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 June 30, 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 August 11, 2000
----- ------------------------------
Common stock, par value $0.01 per share 6,577,162
<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
June 30, 2000 (unaudited) 3
Unaudited Consolidated Statements of Operations and
Comprehensive Income (Loss) for the Three Months
Ended June 30, 1999 and 2000 4
Unaudited Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 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 15
Part II OTHER INFORMATION
------- -----------------
Item 1 Legal Proceedings 16
Item 4 Submission of Matters to a Vote of Security Holders 16
Item 6 Exhibits and Reports on Form 8-K 16
<PAGE> 3
JLM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
December 31, June 30,
1999 2000
-------------- --------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 1,419,568 $ 2,431,437
Accounts Receivable:
Trade 52,063,858 55,113,632
Other 4,595,630 4,879,780
Inventories 20,557,450 29,376,232
Prepaid expenses and other current assets 4,383,263 2,920,331
Income tax receivable 3,877,942 6,488,231
-------------- --------------
Total current assets 86,897,711 101,209,643
Other investments 6,725,834 9,354,268
Property and equipment, net 27,900,465 25,394,734
Goodwill and other intangibles 11,692,139 11,176,188
Other assets 6,805,828 6,740,490
-------------- --------------
Total assets $ 140,021,977 $ 153,875,323
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 62,638,192 $ 79,950,350
Current portion of long-term debt 2,904,166 3,412,744
Deferred income taxes - current 127,194 127,194
Deferred revenue 435,497 570,744
-------------- --------------
Total current liabilities 66,105,049 84,061,032
Long-term debt less current portion 24,872,156 22,744,473
Deferred income taxes 7,525,641 7,899,643
Minority interest 543,085 688,128
Deferred revenue and other liabilities 3,487,144 4,438,087
-------------- --------------
Total liabilities 102,533,075 119,831,363
Commitments and Contingencies (Note 5)
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 and 7,177,451 shares issued 71,511 71,774
Additional paid-in capital 21,550,453 21,615,440
Retained earnings 19,883,927 17,235,660
Accumulated other comprehensive loss
Foreign currency translation adjustment (985,820) (1,773,307)
-------------- --------------
40,520,071 37,149,567
Less treasury stock at cost - 573,636 and
600,289 shares, respectively (3,031,169) (3,105,607)
-------------- --------------
Total stockholders' equity 37,488,902 34,043,960
-------------- --------------
Total liabilities and stockholders' equity $ 140,021,977 $ 153,875,323
============== ==============
</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 June 30, Six Months Ended June 30,
-------------------------- -------------------------
1999 2000 1999 2000
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 82,114,998 $110,943,829 $147,952,538 $198,350,407
Cost of sales 75,752,013 106,002,659 136,316,900 189,885,795
------------ ------------ ------------ ------------
Gross profit 6,362,985 4,941,170 11,635,638 8,464,611
Selling, general and administrative
expenses 5,927,807 6,071,836 11,541,069 11,800,622
------------ ------------ ------------ ------------
Operating loss 435,178 (1,130,666) 94,569 (3,336,011)
Interest expense - net (320,664) (659,865) (753,453) (1,271,955)
Other income (expense) - net 120,242 158,955 (154,673) 728,642
Foreign currency exchange loss - net (72,394) (32,315) (80,413) (73,449)
------------ ------------ ------------ ------------
Loss before minority interest and
income taxes 162,362 (1,663,891) (893,970) (3,952,773)
Minority interest in income of
Subsidiaries (85,149) (49,488) (188,434) (145,043)
------------ ------------ ------------ ------------
Loss before income taxes 77,213 (1,713,379) (1,082,404) (4,097,816)
Income tax provision (benefit)
Current (659,405) (639,741) (1,338,378) (1,793,636)
Deferred 359,757 82,528 735,747 344,086
------------ ------------ ------------ ------------
Total income tax benefit (299,648) (557,213) (602,631) (1,449,550)
------------ ------------ ------------ ------------
Net income (loss) 376,861 (1,156,166) (479,773) (2,648,266)
Other comprehensive loss
Foreign currency translation
adjustments (277,261) (288,969) (513,539) (787,487)
------------ ------------ ------------ ------------
Comprehensive loss $ 99,600 $ (1,445,135) $ (993,312) $ (3,435,753)
============ ============ ============ ============
Basic and diluted
earnings (loss) per share $ 0.06 $ (0.18) $ (0.07) $ (0.40)
Weighted average shares
outstanding 6,687,419 6,589,313 6,683,373 6,592,315
Diluted weighted average
shares outstanding 6,687,419 6,610,187 6,684,831 6,613,189
</TABLE>
See notes to consolidated financial statements.
<PAGE> 5
JLM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
------------------------------
1999 2000
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (479,773) $ (2,648,266)
Adjustments to reconcile net loss to net
cash used in operating activities:
Deferred income taxes 738,973 344,086
Minority interest in income of subsidiaries 188,434 145,043
Depreciation and amortization 1,883,425 2,005,189
Loss from partnerships 12,000 -
Loss (gain) on asset disposal 344,631 (325,841)
Bad debt expense 18,000 -
Changes in assets and liabilities (exclusive of acquisitions):
Decrease (increase) in accounts receivable 4,728,840 (3,333,925)
Increase in inventories (3,055,299) (8,818,782)
(Increase) decrease in prepaid expenses and other
current assets (295,384) 1,020,135
Increase in income taxes receivable (1,790,464) (2,610,289)
Decrease in other investments - 73,877
Increase in other assets (2,392,119) (39,250)
(Decrease) increase in accounts payable and
accrued expenses (756,711) 17,547,772
Increase in deferred revenue 4,080,338 1,081,846
------------ ------------
Net cash provided by operating activities 3,224,891 4,441,595
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets - 2,530,000
Capital expenditures (903,685) (841,635)
Other investments (891,432) (2,702,311)
------------ ------------
Net cash used in investing activities (1,795,117) (1,013,946)
CASH FLOW FROM FINANCING ACTIVITIES:
Net proceeds from loans payable 1,131,838 -
Proceeds from long-term debt 1,066,686 32,913,400
Principal payments of long-term debt (3,200,421) (34,532,505)
Proceeds from the sale of stock - 65,250
Purchase of treasury shares (290,189) (74,438)
------------ ------------
Net cash used in financing activities (1,292,086) (1,628,293)
Effect of foreign exchange rates on cash (513,539) (787,487)
------------ ------------
Net (decrease) increase in cash and cash equivalents (375,851) 1,011,869
Cash and cash equivalents, beginning of period 2,480,566 1,419,568
------------ ------------
Cash and cash equivalents, end of period $ 2,104,715 $ 2,431,437
============ ============
</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 June 30, 2000, and the results of its operations and its cash flows for the
respective six months ended June 30, 1999 and 2000. Interim results for the
six months ended June 30, 2000, are not necessarily indicative of results that
may be expected for the fiscal year ending December 31, 2000.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Earnings Per Share. 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
anti-dilution.
Impact of Recently Issued Accounting Standard. In December 1999, the
Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin
101, "Revenue Recognition in Financial Statements" (SAB 101"). SAB 101
provides guidance related to revenue recognition issues based on
interpretations and practices followed by the SEC. Management has determined
that the adoption of SAB 101 did not have a material impact on the Company's
June 30, 2000 consolidated financial statements.
<PAGE> 7
JLM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
In June 1998, the Financial Accounting Standards Board issued SFAS 133,
Accounting for Derivative Instruments and Hedging Activities (later amended by
SFAS 137 and SFAS 138), which will be in effect on January 1, 2001 for the
Company. SFAS 133 requires, among other things, that all derivatives be
recognized in the consolidated balance sheets as either assets or liabilities
and measured at fair value. The corresponding derivative gains and losses
should be reported based upon the hedge relationship, if such a relationship
exists. Changes in the fair value of derivatives that are not designated as
hedges or that do not meet the hedge accounting criteria in SFAS 133 are
required to be reported in income. The Company is in the process of
quantifying the impact of SFAS 133 on its financial statements.
4. LONG-TERM DEBT
The Company's Amended and Restated Credit Agreement with Citizens Bank
(f/k/a State Street Bank and Trust) provides for certain financial covenants
which if not complied with by the Company will be deemed a default under the
agreement. The Company was not in compliance with the minimum consolidated net
income levels, minimum current ratio and debt leverage ratio required under the
Amended and Restated Credit Agreement during the first quarter and second
quarter of 2000. Citizens Bank has agreed to waive the default through
September 30, 2000, and is currently working with the Company to amend the
Amended and Restated Credit Agreement.
5. 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.
6. SIGNIFICANT 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 selected assets and liabilities at book value (receivables,
inventory, payables) into the venture in exchange for an equity interest. Net
investment in the joint venture was approximately $2.7 million.
<PAGE> 8
JLM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
7. 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. June 30, 1999 segment information
has been reclassified to conform to the June 30, 2000 presentation, which
excludes the allocation of the General Electric acetone business from the
marketing segment to the manufacturing segment.
The following schedule presents information about JLM's operating segments
and geographic locations for the six months ended June 30:
INDUSTRY SEGMENT 1999 2000
------------ ------------
Revenues:
Marketing $140,339,772 $186,798,264
Manufacturing 7,612,766 11,552,143
------------ ------------
$147,952,538 $198,350,407
============ ============
Operating Income (Loss):
Marketing $ 3,292,866 $ 596,400
Manufacturing (1,090,713) (1,994,028)
Corporate (2,107,584) (1,938,383)
------------ ------------
$ 94,569 $ (3,336,011)
============ ============
Depreciation and Amortization:
Marketing $ 892,311 $ 1,053,227
Manufacturing 847,905 878,017
Corporate 143,209 73,945
------------ ------------
$ 1,883,425 $ 2,005,189
============ ============
Identifiable Assets:
Marketing $ 69,567,973 $119,162,767
Manufacturing 24,950,791 23,789,452
Corporate 10,813,937 10,923,104
------------ ------------
$105,332,701 $153,875,323
============ ============
<PAGE> 9
JLM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
7. SEGMENT DATA - CONTINUED
GEOGRAPHIC LOCATION
Revenues:
United States $ 69,189,574 $ 76,265,622
Holland 32,363,100 72,926,190
Singapore 36,304,673 30,982,271
South Africa - 11,008,197
Venezuela 3,294,559 1,673,624
Other nations 6,800,632 5,494,503
------------ ------------
$147,952,538 $198,350,407
============ ============
Operating Income (Loss):
United States $ 165,392 $ (3,216,652)
Holland 614,051 1,034,279
Singapore 676,913 304,340
South Africa - 1,173
Venezuela (77,313) (262,587)
Other nations 823,110 741,819
Corporate (2,107,584) (1,938,383)
------------ ------------
$ 94,569 $ (3,336,011)
============ ============
Identifiable Assets:
United States $ 76,486,789 $ 81,020,025
Holland 12,549,422 27,552,734
Singapore 10,414,241 23,845,898
South Africa - 9,186,637
Venezuela 601,254 2,585,697
Other nations 5,280,995 9,684,332
------------ ------------
$105,332,701 $153,875,323
============ ============
<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. 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 (in
thousands, except percentages).
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
----------------------------------- -----------------------------------
1999 2000 1999 2000
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Segment revenues:
Marketing $ 79,463 96.8% $103,256 93.1% $140,340 94.9% $186,799 94.2%
Manufacturing 2,652 3.2% 7,688 6.9% 7,613 5.1% 11,552 5.8%
-------- ------ -------- ------ -------- ------ -------- ------
Total segment revenues $ 82,115 100.0% $110,944 100.0% $147,953 100.0% $198,350 100.0%
Segment gross
profit (loss):
Marketing $ 5,939 93.3% $ 4,318 87.4% $ 9,675 83.1% $ 8,873 104.8%
Manufacturing 424 6.7% 623 12.6% 1,961 16.9% (408) -
-------- ------ -------- ------ -------- ------ -------- ------
Total segment
gross profit $ 6,363 100.0% $ 4,941 100.0% $ 11,636 100.0% $ 8,465 100.0%
Segment operating
income (loss):
Marketing $ 2,214 144.6% $ 1,125 179.2% $ 1,559 126.2% $ 596
Manufacturing (683) - (497) - (324) - (1,994) 142.7%
-------- ------ -------- ------ -------- ------ -------- ------
Total segment operating
income (loss) 1,531 100.0% 628 100.0% 1,235 100.0% (1,398) 100.0%
Corporate expenses (1,096) - (1,759) - (1,140) - (1,938) -
-------- ------ -------- ------ -------- ------ -------- ------
Total operating
income (loss) $ 435 100.0% $ (1,131) 100.0% $ 95 100.0% $ (3,336) 100.0%
======== ====== ======== ====== ======== ====== ======== ======
</TABLE>
Note: June 30, 1999 segment information has been reclassified to
conform to the June 30, 2000 presentation, which excludes the allocation of the
General Electric acetone business from the marketing segment to the
manufacturing segment and a reclassification of overhead expenses from the
marketing segment to Corporate expenses.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 2000
Revenues. Revenues increased $28.8 million to $110.9 million for the
three months ended June 30, 2000 from $82.1 million for the comparable period
in 1999, an increase of 35.1%. Revenues for the marketing segment increased
$23.8 million to $103.3 million for the three months ended June 30, 2000 from
$79.5 million for the comparable period in 1999, an increase of 29.9%. The
increase in marketing revenues was principally the result of increased sales
from the Company's European operations, increased selling prices and the
acquisition of JLM South Africa and Sofecia's ethanol business, partially
offset by a decrease in sales volume from the Company's domestic operations.
Revenues for the manufacturing segment increased $5.0 million to $7.7 million
for the three months ended June 30, 2000 compared to $2.7 million for the
comparable period in 1999, an increase of 185.2%. This increase in
manufacturing revenues was due primarily to higher selling prices of phenol.
GROSS PROFIT. Gross profit decreased $1.5 million to $4.9 million for the
three months ended June 30, 2000 from $6.4 million for the comparable period in
1999, a decrease of 23.4%. Approximately $0.5 million of this decrease is
attributable to a strategic reduction of inventory which is accounted for on
the LIFO method. As a percentage of revenues, gross profit decreased to 4.5%
for the three months ended June 30, 2000 from 7.7% for the comparable period in
1999. Gross profit for the marketing segment decreased $1.6 million to $4.3
million for the three months ended June 30, 2000 compared to $5.9 million for
the same period in 1999. The decrease of the marketing segment gross profit
was primarily due to lower margins realized from the Company's Europe and
Singapore subsidiaries coupled with the closing of the Company's Venezuela
subsidiary, offset by the addition of JLM South Africa. Gross profit for the
manufacturing segment increased $0.2 million to $0.6 million for the three
months ended June 30, 2000 from $0.4 million for the comparable period in 1999.
The increase in manufacturing gross profit was principally the result of higher
selling prices of phenol.
<PAGE> 12
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (SG&A). SG&A increased $0.2
million to $6.1 million for the three months ended June 30, 2000 from $5.9
million for the comparable period in 1999, an increase of 3.4%. The increase
in SG&A was primarily a result of the acquisition of JLM South Africa and
Sofecia's ethanol business. As a percentage of revenues, SG&A decreased 1.7%
to 5.5% for the three months ended June 30, 2000 from 7.2% 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
and realized cost savings from the Company's domestic operations due to
management's initiative to reduce overhead expenses.
OPERATING INCOME (LOSS). Operating loss for the three months ended June
30, 2000 was $1.1 million compared to operating income of $0.4 million for the
same period in 1999. This change in operating loss was principally a result of
the factors that decreased gross profit and increased SG&A expenses as
discussed above.
INTEREST EXPENSE - NET. Net interest expense increased by approximately
$0.3 million to $0.6 million for the three months ended June 30, 2000 from
approximately $0.3 million for the comparable period in 1999, an increase of
100.0%. This increase in interest expenses was principally due to increased
borrowings on the Company's lines of credit to fund operations and acquisitions
coupled with increased interest rates.
OTHER INCOME (EXPENSE) - Net. Other income (Expense) in 1999 and 2000
consisted principally of income from investments.
FOREIGN CURRENCY EXCHANGE LOSS. Foreign currency exchange loss remained
relatively constant for the three months ended June 30, 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 $0.6 million for the three months ended June 30, 2000,
compared to $0.3 million for the comparable period in 1999. The net income tax
benefit for the three months ended June 30, 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 Income (Loss). During the three months ended June 30, 2000, the
Company incurred a net loss of approximately $1.2 million compared to net
income of approximately $0.4 million for the same period in 1999. This change
in net loss was due primarily to the factors discussed above.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 2000
Revenues. Revenues increased $50.4 million to $198.4 million for the six
months ended June 30, 2000 from $148.0 million for the comparable period in
1999, an increase of 34.1%. Revenues for the marketing segment increased $46.5
million to $186.8 million for the six months ended June 30, 2000 from $140.3
million for the comparable period in 1999, an increase of 33.1%. The increase
in marketing revenues was principally the result of increased sales from the
Company's European operations, increased selling prices and the acquisition of
JLM South Africa and Sofecia's ethanol business, partially offset by a decrease
in sales volume from the Company's domestic operations. Revenues for the
manufacturing segment increased $4.0 million to $11.6 million for the six
months ended June 30, 2000 compared to $7.6 million for the comparable period
in 1999, an increase of 52.6%. This increase in manufacturing revenues was due
primarily to higher selling prices of phenol.
<PAGE> 13
Gross Profit. Gross profit decreased $3.2 million to $8.4 million for the
six months ended June 30, 2000 from $11.6 million for the comparable period in
1999, a decrease of 27.6%. Approximately $0.5 million of this decrease is
attributable to a strategic reduction of inventory which is accounted for on
the LIFO method. As a percentage of revenues, gross profit decreased to 3.6%
for the six months ended June 30, 2000 from 7.9% for the comparable period in
1999. Gross profit for the marketing segment decreased $0.8 million to $8.9
million for the six months ended June 30, 2000 compared to $9.7 million for the
same period in 1999. The decrease of the marketing segment gross profit was
primarily due to lower margins realized from the Company's domestic operations,
partially offset by the addition of JLM South Africa. Gross profit for the
manufacturing segment decreased $2.4 million to a loss of $0.4 million for the
six months ended June 30, 2000 from a gross profit of $2.0 million for the
comparable period in 1999. The change in manufacturing gross profit was
principally the result of lower average selling prices of phenol during the six
months ended June 30, 2000 compared to the same period in 1999. In addition,
raw material costs continued to increase through the second quarter of 2000
compared to the first quarter of 1999; however, the impact has been partially
offset by higher selling prices in the second quarter of 2000.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (SG&A). SG&A increased $0.3
million to $11.8 million for the six months ended March 31, 2000 from $11.5
million for the comparable period in 1999, an increase of 2.6%. The increase
in SG&A was primarily a result of the acquisition of JLM South Africa and
Sofecia's ethanol business. In addition, during the first three months ended
March 31, 2000, 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 1.9% to 5.9% for the six months ended June 30, 2000 from 7.8% 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 and realized cost savings from the Company's domestic operations due
to management's initiative to reduce overhead expenses.
OPERATING LOSS. Operating loss for the six months ended June 30, 2000 was
$3.3 million compared to operating income of $0.1 million for the same period
in 1999. This change in operating loss was principally a result of the factors
that decreased gross profit and increased SG&A expenses as discussed above.
INTEREST EXPENSE - NET. Net interest expense increased by approximately
$0.5 million to $1.3 million for the six months ended June 30, 2000 from
approximately $0.8 million for the comparable period in 1999, an increase of
62.5%. This increase in interest expenses was principally due to increased
borrowings on the Company's lines of credit to fund operations and acquisitions
coupled with increased 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.
<PAGE> 14
FOREIGN CURRENCY EXCHANGE LOSS. Foreign currency exchange loss remained
relatively constant for the six months ended June 30, 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 $1.4 million for the six months ended June 30, 2000, compared
to $0.6 million for the comparable period in 1999. The net income tax benefit
for the six months ended June 30, 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 six months ended June 30, 2000, the Company incurred
a net loss of approximately $2.6 million compared to a net loss of
approximately $0.5 million for the same period in 1999. This increase in net
loss was due primarily to the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows. For the six months ended June 30, 2000, operating activities
provided $4.4 million of cash. The net loss adjusted for non-cash items such
as depreciation, amortization, and other non-cash charges incurred utilized
$0.5 million of cash. The increase in deferred revenue provided $1.1 million
of cash while the net fluctuation in operating assets and liabilities provided
$3.8 million of cash. Investing activities utilized $1.0 million of cash,
principally consisting of investments in a joint venture in Venezuela of $2.7
million and capital expenditures of $0.8 million net of proceeds from sale of
the airplane of $2.5 million. Financing activities utilized $1.6 million of
cash principally due to payments of long-term debt. The foreign currency
translation loss was $0.8 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.
The Company's Amended and Restated Credit Agreement with Citizens Bank
(f/k/a State Street Bank and Trust) provides for certain financial covenants
which if not complied with by the Company will be deemed a default under the
agreement. The Company was not in compliance with the minimum consolidated net
income levels, minimum current ratio and debt leverage ratio required under the
Amended and Restated Credit Agreement during the first quarter and second
quarter of 2000. Citizens Bank has agreed to waive the default through
September 30, 2000, and is currently working with the Company to amend the
Amended and Restated Credit Agreement.
<PAGE> 15
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 six months ended June 30, 2000, the Company did not enter into
any material fixed financial hedge contracts and there were no fixed financial
hedge contracts open at June 30, 2000.
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 June 30, 2000, the Company had the following related to
inventory exchanges:
Total pounds receivable under the exchange contracts 4,297,017
Total amount receivable under the exchange contracts $1,248,539
Weighted average price per pound receivable under the
exchange contracts $ 0.2906
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> 16
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 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Stockholders was held on June 30, 2000.
The following business was transacted during the meeting:
1. Election of Directors: Votes For Votes Abstained
John L. Macdonald Elected 6,052,734 28,117
Walter M. Tarpley Elected 6,052,480 27,837
Sean D. Macdonald Elected 6,047,734 33,117
Frank A. Musto Elected 6,052,480 28,371
Charles N. Neivert Elected 6,053,796 27,055
Jerry L. Weinstein Elected 6,053,796 27,055
Vince Naimoli Elected 6,053,596 27,255
2. Proposal to ratify the appointment of Deloitte & Touche LLP as the
Company's independent auditors for fiscal year 2000 was approved,
6,066,991 votes For, 8,290 votes Against, and 5,570 votes Abstained.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibit 27 Financial Data Schedule
B. Reports on Form 8-K None
<PAGE> 17
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: August 14, 2000 /s/ John L. Macdonald
------------------------------------------
John L. Macdonald
President and Chief Executive Officer
Dated: August 14, 2000 /s/ Michael J. Molina
------------------------------------------
Michael J. Molina
Vice President and Secretary
(Interim Principal Financial and Accounting Officer)
