SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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 November 11, 2000
Common stock, par value $.01 per share 6,558,162
<PAGE>
JLM INDUSTRIES, INC.
INDEX
PAGE
PART I FINANCIAL INFORMATION NUMBER
------ --------------------- ------
Item 1 Consolidated Financial Statements:
Consolidated Balance Sheets at December 31, 1999 and
September 30, 2000 (unaudited) 3
Unaudited Consolidated Statements of Operations and
Comprehensive Income (Loss) for the Three and Nine Months
Ended September 30, 1999 and 2000 4
Unaudited Consolidated Statements of Cash Flows
for the Nine Months Ended September 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
2
<PAGE>
JLM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Restated) (Unaudited)
December 31, September 30,
1999 2000
----------------- -----------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 1,419,568 $ 3,446,676
Accounts Receivable:
Trade 52,063,858 49,534,947
Other 4,595,630 5,309,483
Inventories 20,018,257 27,444,517
Prepaid expenses and other current assets 4,383,263 1,827,883
Income tax receivable 3,877,942 3,445,704
----------------- -----------------
Total current assets 86,358,518 91,009,210
Other investments 6,725,834 9,988,133
Property and equipment, net 27,900,465 24,833,297
Goodwill and other intangibles 11,692,139 10,924,627
Other assets 6,805,828 7,575,150
----------------- -----------------
Total assets $139,482,784 $144,330,417
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 62,638,192 $ 72,107,164
Current portion of long-term debt 2,904,166 4,566,080
Deferred income taxes - current 127,194 127,194
Deferred revenue 435,497 600,000
----------------- -----------------
Total current liabilities 66,105,049 77,400,438
Long-term debt less current portion 24,872,156 20,189,469
Deferred income taxes 7,273,315 7,729,251
Minority interest 543,085 756,821
Deferred revenue and other liabilities 3,487,144 3,800,064
----------------- -----------------
Total liabilities 102,280,749 109,876,043
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, respectively 71,511 71,774
Additional paid-in capital 21,550,453 21,614,723
Retained earnings 19,597,060 16,387,128
Accumulated other comprehensive loss
Foreign currency translation adjustment (985,820) (457,706)
----------------- -----------------
40,233,204 37,615,919
----------------- -----------------
Less treasury stock at cost - 573,636 and
619,289 shares, respectively (3,031,169) (3,161,545)
----------------- -----------------
Total stockholders' equity 37,202,035 34,454,374
----------------- -----------------
Total liabilities and stockholders' equity $139,482,784 $144,330,417
================= =================
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE>
JLM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Unaudited and Restated)
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- --------------------------------
1999 2000 1999 2000
------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues $ 84,052,181 $117,918,095 $ 232,004,719 $316,268,635
Cost of sales 77,674,260 112,036,221 213,991,160 301,382,823
------------- ------------- -------------- --------------
Gross profit 6,377,921 5,881,874 18,013,559 14,885,812
Selling, general and administrative expenses 6,139,095 6,454,537 17,680,164 18,255,159
------------- ------------- -------------- --------------
Operating income (loss) 238,826 (572,663) 333,395 (3,369,347)
Interest income (expense) - net (420,550) (790,438) (1,174,003) (2,062,393)
Other income (expense) - net 66,133 110,426 (88,540) 839,068
Foreign currency exchange (loss) - net (48,616) (66,026) (129,029) (139,475)
------------- -------------- -------------- ---------------
Income (loss) before minority interest and
Income taxes (164,207) (1,318,701) (1,058,177) (4,732,147)
Minority interest in income of
Subsidiary (46,489) (68,692) (234,923) (213,736)
------------- ------------- -------------- --------------
Income (loss) before income taxes (210,696) (1,387,393) (1,293,100) (4,945,883)
Income tax provision (benefit)
Current (1,035,392) (398,251) (2,373,770) (2,191,887)
Deferred 366,500 (140,476) 1,102,246 455,936
------------- ------------- -------------- --------------
Total income tax benefit (668,892) (538,727) (1,271,524) (1,735,951)
------------- ------------- -------------- --------------
Net income (loss) 458,196 (848,666) (21,576) (3,209,932)
Other comprehensive income (loss):
Foreign currency translation adjustments 87,565 1,315,601 (425,974) 528,114
------------- ------------- -------------- --------------
Comprehensive income (loss) $ 545,761 $ 466,935 $ (447,550) $ (2,681,818)
============= ============= ============== ==============
Basic and diluted earnings (loss) per share $ 0.07 $ (0.13) $ (0.00) $ (0.49)
Weighted average shares outstanding 6,626,470 6,576,074 6,669,969 6,595,780
Diluted weighted average shares
Outstanding 6,626,470 6,591,510 6,669,969 6,611,216
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE>
JLM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited and Restated)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1999 2000
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (21,576) $(3,209,932)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Deferred income taxes 1,321,556 455,936
Minority interest in income of subsidiary 234,923 213,736
Depreciation and amortization 2,888,787 2,890,940
Loss from partnerships 12,000
Loss (gain) on asset disposal 359,844 (328,341)
Bad debt expense 98,000 -
Changes in assets and liabilities (exclusive of acquisitions):
(Increase) decrease in accounts receivable (1,721,120) 1,815,057
Increase in inventories (974,051) (7,426,260)
(Increase) decrease in prepaid expenses and other current assets (4,788,707) 2,555,380
Increase in other assets (2,488,668) (938,587)
Increase in accounts payable and accrued expenses 8,316,879 9,468,972
Increase in other investments - (559,988)
(Increase) decrease in income taxes receivable (3,019,701) 432,237
Increase in deferred revenue 3,977,982 476,458
Increase in other liabilities 4,038 965
----------- -----------
Net cash provided by operating activities 4,200,186 5,846,573
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets - 2,532,500
Proceeds from sale of other investments 601,938 -
Other investments (196,229) (2,702,311)
Capital expenditures (1,867,162) (1,091,152)
Purchase of subsidiaries (5,394,202) -
----------- -----------
Net cash used in investing activities (6,855,655) (1,260,963)
CASH FLOW FROM FINANCING ACTIVITIES:
Net payments of loans payable (126,742) -
Net proceeds from long-term debt 4,246,114 2,848,679
Principal payments of long-term debt (2,562,818) (5,869,452)
Proceeds from the sale of stock - 64,533
Purchase of treasury shares (563,253) (130,376)
----------- -----------
Net cash provided (used) in financing activities 993,301 (3,086,616)
Effect of foreign exchange rates on cash (425,974) 528,114
----------- -----------
Net increase (decrease) in cash and cash equivalents 567,327 (2,558,502)
Cash and cash equivalents, beginning of period 2,480,566 1,419,568
----------- -----------
Cash and cash equivalents, end of period $ 392,424 $3,446,676
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $872,986 $1,590,395
----------- -----------
Income taxes $246,739 $ -
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
5
<PAGE>
JLM INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
1. Description of Business
JLM Industries, Inc. ("JLM" or the "Company") is a leading global marketer
and distributor of performance chemicals, olefins, and specialty plastics. The
Company is also a manufacturer and merchant marketer of acetone and phenol. The
Company maintains long-term supplier relationships with many global chemical
companies, manufactures phenol and acetone at its Blue Island plant, and
continuously adds product capabilities through new distribution agreements and
acquisition and investment opportunities. The Company sells its products
worldwide to over 1,000 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 ("SEC"). 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
September 30, 2000, and the results of its operations and its cash flows for the
respective three and nine months ended September 30, 1999 and 2000. Interim
results for the three and nine months ended September 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 earnings (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 earnings (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 Standards. In December 1999, the 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
does not believe that the adoption of SAB 101 will have a material impact on the
Company's September 30, 2000, consolidated financial statements.
6
<PAGE>
JLM INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Unaudited)
3. Summary of Significant Accounting Policies - Continued
In September 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.
Inventories. During 2000, the company changed its method of determining the
cost of inventories from LIFO to FIFO. The company believes the FIFO method
results in a closer matching of certain costs and revenue during periods of
fluctuating prices and is the primary method used in the industry in which the
company operates. The effect of this change was to decrease loss after income
taxes for the nine months ended September 30, 2000, by approximately $.3 Million
($0.05 per share). The financial statements have been retroactively restated for
the change. Retained earnings has been adjusted for the effect of retroactive
application of the new method.
4. Long-Term Debt
The Company's Amended and Restated Credit Agreement (the "Credit Agreement")
with Citizens Bank ("Citizens") (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 leverage ratio
required under the Amended and Restated Credit Agreement during the first,
second and third quarters of 2000. In a letter dated August 11, 2000, Citizens
agreed to waive compliance with such covenants up to and including September 30,
2000.
In the third quarter of 2000, the Company gave notice to Citizens that
lower than expected performance in the third quarter would result in the
Company's inability to meet financial covenants contained in the Credit
Agreement as of September 30, 2000. The Company is currently in negotiations
with Citizens to waive the financial covenants as of September 30, 2000 and
amend the Credit Agreement going forward.
The Company is also evaluating proposals from alternative lenders to
refinance the outstanding balances under the Citizens credit facility and
provide for future working capital needs.
The Company believes that it will either enter an agreement with Citizens to
waive the financial covenants as of September 30, 2000 and amend the Credit
Agreement, or secure alternative financing to refinance the Citizens credit
facility. However, JLM can provide no assurance that an agreement with Citizens
will be reached to waive the September 30, 2000 financial covenants and amend
the Credit Facility, or that alternative financing can or will be secured on
terms acceptable to the Company.
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
7
<PAGE>
JLM INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Unaudited)
$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. terminated
operations. 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 this investment will 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.
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. September 30, 1999 segment
information has been reclassified to conform to the September 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 nine months ended September 30:
<TABLE>
<CAPTION>
INDUSTRY SEGMENT 1999 2000
------------- -------------
<S> <C> <C>
Revenues:
Marketing $218,249,207 $299,046,865
Manufacturing 13,755,512 17,221,770
------------- -------------
$232,004,719 $316,268,635
============= =============
Operating Income (Loss):
Marketing $ 5,809,782 $ 2,257,654
Manufacturing (2,351,843) (2,442,172)
Corporate (3,124,544) (3,184,829)
------------- ------------
$ 333,395 $ (3,369,347)
============= ============
</TABLE>
8
<PAGE>
JLM INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Unaudited)
7. Segment Data -- Continued
<TABLE>
<CAPTION>
<S> <C> <C>
Depreciation and Amortization:
Marketing $ 1,372,771 $ 1,467,371
Manufacturing 1,271,849 1,317,052
Corporate 244,167 106,517
------------ -------------
$ 2,888,787 $ 2,890,940
============ =============
Identifiable Assets:
Marketing $ 85,601,104 $108,967,989
Manufacturing 24,818,225 23,952,222
Corporate 10,191,953 11,410,206
------------ -------------
$120,611,282 $144,330,417
============ =============
GEOGRAPHIC LOCATION 1999 2000
------------ ------------
Revenues:
United States $ 98,527,361 $112,626,232
Holland 61,618,170 101,714,719
Singapore 56,261,033 69,451,386
South Africa 1,727,417 17,264,345
Venezuela 5,294,869 1,673,624
Other Nations 8,575,869 13,538,329
------------ ------------
$232,004,719 $316,268,635
============ ============
Operating Income (Loss):
United States $ (704,033) $ (2,673,324)
Holland 2,227,554 790,433
Singapore 1,294,710 913,080
South Africa (18,150) 19,403
Venezuela (284,884) (262,587)
Other Nations 942,742 1,028,477
Corporate (3,124,544) (3,184,829)
------------ ------------
$ 333,395 $ (3,369,347)
============ ============
Identifiable Assets:
United States $ 71,281,240 $ 80,968,543
Holland 19,952,522 19,087,958
Singapore 10,971,307 24,445,370
South Africa - 9,839,352
Venezuela 4,204,841 2,585,697
Other Nations 14,201,372 7,403,497
------------ ------------
$ 120,611,282 $144,330,417
============= ============
</TABLE>
9
<PAGE>
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
JLM ("JLM" or the "Company") is a leading global marketer and distributor of
performance chemicals, olefins, and specialty plastics. The Company is also a
manufacturer and merchant marketer of acetone and phenol. The Company maintains
long-term supplier relationships with many global chemical companies,
manufactures phenol and acetone at its Blue Island plant, and continuously adds
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.
Marketing segment revenues are influenced largely by price and 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 provide for a fixed
percentage profit per unit of product sold. In addition, the Company's supplier
and customer contracts generally permit the Company to purchase or sell
additional product at the Company's option, typically 5.0% over or under 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, primarily 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.
10
<PAGE>
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 September 30, Nine Months Ended September 30,
-------------------------------------------- -------------------------------------------
1999 2000 1999 2000
-------------------- -------------------- -------------------- -------------------
Restated Restated
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Segment revenues:
Marketing $ 77,909 92.7% $ 112,248 95.2% $218,249 94.1% $299,047 94.6%
Manufacturing 6,143 7.3% 5,670 4.8% 13,756 5.9% 17,222 5.4%
---------- ------ --------- ------ -------- ------ -------- ------
Total segment revenues $ 84,052 100.0% $ 117,918 100.0% $232,005 100.0% $316,269 100.0%
Segment gross profit (loss):
Marketing $ 6,378 100.0% $ 4,966 84.4% $ 16,425 91.2% $ 14,379 96.6%
Manufacturing 0 00.0% 916 15.6% 1,589 8.8% 507 3.4%
---------- ------ --------- ------ -------- ------ -------- ------
Total segment gross profit $ 6,378 100.0% $ 5,882 100.0% $ 18,014 100.0% $ 14,886 100.0%
Segment operating income (loss):
Marketing $ 2,609 1,092% $ 1,122 (196)% $ 5,810 1,745% $ 2,258 (67.0)%
Manufacturing (1,261) (528)% (448) 78% (2,352) (706)% (2,442) 72.5%
---------- ------ --------- ------ -------- ------ -------- ------
Total segment operating income 1,348 564% $ 674 (118% 3,458 1,039% $ (184) 5.5%
(loss)
Corporate expense (1,109) (464)% (1,246) 218% (3,125) (939)% (3,185) 94.5%
---------- ------ --------- ------ --------- ------ -------- ------
Total operating income (loss) $ 239 100.0% $ (572) 100.0% $ 333 100.0% $ (3,369) 100.0%
========== ====== ========= ====== ========= ====== ======== ======
</TABLE>
Note: September 30, 1999 segment information has been reclassified to
conform to the September 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 September 30, 2000 Compared to Three Months Ended
September 30, 1999
Revenues increased $33.9 million, or 40.4%, to $117.9 million for the three
months ended September 30, 2000 from $84.0 million for the comparable period in
1999. Revenues for the marketing segment increased $34.3 million to $112.2
million for the three months ended September 30, 2000 from $77.9 million for the
comparable period in 1999, an increase of 44.0%. The increase in marketing
revenues was primarily 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
decreased $0.4 million to $5.7 million for the three months ended September 30,
2000 compared to $6.1 million for the comparable period in 1999, a decrease of
6.6%. The decrease in manufacturing revenues was primarily due to a strategic
cut back in production at the Blue Island plant during the quarter related to
the high cost of raw materials, primarily benzene and propylene.
Gross profit decreased $0.5 million to $5.9 million for the three months
ended September 30, 2000 from $6.4 million for the comparable period in 1999, a
decrease of 7.8%. As a percentage of revenues, gross profit decreased to 5.0%
for the three months ended September 30, 2000, from 7.6% for the comparable
period in 1999. Gross profit for the marketing segment decreased $1.4 million,
or 21.9%, to $5.0 million for the three months ended September 30, 2000 compared
to $6.4 million for the same period in 1999. The decrease in marketing segment
gross profit was primarily due to lower margins from the Company's European
operations related to decreases in the exchange rate between the Euro and the
U.S. dollar. Gross profit for the manufacturing segment increased $0.9 million
to $0.9 million for the three months ended September 30, 2000. The increase in
manufacturing gross profit was primarily the result of higher selling prices of
phenol.
Selling, General and Administrative Expenses ("SG&A") increased $0.4 million
to $6.5 million for the three months ended September 30, 2000 from $6.1 million
for the comparable period in 1999, an
11
<PAGE>
increase of 6.6%. The increase in SG&A was primarily a result of the
acquisitions of JLM South Africa and Sofecia's ethanol business. As a percentage
of revenues, SG&A decreased 1.8% to 5.5% for the three months ended September
30, 2000 from 7.3% 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 initiatives to reduce operating expenses.
Operating loss for the three months ended September 30, 2000, was $0.6
million compared to operating income of $0.2 million for the same period in
1999.
Net interest expense increased by approximately $0.4 million to $0.8 million
for the three months ended September 30, 2000, from approximately $0.4 million
for the comparable period in 1999, an increase of 100.0%. This increase in
interest expense was primarily due to increased borrowings on the Company's
lines of credit to fund operations and acquisitions coupled with higher interest
rates.
Other income (expense) remained relatively constant at approximately $0.1
million in the third quarters of 1999 and 2000, consisting primarily of income
from investments.
Foreign currency exchange loss remained relatively constant at less than
$0.1 million for the three months ended September 30, 2000, compared to the same
period in 1999. The majority of the Company's sales are denominated in U.S.
dollars or the local currency where the sales are generated, thus minimizing
transaction losses.
The Company's benefit for income taxes was approximately $0.5 million for
the three months ended September 30, 2000, compared to $0.7 million for the
comparable period in 1999. The net income tax benefit for the three months ended
September 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.
During the three months ended September 30, 2000, the Company incurred a net
loss of approximately $0.8 million compared to net income of approximately $0.5
million for the same period in 1999.
Nine Months Ended September 30, 2000 Compared to Nine Months Ended September 30,
1999
Revenues increased $84.3 million, or 36.3%, to $316.3 million for the nine
months ended September 30, 2000, from $232.0 million for the comparable period
in 1999. Revenues for the marketing segment increased $80.8 million to $299.0
million for the nine months ended September 30, 2000, from $218.2 million for
the comparable period in 1999, an increase of 37.0%. The increase in marketing
revenues was primarily the result of increased sales from the Company's European
operations, increased selling prices and the acquisitions 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 $3.4 million to $17.2 million for the nine months ended September 30,
2000 compared to $13.8 million for the comparable period in 1999, an increase of
24.6%. The increase in manufacturing revenues was primarily due to higher
selling prices of phenol.
Gross profit decreased $3.1 million to $14.9 million for the nine months
ended September 30, 2000, from $18.0 million for the comparable period in 1999,
a decrease of 17.2%. As a percentage of
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revenues, gross profit decreased to 4.7% for the nine months ended September 30,
2000, from 7.8% for the comparable period in 1999. Gross profit for the
marketing segment decreased $2.0 million, or 12.2%, to $14.4 million for the
nine months ended September 30, 2000, compared to $16.4 million for the same
period in 1999. The decrease in marketing segment gross profit was primarily due
to lower margins from the Company's European operations related to decreases in
the exchange rate between the Euro and the U.S. dollar. Gross profit for the
manufacturing segment decreased $1.1 million, or 68.8%, to $0.5 million for the
nine months ended September 30, 2000, from $1.6 million for the comparable
period in 1999. The reduction in manufacturing gross profit was primarily the
result of lower average selling prices of phenol during the nine months ended
September 30, 2000, compared to the same period in 1999. In addition, raw
material costs were higher in the first nine months of 2000 compared to the
comparable period in 1999; however, the impact has been partially offset by
higher selling prices in the second and third quarters of 2000.
Selling, General and Administrative Expenses ("SG&A") increased $0.6 million
to $18.3 million for the nine months ended September 30, 2000, from $17.7
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. In addition, the Company recorded approximately $376,000 of
non-recurring charges in the first quarter of 2000 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 1.8% to 5.8% for the nine
months ended September 30, 2000, from 7.6% 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 initiatives to
reduce operating expenses.
Operating loss for the nine months ended September 30, 2000, was $3.4
million compared to operating income of $0.3 million for the same period in
1999.
Interest expense, net of interest income, increased by approximately $0.9
million to $2.1 million for the nine months ended September 30, 2000, from
approximately $1.2 million for the comparable period in 1999, an increase of
75.0%. The increase in interest expenses was primarily due to increased
borrowings on the Company's lines of credit to fund operations and acquisitions
coupled with higher interest rates in the first nine months of 2000.
Other income (expense) increased $0.9 million to $0.8 million for the nine
months ended September 30, 2000, from a net expense of $0.1 million in the first
nine months of 1999. In 2000, other income, net of other expense, consisted
primarily of a gain of approximately $325,000 on the sale of the Company
airplane that was sold for $2,530,000. In 1999, other expense, net of other
income, consisted primarily of a loss on the sale of investment real estate of
approximately $336,000 that was sold for approximately $600,000.
Foreign currency exchange loss remained relatively constant at $0.1 million
for the nine months ended September 30, 2000, compared to the same period in
1999. The majority of the Company's sales are denominated in U.S. dollars or the
local currency where the sales are generated, thus minimizing transaction
losses.
The Company's benefit for income taxes was approximately $1.7 million for
the nine months ended September 30, 2000, compared to $1.3 million for the
comparable period in 1999. The net
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<PAGE>
income tax benefit for the nine months ended September 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.
During the nine months ended September 30, 2000, the Company incurred a net
loss of approximately $3.2 million compared to a net loss of approximately
$22,000 for the same period in 1999.
Liquidity and Capital Resources
Cash Flows
For the nine months ended September 30, 2000, operating activities provided
$5.8 million of cash. The net loss adjusted for non-cash items such as
depreciation, amortization, and other non-cash charges incurred did not affect
operating cash flows. The increase in deferred revenue provided $0.5 million of
cash while the net fluctuation in operating assets and liabilities provided $5.3
million of cash. Investing activities utilized $1.3 million of cash, primarily
consisting of investments in a joint venture in Venezuela of $2.7 million and
capital expenditures of $1.1 million net of proceeds from sale of the airplane
of $2.5 million. Financing activities utilized $3.1 million of cash primarily
due to payments on long-term debt.
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.
Credit Agreement
The Company's Amended and Restated Credit Agreement (the "Credit Agreement")
with Citizens Bank ("Citizens") (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 leverage ratio
required under the Amended and Restated Credit Agreement during the first,
second and third quarters of 2000. In a letter dated August 11, 2000, Citizens
agreed to waive compliance with such covenants up to and including September 30,
2000.
In the third quarter of 2000, the Company gave notice to Citizens that
lower than expected performance in the third quarter would result in the
Company's inability to meet financial covenants contained in the Credit
Agreement as of September 30, 2000. The Company is currently in negotiations
with Citizens to waive the financial covenants as of September 30, 2000 and
amend the Credit Agreement going forward.
The Company is also evaluating proposals from alternative lenders to
refinance the outstanding balances under the Citizens credit facility and
provide for future working capital needs.
The Company believes that it will either enter an agreement with Citizens to
waive the financial covenants as of September 30, 2000 and amend the Credit
Agreement, or secure alternative financing to refinance the Citizens credit
facility. However, JLM can provide no assurance that an agreement with Citizens
will be reached to waive the September 30, 2000 financial covenants and amend
the Credit Facility, or that alternative financing can or will be secured on
terms acceptable to the Company.
Effects of Inflation
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<PAGE>
Inflation generally affects the Company by increasing the cost of labor,
equipment and raw materials. The Company does not believe that inflation has had
a 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
nine months ended September 30, 2000, the Company did not enter into any
material fixed financial hedge contracts, and there were no fixed financial
hedge contracts open at September 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 September 30, 2000, the Company had the following related to inventory
exchanges:
<TABLE>
<CAPTION>
<S> <C>
Total pounds receivable under the exchange contracts 3,742,722
Total amount receivable under the exchange contracts $ 557,792
Weighted average price per pound receivable under the exchange contracts $ 0.1490
</TABLE>
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
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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.
PART II
OTHER INFORMATION
Item 1 - Legal Proceedings
The Company at times becomes involved in 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.
Item 4 - Submission of Matters To A Vote Of Security Holders
None.
Item 6 - Exhibits and Reports on Form 8-K
<TABLE>
<CAPTION>
<S> <C> <C>
A. Exhibit 18 Preferential letter from Deloitte & Touche LLP dated November
13, 2000 regarding change in accounting principles
B. Exhibit 27 Financial Data Schedule
C. Reports on Form 8-K None
</TABLE>
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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: November 13, 2000 /s/ John L. Macdonald
-------------------------------------------
John L. Macdonald
President and Chief Executive Officer
Dated: November 13, 2000 /s/ Michael E. Hayes
-------------------------------------------
Michael E. Hayes
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
17
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Index to Exhibits
Exhibit Number Description
-------------- -----------
Exhibit 18 Preferential letter from Deloitte & Touche LLP
dated November 13, 2000 regarding change in
accounting principles
Exhibit 27 Financial Data Schedule
