100.0% (1,608) 100.0%
Corporate expenses (545) - (597) -
----------- ------- ----------- -------
Total operating income (loss) $ (341) 100.0% $ (2,205) 100.0%
=========== ======= =========== =======
</TABLE>
Note: March 31, 1999 segment information has been reclassified to conform to
the March 31, 2000 presentation, which excludes the allocation of the
General Electric Acetone business from the Marketing segment to the
Manufacturing segment.
RESULTS OF OPERATIONS
REVENUES. Revenues increased $21.6 million to $87.4 million for the three
months ended March 31, 2000 from $65.8 million for the comparable period in
1999, an increase of 32.8%. Revenues for the marketing segment increased $23.5
million to $84.4 million for the three months ended March 31, 2000 from $60.9
million for the comparable period in 1999, an increase of 38.6%. The increase
in marketing revenues was principally the result of increased sales from the
Company's Holland and Singapore subsidiaries and the acquisition of JLM South
Africa and Sofecia's ethanol business, partially offset by an overall decrease
in selling prices on most of the Company's products. Revenues for the
manufacturing segment decreased $2.0 million to $3.0 million for the three
months ended March 31, 2000 compared to $5.0 million for the comparable period
in 1999, a decrease of 40.0%. This decrease in manufacturing revenues was due
primarily to lower selling prices of phenol and a reduction in the production
level in the month of March resulting from an unacceptable level of raw material
cost.
GROSS PROFIT. Gross profit decreased $1.8 million to $3.5 million for the
three months ended March 31, 2000 from $5.3 million for the comparable period
in 1999, a decrease of 34.0%. As a percentage of revenues, gross profit
decreased to 4.0% for the three months ended March 31, 2000 from 8.0% for the
comparable period in 1999. Gross profit for the marketing segment increased
$.4 million to $4.5 million for the three months ended March 31, 2000 compared
to $4.1 million for the same period in 1999. The increase of the marketing
gross margin was due to sales volume increases principally from the Company's
foreign operations and the addition of JLM South Africa, partially offset by
lower margins on the Company's domestic operations due to lower selling prices.
Gross profit for the manufacturing segment decreased $2.2 million to a loss of
$(1.0) million for the three months ended March 31, 2000 from $1.2 million for
the comparable period in 1999. The decrease in manufacturing gross profit was
principally the result of lower selling prices on phenol, coupled with the
continued increase in raw material costs during the three months ended March
31, 2000 compared to the same period in 1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (SG&A). SG&A increased $0.1
million to $5.7 million for the three months ended March 31, 2000 from $5.6
million for the comparable period in 1999, an increase of 1.8%. The increase
in SG&A was primarily a result of the acquisition of JLM South Africa and
<PAGE> 12
Sofecia's ethanol business. In addition, the Company recorded approximately
$376,000 of one time charges relating to the wind down of its Venezuela
operation, consulting fees associated with the Company's regulatory compliance
initiative on training, re-labeling, and re-packaging of certain inorganic
products, and relocation costs and sign on bonuses for key personnel. As a
percentage of revenues, SG&A decreased 2.0% to 6.5% for the three months ended
March 31, 2000 from 8.5% for the comparable period in 1999. The decrease in
SG&A as a percentage of sales was attributable to efficiencies gained from
integrating the operations of acquired businesses.
OPERATING LOSS. Operating loss for the three months ended March 31, 2000
was $2.2 million compared to $0.3 million for the same period in 1999. This
increase in operating loss was principally a result of the factors that
decreased gross profit as discussed above.
INTEREST EXPENSE - NET. Net interest expense increased by approximately
$0.2 million to $0.6 million for the three months ended March 31, 2000 from
approximately $0.4 million for the comparable period in 1999, an increase of
50.0%. This increase in interest expenses was principally due to increased
borrowings on the Company's lines of credit to fund operations coupled with
increasing interest rates.
OTHER INCOME (EXPENSE) - NET. In 1999, other expense, net consisted
primarily of a loss on the sale of investment real estate of approximately
$336,000 that was sold for approximately $600,000. This loss in 1999 was
partially offset by income from the Company's other investments. In 2000,
other income, net consisted principally of a gain of approximately $325,000 on
the sale of the Company airplane that was sold for $2,530,000 and investment
gains.
FOREIGN CURRENCY EXCHANGE LOSS. Foreign currency exchange loss remained
relatively constant for the three months ended March 31, 2000 compared to the
same period in 1999. The majority of the Company's sales are denominated in US
dollars or the local currency where the sales are generated, thus minimizing
transaction losses.
INCOME TAX PROVISION (BENEFIT). The Company's benefit for income taxes
was approximately $0.9 million for the three months ended March 31, 2000,
compared to $0.3 million for the comparable period in 1999. The net income tax
benefit for the three months ended March 31, 2000 was incurred primarily on the
Company's U.S. operations partially offset by income generated by the Company's
other operations. The Company's Venezuelan operation did not record any income
tax benefit in 2000 or 1999 due to the uncertainty of utilizing the income tax
loss carryforwards.
NET LOSS. During the three months ended March 31, 2000, the Company
incurred a net loss of approximately $1.5 million compared to a net loss of
approximately $0.9 million for the same period in 1999. This increase in net
loss was due primarily to the factors discussed above.
<PAGE> 13
Liquidity and Capital Resources
Cash Flows. For the three months ended March 31, 2000, operating
activities utilized $2.1 million of cash. The net loss adjusted for non-cash
items such as depreciation, amortization, and other non-cash charges incurred
utilized $0.4 million of cash. The increase in deferred revenue provided $1.1
million of cash while the net increase in operating assets utilized $2.8
million of cash. Investing activities provided $2.2 million of cash,
principally consisting of proceeds from sale of the airplane of $2.5 million
net of capital expenditures of $0.3 million. Financing activities did not have
a significant effect on cash. The foreign currency translation loss was $0.5
million principally as a result of increased international business and the
strengthening of the dollar.
The Company expects capital expenditures for its manufacturing and
terminaling facilities to be approximately $0.75 million for each of the years
2000 and 2001. The Company expects to spend an additional $0.5 million in
2000 on an e-commerce project and systems upgrade.
In November 1999, the Company completed the restructuring of its unsecured
$30 million line of credit replacing it with a $34.5 million line of credit
(the "LOC"). Under the terms of the restructuring, $14.5 million is a five
year secured term loan which will expire on November 1, 2004 and the remaining
$20.0 million will be used to fund working capital needs with terms that will
expire on November 1, 2001. JLM believes its liquidity and capital resources,
including its ability to borrow additional amounts under its credit agreements,
are sufficient to meet its currently anticipated needs through the foreseeable
future and to permit it to continue to implement its business strategy.
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.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Currency Exchange Risk
The majority of the Company's U.S. transactions are denominated in U.S.
Dollars. The Company's foreign subsidiaries operate in their local currencies.
The Company does, from time to time, purchase short-term forward hedge exchange
contracts to hedge payments that are in other than the local currency. The
purpose of entering into these short-term forward exchange contracts is to
minimize the impact of foreign currency fluctuations on the results of the
Company's operations. Certain increases or decreases in these payments are
then offset by gains and losses on the related short-term forward exchange
contracts. The Company has in the past entered into fixed financial hedge
contracts on certain of its raw materials for use in its manufacturing segment.
During the three months ended March 31, 2000, the Company did not enter into
any material fixed financial hedge contracts and there were no fixed financial
hedge contracts open at March 31, 2000.
<PAGE> 14
Commodity Price Risk
JLM enters into contracts whereby parties to the contracts agree to
exchange various quantities of inventory, primarily acetone, over a specified
period of time. JLM records these exchanges of inventory at the lower of cost
or market. As of March 31, 2000, the Company had the following related to
inventory exchanges:
Total pounds receivable under the exchange contracts 5,372,000
Total amount receivable under the exchange contracts $ 812,000
Weighted average price per pound receivable under the
exchange contracts $ 0.1512
Due to the fact that the Company is a market maker in acetone, the Company
normally becomes aware of future price fluctuations in acetone prior to such
prices being disclosed on the open market. Therefore, the Company believes
that it can reposition itself with respect to the inventory exchanges in order
to minimize the market risk inherent in such positions.
Interest Rate Risk
The Company is subject to market risk from exposure to changes in interest
rates based upon its financing, investing and cash management activities. The
Company utilizes a balanced mix of debt maturities along with both fixed-rate
and variable-rate debt to manage its exposure to changes in interest rates.
The Company does not expect changes in interest rates to have a material
adverse effect on its income or its cash flows in fiscal 2000. However, there
can be no assurances that interest rates will not significantly change for the
remainder of 2000.
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.
<PAGE> 15
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 consolidated results of operations or consolidated financial
condition. The Company maintains insurance in such amounts and with such
coverage and deductibles as management believes are reasonable.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibit 27 Financial Data Schedule
B. Reports on Form 8-K None
<PAGE> 16
SIGNATURES
Pursuant to the requirements 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: May 12, 2000 /s/ John L. Macdonald
------------------------------------------
John L. Macdonald
President and Chief Executive Officer
Dated: May 12, 2000 /s/ Michael J. Molina
------------------------------------------
Michael J. Molina
Vice President and Secretary
(Interim Principal Financial and Accounting Officer)
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