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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
Commission File No. 1-12333
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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)
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Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
(Title of each class)
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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 [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this form 10-K. Yes [_] No [X]
The aggregate market value of common stock held by non-affiliates of the
registrant at April 10, 2001 was $4,052,785, based upon the last reported sale
price of the Common Stock as reported by the NASDAQ National Market. The number
of shares of the registrant's Common Stock outstanding at April 10, 2001 was
6,568,222.
Documents Incorporated by Reference: Parts of the registrant's definitive
proxy statement for the Annual Meeting of the registrant's stockholders to be
held on June 13, 2001, are incorporated by reference into Part III of the Form.
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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;
the political and economic uncertainties associated with international
operations; fluctuations of foreign currency exchange; the risks associated
with potential acquisitions and the ability to implement other features of the
Company's business strategy.
PART I
ITEM 1. BUSINESS
Business Overview
JLM Industries, Inc. and subsidiaries ("JLM" or the "Company") is a leading
global marketer and distributor of performance chemicals, olefins, and
specialty plastics. The Company is listed as the seventh largest chemical
distributor in North America and a manufacturer and merchant marketer of phenol
and acetone. The Company maintains long-term supplier relationships with many
global chemical companies, manufactures phenol and acetone at its phenol plant
in Blue Island, IL (the "Blue Island Plant"), and continually adds new product
capabilities through distribution agreements and acquisition and investment
opportunities. In addition to strengthening its position in its core chemical
businesses, the Company plans to expand its capabilities in specialty chemicals
and plastics. 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.
In 1977, John L. Macdonald, the President and Chief Executive Officer of the
Company, co-founded Gill and Duffus Chemicals, Inc., the domestic chemical
trading operation of the London-based Gill and Duffus Holding PLC. As part of a
management buy-out in 1982, Mr. Macdonald purchased Gill and Duffus Chemicals,
Inc., and subsequently merged into Steuber Company, Inc., the domestic
operations of the Steuber Group, a worldwide chemical distribution company. In
1986, Mr. Macdonald purchased the U.S. assets of Steuber Company and formed JLM
as the successor.
Since 1986, the Company has grown by expanding its product sourcing
arrangements and product offerings, acquiring manufacturing and terminal
facilities and providing superior customer service and product quality and
availability. Among the Company's most significant corporate milestones are (i)
its investment in 1987 in the Mt. Vernon Partnership, (ii) the formation in
1992 of Olefins Terminal Corporation ("OTC"), (iii) the acquisition of the JLM
Terminals in 1992 and (iv) the acquisition of the Blue Island Plant in 1995. In
addition, the Company entered into its first exclusive marketing agreement with
Sasol Chemical Industries (PTY) Ltd. (South Africa) ("SasolChem") in 1987, and
began its expansion into the international markets with the opening of offices
in Canada in 1987, Venezuela in 1992, Western Europe in 1995 and Eastern Europe
and the Far East in 1998. Over the past three years, the Company has continued
its expansion both domestically and internationally through the acquisitions of
Browning Chemical Corporation ("Browning"), Inquinosa International S.A.
("Inquinosa"), Tolson Holland B.V., Tolson Transports B.V. and Tolson Asia LTD
(the "Tolson Group"), ICI PLC's Colours and Industrial Chemical Division of ICI
South Africa, and a majority of the shares of ICI South Africa Mozambique and
Societe Financiere d' Entreposage et de Commerce International de l' Alcool, SA
("Sofecia") USA industrial ethyl Alcohol distribution business, and the joint
initiative with Sasol Solvents (Sasol) for marketing ethyl alcohol (ethanol) in
North America. Through the acquisition of Browning, the Company diversified
into the domestic inorganic chemical distribution business, which was
synergistic with the Company's current infrastructure. The new business not
only expanded the Company's product mix but also added increased margins.
Inquinosa has contributed to JLM's ability to be a niche player in the
agrochemical sector. Additionally, with the acquisition of the Tolson Group,
the Company has further expanded its client base in Europe and Asia. The
purchase of certain divisions of ICI's South African operations continued the
Company's strategy by further expanding into a broad range of high quality
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specialty and commodity chemicals to target markets, including surface
coatings, textiles, chemical manufacturing, refactory and rigid packaging. The
acquisition of the ethanol business from Sofecia and the joint initiative with
Sasol further enhanced JLM's ability to provide a broad range of pure and
formulated ethanol to core markets and key customer partners.
Industry Overview
Phenol
Phenol is produced through the oxidation of cumene, which is produced from
propylene and benzene. Acetone is produced as a co-product during this
manufacturing process in the approximate ratio of 0.6 pounds of acetone for
every 1.0 pound of phenol. Over 80.0% of global acetone production is produced
as a co-product in the manufacture of phenol, and, as a result, phenol demand
largely determines acetone production levels. The markets for phenol and
acetone are cyclical and sensitive to changes in the balance between supply and
demand, the price of feedstocks and the level of general economic activity.
According to industry sources, current world phenol capacity is
approximately 14.7 billion pounds (6.3 billion pounds in North America). The
two largest end markets for phenol are phenolic resins, which is the Company's
only market for phenol, and bisphenol A ("BPA"). Phenolic resins are used
extensively as bonding agents and adhesives for wood products such as plywood
and granulated wood panels, and account for approximately 37.0% of total phenol
demand. BPA is used as a raw material in the manufacture of high performance
plastics such as those used in automobiles, household appliances, electronics
and protective coatings applications. Phenol, for the production of BPA,
requires a greater degree of purification and is produced almost exclusively by
manufacturers of BPA for their internal consumption. Any phenol not consumed
internally by such manufacturers generally is sold to other end users. The
Company believes sales of excess phenol by BPA producers will be relatively
limited as the demand for BPA continues to increase.
Acetone
The largest end market for acetone is as a raw material in the production of
methyl methacrylate ("MMA"), which is used as a chemical intermediate to
produce acrylic sheeting and other chemical products, and as an ingredient for
surface coating resins for the automotive and construction markets. Acetone is
also used as a raw material in the production of BPA and as an industrial
solvent.
The U.S. Federal government has exempted acetone from all regulations as a
volatile organic compound ("VOC"). All states with the exception of Hawaii and
certain parts of California have followed the Federal government's ruling.
Propylene
According to industry sources, current world propylene capacity is
approximately 120 billion pounds. Over 50.0% of globally produced propylene is
used in the manufacture of polypropylene which, in turn, is used primarily in
plastic film and molded parts in consumer items, including automobile
components, brushes, carpeting, rope and tape.
Business Strategy
The Company's principal objective is to continue to expand the number of
sources and breadth of its chemical products and the markets in which it
distributes these products to enhance its position as a leading supplier to the
worldwide chemical industry. Key elements of the Company's business strategy
include:
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. Expand Sources of Supply through Joint Ventures, Acquisitions and Strategic
Relationships. The Company seeks to identify and capitalize on domestic and
international opportunities to expand sources of products in, or consistent
with, its core business. These opportunities include joint ventures,
acquisitions and strategic relationships.
. Increase Sales of Existing Products; Add New Products. The Company seeks
continue to develop its existing relationships and establish new
relationships to increase the overall volume and types of products it
distributes by (i) increasing the amount distributed by the Company of
an existing supplier's output of a given chemical, (ii) distributing
additional products for existing suppliers and (iii) adding new chemical
producers to its supplier base. During 1996, the Company entered into
agreements to distribute approximately 70 million additional pounds of
chemicals for both existing and new suppliers, including Lyondell
Chemical Company ("Lyondell"), and Solutia, Inc. ("Solutia"). In
addition, the Company recently expanded the product line it distributes
for Sasol Solvents. The Company has entered into agreements with
CONDEAVista Company ("CONDEAVista") to distribute butanol. In 2000, the
Company acquired the ethanol business of Sofecia, and established a
marketing agreement with Sasol to provide a broad range of pure and
formulated ethanol to JLM's core markets and key customer markets.
. Continue International Expansion. The Company currently has
international operations in South America, Europe (including Russia and
the Czech Republic), Asia and South Africa. JLM intends to continue to
utilize its chemical market experience, distribution and logistics
capabilities and industry relationships to increase its international
presence. In 1999, the Company continued its acquisition strategy by
acquiring the Colours and Industrial Chemicals Division of ICI South
Africa and the majority shareholdings in ICI South Africa Mozambique
Limitada. JLM's worldwide network of companies should enhance South
Africa's supply portfolio while at the same time strengthen the
relationship with local offshore and domestic suppliers utilizing the
Company's global subsidiaries.
. Continue to Provide Superior Customer Service. JLM has focused on
providing superior customer service and believes it is well positioned
to take advantage of current trends within the chemical industry as
chemical producers continue to outsource their terminaling and logistics
operations and reduce the number of outside distributors used. The
Company provides sourcing, inventory and logistics solutions for its
customers and endeavors to provide both its customers and suppliers with
a superior level of service.
Products and Customers
JLM markets more than 400 chemical products to over 1,000 customers
worldwide. Set forth below is certain information about the Company's sales of
acetone, phenol, propylene and certain other products, including representative
customers for such products.
Acetone
In 2000, JLM distributed approximately 300 million pounds of acetone, of
which approximately 83.4% was sourced from the Blue Island Plant and the Mt.
Vernon Plant. The largest end market application of acetone is as a raw
material in the production of MMA, an important chemical intermediate used to
make aircraft windows, lighting fixtures, medical/dental parts, storm doors and
taillight lenses. Additional end market applications for acetone include
adhesives, pharmaceuticals, solvents, paints and plastics. JLM's acetone
customers include Ashland, B.F. Goodrich, DuPont, 3M, and Rohm & Haas.
Phenol
In 2000, the Company distributed approximately 90 million pounds of phenol,
of which approximately 100.0% was sourced from the Blue Island Plant. The two
largest end market applications for phenol are phenolic resins, which are used
in adhesives and bonding agents in plywood and other forest products and BPA.
JLM's phenol customers include, Georgia Pacific, Dynea and Plenco.
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Propylene
In 2000, the Company distributed approximately 330 million pounds of
propylene. The largest end market application for propylene is as a raw
material in the production of polypropylene which is used in the manufacture of
appliance parts, automobile components, brushes, carpeting, rope and tape.
Propylene is also used in the production of foams for furniture, insulation,
elastomers, molded goods and pharmaceuticals. The Company also markets other
olefins, including butadiene and ethylene. The Company's olefins customers
include DuPont, Exxon Corporation ("Exxon"), GE and Goodyear. JLM's propylene
customers include Borealis Exploration Limited, DSM and Dow Chemical
Corporation ("Dow Chemical").
Other Products
In addition to acetone, phenol and propylene, the Company markets and
distributes other commodity, inorganic and specialty chemicals including
acetophenone, benzoic acid, butadiene, cumene, DDVP, esters, ethylene, fumaric
acid, ketones, lindane, methanol and various grades of formulated ethanol. Some
of JLM's customers for these products include BASF Corp., Dow Chemical, DSM,
Goodyear, Lilly Industries Inc., PPG Industries Inc., Repsol, S.A. (Spain)
("Repsol") and Shell Chemicals Canada.
During each of the past three years, no single distribution relationship,
customer or group of affiliated customers has accounted for more than 10.0% of
the Company's revenues.
Manufacturing and Product Sourcing
In order to support its worldwide marketing and distribution capabilities,
the Company continually seeks to acquire assets and establish relationships to
provide consistent and reliable sources of products. JLM sources a majority of
its products from its Blue Island Plant and the Mt. Vernon Plant. In 2000, the
Blue Island Plant and Mt. Vernon Plant collectively supplied approximately
83.4% of the total acetone sold by JLM and the Blue Island Plant supplied
approximately 100.0% of the total phenol sold by JLM.
Blue Island Plant
The Company manufactures cumene, phenol, acetone and certain co-products
including alpha methyl styrene ("AMS") and acetophenone at the Blue Island
Plant. The Blue Island Plant has an annual manufacturing capacity of
approximately 145 million pounds of cumene, 95 million pounds of phenol, 58
million pounds of acetone, 5 million pounds of AMS and 1 million pounds of
acetophenone. The phenol produced at the Blue Island Plant can only be used in
the production of phenolic resins and not in the production of BPA.
The Blue Island Plant is strategically located south of Chicago, Illinois,
near primary barge and rail transportation terminals that facilitate economic
and efficient delivery of raw materials and shipment of finished products. In
addition, this location affords the Company significant freight cost advantages
in servicing its customer base (which is primarily located in the Midwest) in
comparison to competitors located on the U.S. Gulf Coast.
Since 1997, the Blue Island Plant utilizes a state-of-the-art UOP zeolite
catalyst to produce cumene, the key raw material used to manufacture phenol and
acetone. This process has improved the efficiency, profitability and quality of
the cumene production and has eliminated the need to purchase supplemental
cumene from outside sources. Additionally, the new technology has improved the
purity of the Company's AMS and, as a result, the Company's average margin for
AMS increased significantly.
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Mt. Vernon Partnership
In addition to its ownership of the Blue Island Plant, JLM participates in a
manufacturing joint venture with GE and an affiliate of CITGO (the "Mt. Vernon
Partnership") which owns and operates a phenol plant in Mt. Vernon, IN (the
"Mt. Vernon Plant"). The Company owns a 2.0% partnership interest in the Mt.
Vernon Partnership, an Indiana limited partnership, that was formed to purchase
the Mt. Vernon Plant from GE in November 1987. The Company's principal purpose
for entering into the partnership was to secure a long-term source of supply
for acetone. In 1988, the Company entered into a long-term acetone sales
agreement with the Mt. Vernon Partnership. Under the terms of the acetone
agreement, the Company is obligated through the year 2002, and thereafter
unless the agreement is terminated upon prior notice, to purchase all of the
acetone produced at the Mt. Vernon Plant and not consumed by GE Petrochemicals,
Inc. ("GE Plastics"). The agreement further provides that the Mt. Vernon
Partnership cannot terminate the agreement as long as JLM is a partner in the
Mt. Vernon Partnership. The initial term of this agreement expires in 2002, and
continues thereafter for successive one-year terms unless one year's notice is
otherwise provided by either party.
The Company has successfully marketed all the acetone offered under this
agreement and believes that it will be able to do so in the future. Since 1994,
the Company has sourced on average approximately 225 million pounds of acetone
annually from the Mt. Vernon Plant. In 1996, the amount of acetone available to
JLM from the Mt. Vernon Plant was reduced by approximately 15 million pounds.
Over the next four years, the amount of acetone available to JLM was further
reduced by approximately 35 to 40 million pounds as a result of increased
consumption by GE Plastics. Through improvement in operating efficiency the Mt.
Vernon plant has increased their acetone output, thereby offsetting increased
internal consumption. As a result, JLM does not anticipate any further material
reduction in volume.
Under the terms of the partnership agreement for the Mt. Vernon Partnership,
the management of the business and affairs of the partnership is controlled by
the partners owning at least 66.0% of the partnership interests. The Mt. Vernon
Partnership has entered into an operation and maintenance agreement with GE
pursuant to which GE manages, operates and maintains the Mt. Vernon Plant. The
partnership agreement generally provides GE with the right at any time to
require the sale of JLM's interest in the Mt. Vernon Partnership to a third
party selected by GE and the right after December 31, 2008, to directly
purchase JLM's interest in the partnership.
Supplier Relationships
In addition to its manufacturing facility and joint venture, JLM sources its
products through established supplier relationships with many of the largest
and most well-known chemical companies worldwide. Suppliers to JLM include
Lyondell Chemicals, Repsol, CONDEAVista, and Sasol Solvents. The structure of
the Company's relationships with its outside suppliers helps the Company
mitigate the impact of cyclical market fluctuations in product supply and price
to which typical spot traders or distributors are exposed. In a majority of
JLM's supply contracts, the purchase price paid by JLM is not determined until
after JLM sells the product, and is generally based on a fixed percentage
profit per unit of product sold. In contrast, the typical spot trader or
distributor may agree to a fixed purchase price prior to the sale, taking the
market risk of effecting a successful resale of the product. In addition, spot
traders do not typically enter into long-term supply contracts or
relationships, thereby reducing their ability to service the needs of both
customers and suppliers.
In 1988, the Company entered into an agreement to purchase acetone from
SasolChem, which was to remain in effect until either party gave six months
notice of termination. In 1992, the Company entered into new agreements with
SasolChem to purchase additional quantities of acetone, methyl-ethyl ketone and
n-propanol. These new agreements are on terms substantially similar to its
existing acetone agreement with SasolChem. The Company has since expanded its
relationship with SasolChem to include the purchase and distribution of methyl-
isobutyl ketone and ethanol in North America.
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In 1999, the Company and Sasol Solvents ("Sasol") entered into a joint
initiative for marketing ethyl alcohol (ethanol) in North America. Sasol
commissioned a new world scale ethanol production unit located in Secunda South
Africa. With a nameplate capacity of 85,000 metric tons per annum, this plant
will join units already in operation for Sasol and will expand their overall
capacity to 125,000 metric tons per annum of high purity ethanol.
Simultaneously, JLM brought on line a state of the art computerized blending
and denaturing facility dedicated to serving the North American ethanol market.
Located in Wilmington, North Carolina at the site of its subsidiary, JLM
Terminals Inc., the blending facility uses the latest in liquid handling and
metering technology, ensuring accuracy and efficiency. Additionally, a new
dedicated quality control laboratory located on site was commissioned to meet
customer needs for high quality ethanol blends for the personal care, coatings,
inks, and industrial markets. The required denaturants are stored on site to
ensure a seamless operation from production to delivery. Additionally, the
Company entered into agreements with Lyondell Chemical Company and CONDEAVista
to distribute n-propanol and butanol.
Terminalling and Storage
The Company, with an affiliate of Ultramar Diamond Shamrock Corp. ("UDS"),
participates in a joint venture that owns and operates the OTC Terminal at the
mouth of the Houston, Texas ship channel in Bayport, Texas. The facility is
located on 2.4 acres of land and has throughput capacity of approximately 900
million pounds. The facility includes twin storage spheres with a total
capacity of approximately 22 million pounds of propylene and is capable of
handling and storing gaseous products at a full range of temperature and
pressure conditions. The OTC Terminal is believed to be the only independent
propylene export terminal in the U.S. and its Gulf Coast location is well
suited to enable U.S. producers to place their products into the global market.
See "Properties."
The OTC Terminal is operated by Baytank (Houston) Inc. ("Baytank"), a major
terminal owner and operator, under a long-term contract. OTC also leases from
Baytank the land upon which the OTC Terminal is located. The Company was
engaged by OTC to provide certain administrative and managerial services to
OTC, including on-site supervision of terminal operations and certain
bookkeeping and administrative matters.
The Company has additional terminal and storage facilities located at JLM
Terminals on the Cape Fear River in Wilmington, North Carolina. The JLM
Terminal is located on 14 acres of land, is accessible to ship, barge, rail and
truck, is capable of handling a broad range of products including methanol,
oxygenated solvents and inorganic chemicals, and has a total capacity of 18.0
million gallons. The facility includes three tank truck loading bays, six
loading bays for jumbo rail cars, laboratory services and a computerized weigh
scale. Of the total storage capacity at the JLM Terminal, the Company uses
approximately 2.5 million gallons of capacity and the remainder is subject to
leases to third parties expiring in various years through 2002. See
"Properties."
The Company maintains inventory at strategic locations worldwide. The
Company believes its storage facilities will be adequate for the Company's
current and anticipated near-term needs. Should the need arise for substantial
amounts of additional storage facilities in the future, the Company does not
currently anticipate any material difficulties in obtaining sufficient new
storage facilities through purchase or lease at commercially reasonable rates.
The Company also operates a fleet of more than 125 rail cars and has long-term
working relationships with a number of national barge lines and tank truck
carriers. See "Properties."
Sales and Marketing
Until the acquisition of Browning in 1998, the Company historically focused
primarily on bulk quantity sales (generally in truckload lots) of commodity
chemicals to over 1,000 customers worldwide in a broad range of industries.
With the acquisition of Browning, the Company now services an additional 400
customers in the U.S. primarily in the inorganic sector, generally selling in
smaller quantities. Individual salespersons are assigned principal
responsibility for specific supplier or customer relationships and for specific
products. In addition, each salesperson is required to be familiar with all of
the Company's products, suppliers and
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customers. Therefore, the Company believes it is able to respond to customer
and supplier needs as well as to take advantage of changing market conditions
more effectively than its competitors.
JLM has offices in the U.S., Canada, the Netherlands, Venezuela, Thailand,
Colombia, the Czech Republic, South Africa, Spain, Russia, Singapore,
Indonesia, Turkey, Azerbaijan, Shanghai and Ningbo. JLM also has an alliance
with a distributor in Spain and operates through agency relationships in
Italy, Brazil, Peru, Mexico and Taiwan.
In 1997, the Company purchased a 25.0% interest in SK Asia and a 12.7%
interest in SK Trading, two Singapore-based companies participating in a
Vietnamese joint venture. The Vietnamese joint venture intended to construct a
chemical plant in Vietnam to produce dioctyl phthlate, a chemical used in the
production of plastics such as PVC. The Vietnamese joint venture also intended
to construct terminaling and storage facilities in Vietnam and Malaysia. In
January 2000, the Company exchanged its 25% interest in SK Asia and its 12.7%
interest in SK Trading, for a 49% interest in an existing terminal facility
which was named Siam JLM. In the first quarter of fiscal 2001, the Company
made the decision to wind down the operations of JLM Siam. During 2000, the
Company has estimated that the anticipated future undiscounted cash flows will
be insufficient to recover the carrying value of the Company's investment, the
Company wrote off this investment and recorded a loss on impairment in 2000 of
approximately $1.1 million.
Approximately 20.0% of the Company's domestic marketing revenues in 2000
were from sales of specialty chemicals. Prices for specialty chemicals are
generally subject to smaller fluctuations than are those for commodity
chemicals, and specialty chemical sales generally carry higher gross margins.
In establishing supply and distribution relationships in specialty chemicals,
the Company attempts to leverage existing relationships and knowledge of the
needs and objectives of both suppliers and customers.
The Company's position as a volume marketer, combined with JLM's knowledge
of customer and supplier needs and objectives, affords opportunities to effect
product exchanges. Engaging in product exchange transactions allows the
Company to provide solutions to customers and suppliers and take advantage of
identified market trends. The Company's ability to engage in exchange
transactions is enhanced by its terminal and storage capabilities that also
enable the Company to accumulate inventory to take advantage of market trends.
In its olefins marketing activities, JLM focuses on the international
marketing of olefin petrochemical gases that require specialized shipping,
handling and storage. The Company's olefins marketing activities to date have
been largely trading oriented. However, the Company has developed long-term
relationships with essential industry participants and its access to terminal
and storage facilities will enable the Company to become a volume marketer of
olefins globally. The Company has long-term supply and sales contracts with a
number of major olefins producers and consumers in North America, South
America, Europe and Asia. For example, the Company has supply relationships
with Repsol and Copene-Petroquimica do Nordeste S.A. to source butadiene for
the U.S. and with Diamond Koch, Equistar, and Enterprise to export propylene
from the U.S. Some of the Company's significant olefins customers include Dow,
DuPont, Exxon, GE and Goodyear.
Competition
The Company operates in a highly competitive industry. Many of the
Company's competitors have significantly greater financial, production and
other resources than the Company. Many of the Company's competitors are large,
integrated chemical manufacturers, some of whom have their own basic raw
material resources. The Company competes to a lesser extent with certain
chemical distribution companies and chemical traders.
The Company competes in its marketing and distribution activities by
providing superior customer service. In the opinion of the Company, the key
elements of effective customer service include reliable and timely delivery of
products, satisfying customer needs for quality and quantity and competitive
pricing. The Company's long-term supplier relationships, terminal and storage
facilities, transportation capabilities and
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industry and product knowledge support the Company's efforts to provide
superior customer service. In addition, the Blue Island Plant's Midwest
location gives it significant freight cost advantages in selling to its
customers in the Midwest over its competitors' production facilities located in
the Southeast.
Employees
As of December 31, 2000, the Company had 210 full-time employees. Of these,
112 employees were in management and administration, 52 in sales and marketing
and 46 were in production and distribution. Approximately 25 of the Company's
employees at the Blue Island Plant are covered by a collective bargaining
agreement with the Oil, Chemical and Atomic Workers Union (the "Union"). This
agreement expires on October 31, 2001. The Company considers its relations with
both its union and non-union employees to be satisfactory.
Environmental Regulation
The Company and its operations are subject to federal, state, local and
foreign environmental laws, rules, regulations and ordinances concerning
emissions to the air, discharges to surface and subsurface waters, and the
generation, handling, storage, transportation, treatment, disposal and import
and export of hazardous materials ("Environmental Laws"). Compliance with such
Environmental Laws may result in significant capital expenditures by the
Company. Moreover, under certain Environmental Laws, the Company may be liable
for remediation of contamination at certain of its current and former
properties. For example, under the Comprehensive Environmental Response,
Compensation and Liability Act of 1990, as amended ("CERCLA"), and similar
state laws, the Company and prior owners and operators of the Company's
properties may be liable for the costs of removal or remediation of certain
hazardous or toxic materials on, under or emanating from the properties,
regardless of their knowledge of, or responsibility for, the presence of such
materials. CERCLA and similar state laws also impose liability for
investigation, cleanup costs and damage to natural resources on persons who
dispose of or arrange for the disposal of hazardous substances at third-party
sites. In addition, under the Resource Conservation and Recovery Act of 1976
("RCRA"), the holder of a permit to treat or store hazardous waste can be
required to remediate environmental pollution from solid waste management areas
at the permitted facility regardless of when the contamination occurred.
Although elevated levels of certain petroleum-related substances, organic
chemicals and metals have been detected in groundwater and/or soils at the
Company's Wilmington, North Carolina terminal facilities, the Company believes
that the presence of such substances is the result of either historical use
prior to the Company's acquisition of the site from Union Oil Company of
California ("Unocal") in 1992 of the Company's Cape Fear Terminal and in 1998
of the Carolina Terminal and, potentially, in the case of the Cape Fear
Terminal, migration from neighboring facilities (including an adjacent
Superfund site that is currently being remediated). In 1998, the Company
assumed from Unocal, the prior owner of the site, the implementation of state
approved Remedial Action Plans ("RAPs") to address onsite petroleum
contamination at the Cape Fear Terminal and at the Carolina Terminal.
Compliance with the RAPs does not foreseeably require any capital expenditures
and the Company believes that owners of the neighboring properties may bear a
significant portion of the responsibility for any additional remediation.
Except for the ongoing remediations, no significant cleanup activities have
been conducted at the Cape Fear Terminal since it was acquired by the Company
in 1992 or at the Carolina Terminal since its acquisition by the Company in
1998. Should remedial activities be conducted to address contaminants that are
not petroleum-related, the Company has insufficient information regarding the
types, concentrations, and possible cleanup levels of onsite contaminants to
reasonably estimate costs that may be associated with such remediation. The
Company believes that the low levels of various organic compounds detected in
soils and groundwater at the Blue Island plant are the result of historical use
of the site prior to its acquisition by the Company in 1995 and/or migration
from neighboring facilities. The concentrations of some of these compounds
exceed established state groundwater standards and/or cleanup objectives.
However, the Company also believes that the likelihood of either state or
federal
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environmental regulatory agencies seeking remediation in the near term is low,
based on the location of the facility, the character of the area (each of which
are factors in assessing risk), and the fact that the site is pending removal
from the federal list of contaminated sites. To date, the Company has not been
required to plan, undertake or fund any remedial activities.
Levels of organic compounds slightly in excess of regulatory reporting
thresholds were detected in groundwater at the Polychem plant owned by the
Company. The Company had previously been addressing the problem, and recent
analytical results show that the levels of contaminants may have decreased to
acceptable levels. In August 1999, the Company sold the plant in "as is"
condition, relieving the Company of any further environmental liability.
The Blue Island Plant paid fines totaling $95,000 in 1999, as a result of
prior years violations associated with procedural violations that did not
result in any emissions or damage to the environment. In one violation, the
Company was cited for valves that were not properly locked after an emission
control modification was completed by the Company on a volunteer basis. The
second violation was due to a nine hour delay in reporting a minor spill that
was properly cleaned up. In both instances, the Company agreed to mitigated
fines rather than proceed with litigation. The Company incurred no
environmental fines or penalties related to the Blue Island Plant in 2000.
The Company does not believe that a material amount of funds will be
required to complete remediation at any site, however, it is impossible to
predict precisely what effect environmental laws will have on the Company in
the future.
10
ITEM 2. PROPERTIES
The following table sets forth certain information as of December 31, 2000,
relating to the Company's principal facilities:
Approximate
Facility Principal Activities; Location Square Feet Owned/Leased
- - -------- ------------------------------ ----------- ------------
Corporate Headquarters Administration Headquarters; 25,000 Owned
Tampa, Florida
Blue Island Plant Manufacturing; 958,000 Owned
Blue Island, Illinois
OTC Terminal Terminaling and Storage; 104,000 Co-owned
Houston, Texas
JLM Terminal Terminaling and Storage; 609,000 Owned
Wilmington, North Carolina
North America Sales
Offices Blue Island, Illinois * Owned
Wilmington, North Carolina * Owned
Toronto, Canada * Leased
International Sales
Offices Rotterdam, Netherlands * Leased
Maracaibo, Venezuela * Leased
Bogota, Colombia * Leased
Singapore * Leased
Bangalore, India * Leased
Madrid, Spain * Leased
Moscow, Russia * Leased
Prague, Czech Republic * Leased
JLM Realty Wilmington, North Carolina * Owned
- - --------
* Less than 25,000 square feet
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings, other than claims and
lawsuits arising in the normal course of the Company's business. The Company
does not believe that such claims and lawsuits, individually or in the
aggregate, will have a material adverse effect on its business. See Note 11 to
Notes to Consolidated Financial Statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's stockholders during the
fourth quarter covered by this Report.
11
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The Company's common stock trades on the Nasdaq National Market under the
symbol "JLMI". As of March 19, 2001, there were 90 stockholders of record. The
following table sets forth the quarterly high and low sale prices of JLM's
common stock during 1999 and 2000 on the Nasdaq National Market:
1999
First Quarter.................................................. $ 5.97 $ 4.81
second quarter................................................. 5.38 4.25
third quarter.................................................. 5.44 4.50
Fourth Quarter................................................. 4.63 2.56
2000
First Quarter.................................................. 8.19 2.50
Second Quarter................................................. 6.13 3.06
Third Quarter.................................................. 4.38 2.50
Fourth Quarter................................................. 2.75 0.75
On November 22, 2000, the Company received notice from the Nasdaq National
Market that its common stock had failed to maintain a minimum market value of
public float of $5,000,000 over the previous 30 consecutive trading days as
required by Nasdaq Marketplace Rule 4450(a)(2). Nasdaq Staff notified the
Company that its common stock would be subject to delisting from the Nasdaq
National Market unless the market value of public float was at least $5,000,000
for a minimum of ten consecutive trading days in the 90 days prior to February
20, 2001.
The Company requested a hearing, which was held on March 30, 2001, before a
Nasdaq Listing Qualifications Panel (the "Panel") to determine compliance with
the ongoing maintenance standards for the Nasdaq National Market. The Company
has not yet received the determination of the Panel. If the Company is
unsuccessful in its attempt to retain its listing on the Nasdaq National Market
System, it will either apply to list its common stock on the Nasdaq SmallCap
Market or its common stock will be available for quotation on the NASD-
regulated OTC Bulletin Board.
The Company has not paid cash dividends on its Common Stock and does not
anticipate that it will pay dividends in the foreseeable future. The Company
currently intends to retain future earnings, if any, for future operations and
expansion of the Company's business. Any determination to pay dividends in the
future will be at the discretion of the Company's Board of Directors and will
be dependent upon the Company's results of operations, financial restrictions,
restrictions imposed by applicable law and other factors deemed relevant by the
Board of Directors. Furthermore, JLM Industries, Inc. and its subsidiaries are
restricted from paying dividends under certain credit agreements to which they
are a party (see Note 7 of Notes to Consolidated Financial Statements).
12
ITEM 6. SELECTED FINANCIAL INFORMATION
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(in thousands, except per share data)
Year Ended December 31,
------------------------------------------------
1996(3) 1997(3) 1998(3) 1999(3) 2000
-------- -------- -------- -------- --------
Statement of Income Data:
Revenues.................... $236,521 $286,822 $305,735 $332,698 $434,458
Gross profit................ 28,226 30,221 34,706 21,440 21,670
Operating income (loss)..... 10,989 13,332 11,062 (3,192) (3,581)
Income (loss) from
continuing operations
before discontinued
operations and
extraordinary item......... 4,350 6,735 4,901 (3,541) (8,296)
Basic Earnings (loss) Per
Share:
Income (loss) from
continuing operations
before discontinued
operations and
extraordinary item......... $ 0.89 $ 1.17 $ 0.70 $ (0.53) $ (1.26)
Diluted Earnings (loss) Per
Share:
Income (loss) from
continuing operations
before discontinued
operations and
extraordinary item......... $ 0.89 $ 1.16 $ 0.70 $ (0.53) $ (1.26)
Basic weighted average shares
outstanding................. 4,878 5,753 7,038 6,665 6,568
Diluted weighted average
shares outstanding.......... 4,878 5,790 7,038 6,665 6,568
Pro forma basic income (loss)
per share from continuing
operations before
discontinued operations and
extraordinary item (1)...... $ 0.64 $ 1.01 $ 0.73 $ (0.53) $ (1.26)
Pro forma diluted shares
outstanding (1)............. 6,803 6,678 6,682 6,665 6,568
Other Financial Data:
Depreciation and
amortization............... $ 2,524 $ 2,947 $ 3,671 $ 4,046 $ 3,893
EBITDA (2).................. 13,513 16,850 14,733 4,853 (5,459)
Balance Sheet Data:
Working Capital (deficit)... $ 1,555 $ 14,321 $ 16,057 $ 18,216 $ 999
Total assets................ 88,908 84,606 102,726 139,483 136,380
Total debt.................. 31,043 5,964 17,048 27,776 21,414
Total stockholders' equity.. 14,347 38,821 42,351 37,202 27,930
Cash Flow Information:
Operating activities........ $ 19 $ 8,606 $ 5,192 $ (649) $ 14,434
Investing activities........ (6,631) (3,176) (4,993) (9,261) (1,492)
Financing activities........ 6,705 (5,012) (3,083) 9,964 (6,532)
Capital expenditures........ 7,347 2,875 1,102 2,204 1,548
- - --------
(1) The pro forma diluted income (loss) per share data reflects the historical
weighted average number of shares outstanding for each period presented
adjusted to include the following items as if they had occurred at the
beginning of each period presented 1) 2,156,000 shares issued during the
Company's initial public offering, 2) the 190,000 shares purchased by the
Underwriters of the Company's initial public offering to cover over-
allotments, 3) 3,415 shares purchased by employees of the Company under the
Company's employee stock purchase plan and 4) 420,909 treasury shares
purchased by the Company under the Company's Stock Repurchase Plan and from
a shareholder.
(2) EBITDA represents the operating income (loss) of the Company plus
depreciation and amortization. In 1999, EBITDA also included approximately
$4.0 million of tax benefit. EBITDA is not a measure of financial
performance under generally accepted accounting principles ("GAAP") and may
not be comparable to other similarly titled measures by other companies.
EBITDA does not represent net income or cash flows from operations as
defined by GAAP and does not necessarily indicate that cash flows will be
sufficient to fund cash needs. As a result, EBITDA should not be considered
an alternative to net income as an indicator of operating performance or to
cash flows as a measure of liquidity. EBITDA is included because it is a
basis upon which the Company assesses its financial performance.
(3) These years have been retroactively restated to reflect the Company's
change in accounting principle used for certain inventories from last-in,
first-out, to first-in, first-out.
13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
The following discussion should be read in conjunction with "Selected
Consolidated Financial Information" and the Consolidated Financial Statements
of the Company and the Notes thereto included in this Annual Report. In
particular, for information regarding the Company's operations in different
industry segments and geographic locations see Note 16 of Notes to Consolidated
Financial Statements.
GENERAL
JLM is a leading marketer and distributor of certain commodity chemicals,
principally acetone and phenol. The Company believes it is the second largest
marketer of acetone and the fifth largest marketer of phenol in North America.
JLM is also a global distributor of olefins, principally propylene, as well as
a variety of other commodity and specialty chemicals. In order to provide
stable and reliable sources of supply for its products, the Company (i)
maintains established supplier relationships with several major chemical
companies, (ii) manufactures phenol and acetone and (iii) sources acetone from
its joint venture manufacturing operation.
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.
A majority of the Company's revenue is derived from the sale of commodity
chemicals, prices for which are subject to cyclical fluctuations. The Company
endeavors to enter into supply contracts that provide a fixed percentage profit
per unit of product sold. During the second half of 1998 through the first
quarter 2000, the Company's performance was negatively impacted by the
petrochemical down cycle in which both overall pricing and margins accelerated
downward. Pricing pressure on manufactured products, specifically phenol,
continued during the period coupled with substantial increases in raw material
feedstock costs. Beginning in the second quarter 2000, major U.S.
phenol/acetone producers, including the Company, announced price increases
which became effective April 1, 2000. In addition, raw materials costs began
dropping in the second half of 2000. Raw material pricing has continued to
decline in the first quarter of 2001, leading to some recovery of the Company's
operating margins.
Set forth below, for the periods indicated, is certain information regarding
the contributions by the marketing and manufacturing segments to the Company's
revenues, gross profit, operating income, gross margin and operating margin.
The marketing segment revenues include an assumed selling commission determined
in accordance with industry standards for the sale of products that are
manufactured at the Blue Island Plant. In addition, the marketing segment
operating income reflects the expenses associated with the sale of such
products. 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 Plant, which allocation has been determined on a
basis consistent with the assumed commission for sale of products manufactured
at the Blue Island Plant. Results for any one or more periods are not
necessarily indicative of annual results or continuing trends.
14
As a Percentage of Segment Revenues
Years Ended
December 31,
-------------------
2000 1999 1998
---- ----- ----
Gross profit:
Marketing................................................ 4.8% 6.5% 7.2%
Manufacturing............................................ 8.6% 5.6% 49.7%
---- ----- ----
Total gross profit......................................... 5.0% 6.4% 11.4%
==== ===== ====
Segment operating income (loss):
Marketing................................................ 0.7% 0.6% 0.5%
Manufacturing............................................ (8.8%) (14.8%) 39.6%
---- ----- ----
Total segment operating income (loss)...................... 0.2% 0.2% 4.4%
==== ===== ====
Year Ended December 31,
---------------------------------------------------
2000 1999 1998
--------------- --------------- ---------------
(in thousands, except percentages)
Revenues:
Marketing............. $410,524 94.5% $313,442 94.2% $275,654 90.2%
Manufacturing......... 23,934 5.5% 19,256 5.8% 30,082 9.8%
-------- ----- -------- ----- -------- -----
Total revenues.......... $434,458 100.0% $332,698 100.0% $305,735 100.0%
======== ===== ======== ===== ======== =====
Gross profit:
Marketing............. $ 19,602 90.5% $ 20,362 95.0% $ 19,766 57.0%
Manufacturing......... 2,068 9.5% 1,078 5.0% 14,940 43.0%
-------- ----- -------- ----- -------- -----
Total gross profit...... $ 21,670 100.0% $ 21,440 100.0% $ 34,706 100.0%
======== ===== ======== ===== ======== =====
Segment operating income
(loss):
Marketing............. $ 2,910 (81.3%) $ 2,026 (63.5%) $ 1,470 13.3%
Manufacturing......... (2,116) 59.1% (2,848) 89.2% 11,903 107.6%
-------- ----- -------- ----- -------- -----
Total segment operating
income (loss).......... 794 (22.2%) (822) 25.7% 13,373 120.9%
Corporate expense....... (4,375) 122.2% (2,370) 74.3% (2,311) (20.9%)
-------- ----- -------- ----- -------- -----
Total operating income
(loss)................. $ (3,581) 100.0% $ (3,192) 100.0% $ 11,062 100.0%
======== ===== ======== ===== ======== =====
Marketing Segment
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 strength in the homebuilding and automobile
industries 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.
In May 1997, the Company and its joint venture partners agreed to
restructure their investments in OTC. As a result, the Company and UDS bought
out the interest of a third joint venture partner and each became a 50% owner
of OTC. The Company accounts for its investment in OTC through the equity
method of accounting. (See Note 5 of Notes to Consolidated Financial
Statements). As part of the restructuring, OTC's $3.6 million of existing
indebtedness was refinanced and the take-or-pay terminaling agreement between
OTC and the Company's olefins marketing operations was cancelled and a new
terminaling arrangement was
15
implemented. Under the new arrangement, effective as of January 1, 1997, the
Company pays terminal throughput fees only when it utilizes the terminaling
facility thus generating offsetting revenues. This restructuring has improved
the Company's gross profit potential (as compared to historical results)
because the Company is no longer required to incur terminal fees without
accompanying revenues.
Manufacturing Segment
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.
The development of financial instruments to hedge against changes in the
prices of propylene and benzene has occurred in the past few years. The Company
may seek periodically in the future, to the extent available, to enter into
financial hedging contracts for the purchase of propylene and benzene in an
effort to manage its raw material purchase costs (see Note 2 of Notes to
Consolidated Financial Statements). There can be no assurance that the Company
will utilize such financial hedging contracts or that the use of such
instruments by the Company will be successful. The Company can be exposed to
losses in connection with such contracts equal to the amount by which the fixed
hedge price on the contract is above the market price for such chemicals at the
time of purchase. The Company did not enter into any material financial hedging
contracts in 2000.
Since its acquisition in 1995, the Blue Island Plant has operated at or near
full capacity and, in order to economically expand its production capacity, the
Company would be required to incur significant costs, as a result, the Company
has no plans to expand the capacity of the Blue Island Plant.
The Company has successfully marketed all the acetone offered under this
agreement and believes that it will be able to do so in the future. Since 1994,
the Company has sourced on average approximately 225 million pounds of acetone
annually from the Mt. Vernon Plant. In 1996, the amount of acetone available to
JLM from the Mt. Vernon Plant was reduced by approximately 15 million pounds.
Over the next four years, the amount of acetone available to JLM was further
reduced by approximately 35 to 40 million pounds as a result of increased
consumption by GE Plastics. Through improvement in operating efficiency the Mt.
Vernon plant has increased their acetone output, thereby offsetting increased
internal consumption. As a result, JLM does not anticipate any further material
reduction in volume.
Tax Matters
JLM accounts for U.S. income taxes and accrues for U.S. income tax
liabilities based on its consolidated U.S. earnings. The Company's foreign
subsidiaries file tax returns in the countries where incorporated. To the
extent these subsidiaries are profitable, taxes are paid based on each
country's prevailing tax rate. Upon repatriation of non-U.S. earnings, the U.S.
allows a foreign tax credit, subject to certain limitations, to be applied
against the Company's U.S. consolidated return for the foreign taxes paid by
the Company's foreign subsidiaries. If losses are incurred, countries in which
the Company's foreign subsidiaries are incorporated generally allow the losses
to be carried forward and applied against income earned in subsequent years.
The Company's former Venezuelan operation incurred losses which generated
net operating loss carryforwards ("NOLs") and, based on Venezuelan tax
regulations, these NOLs may be carried forward for three years. The Company
purchased approximately $3.8 million of net operating loss carryforwards in
Holland, through the acquisition of Tolson, that can be carried forward
indefinitely. During 2000 and 1999, respectively, the Holland operation
generated approximately $386,000 and $1.0 million, respectively, of income on
which there will be no income taxes payable either currently or in the future
due to the purchased NOL carryforwards. However, the utilization of the
acquired tax credits results in Deferred Tax Expense being recognized of
approximately $135,000 in 2000 and $340,000 in 1999. In general, foreign losses
are not deductible for U.S. federal income tax purposes and as a result cannot
be offset against U.S. pre-tax profits.
16
In an effort to reduce its U.S. federal and state income tax liability, in
1994 the Company established a foreign sales corporation ("FSC"). Under the
Internal Revenue Code, FSCs are granted tax incentives for exporting U.S.
produced goods overseas, and as such, there are specific tax benefits to the
Company for the products it exports. If specific conditions are met under the
Internal Revenue Code, up to 65.0% of the commission income earned by the FSC
from these export transactions may be exempted from U.S. taxation. Since the
formation of the FSC and prior to 2000, the Company had met these requirements,
thereby reducing its taxable income. Due to losses incurred by the qualified
exporting entities during the 2000 tax year, the Company derived no benefit
from the FSC.
RESULTS OF OPERATIONS
Year Ended December 31, 2000 Compared to Year Ended December 31, 1999
Revenues. Revenues increased $101.8 million to $434.5 million for the year
ended December 31, 2000 from $332.7 million for the prior year, an increase of
30.6%. Revenues for the marketing segment increased $77.8 million to $410.5
million for the year ended December 31, 2000 from $313.4 million for the prior
year, an increase of 23.4%. The increase in marketing revenues was the result
of increased sales from the Company's domestic marketing operations, and its
Holland and Singapore subsidiaries. Approximately $16.1 million of the increase
in marketing revenues was the result of the inclusion of the Company's South
African subsidiary for the full year in 2000. The Company acquired its South
African subsidiary in September 1999. Revenues for the manufacturing segment
increased $4.7 million, or 24.3%, to $23.9 million for the year ended December
31, 2000, from $19.3 million for the prior year. The increase in manufacturing
segment revenues was primarily due to increases in phenol selling prices
throughout 2000.
Gross Profit. Gross profit increased approximately $0.3 million, or 1.1%, to
$21.7 million for the year ended December 31, 2000 from $21.4 million for the
prior year. Gross profit from the marketing segment decreased $0.8 million to
$19.6 million for the year ended December 31, 2000, from $20.4 million for the
prior year, a decrease of 3.7%. The decrease in gross profit was primarily due
to lower gross margins from the Company's Holland subsidiary related to
weakness during the year in the Euro, and the closing of the Company's
operation in Venezuela in the second quarter of 2000.
Gross profit from the manufacturing segment increased to $2.1 million, or
91.8%, for the 2000 fiscal year from the $1.1 million reported during the year
ended December 31, 1999. The increase in manufacturing gross profit was the
result of higher selling prices in the Company's two main products, phenol and
acetone, coupled with decreases in raw material costs during the last six
months of 2000.
Selling, General and Administrative Expenses (SG&A). SG&A increased $0.6
million to $25.3 million for the year ended December 31, 2000 from $24.6
million for the prior year, an increase of 2.5%. The increase was primarily due
to the inclusion of expenses related to the Company's operations in South
Africa for the full year in 2000, versus only the fourth quarter in 1999. As a
percentage of revenue, SG&A decreased to 5.8% of revenues for the year ended
December 31, 2000, from 7.4% of revenues for the year ended December 31,1999.
The decrease in SG&A as a percentage of revenue was primarily a result of
efficiencies gained by integrating the operations of acquired businesses and
costs savings initiatives implemented in the year 2000.
Operating Income (Loss). Operating loss increased $0.4 million, or 12.2%, to
$3.6 million for the year ended December 31, 2000 from $3.2 million for the
prior year.
Interest Expense--Net. Interest expense, net of interest income, increased
$1.2 million, or 76.0%, to $2.9 million for the year ended December 31, 2000
from $1.7 million for the prior year. The increase is principally due to an
increase in borrowings to fund the South Africa and Sofecia acquisitions,
coupled with higher interest rates in the year 2000.
17
Other Income (Expense)--Net. Other income (expense) decreased $5.4 million,
from income of $0.2 million in the year ended December 31, 1999, to expense of
$5.1 million in the year ended December 31, 2000. In the year ended December
31, 2000, other income (expense) consisted primarily of unusual charges
totaling approximately $5.3 million. The Company incurred an unusual charge of
approximately $1.1 million to write off an option to acquire 85% of the
outstanding common shares of GZ Holdings Inc. at a purchase price of $15.0
million. The Company elected not to exercise the option which expired on March
31, 2001.
The Company also incurred an unusual charge of $1.5 million related to a
loan agreement with Polyform USA, LLC, entered into with the objective of
acquiring an equity interest in a plastics manufacturing facility in Greece. In
addition to a promissory note from Polyform USA, LLC, the Company received a
Guarantee and a Fiduciary Transfer Agreement from Polyform MEPE, the owner of
the plant facility in Greece, pledging certain enumerated equipment located in
Greece as security for the promissory note. Polyform USA defaulted on the
promissory note on January 27, 2000. The Company has filed suit in Florida to
recover on the promissory note and in Greece to enforce the guarantee and the
Fiduciary Transfer Agreement. The Company has elected to treat the note under
FAS 15 as a troubled debt restructuring by marking the note to the fair market
value of the underlying collateral.
In the fourth quarter of 2000, the Company recorded an unusual charge of
approximately $1.1 million related to agreements to purchase 25% of the common
stock of S.K. Chemicals Asia Pte. Ltd. ("SK Chemicals"), an international
petrochemical distributor, for $500,000 cash, and an agreement to purchase for
$500,000 cash a 12.7% interest in S.K. Chemical Trading Pte. ("SK Trading"). In
January 2000, the Company exchanged its 25% interest in SK Asia and its 12.7%
interest in SK Trading, two Singapore based companies participating in a joint
venture to construct a dioctyl phthlate plant and terminal in Vietnam, for a
49% interest in an existing terminal facility which was named Siam JLM Co.,
Ltd. The operations of Siam JLM Co., Ltd. have not met performance expectations
and will be wound down in 2001; therefore, the Company wrote off this
investment in the fourth quarter of 2000.
The Company incurred unusual charges in the fourth quarter of 2000 of
approximately $1.1 million related to a reduction in the market value of
certain publicly-traded equity securities, and approximately $0.5 million
related to unamortized balances on terminated non-competition agreements
entered into in 1995 with the acquisition of the Blue Island Plant.
In 1999, other income (expense) consisted principally of gains on the
Company's investments, offset by a loss on the sale of investment real estate
of approximately $336,000.
Foreign Currency Exchange (Loss) Gain. During the year ended December 31,
2000, the Company experienced a slight strengthening in the currencies of
certain of its foreign subsidiaries compared to the U.S. dollar resulting in an
increase in the loss of $0.2 million compared to the same period in 1999.
Income Tax Provision (Benefit). The Company's benefit for income taxes
increased approximately $2.4 million, or 146.9%, from approximately $1.6
million for the year ended December 31, 1999, to approximately $4.0 million for
the year ended December 31, 2000. The net income tax benefit was incurred
primarily on the Company's U.S. operations, partially offset by the tax
provision generated by the Company's foreign operations.
Net Income (Loss). Net income (loss) increased approximately $4.8 million,
or 134.3%, to approximately $8.3 million for the year ended December 31, 2000,
from approximately $3.5 million for the prior year, due to the factors
discussed above.
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Revenues. Revenues increased $27.0 million to $332.7 million for the year
ended December 31, 1999 from $305.7 million for the prior year, an increase of
8.8%. Revenues for the marketing segment increased $37.8 million to $313.4
million for the year ended December 31, 1999 from $275.7 million for the prior
year,
18
year, an increase of 12.5%. The increase in marketing revenues was the result of
increased sales from the Company's Holland and Singapore subsidiaries in
addition to the current year acquisitions. Revenues for the manufacturing
segment decreased $10.8 million to $19.3 million for the year ended December
31, 1999, from $30.1 million for the prior year, a decrease of 36.0%. The
decrease in manufacturing segment revenues was primarily due to decreases in
overall acetone and phenol selling prices throughout 1999.
Gross Profit. Gross profit decreased $13.3 million to $21.4 million for the
year ended December 31, 1999 from $34.7 million for the prior year, a decrease
of 38.2%. Gross profit from the marketing segment increased $0.6 million to
$20.4 million for the year ended December 31, 1999, from $19.8 million for the
prior year, an increase of 3.0%. This decrease was due primarily to strong
performance by the Company's Holland and Singapore operations in addition to a
positive contribution from the South Africa acquisition.
Gross profit from the manufacturing segment decreased $13.9 million, or
92.8%, to $1.1 million for the 1999 fiscal year from the $14.9 million reported
during the year ended December 31, 1998. The decrease in manufacturing gross
profit was the result of lower selling prices in the Company's two main
products, phenol and acetone, coupled with substantial increases in raw
material costs during the year ended December 31, 1999 compared to the prior
year.
Selling, General and Administrative Expenses (SG&A). SG&A increased $1.0
million to $24.6 million for the year ended December 31, 1999 from $23.6
million for the prior year, an increase of 4.0%. This increase was principally
due to acquisitions, South Africa and the ethanol business from Sofecia, and an
increase in depreciation/amortization expense of $.4 million. As a percentage
of revenue, SG&A decreased 0.3% to 7.4% for the year ended December 31, 1999
from 7.7% for the year ended December 31,1998. The slight decrease in SG&A as a
percentage of revenue was primarily a result of efficiencies gained by
integrating the operations of acquired businesses.
Operating Income (Loss). Operating income (loss) decreased $14.3 million to
a loss of $3.2 million for the year ended December 31, 1999 from operating
income of $11.1 million for the prior year. The decrease was principally the
result of the decrease in gross profit and the increase in SG&A discussed
above.
Interest Expense--Net. Interest expense increased $0.4 million to $1.7
million for the year ended December 31, 1999 from $1.3 million for the prior
year, an increase of 28.9%. This increase is principally due to an increase in
borrowings to fund the South Africa and Sofecia acquisitions.
Other Income (Expense)--Net. Other Income (Expense)--net in 1998 and 1999
consists of interest (losses) from investments. In 1999, other income (expense)
consisted principally of a loss on the sale of investment real estate of
approximately $336,000 that was sold for $600,000. This loss in 1999, was more
than offset by gains on the Company's other investments.
Foreign Currency Exchange (Loss) Gain. During the 1999 fiscal year, the
Company experienced a slight strengthening in the currencies of certain of its
foreign subsidiaries compared to the U.S. dollar resulting in an increase in
the loss of $.2 million compared to the same period in 1998.
Income Tax Provision (Benefit). The Company's benefit for income taxes was
approximately $1.6 million for the year ended December 31, 1999 compared to an
income tax expense of $4.4 million for the comparable period in 1998. The net
income tax benefit was incurred primarily on the Company's U.S. operations,
partially offset by the tax provision generated by the Company's foreign
operations.
Net Income (loss). Net income (loss) decreased $8.4 million to a loss of
$3.5 million for the year ended December 31, 1999, from net income of $4.9
million for the prior year.
19
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
Operating activities provided approximately $14.4 million of cash in 2000.
The net loss adjusted for non-cash items such as depreciation, amortization,
and other non-cash charges incurred utilized $9.1 million of cash. Changes in
assets and liabilities provided approximately $23.5 million of cash. Investing
activities utilized approximately $1.5 million of cash, primarily consisting of
capital expenditures. Financing activities utilized approximately $6.5 million
of cash, primarily related to principal payments on long-term debt. Foreign
currency translation loss was $1.0 million principally as a result of increased
international business.
Operating activities utilized approximately $0.6 million of cash in 1999.
The net loss adjusted for non-cash items such as depreciation, amortization,
and other non-cash charges incurred provided approximately $3.9 million of
cash. Increase in other investments utilized an additional approximately $4.5
million of cash. Investing activities utilized approximately $9.3 million of
cash, principally consisting of acquisitions and capital expenditures.
Financing activities provided approximately $10.0 million of cash, primarily
from the Company's acquisition and working capital lines of credit. Foreign
currency translation loss was approximately $1.1 million principally as a
result of increased international business and the weakening of the dollar in
1999.
Credit Agreement
In November 1999, the Company entered into the Amended and Restated Credit
Agreement with Citizens Bank of Massachusetts ("Citizens") (f/k/a State Street
Bank and Trust) (the "Credit Agreement") which restructured its unsecured $30
million acquisition line of credit, replacing it with a $34.5 million line of
credit. 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, which will be used to fund working capital needs, has terms that will
expire on November 1, 2001.
The Credit Agreement contains 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 and second quarters of 2000. In a
letter dated August 11, 2000, Citizens waived compliance with such covenants up
to and including September 30, 2000.
In the third quarter of 2000, the Company gave notice to Citizens that it
would not meet financial covenants contained in the Credit Agreement for the
periods ending September 30, 2000 and December 31, 2000. On April 17, 2001,
the Company and Citizens entered into the First Amendment to Amended and
Restated Credit Agreement (the "First Amendment"), which waived compliance, up
through and including December 31, 2000, with the financial covenants contained
in the Credit Agreement. The First Amendment also contained provisions that
provided for the following:
. Payment of an amendment fee in the amount of $300,000.
. Granting to Citizens of a first mortgage lien encumbering the Blue
Island Plant.
. Restrictions on the renewal of certain existing letters of credit
outstanding as of the date of signing the First Amendment.
. A prohibition against issuance of new letters of credit after the
signing date of the First Amendment.
. A prohibition against purchasing the Company's common stock from public
stockholders or otherwise.
20
. Mandatory prepayment of the term loan by no later than June 15, 2001 to
an amount outstanding not to exceed $5.3 million.
. Repayment of the existing mortgage on the Company's corporate
headquarters in Tampa, FL by no later than June 15, 2001.
. A reduction in the maximum amount available under the revolving credit
commitment to $12.5 million.
. Repayment of the revolving credit commitment by no later than June 15,
2001.
. Repayment of all remaining obligations, including the term debt, by no
later than October 1, 2001.
. Issuance of a warrant to Citizens to purchase 250,000 of the Company's
common stock at an exercise price equal to the market price on the date
of issuance of the warrant. The First Amendment further provides that
the number of shares subject to purchase shall be reduced to 125,000
shares if all obligations under the Credit Agreement are paid in full by
October 1, 2001, and no event of default has occurred.
. Elimination of the Eurodollar Loan option under the Credit Agreement and
an increase in the rate of interest to a variable rate per annum equal
to the Prime rate plus three (3%) percent.
. Elimination of the financial covenants requiring minimum quarterly and
annual levels of Consolidated Net Income.
. Elimination of the current ratio covenant.
. Elimination of the leverage ratio covenant.
. A decrease in the Debt Service Coverage Ratio.
. Introduction of a new covenant requiring a minimum level of EBITDA in
the amount of $1.0 million per quarter.
. Introduction of a new covenant requiring Minimum Consolidated Net Worth
of $27.0 million.
. Additional financial reporting requirements.
The First Amendment contains customary events of default and conditions to
effectiveness.
Refinancing Commitments
The Company has recently received financing commitments that it believes are
sufficient to meet the obligations to refinance the Company's credit facilities
within the timelines established under the First Amendment. The Company has
received the following financing commitments:
. On April 17, 2001, the Company entered into a commitment with Congress
Financial Corporation, a division of First Union Bank, to provide a
secured, revolving credit facility up to a maximum amount of $20.0
million. The proceeds of this facility will be used to refinance the
revolving credit commitments pursuant to the First Amendment.
21
. On April 11, 2001, Phoenix Enterprises LLC entered into a commitment to
purchase or cause its designees to purchase $2.5 million of the Company's
common stock at a price of $1.15 per share by no later than June 15, 2001.
The proceeds from the sale will be utilized for the prepayment of the term
debt facility required under the First Amendment.
. On February 9, 2001, the Company entered into a commitment with
SouthTrust Bank to provide $1.9 million in financing for repayment of
the existing mortgage on the Company's corporate headquarters in Tampa,
FL.
Each of the financing commitments is subject to definitive documentation
which will include customary terms and closing conditions. Although the Company
expects to close within the timeframes prescribed in the First Amendment, there
can be no assurance that such financings will close or will close within
required deadlines.
The Company believes that cash flows generated by operations, together with
existing cash, the Company's borrowing capacity and the financings described
above will be sufficient to support the Company's business strategies through
2001.
22
ITEM 7A. 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 2000, the Company did not enter into any material fixed financial hedge
contracts and there were no fixed financial contracts open at December 31,
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 December 31, 2000, the Company had the following related to inventory
exchanges:
Total pounds receivable under the exchange contracts................ 1,458,627
Total amount receivable under the exchange contracts................ $ 147,666
Weighted average price per pound receivable under the exchange
contracts.......................................................... $ 0.1012
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 (see
Notes 7 and 8 to the consolidated financial statements). The Company does not
expect changes in interest rates to have a material adverse effect on its
income or its cash flows in fiscal 2001. However, there can be no assurances
that interest rates will not significantly change in 2001.
23
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
As of December 31, 2000 and 1999 (Restated)
And for the years ended December 31, 2000, 1999 (Restated) and 1998 (Restated)
Independent Auditors' Report................................................
Consolidated Balance Sheets.................................................
Consolidated Statements of Operations and Comprehensive Income (Loss).......
Consolidated Statements of Changes in Stockholders' Equity..................
Consolidated Statements of Cash Flows.......................................
Notes to Consolidated Financial Statements..................................
Consolidated Financial Statement Schedule
Schedule II--Valuation and Qualifying Accounts..............................
24
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
JLM Industries, Inc.
Tampa, Florida
We have audited the accompanying consolidated balance sheets of JLM
Industries, Inc. and subsidiaries (the "Company") as of December 31, 2000 and
1999, and the related consolidated statements of operations and comprehensive
((loss) income, of changes in stockholders' equity and of cash flows for each
of the three years in the period ended December 31, 2000. Our audits also
included the financial statement schedule listed in the Index at Item 8. These
financial statements and the financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and the financial statement schedule
based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of December 31,
2000 and 1999, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 2000 in conformity with
accounting principles generally accepted in the United States of America. Also,
in our opinion, such consolidated financial statement schedule, when considered
in relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
As discussed in Note 2 to the financial statements, in 2000 the Company
changed its method of accounting for certain inventories from the LIFO to the
FIFO method and, retroactively restated the 1999 and 1998 financial statements
for the change.
Deloitte & Touche LLP
Certified Public Accountants
Tampa, Florida
April 16, 2001
25
JLM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
Restated
2000 1999
------------ ------------
ASSETS
Current Assets:
Cash and cash equivalents......................... $ 6,873,221 $ 1,419,568
Accounts Receivable:
Trade............................................ 47,507,510 52,063,858
Other............................................ 5,406,089 2,431,145
Inventories....................................... 24,507,901 22,524,047
Prepaid expenses and other current assets......... 2,117,533 1,877,473
Income tax receivable............................. -- 3,877,942
------------ ------------
Total current assets........................... 86,412,254 84,194,033
Other investments................................. 6,021,923 6,725,834
Property and equipment, net....................... 24,201,841 27,900,465
Goodwill and other intangibles--net............... 12,051,583 11,692,139
Other assets--net................................. 7,692,315 8,970,313
------------ ------------
Total assets................................... $136,379,916 $139,482,784
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses............. $ 76,984,627 $ 62,638,192
Current portion of long-term debt................. 7,257,975 2,904,166
Income taxes payable.............................. 2,475,228 --
Deferred revenue--current......................... 600,000 435,497
------------ ------------
Total current liabilities...................... 87,317,830 65,977,855
Long-term debt less current portion............... 14,155,851 24,872,156
Deferred income taxes............................. 2,628,099 7,400,509
Minority interest................................. 754,269 543,085
Deferred revenue and other liabilities............ 3,594,267 3,487,144
------------ ------------
Total liabilities.............................. 108,450,316 102,280,749
------------ ------------
Commitments and Contingencies (Note 11)
Stockholders' Equity:
Preferred stock--5,000,000 shares authorized;
0 shares issued and outstanding................. -- --
Common stock--$.01 par value, 30,000,000 shares
Authorized; 7,234,201 and 7,151,151 shares
issued,
Respectively.................................... 72,342 71,511
Additional paid-in capital....................... 21,768,656 21,550,453
Retained earnings................................ 11,300,653 19,597,060
Accumulated other comprehensive loss............. (1,942,602) (985,820)
------------ ------------
31,199,049 40,233,204
Less treasury stock at cost--665,979 and 573,636
Shares, respectively............................ (3,269,449) (3,031,169)
------------ ------------
Total stockholders' equity..................... 27,929,600 37,202,035
------------ ------------
Total liabilities and stockholders' equity..... $136,379,916 $139,482,784
============ ============
See notes to consolidated financial statements.
26
JLM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME
Years Ended December 31,
Restated Restated
2000 1999 1998
------------ ------------ ------------
Revenues............................. $434,457,925 $332,697,833 $305,735,314
Cost of sales........................ 412,788,160 311,257,954 271,028,839
------------ ------------ ------------
Gross profit........................ 21,669,765 21,439,879 34,706,475
Selling, general and administrative
expenses............................ 25,250,744 24,632,066 23,644,565
------------ ------------ ------------
Operating (loss) income............. (3,580,979) (3,192,187) 11,061,910
Interest expense--net................ (2,948,526) (1,676,036) (1,300,161)
Other income (expense)--net.......... (5,123,162) 230,539 (160,412)
Foreign currency exchange (loss)--
net................................. (437,317) (237,784) (38,434)
------------ ------------ ------------
(Loss) income before minority
interest and income
Taxes............................... (12,089,984) (4,875,468) 9,562,903
Minority interest in income of
subsidiaries........................ (211,184) (287,218) (255,867)
------------ ------------ ------------
(Loss) income from continuing
operations before
Income taxes and discontinued
operations......................... (12,301,168) (5,162,686) 9,307,036
------------ ------------ ------------
Income tax provision (benefit)
Current............................. 767,649 (4,075,746) 3,589,990
Deferred............................ (4,772,410) 2,453,880 816,240
------------ ------------ ------------
Total income tax (benefit)
provision.......................... (4,004,761) (1,621,866) 4,406,230
------------ ------------ ------------
(Loss) income from continuing
operations before
discontinued operations............. (8,296,407) (3,540,820) 4,900,806
Discontinued operations:
Loss from operations (net of income
tax benefit of $14,900)............ -- -- (19,129)
------------ ------------ ------------
(loss) income........................ (8,296,407) (3,540,820) 4,881,677
Net Other comprehensive (loss)
income.............................. (956,782) (1,114,691) 149,614
------------ ------------ ------------
Comprehensive income (loss).......... $ (9,253,189) $ (4,655,511) $ 5,031,291
============ ============ ============
Basic (loss) earnings per share:
(Loss) income from continuing
operations before
discontinued operations............ $ (1.26) $ (0.53) $ 0.70
Net (loss) income................... $ (1.26) $ (0.53) $ 0.70
Diluted (loss) earnings per share:
(Loss) income from continuing
operations before
Discontinued operations............ $ (1.26) $ (0.53) $ 0.70
Net (loss) income................... $ (1.26) $ (0.53) $ 0.70
Weighted average shares outstanding.. 6,568,042 6,664,580 7,038,321
Diluted weighted average shares
outstanding......................... 6,568,042 6,664,580 7,038,321
See notes to consolidated financial statements.
27
JLM INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended December 31, 1998, 1999 and 2000
Accumulated
Additional (Restated) Other Total
Common Paid-in Retained Comprehensive Treasury Stockholders'
Stock Capital Earnings (Loss) Income Stock Equity
-------- ----------- ----------- ------------- ----------- -------------
Balance at December 31,
1997, as reported...... $ 71,051 $21,074,912 $17,709,397 $ (20,743) $ -- $ 38,834,617
Restatement of
Inventories............ 546,806 546,806
-------- ----------- ----------- ----------- ----------- ------------
Balance at December 31,
1997, as restated 71,051 21,074,912 18,256,203 (20,743) -- 39,381,423
Purchase of treasury
shares................. -- -- -- -- (2,317,927) (2,317,927)
Sale of stock to
employees.............. 38 21,020 -- -- -- 21,058
Issuance or restricted
stock.................. 99 234,777 -- -- -- 234,876
Net income.............. -- -- 4,881,677 -- -- 4,881,677
Other Comprehensive
Income................. -- -- -- 149,614 -- 149,614
-------- ----------- ----------- ----------- ----------- ------------
Balance at December 31,
1998................... 71,188 21,330,709 23,137,880 128,871 (2,317,927) 42,350,721
Purchase of treasury
shares................. -- -- -- -- (713,242) (713,242)
Sale of stock to
employees.............. 10 2,543 -- -- -- 2,553
Issuance of restricted
stock.................. 313 217,201 -- -- -- 217,514
Net loss................ -- -- (3,540,820) -- -- (3,540,820)
Other Comprehensive
Loss................... -- -- -- (1,114,691) -- (1,114,691)
-------- ----------- ----------- ----------- ----------- ------------
Balance at December 31,
1999................... 71,511 21,550,453 19,597,060 (985,820) (3,031,169) 37,202,035
Purchase of treasury
shares................. -- -- -- -- (238,280) (238,280)
Sale of stock to
employees.............. 651 68,221 -- -- -- 68,872
Issuance of restricted
stock.................. 180 149,982 -- -- -- 150,162
Net loss................ -- -- (8,296,407) -- -- (8,296,407)
Other Comprehensive
Loss................... -- -- -- (956,782) -- (956,782)
-------- ----------- ----------- ----------- ----------- ------------
Balance at December 31,
2000................... $ 72,342 $21,768,656 $11,300,653 $(1,942,602) $(3,269,449) $ 27,929,600
======== =========== =========== =========== =========== ============
See notes to consolidated financial statements.
28
JLM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
(Restated) (Restated)
2000 1999 1998
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income....................... $(8,296,407) $(3,540,820) $ 4,881,677
Adjustments to reconcile net (loss)
income to net cash provided
by (used in) operating activities:
Deferred income taxes.................. (4,772,410) 2,453,880 816,240
Minority interest in income of
subsidiaries.......................... 211,184 287,218 255,867
Loss on other investments.............. -- 12,000 242,717
Issuance of restricted stock........... 150,162 -- 234,876
Depreciation and amortization.......... 3,893,142 4,045,626 3,671,452
Loss (gain) on sale of assets.......... (320,614) 359,844 116,432
Allowance for doubtful accounts........ 263,048 286,248 270,902
(Increase) decrease in assets:
Accounts receivable................... 2,618,355 (16,708,686) 27,829,808
Inventories........................... (1,983,854) (330,113) 2,412,553
Prepaid expenses and other current
assets................................ (240,060) (1,936,166) (213,733)
Other assets.......................... 13,652 (3,710,954) (1,386,907)
Other investments..................... 3,226,986 (4,528,553) --
Decrease (Increase) in liabilities:
Accounts payable and accrued
expenses.............................. 14,346,436 22,136,056 (32,536,054)
Income taxes (payable)/receivable..... 5,053,170 (3,395,258) (878,866)
Deferred revenue...................... 476,458 3,919,477 --
Other liabilities..................... (204,832) 1,206 (524,519)
----------- ----------- -----------
Net cash provided by (used in)
operating activities................. 14,434,416 (648,995) 5,192,445
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets........... 2,579,410 653,624 155,115
Acquisition of investments............. (2,523,075) -- --
Capital expenditures................... (1,548,413) (2,203,571) (1,102,192)
Purchase of subsidiaries............... -- (7,710,888) (4,045,469)
----------- ----------- -----------
Net cash used in investing
activities........................... (1,492,078) (9,260,835) (4,992,546)
----------- ----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES:
Net (repayments of) proceeds from loans
payable............................... -- (454,295) 72,708
Net proceeds from long-term debt....... 291,917 58,044,321 3,531,500
Principal payments of long-term debt... (6,654,412) (46,915,814) (4,890,483)
Proceeds from sale stock............... 68,872 2,553 21,058
Purchase of treasury shares............ (238,280) (713,242) (1,817,927)
----------- ----------- -----------
Net cash (used in) provided by
financing activities................. (6,531,903) 9,963,523 (3,083,144)
----------- ----------- -----------
Effect of foreign exchange rates on
cash.................................... (956,782) (1,114,691) 149,614
----------- ----------- -----------
Net increase (decrease) in cash and
cash equivalents..................... 5,453,653 (1,060,998) (2,733,631)
Cash and cash equivalents, beginning of
period................................. 1,419,568 2,480,566 5,214,197
----------- ----------- -----------
Cash and cash equivalents, end of
period................................. $ 6,873,221 $ 1,419,568 $ 2,480,566
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest............................... $ 2,462,046 $ 1,425,071 $ 1,344,243
Income taxes........................... $ -- $ 249,456 $ 4,243,724
Noncash operating activities:
Deferred tax asset adjustment.......... $ 214,428 $ 341,400 $ --
Noncash investing activities:
Capital lease obligations.............. $ 121,330 $ 51,686 $ 274,913
Noncash financing activities:
Treasury stock acquired by satisfaction
of accounts receivable................ $ -- $ -- $ 500,000
See notes to consolidated financial statements.
29
JLM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2000 and 1999 (Restated)
And for the years ended December 31, 2000,
1999 (Restated) and 1998 (Restated)
1. Description of Business
JLM Industries, Inc. and subsidiaries ("JLM" or the "Company") is a leading
marketer and distributor of certain commodity chemicals, principally acetone
and phenol. The Company believes that it is the second largest marketer of
acetone and the fifth largest supplier of phenol in North America. JLM is also
a global distributor of olefins, principally propylene, as well as a variety of
other commodity, inorganic and specialty chemicals. In order to provide stable
and reliable sources of supply for its products, the Company (i) maintains
established supplier relationships with major chemical companies, (ii)
manufactures phenol and acetone at its Blue Island Plant and (iii) sources
acetone from its joint venture manufacturing operation. The Company's principal
products, acetone, phenol and propylene, are used in the production of
adhesives, coatings, forest product resins, paints, pharmaceuticals, plastics,
solvents and synthetic rubbers. The Company sells its products worldwide to
over 1,000 customers.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of JLM
Industries, Inc., its wholly owned subsidiaries and a 50.1% interest in
Inquinosa, S.A. , a Spanish company acquired in July 1998 (see Note 13). The
consolidated financial statements also included the accounts of JLM Industries
de Venezuela, C.A. through May 18, 2000, the date through which this entity was
a wholly owned subsidiary (see Note 4). The principal operating subsidiaries
are JLM Marketing, Inc. ("JLM Marketing"), JLM Chemicals, Inc. ("JLM
Chemicals"), JLM Terminals, Inc. (JLM Terminals"), JLM International, Inc., JLM
Industries (Europe) B.V., JLM Chemicals Canada, Inc. ("JLM Canada"), JLM
Chemicals Asia Pte. Ltd. and JLM Industries (South Africa) (Proprietary)
Limited. All material intercompany balances and transactions have been
eliminated in consolidation. Investments in which the Company has a 20% to 50%
ownership interest are accounted for using the equity method.
Restatement
In the third quarter of 2000, the Company reported a change in the
accounting principle used to account for JLM Marketing's inventory from the
last-in, first out (LIFO) method to the first-in, first-out (FIFO) method.
Accordingly, the Company's financial statements have been retroactively
restated to adjust for this change in accounting principle. The retroactive
restatement resulted in an adjustment to the Company's retained earnings as of
January 1, 1998, resulting in an increase of $546,806 over the originally
reported amount. In addition, net income was decreased by $833,673, net of tax,
for the year ended December 31, 1998. There was no impact from this change on
the results of operations for the year ended December 31, 1999.
Cash and Cash Equivalents
Cash and cash equivalents consist of highly liquid investments with original
maturities of three months or less.
Inventories
Inventories are valued at the lower of cost or market. The Company's
inventory has been determined using the FIFO method.
JLM enters into contracts whereby parties to the contracts agree to exchange
various quantities of inventory over a specified period of time. JLM records
these exchanges of inventory at the lower of cost or market. As of December 31,
2000 and 1999, JLM was owed approximately $148,000 and $718,000, respectively,
under these contracts which are included in inventory.
30
JLM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2. Summary of Significant Accounting Policies--Continued
Other Investments
Other investments include investments in partnerships and marketable
securities. JLM accounts for certain of its investments in partnerships on the
equity basis and, accordingly, records its respective share of profits and
losses that are allocated in accordance with the partnership agreements.
Marketable securities are primarily held for trading purposes, and changes in
market value are recognized in operations when incurred.
Property and Equipment
Property and equipment are stated at cost net of accumulated depreciation
and amortization. Depreciation and amortization are computed using the
straight-line method over the shorter of the lease term or the estimated useful
lives.
A summary of the lives used for computing depreciation is as follows:
Buildings............................................... 15 and 31.5 years
Vehicles and airplane................................... 2 to 10 years
Equipment............................................... 5 to 10 years
Furniture and fixtures.................................. 3 to 5 years
Leasehold improvements.................................. Life of lease
Other Assets
Other assets consist primarily of the cash surrender values of life
insurance policies held on key employees, license fees and development costs
associated with land held for investment purposes.
On December 12, 1996, JLM entered into consulting and non-competition
agreements (the "Agreements") with two independent third parties. The terms of
the Agreements require that the Company make payments of $230,000 per year,
payable semi-annually beginning January 1, 1997 through December 31, 2002, and
$470,000 on January 1, 2003. The Agreements cover the period from January 1,
1997 through December 31, 2006. The payments were capitalized and amortized
over the lives of the respective agreements. In 1999, the Agreements were
terminated, and unamortized payments of approximately $470,000 and $200,000
were written off December 31, 2000 and December 31, 1999, respectively.
Goodwill and Other Intangibles
Goodwill and other intangibles resulting from business acquisitions (see
Note 13), comprising cost in excess of net assets of businesses acquired,
customer lists, employee contracts and distribution rights are being amortized
over their estimated lives which range from 3 to 40 years.
Deferred Financing Costs
The costs incurred to obtain financing have been capitalized and are being
amortized to interest expense over the life of the related financing agreement
using the straight-line method, which approximates the effective interest
method. Amortization expense related to deferred financing costs was $60,149,
$36,111 and $8,333 during 2000, 1999 and 1998, respectively.
Income Taxes
JLM accounts for income taxes under the asset and liability method as
required by SFAS No. 109, Accounting for Income Taxes. Under this method,
deferred income taxes are recognized for the tax consequences of "temporary
differences" by applying enacted statutory tax rates applicable to future years
to differences between the financial statement carrying amounts and the tax
basis of existing assets and liabilities. The effect of a tax rate change on
deferred taxes is recognized in operations in the period that the change in the
rate is enacted.
31
JLM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2. Summary of Significant Accounting Policies--Continued
Other Comprehensive Income (Loss)
Other comprehensive (loss) income includes foreign currency translation
adjustments. Assets and liabilities of foreign subsidiaries are translated at
year-end exchange rates. Results of operations are translated at weighted
average rates for the year. The effects of exchange rate changes in translating
foreign financial statements are presented as a separate component of
stockholders' equity.
Foreign Exchange Contracts
From time to time, JLM enters into foreign exchange contracts as a hedge
against foreign accounts payable and receivables. Market value gains and losses
are recognized and the resulting credit or debit offsets foreign exchange gains
and losses on these payables and receivables. At December 31, 2000 and 1999,
JLM had no open foreign exchange contracts.
Stock-Based Compensation
As permitted by SFAS No. 123, Accounting for Stock-Based Compensation, JLM
has elected to recognize stock-based compensation under Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees, and to disclose
in the consolidated financial statements the effects of SFAS No. 123 as if its
fair value recognition provisions were adopted. See Note 14 for additional
information on the Company's stock-based compensation.
Income (Loss) 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
during 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. The
average market price of the Company's common stock was less than the exercise
price of the options throughout the majority of 2000, 1999 and 1998. During
each of the years ended 2000, 1999 and 1998, the effect of these securities was
antidilutive.
Revenue Recognition
The Company recognizes revenue from product sales upon shipment and passage
of title. The Company estimates and records provisions for quantity rebates and
sales allowances, if necessary, in the period the sale is reported.
In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin 101, "Revenue Recognition in Financial Statements." This
pronouncement summarizes certain of the SEC staff's views on applying generally
accepted accounting principles to revenue recognition. The Company was required
to conform its income recognition policies to SAB 101 for the fiscal year ended
December 31, 2000. Compliance with the requirements of SAB 101 did not have a
material impact on the Company's results of operations, financial position or
cash flows.
Uses of Estimates
The preparation of the consolidated financial statements, in conformity with
accounting principles generally accepted in the United States of America,
requires management to make estimates and assumptions
32
JLM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2. Summary of Significant Accounting Policies--Continued
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimated.
Fair Value of Financial Instruments
The estimated fair value of amounts reported in the consolidated financial
statements have been determined by using available market information and
appropriate valuation methodologies. The carrying value of all current assets
and current liabilities approximate their fair value because of their short-
term nature. The fair value of long-term debt approximates its carrying value
based on management's estimates for similar issues, giving consideration to
quality, interest rates, maturity and other significant characteristics.
Impairment of Long-Lived Assets
The carrying values of long-lived assets, including property and equipment,
goodwill and other intangibles, and investments, are reviewed for impairment
whenever events or changes in circumstances indicate that the recorded value
cannot be recovered from undiscounted future cash flows.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to a
concentration of credit risk principally consist of trade accounts receivable.
Credit risk with respect to trade accounts receivable is generally diversified
due to the large number of entities comprising the Company's customer base and
their dispersion across many different geographic regions. The Company performs
ongoing credit evaluations of its customers' financial condition and requires
collateral, such as letters of credit or business insurance, in certain
circumstances.
Impact of Recently Issued Accounting Standards
Statement of Financial Accounting Standards ("SFAS No. 133"), "Accounting
for Derivative Instruments and Hedging Activities", is effective for all fiscal
years beginning after June 15, 2000. SFAS 133, as amended, establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts and for hedging
activities. Under SFAS 133, certain contracts that were not formerly considered
derivatives may now meet the definition of a derivative. The Company will adopt
SFAS 133 effective January 1, 2001. The adoption of SFAS 133 did not have a
significant impact on the Company's financial position, results of operations,
or cash flows.
In March 2000, the FASB issued Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation", which further clarifies APB
Opinion No. 25, "Accounting for Stock Issued to Employees". This interpretation
did not have a material impact on the Company's financial position or its
results of operations.
Reclassifications
Certain amounts in the 1999 and 1998 consolidated financial statements have
been reclassified to conform to the 2000 presentation.
33
JLM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. Property and Equipment
Property and equipment consisted of the following at December 31:
2000 1999
----------- -----------
Land and building..................................... $ 8,466,199 $ 4,882,836
Vehicles.............................................. 574,072 693,556
Airplane.............................................. -- 2,475,939
Equipment............................................. 26,017,178 28,819,320
Leased equipment--capital leases...................... 1,319,663 1,188,122
Furniture and fixtures................................ 1,421,251 1,490,823
Leasehold improvements................................ 656,011 627,079
----------- -----------
38,454,374 40,177,675
Less accumulated depreciation and amortization........ (14,252,533) (12,277,210)
----------- -----------
$24,201,841 $27,900,465
=========== ===========
Depreciation and amortization expense for property and equipment was
approximately $2,970,126, $3,040,000 and 2,834,000, for the years ended
December 31, 2000, 1999 and 1998, respectively. Future minimum capital lease
payments for each of the years 2001 through 2005 are approximately $95,000,
$55,000, $51,000, $40,000 and $16,000, respectively.
4. Other Investments
Investments in partnerships at December 31, 2000 and 1999, consisted
principally of the following:
Quimicos La Barraca, C.A. ("Quibarca")
On May 19, 2000, the Company discontinued its operations conducted through
its subsidiary JLM Venezuela. As a subsidiary, JLM Venezuela's accounts and
results of operations were included in the accompanying consolidated financial
statements through May 18, 2000. Concurrently with the discontinuation of JLM
Venezuela and in order for the Company to maintain a presence in Venezuela, the
Company entered into a joint venture agreement with Inversiones 253-34, C.A. to
acquire a 49% minority equity interest in Quibarca, a distribution business
which was a direct competitor of JLM Venezuela in the Venezuelan market. The
Company believed that joining forces would not only reduce competition, but
would also allow the new entity to take advantage of cost synergies which, under
normal circumstances, would not be available. Significant terms of the agreement
included that each partner would (a) transfer selective assets into the joint
venture and (b) guarantee the solvency of the debtors owing accounts receivable
balances contributed by the respective partners to the joint venture. The
Company, in exchange for its 49% interest, contributed the net assets remaining
from JLM Venezuela which had an agreed upon fair market value of approximately
$2,500,000 (which equaled the Company's carrying value of the assets) and cash
of approximately $400,000. The investment is accounted for using the equity
method, and the Company's equity in earnings during the year ended December 31,
2000 was approximately $129,000. As of December 31, 2000, the Company's
investment in Quibarca totaled approximately $3,000,000.
Phenol Plant Partnership
The Company holds a 2% interest in Mt. Vernon Phenol Plant Partnership
through its wholly owned subsidiary JLM (Ind), Inc., an Indiana corporation.
The plant converts cumene into phenol that is marketed under contractual
agreements with GE Plastics. JLM has an exclusive agreement through 2002, and
thereafter,
34
JLM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. Other Investments--Continued
unless the agreement is terminated upon prior notice, to purchase all acetone
not used internally by GE Plastics produced at the Mt. Vernon Phenol Plant.
Based on its percentage ownership, JLM accounts for this investment using the
cost method. As of December 31, 2000 and 1999, the amount of this investment
was approximately $496,000. During 2000 and 1999, JLM did not contribute to the
partnership or receive any distributions.
Asian Partnership
In 1997, the Company purchased a 25.0% interest in SK Asia and a 12.7%
interest in SK Trading, two Singapore-based companies participating in a
Vietnamese joint venture. The Vietnamese joint venture intended to construct a
chemical plant in Vietnam to produce dioctyl phthlate, a chemical used in the
production of plastics such as PVC. The Vietnamese joint venture also intended
to construct terminalling and storage facilities in Vietnam and Malaysia. In
January 2000, the Company exchanged its 25% interest in SK Asia and its 12.7%
interest in SK Trading, for a 49% interest in an existing terminal facility
which was named Siam JLM. In the first quarter of fiscal 2001, the Company has
recently made the decision to wind down the operations of JLM Siam. During
2000, the Company has estimated that the anticipated future undiscounted cash
flows will be insufficient to recover the carrying value of the Company's
investment, and, accordingly, wrote off this investment.
Real Estate Partnerships
During 1999 and 1998, the Company held a 99% limited partnership interest in
Len-Kel Realty Limited Partnership ("Len-Kel"). The investment was accounted
for using the equity method. As of December 31, 1998, the carrying value of
this investment was approximately $948,000. During the year ended December 31,
1998, the Company's portion of Len-Kel's loss was $48,000, which is reflected in
the accompanying consolidated statement of operations. In 1999, the investment
property was sold for approximately $600,000, resulting in a loss of
approximately $336,000 during the year ended December 31, 1999.
Other Investments
As of December 31, 2000 and 1999, JLM's other investments totaled
approximately $217,000 and $485,000, respectively. Of these amounts,
approximately $161,000 and $410,000, respectively, are accounted for using the
cost method and approximately $56,000 and $75,000, respectively, are accounted
for using the equity method in the accompanying consolidated balance sheet.
Polyform
During 1999, the Company entered into a $3,000,000 loan agreement with
Polyform USA, LLC, with the objective of acquiring an equity interest in a
plastics manufacturing facility in Greece. In addition to a promissory note
from Polyform USA, LLC, the Company received a Guarantee and a Fiduciary
Transfer Agreement from Polyform MEPE, the owner of the plant facility in
Greece, pledging certain enumerated equipment located in Greece as security for
the promissory note. Polyform USA defaulted on the promissory note on January
27, 2000. The Company has filed suit in Florida to recover on the promissory
note and in Greece to enforce the guarantee and the Fiduciary Transfer
Agreement. The litigation in Florida is in discovery. The trial court in
Komotini, Greece has issued an order enforcing the Fiduciary Transfer
Agreement. Polyform MEPE has filed an appeal of this judgment. The Company has
also obtained an order from a court in Athens, Greece freezing all of Polyform
MEPE's assets in Greece pending the outcome of the litigation on the guarantee.
Management has evaluated the collectibility of this receivable and has reduced
the $3,000,000 note receivable to its estimated fair market value and recorded
a loss of $1,500,000 during the year ended December 31, 2000.
35
JLM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Marketable Securities
JLM's marketable securities held for trading purposes were approximately
$378,000 and $1,239,000, at December 31, 2000 and 1999, respectively. The
Company incurred losses of approximately $835,000 during the year ended
December 31, 2000, and gains of approximately $615,000 and $0 during the years
ended December 31, 1999 and 1998, respectively.
5. Olefins Terminal Corporation
Olefins Terminal Corporation (OTC) is a polymer grade propylene export
facility in Bayport, Texas. OTC is 50% owned by JLM and is accounted for on the
equity method. For the years ended December 31, 2000, 1999 and 1998, OTC had
net losses of approximately $2,422,331, $1,891,000 and $2,261,000,
respectively. During 1997, the Company's investment in OTC was reduced to zero
due to the recognition of the Company's pro rata share of OTC's operating
losses. As the Company has no current financial commitments to OTC and does not
intend to make further investments, the Company will not record additional
losses on its investment until future operating income from OTC surpasses the
cumulative unrecorded operating losses or until any contingent payment
obligations are required. As of December 31, 2000, the Company had cumulative
unrecorded operating losses from OTC of approximately $3,244,000.
JLM provides OTC with financial and management services for a fee of
approximately $16,000 per month. JLM recorded management fees of approximately
$196,000 for each of the years ended December 31, 2000, 1999 and 1998.
The following summarizes the assets, liabilities and stockholders' equity of
OTC at December 31:
2000 1999
---------- ----------
Assets
Current............................................... $ 720,340 $1,047,641
Noncurrent............................................ 3,412,874 5,477,867
---------- ----------
Total assets............................................ $4,133,214 $6,525,508
========== ==========
Liabilities and Stockholders' Deficiency
Current liabilities................................... $ 506,422 $ 476,385
Noncurrent liabilities................................ 7,300,000 7,300,000
Stockholders' deficiency.............................. (3,673,208) (1,250,877)
---------- ----------
Total liabilities and stockholders deficiency........... $4,133,214 $6,525,508
========== ==========
6. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following at December
31:
2000 1999
----------- -----------
Accounts payable........................................ $64,398,555 $44,589,833
Accrued expenses........................................ 12,586,072 18,048,359
----------- -----------
$76,984,627 $62,638,192
=========== ===========
36
JLM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. Long-term Debt
Long-term debt consists of the following at December 31:
2000 1999
----------- -----------
Notes payable to shareholders due in June 2002.
Interest is Payable monthly at 10.0%, per annum. .. $ 1,250,000 $ 1,250,000
Mortgage payable due in equal monthly installments
through June 2004. Interest is payable monthly at
9.59%, per annum................................... 1,316,124 1,413,018
Secured loan payable due in 2006. Interest is
payable monthly at rates between 8%--9.68%, per
annum.............................................. -- 1,337,095
Acquisition line of credit payable due in November
2004. Interest is payable monthly at prime rate
plus 1.75%, The prime rate was 9.5% and 5.25%,
respectively....................................... 9,787,763 14,500,000
Secured loans payable due May 19, 2005. Interest is
Monthly at 14.4%, per annum................ 88,624 --
Promissory note to a corporation. Interest rate is
8%. Annual installments of $18,750 plus Interest
are due December 6, 2001 and December 6, 2002...... 37,500 --
Note payable due in semi-annual installments through
November 2000 with a balloon payment due May 2001.
Interest is payable semi-annually at LIBOR plus one
point for all payments except for the last one
which the rate is LIBOR plus three points. LIBOR
was 5.04% and 5.75%, respectively. ................ 1,800,000 1,800,000
Note payable due in semi-annual installments through
March 2002. The note is non-interest bearing.
Interest has been Imputed at the Company's weighted
average borrowing rate of 7.37%.................... 899,388 1,248,272
Secured loans payable due in November 2002. Interest
is payable monthly at prime plus 1.25%. The prime
rate was 9.5% and 7.25%, respectively.............. 6,045,000 5,995,208
Capital lease obligations due in equal monthly
installments through August 2003. Interest is
payable monthly at rates between 4.83%--16.99%..... 189,427 232,729
Total........................................... 21,413,826 27,776,322
----------- -----------
Less current portion............................ (7,257,975) (2,904,166)
----------- -----------
Long-term portion-term portion.................. $14,155,851 $24,872,156
=========== ===========
Long-term debt becoming due during subsequent fiscal years ending on December
31 is approximately as follows:
2001........................................................... $ 7,257,975
2002........................................................... 8,074,406
2003........................................................... 155,439
2004........................................................... 5,926,006
------------
$ 21,413,826
============
37
JLM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. Long-term Debt--Continued
The long-term debt is secured by substantially all of JLM's property and
equipment.
The loans payable are collateralized by substantially all of JLM's inventory
and accounts receivable. As of December 31, 2000, JLM had a total of
approximately $51,500,000 of credit facilities available with various financial
institutions of which approximately $18,400,000 was unused. Additionally, as of
December 31, 2000 and 1999, JLM had guaranteed vendor letters of credit of
approximately $33,100,000 and $22,638,000, respectively. Certain provisions of
the loans payable to restrict the Company's ability to pay dividends.
In November 1999, the Company entered into the Amended and Restated Credit
Agreement with Citizens Bank of Massachusetts ("Citizens") (f/k/a State Street
Bank and Trust) (the "Credit Agreement") which restructured its unsecured $30
million acquisition line of credit, replacing it with a $34.5 million line of
credit. 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, which will be used to fund working capital needs, has terms that will
expire on November 1, 2001.
The Credit Agreement contains 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 and second 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 it
would not meet financial covenants contained in the Credit Agreement for the
periods ending September 30, 2000 and December 31, 2000. On April 17, 2001, the
Company and Citizens entered into the First Amendment to Amended and Restated
Credit Agreement (the "First Amendment"), which waived compliance, up through
and including December 31, 2000, with the financial covenants contained in the
Credit Agreement. The First Amendment also contained provisions that provided
for the following:
. Payment of an amendment fee in the amount of $300,000.
. Granting to Citizens of a first mortgage lien encumbering the Blue
Island Plant.
. Restrictions on the renewal of certain existing letters of credit
outstanding as of the date of signing the First Amendment.
. A prohibition against issuance of new letters of credit after the
signing date of the First Amendment.
. A prohibition against purchasing the Company's common stock from public
stockholders or otherwise.
. Mandatory prepayment of the term loan by no later than June 15, 2001 to
an amount outstanding not to exceed $5.3 million.
. Repayment of the existing mortgage on the Company's corporate
headquarters in Tampa, FL by no later than June 15, 2001.
38
JLM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. Long-term Debt--Continued
. A reduction in the maximum amount available under the revolving credit
commitment to $12.5 million.
. Repayment of the revolving credit commitment by no later than June 15,
2001.
. Repayment of all remaining obligations, including the term debt, by no
later than October 1, 2001.
. Issuance of a warrant to Citizens to purchase 250,000 of the Company's
common stock at an exercise price equal to the market price on the date
of issuance of the warrant. The First Amendment further provides that
the number of shares subject to purchase shall be reduced to 125,000
shares if all obligations under the Credit Agreement are paid in full by
October 1, 2001, and no event of default has occurred.
. Elimination of the Eurodollar Loan option under the Credit Agreement and
an increase in the rate of interest to a variable rate per annum equal
to the Prime rate plus three (3%) percent.
. Elimination of the financial covenants requiring minimum quarterly and
annual levels of Consolidated Net Income.
. Elimination of the current ratio covenant.
. Elimination of the leverage ratio covenant.
. A decrease in the Debt Service Coverage Ratio.
. Introduction of a new covenant requiring a minimum level of EBITDA in
the amount of $1.0 million per quarter.
. Introduction of a new covenant requiring Minimum Consolidated Net Worth
of $27.0 million.
. Additional financial reporting requirements.
The First Amendment contains customary events of default and conditions to
effectiveness.
Refinancing Commitments
The Company has received financing commitments sufficient to meet the
obligations to refinance the Company's credit facilities within the timelines
established under the First Amendment. The Company has received the following
financing commitments:
. On April 17, 2001, the Company entered into a commitment with Congress
Financial Corporation, a division of First Union Bank, to provide a
secured, revolving credit facility up to a maximum amount of $20.0
million. The proceeds of this facility will be used to refinance the
revolving credit commitments pursuant to the First Amendment.
39
JLM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. Long-term Debt--Continued
. On April 11, 2001, Phoenix Enterprises LLC entered into a commitment to
purchase or cause its designees to purchase $2.5 million of the Company's
common stock at a price of $1.15 per share by no later than June 15, 2001.
The proceeds from the sale will be utilized for the prepayment of the term
debt facility required under the First Amendment.
. On February 9, 2001, the Company entered into a commitment with
SouthTrust Bank to provide $1.9 million in financing for repayment of
the existing mortgage on the Company's corporate headquarters in Tampa,
FL.
Each of the financing commitments is subject to definitive documentation
which will include customary terms and closing conditions. Although the Company
expects to close within the timeframes prescribed in the First Amendment, there
can be no assurance that such financings will close or will close within
required deadlines.
8. Related Party Transactions
The Company has a balance receivable of approximately $1,369,000, net of a
$905,148 loan payable, owed by the majority stockholder at December 31, 2000.
These items are included with other assets in the accompanying consolidated
balance sheet.
9. Income Taxes
The significant components of the deferred tax assets and liabilities were
as follows at December 31:
2000 1999
----------- -----------
Deferred tax assets:
Foreign intangible assets.......................... $ 202,552 $ 318,318
Foreign reserves................................... -- 304,351
Foreign net operating loss and other
carryforwards..................................... 2,449,019 1,415,328
Tax loss carryforwards............................... 3,865,887 478,682
Minimum tax credit carryforward.................... 1,052,991 400,000
Write down of asset to fair market value........... 584,100 --
Other.............................................. 418,905 190,551
----------- -----------
8,573,454 3,107,230
Valuation allowance................................ (2,651,571) (2,037,997)
----------- -----------
Total deferred tax assets........................ 5,921,883 1,069,233
----------- -----------
Deferred tax liabilities:
Property........................................... (5,974,385) (5,959,904)
Nonconsolidated investments........................ (589,534) (521,561)
Foreign prepaid expenses........................... (643,758) (669,085)
Foreign reserves and other......................... (1,319,192) (1,319,192)
Other.............................................. (23,113) --
----------- -----------
Total deferred tax liabilities................... (8,549,982) (8,469,742)
----------- -----------
Net deferred tax liability....................... $(2,628,099) $(7,400,509)
=========== ===========
40
JLM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9. Income Taxes--Continued
The current year net deferred tax liability resulted from the impact of taxes
payable in foreign tax jurisdictions and the receipt of an overpayment of a
refund from the Internal Revenue Service.
The valuation allowance for deferred tax assets as of December 31, 2000 was
$2,651,571, which serves to offset the potential tax benefits to be derived from
net operating losses ("NOL's) in foreign tax jurisdictions. The net change in
the total valuation allowance for the year ended December 31, 2000 was an
increase of $613,574.
Current and deferred income tax provision (benefit) consisted of the
following at December 31:
2000 1999 1998
----------- ----------- ----------
Current
Federal................................. $ (233,351) $(4,502,282) $2,820,534
State and local......................... (12,280) (26,385) 561,776
Foreign................................. 1,013,280 452,921 192,780
----------- ----------- ----------
Total Current......................... 767,649 (4,075,746) 3,575,090
Deferred.................................. (4,772,410) 2,453,880 816,240
----------- ----------- ----------
Total income tax (benefit) provision...... $(4,004,761) $(1,621,866) $4,391,330
=========== =========== ==========
The income tax provision reflected above includes the income tax (benefit)
expense associated with discontinued operations.
At December 31, 2000 and 1999, there were Venezuelan NOLs of approximately
$2,250,000 and $1,960,000, respectively, available to offset future foreign
taxable income. These net operating losses expire in various years after 2001.
At December 31, 2000 and 1999, there were Holland NOLs of approximately
$4,800,000 and $2,140,000, respectively, that may be carried forward
indefinitely.
JLM's effective tax rate differs as follows from the statutory federal
income tax rate of 34% for the fiscal years ended December 31:
2000 1999 1998
------ ------ -----
Statutory federal income tax rate.................... (34.00)% (34.00)% 34.00%
State and local income taxes, net of federal income
tax bit............................................. (3.55) (4.45) 3.44
Difference arising from transactions with, and profit
and
loss of, foreign subsidiaries not deductible or
includible for U.S. tax purposes.................... 1.85 7.93 9.64
Other................................................ 3.14 (0.90) 0.46
------ ------ -----
Effective income tax rate............................ (32.56)% (31.42)% 47.54%
====== ====== =====
The Company intends to indefinitely reinvest the earnings of its non-U.S.
subsidiaries, which reflect full provision for non-U.S. income taxes, to expand
its international operations. Accordingly, no provision has been made for U.S.
income taxes that might be payable upon repatriation of such earnings of
approximately $6,200,000. In the event any earnings of non-U.S. subsidiaries
are repatriated, the Company will provide U.S. income taxes upon repatriation
of such earnings which will be offset by applicable foreign tax credits,
subject to certain limitations.
41
JLM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
10. Treasury Stock
Effective January 1, 2000, 1999 and 1998 the Company purchased 5,040, 6,090
and 3,290 shares, respectively, of common stock from certain officers of the
Company valued at approximately $17,000, $30,500 and $72,000. The Company
entered into the transactions in order to assume certain tax liabilities
related to the vested portion of restricted stock received by the officers.
On October 16, 1998, the Company's Board of Directors approved a Stock
Repurchase Program (the "Program") whereby the Company can purchase up to
['500,000 shares of its common stock. On September 6, 2000, the Company's Board
of Directors approved another Stock Purchase Program whereby the Company was
authorized to purchase up to 100,000 shares of its common stock. During 2000,
1999 and 1998, the Company purchased approximately 92,000, 149,000 and 330,000
shares of its common stock for approximately $238,000, $713,000 and $1,818,000,
respectively, under the Programs.
11. Commitments and Contingencies
JLM is obligated under operating leases with remaining non-cancelable terms
of a year or more for office equipment, storage facilities and automobiles. The
approximate minimum annual rentals under these leases at December 31, 2000, are
as follows:
2001............................................................. $2,083,000
2002............................................................. 1,674,000
2003............................................................. 1,146,000
2004............................................................. 683,000
2005 and thereafter.............................................. 448,000
----------
Total minimum lease payments..................................... $6,034,000
==========
Total rental expenses for all operating leases approximated $2,682,000,
$1,914,000 and $1,588,000 for the years ended December 31, 2000, 1999 and 1998,
respectively.
JLM is subject to federal, state, local and foreign environmental laws,
rules, regulations and ordinances concerning emissions to the air, discharges
to surface and subsurface waters, and the generation, handling, storage,
transportation, treatment, disposal and import and export of hazardous
materials. JLM has engaged environmental counsel for four of their facilities:
the JLM Chemicals, Blue Island, Illinois facility; the JLM Terminals facility;
and the JLM Real Estate property. Regarding the JLM Chemicals facility, JLM
believes that the low levels of various organic compounds detected in the soil
and groundwater at the facility are the result of historical use of the
facility prior to the acquisition by JLM and/or migration from neighboring
facilities. JLM also believes that the likelihood of either state or federal
environmental regulatory agencies seeking remediation in the near term is low,
based on the location of the facility, the character of the area (each of which
are factors in assessing risk) and the fact that the site is pending removal
from the federal list of contaminated sites. Regarding the JLM Terminals, Inc.
facility and the JLM Realty property, JLM believes that ultimate liability for
remediation of soil and groundwater contamination rests with the previous owner
of the facility and/or a neighboring facility.
42
JLM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
11. Commitments and Contingencies--Conmtinued
In 1998, the Company assumed from the previous owner of both the JLM
Terminals facility and the JLM Real Estate property, the implementation of
state approved Remedial Action Plans ("RAPs") to address onsite petroleum
contamination at the sites. Compliance with the RAPs does not foreseeably
require any capital expenditures and the Company believes that the owners of
the neighboring properties may bear a significant portion of the responsibility
or any additional remediation. JLM does not believe that a material amount of
funds will be required to complete remediation at either site. Accordingly, the
Company has not accrued any amounts related to the remediation.
On May 26, 1999, the Company entered into an Option Agreement (the
"Option"), for $1,100,000, to acquire 85% of the outstanding common shares of
GZ Holdings Inc. at a purchase price of $15,000,000. The Option was originally
scheduled to expire March 31, 2000. The Company had not exercised its option as
of December 31, 1999. In March 2000, the parties extended the option expiration
date to March 31, 2001 and amended the purchase price to $20,000,000. The
Company elected not to exercise this option and has written off the $1,100,000
in the fourth quarter of 2000.
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 $4,160,000 as a prepayment towards future purchases by the third
party. Volume commitments by the third party were 18 million pounds in 1999, 30
million pounds annually for each of the years 2000 through 2008. The prepayment
was recorded as deferred revenue and is being applied against purchases over
the agreement term. Sales exceeding the yearly volume under the contract will
be sold at market price. Additionally, the third party, over the agreement
term, has an option to increase the volume up to 45 million pounds in 2002 for
an additional prepayment of $1,700,000 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 $1,000,000 from the third party.
12. Profit-Sharing Plan
The Company has a defined contribution profit-sharing plan covering
substantially all of its employees. The Company's contribution rate is
determined annually at the beginning of each plan year. In 1999 and 1998 the
Company matched 100% of the contribution of eligible employees, up to a maximum
amount of 6% of the employees' compensation. In 2000, there was no Company
contribution for non-union employees, but the Company made matching
contribution of 100% of the amount contributed by union employees up to a
maximum amount of 6% of the employees' compensation in accordance with their
collective bargaining agreement. The costs for this plan were approximately
$81,000, $376,000 and $395,000 in 2000, 1999 and 1998, respectively.
13. Acquisitions
In September 1999, JLM acquired Colours and Industrial Chemicals Division of
ICI South Africa and the majority shareholdings in ICI South Africa Mozambique
Limitada (collectively "ICI") for $5.4 million, which was accounted for under
the purchase method of accounting. ICI is a distributor of bulk and packaged
organic and inorganic industrial chemicals. Operating with approximately 60
employees from offices in Durban, Johannesburg, Capetown and Port Elizabeth in
South Africa and Maputo, Mozambique, the business markets a broad range of
surface coatings, textiles, chemical manufacturing, refractory and rigid
packaging. Operating results of ICI for the four months ended December 31,
1999, are included in the accompanying consolidated statement of operations.
The excess purchase price of $451,000 was recorded as goodwill and is being
amortized over 20 years.
43
JLM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
13. Acquisitions--Continued
In November 1999, JLM acquired Sofecia USA ("Sofecia"), a wholly owned and
unincorporated operating division of Societe Financiere d'Entreposage et de
Commerce International de l'Alcool, S.A., for $2,300,000, which was accounted
for under the purchase method of accounting. The original terms of the
agreement called for additional annual payments equal to the greater of $50,000
or 25% of a defined net profit amount paid over a five year period beginning in
2000. In 2000 and 1999, the excess purchase price of $285,000 and $280,000,
respectively, were capitalized to goodwill and are being amortized over 20
years. Sofecia is a manufacturer and distributor of various formulations of
ethyl alcohol for industrial use and of grain neutral spirits for beverage use
in the United States. Operating results of Sofecia for the two months ended
December 31, 1999 are included in the accompanying consolidated statement of
operations.
The fair value of the assets acquired and liabilities assumed recorded in
conjunction with the above purchase transactions are presented below:
ICI Sofecia Total
---------- ---------- ----------
Accounts receivable........................... $4,189,436 $ 969,042 $5,158,478
Inventory..................................... 3,101,290 1,025,690 4,126,980
Prepaid expenses.............................. 24,316 -- 24,316
Other assets.................................. 254,005 -- 254,005
Property and equipment........................ 291,300 36,969 328,269
Goodwill...................................... 451,460 284,985 736,445
Accounts payable and accrued expenses......... (2,917,605) -- (2,917,605)
---------- ---------- ----------
Fair value of assets acquired, net of
Liabilities assumed........................ $5,394,202 $2,316,686 $7,710,888
========== ========== ==========
The proforma effects of the 1999 acquisitions on the 1998 and 1999 operating
results of the Company were insignificant.
Effective April 1, 1998, the Company completed the purchase of all of the
assets of Browning for $9.5 million. The purchase price consisted of an initial
payment of $7.5 million cash and a $2 million non-interest bearing promissory
note to be paid in equal installments over four years (see Note 7). Browning
was founded in 1948, and is a major marketer of inorganic chemicals, with a
diversified product range serving both industrial and food processing markets
throughout the United States.
Effective April 1, 1998, JLM completed the acquisition of Tolson Transport
B.V., a Dutch company, Tolson Holland B.V., ("Holdings") a Dutch company, and
Tolson Asia Pte., Ltd, a Singapore company through the purchase of all of the
outstanding shares of capital stock of the three companies, collectively the
Tolson Group, from their parent Tolson Holding, B.V., a Dutch company. The
total purchase price paid to Holdings for the Acquired Companies was $5.75
million, including the execution of a $2.9 million promissory note, subject to
certain adjustments as described below. The Tolson Group is a global
distributor and trader of methanol, solvents, aromatics and olefins. The
acquisition expanded the Company's international chemical business especially
in Asia and Europe including an office in Russia.
44
JLM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
13. Acquisitions
The purchase price of the Tolson Group was determined based on a closing
valuation date of March 31, 1998, less excluded receivables as defined in the
Share Purchase Agreement and the execution of a $2.9 million promissory note
that accrues interest at the LIBOR rate plus 1%. The promissory note is payable
in five semi-annual installments of $350,000 with a lump-sum payment of $1.1
million due in May 2001 (see Note 7). Based on the combined negative
shareholders' equity of the Tolson Group as of March 31, 1998, Tolson Holding.
B.V. contributed approximately $7.4 million to bring the combined negative
equity of the Tolson Group to zero. The Company is currently a plaintiff in a
litigation matter against Tolson for alleged misrepresentations made in
connection with the terms of the purchase agreement. Accordingly, the Company
did not make any payments to Tolson under the note during 2000.
The purchase of the Tolson Group excluded certain receivables, as defined in
the Share Purchase Agreement. For such excluded receivables, JLM will collect
such receivables on a best efforts basis and JLM will receive a commission, as
defined in the Share Purchase Agreement, for actual collections made. In 2000
and 1999, goodwill was reduced by approximately $214,000 and $341,000 to
reflect the reversal of a valuation allowance on a deferred tax asset which was
realized in 2000 and 1999.
On July 3, 1998, the Company acquired 50.1%, of the outstanding common stock
of Inquinosa, a Spanish company. The purchase price for Inquinosa was $450,000
plus an estimated $1.35 million to be funded through a three-year earn-out
period based on a formula as defined in the agreement. The 2000 and 1999
payment was approximately $453,000 and $689,000, respectively. The effective
date of the acquisition was July 1, 1998. Inquinosa is a worldwide marketer of
the pesticide lindane. Lindane is a preferred seed-treating pesticide that
prevents insect damage during the critical pre-germination stage for wheat,
other grains and canola.
All of the above acquisitions were accounted for under the purchase method
of accounting.
The fair value of the assets acquired and liabilities assumed recorded in
conjunction with the 1998 purchase transactions are presented below:
Tolson Browning Inquinosa Total
----------- ---------- ---------- -----------
Accounts receivable.......... $28,567,623 $4,164,426 $1,476,581 $34,208,630
Inventories.................. 2,728,339 1,928,027 390,653 5,047,019
Prepaid and other current
assets...................... 4,379 14,026 150,665 169,070
Property and equipment....... 348,313 57,440 -- 405,753
Goodwill and other intangible
assets:
Distribution rights (15 year
useful life)............... -- -- 450,000 450,000
Tax credit carryforward (19
year useful life).......... 1,574,163 -- -- 1,574,163
Customer lists (15 year
useful life)............... 2,690,367 1,470,000 -- 4,160,367
Employee contracts (3 year
useful life)............... -- 194,492 -- 194,492
Non-compete agreements (3
year useful life).......... -- 183,439 -- 183,439
Goodwill (40 year useful
life)...................... 2,046,752 4,154,802 -- 6,201,554
Other long-term assets....... -- 20,430 21,779 42,209
Accounts payable and accrued
expenses.................... (31,598,387) (2,858,135) (1,734,948) (36,191,470)
Long-term debt incurred...... (2,889,730) (9,205,297) -- (12,095,027)
Other long-term liabilities.. -- -- (304,730) (304,730)
----------- ---------- ---------- -----------
Fair value of assets
acquired, net of
liabilities assumed........ $ 3,471,819 $ 123,650 $ 450,000 $ 4,045,469
=========== ========== ========== ===========
45
JLM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
13. Acquisitions--Continued
The pro forma income before extraordinary item and discontinued operations
and pro forma net income for 1998 include adjustments for the amortization of
goodwill and other intangibles of approximately and $750,000, and approximately
$600,000 of interest expense that relate to the above acquisitions.
The following unaudited pro forma consolidated financial information for the
Company gives effect to the above acquisitions as if they had occurred on
January 1, 1998. These unaudited pro forma results have been prepared for
comparative purposes only and do not purport to be indicative of the results of
operations that actually would have resulted had the acquisitions occurred on
the date indicated, or that may result in the future.
1998
------------
Revenues................................................... $357,966,000
Income before extraordinary item and Discontinued
operations................................................ 7,603,497
Net Income................................................. 7,603,497
Basic income per share..................................... 1.14
Basic shares outstanding................................... 6,678,317
The pro forma basic income per share data also reflects the historical
weighted average number of shares outstanding adjusted to include the following
items as if they had occurred at the beginning of each period presented 1)
2,156,000 shares issued during the Company's initial public offering, 2) the
190,000 shares purchased by the Underwriters of the Company's initial public
offering to cover over-allotments, 3) 3,415 shares purchased by employees of
the Company under the Company's employee stock purchase plan and 4) 420,909
treasury shares repurchased by the Company under the Company's Stock Repurchase
Plan and from a shareholder (see Note 10).
14. Stock-Based Compensation
The Company has a long-term incentive plan ("LTIP") whereby 750,000 shares
of Common Stock are reserved for issuance under the LTIP. Under the LTIP,
restricted stock, incentive stock options, nonqualified stock options and stock
appreciation rights or any combination thereof may be granted to JLM employees.
On July 23, 1997, the Company granted 411,500 options under the LTIP at an
exercise price of $10 per share. During 2000, 1999 and 1998, the Company
granted additional options of 104,000, 100,000 and 6,000 with an exercise price
ranging from $3.00-$3.30, $5.00-$5.50, and $10.50-$11.00, respectively. Of
these options, 399,300 shares, reduced by employee turnover, were still
outstanding at December 31, 2000. The average market price of the Company's
common stock was less than the exercise price of the options throughout 2000.
46
JLM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
14. Stock-Based Compensation--Continued
The following table illustrates information concerning the options issued
under the Company's Long-Term Incentive Plan for the years ended December 31,
2000 1999 1998
------- ------- -------
Options granted.................................... 104,000 100,000 6,000
Options vested..................................... -- 116,713 129,399
Options exercised.................................. -- -- --
Options cancelled.................................. 148,532 26,333 43,935
Options expired.................................... -- -- --
The Company has adopted the disclosure-only provisions of SFAS No. 123.
Accordingly, no compensation cost has been recognized for the options in the
accompanying consolidated statements of (loss) income. Had compensation cost
for the options been determined based on the fair value at the grant date for
awards in 2000, 1999, and 1998, consistent with the provisions of SFAS No. 123,
JLM's net (loss) income and (loss) income per share for the years ended
December 31, 2000, 1999, and 1998 would have been reduced to the pro forma
amounts indicated below:
2000 1999 1998
----------- ----------- ----------
As reported:
Net (loss) income.................. ($8,296,407) ($3,540,820) $4,881,677
Basic net (loss) income per share.. (1.26) (0.53) 0.70
Diluted net (loss) income per
share............................. (1.26) (0.53) 0.70
Proforma:
Net (loss) income.................. (8,489,559) (3,942,123) 3,959,370
Basic net (loss) income per share.. (1.29) (0.59) 0.56
Diluted net (loss) income per
share............................. (1.29) (0.59) 0.56
The fair value of each option granted is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-
average assumptions used for grants in 2000, 1999, and 1998, respectively:
expected volatility of 54.0%, 65.4% and 67.0%; risk-free interest rate of
6.39%, 6.34% and 4.69%; and expected lives of 3.5 years, 10 years and 10 years.
Concurrent with the initial public offering, the Company awarded 47,000
shares of restricted stock, with a four-year vesting period to certain officers
and employees. In 1999, the Company issued 40,000 shares of restricted stock to
an officer of the Company, of which 10,000 shares were vested immediately, and
the remainder vests over three years. The Company recognizes compensation
expense related to the issuance of such restricted stock ratably over the
vesting period.
15. Employee Stock Purchase Plan
On July 2, 1997, the Company approved an employee stock purchase plan (the
"Purchase Plan") whereby an aggregate of 75,000 shares of Common Stock are
reserved for issuance under the Purchase Plan. Under the Purchase Plan, all
employees will be given an opportunity to purchase shares of JLM Common Stock
two times a year at a price equal to 85% of the market price of the Common
Stock immediately prior to the beginning of each offering period. The Purchase
Plan provides for two offering periods, the months of March and September, in
each of the years 1997 through 2006. During 2000, 1999, and 1998, employees of
the Company purchased 26,020, 590 and 1,960 shares, respectively, of the
Company's common stock under the Purchase Plan, yielding proceeds to the
Company of $68,872, $2,553 and $21,058, respectively.
47
JLM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
16. Segment Reporting
JLM's business consists of a marketing and a manufacturing segment. JLM's
marketing segment includes its distribution, storage and terminalling
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.
The following schedule presents information about JLM's continuing
operations in these segments and geographic locations for the years ended
December 31:
2000 1999 1998
Industry Segment ------------ ------------ ------------
Revenues:
Marketing............................ $410,524,343 $313,442,329 $275,653,516
Manufacturing........................ 23,933,582 19,255,504 30,081,798
------------ ------------ ------------
$434,457,925 $332,697,833 $305,735,314
============ ============ ============
Operating (Loss) Income:
Marketing............................ $ 2,910,368 $ 2,026,219 $ 1,470,178
Manufacturing........................ (2,116,152) (2,847,746) 11,902,754
Corporate............................ (4,375,195) (2,370,660) ( 2,311,022)
------------ ------------ ------------
$(3,580,979) $ (3,192,187) $ 11,061,910
============ ============ ============
Capital Expenditures:
Marketing............................ $ 1,036,037 $ 921,754 $ 669,768
Manufacturing........................ 512,376 1,276,817 368,165
Corporate............................ -- 5,000 64,259
------------ ------------ ------------
$1,548,413 $ 2,203,571 $ 1,102,192
============ ============ ============
Depreciation and Amortization:
Marketing............................ $ 1,987,325 $ 1,945,414 $ 1,458,007
Manufacturing........................ 1,760,127 1,703,281 1,691,783
Corporate............................ 145,690 396,931 521,662
------------ ------------ ------------
$ 3,893,142 $ 4,045,626 $ 3,671,452
============ ============ ============
Identifiable Assets:
Marketing............................ $121,471,177 $102,198,980 $ 66,471,762
Manufacturing........................ 2,466,907 24,174,644 26,437,814
Corporate............................ 12,441,832 13,109,160 9,816,520
------------ ------------ ------------
$136,379,916 $139,482,784 $102,726,096
============ ============ ============
48
JLM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
16. Segment Reporting--Continued
2000 1999 1998
Geographic Location ------------ ------------ ------------
Revenues:
United States........................ $150,699,157 $137,870,521 $187,075,834
Venezuela............................ 1,673,624 6,779,238 8,606,942
Holland.............................. 131,611,851 93,714,583 52,530,545
Singapore............................ 111,568,490 73,212,683 46,992,874
South Africa......................... 23,392,630 7,338,330 --
Other nations........................ 15,512,173 13,782,478 10,529,119
------------ ------------ ------------
$434,457,925 $332,697,833 $305,735,314
============ ============ ============
Operating (Loss) Income:
United States........................ $ (2,169,502) $ (4,656,413) $ 13,142,088
Venezuela............................ (537,510) (360,738) (818,268)
Holland.............................. 672,770 1,695,458 (655,637)
Singapore............................ 1,414,023 1,403,464 454,072
South Africa......................... 93,861 (148,553) --
Other nations........................ 1,320,574 1,245,255 1,250,677
Corporate............................ (4,375,195) (2,370,660) (2,311,022)
------------ ------------ ------------
$(3,580,979) $ (3,192,187) $ 11,061,910
============ ============ ============
Identifiable Assets:
United States........................ $ 68,752,786 $ 81,950,564 $ 73,625,649
Venezuela............................ 5,659,945 3,862,645 469,690
Holland.............................. 17,041,868 23,931,789 15,759,658
Singapore............................ 28,715,830 13,438,680 7,510,211
South Africa......................... 9,256,293 8,952,621 --
Other nations........................ 6,953,194 7,346,485 5,360,888
------------ ------------ ------------
$136,379,916 $139,482,784 $102,726,096
============ ============ ============
49
JLM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
17. Recent Developments
On November 22, 2000, the Company received notice from the Nasdaq National
Market that its common stock had failed to maintain a minimum market value of
public float of $5,000,000 over the previous 30 consecutive trading days as
required by Nasdaq Marketplace Rule 4450(a)(2). Nasdaq Staff notified the
Company that its common stock would be subject to delisting from the Nasdaq
National Market unless the market value of public float was at least $5,000,000
for a minimum of ten consecutive trading days in the 90 days prior to February
20, 2001.
The Company requested a hearing, which was held on March 30, 2001, before a
Nasdaq Listing Qualifications Panel (the "Panel") to determine compliance with
the ongoing maintenance standards for the Nasdaq National Market. The Company
has not yet received the determination of the Panel. If the Company is
unsuccessful in its attempt to retain its listing on the Nasdaq National Market
System, it will either apply to list its common stock on the Nasdaq SmallCap
Market or its common stock will be available for quotation on the NASD-
regulated OTC Bulletin Board.
18. Quarterly Financial Data (Unaudited)
Quarter Ended
-----------------------------------------------------
Mar 31 Jun 30 Sept 30 Dec 31
----------- ------------ ------------ ------------
Fiscal 2000
Revenues.............. $87,406,578 $110,943,829 $117,918,095 $118,189,423
Gross profit.......... 3,523,442 5,480,363 5,881,874 $ 6,784,086
Net loss.............. (1,492,100) (869,299) (848,666) $ (5,086,342)
Net loss per share-
basic................ $ (0.23) $ (0.13) $ (0.13) $ (0.77)
Net loss per share-
diluted.............. $ (0.23) $ (0.14) $ (0.13) $ (0.77)
Mar 31 Jun 30 Sept 30 Dec 31
----------- ------------ ------------ ------------
Fiscal 1999
Revenues................ $65,837,540 $82,114,998 $84,052,181 $100,693,114
Gross profit............ 5,272,653 6,362,985 6,377,921 3,426,320
Net (loss) income....... (856,634) 376,861 458,196 (3,519,243)
Net (loss) income per
share-basic............ $ (0.13) $ 0.06 $ 0.07 $ (1.26)
Net (loss) income per
share-diluted.......... $ (0.13) $ 0.06 $ 0.07 $ (1.26)
50
JLM INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 2000, 1999 and 1998
Balance at
Balance at Charged to End of
Beginning of Year Expenses Deductions Year
----------------- ---------- ---------- ----------
Year ended December 31,
2000
Accumulated amortization
(1).................... $2,790,542 $ 923,017 -- $3,713,559
Allowance for doubtful
accounts............... 1,105,149 263,048 1,080,443(2) 287,754
Year ended December 31,
1999
Accumulated amortization
(1).................... 1,784,476 1,006,066 -- 2,790,542
Allowance for doubtful
accounts............... 818,901 286,248 -- 1,105,149
Year ended December 31,
1998
Accumulated amortization
(1).................... 947,366 837,110 -- 1,784,476
Allowance for doubtful
accounts............... 547,999 270,902 -- 818,901
- - --------
(1) Represents the accumulated amortization of goodwill, deferred acquisition
costs, license fees, certain development costs and advances on non-
competition agreements.
(2) Represents transfer of Venezuela's net assets (See Note 4)
51
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item 10 will be contained in the Company's
definitive proxy materials to be filed with the Securities and Exchange
Commission and incorporated in this Annual Report on Form 10-K by this
reference or will be contained in an amendment to this Annual Report on Form
10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 will be contained in the Company's
definitive proxy materials to be filed with the Securities and Exchange
Commission and incorporated in this Annual Report on Form 10-K by this
reference or will be contained in an amendment to this Annual Report on Form
10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 12 will be contained in the Company's
definitive proxy materials to be filed with the Securities and Exchange
Commission and incorporated in this Annual Report on Form 10-K by this
reference or will be contained in an amendment to this Annual Report on Form
10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13 will be contained in the Company's
definitive proxy materials to be filed with the Securities and Exchange
Commission and incorporated in this Annual Report on Form 10-K by this
reference or will be contained in an amendment to this Annual Report on Form
10-K.
52
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed with, and as part of, this Annual
Report on Form 10-K.
1. Financial Statements: Consolidated Financial Statements, Notes to
Consolidated Financial Statements and report thereon of Deloitte &
Touche LLP are found in Item 8 "Consolidated Financial Statements and
Supplemental Data" herein.
2. Financial Statement Schedules: The following Consolidated Financial
Statement Schedule and reports are included herein:
Schedule II--Valuation and Qualifying Accounts for the years ended
December 31, 2000, 1999 and 1998
For the Independent Auditors' Report on the Consolidated Financial
Statements and Consolidated Financial Statement Schedule, see index at the
beginning of Item 8, "Consolidated Financial Statements and Supplemental
Data."
All other schedules are not submitted because they are not applicable or
are not required or because the required information is included in the
Consolidated Financial Statements or notes thereto.
3.Exhibits: See Item 14(c) below.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the fourth
quarter 2000.
(c) Exhibits Filed Herewith:
3.1 Articles of Incorporation, as amended (1)
3.2 Form of Amended and Restated Articles of Incorporation (1)
3.3 Bylaws (1)
3.4 Form of Amended and Restated Bylaws (1)
4.0 Form of Common Stock Certificate (1)
10.1 Authorized Distributor Agreement between GE Petrochemicals, Inc. and
JLM Marketing, Inc. for Styrene (1)
10.2** Memorandum of Agreement between Sasol Chemical Industries (PTY) Ltd.
and JLM Marketing, Inc. for N-Propanol (1)
10.3** Memorandum of Agreement between Sasol Chemical Industries (PTY) Ltd.
and JLM Marketing, Inc. for Acetone (1)
10.4** Memorandum of Agreement between Sasol Chemical Industries (PTY) Ltd.
and JLM Marketing, Inc. for Methyl Ethyl Ketone (1)
10.5** Acetone Sales Agreement between Mt. Vernon Phenol Plant Partnership,
JLM Marketing, Inc. and JLM Industries, Inc. (1)
10.6 Asset Purchase Agreement by and among BTL Specialty Resins Corp. and
JLM Chemicals, Inc. providing for the acquisition of the Blue Island
(Illinois) Phenol Plant, as amended (1)
10.7 Propane/Propylene Agreement between Clark Oil & Refining Corporation
and BTL Specialty Resins Corp. (1)
10.8 Q-Max Process License Agreement between BTL Specialty Resins Corp. and
UOP (1)
10.9 Credit Agreement among JLM Chemicals, Inc., The CITGroup/Equipment
Financing, Inc. and The CIT Group/Business Credit, Inc., as amended (1)
53
10.10 Security Agreement by JLM Chemicals, Inc. in favor of the Lenders and
The CIT Group/Equipment Financing, Inc. (1)
10.11 Pledge Agreement by JLM Industries, Inc. in favor of the Lenders and The
CIT Group/Equipment Financing, Inc. (1)
10.12 Mortgage, Assignment of Leases and Rents and Security Agreement from JLM
Chemicals, Inc. to The CIT Group/Equipment Financing, Inc., as corrected
and modified (1)
10.13 Partnership Agreement of Mt. Vernon Phenol Plant Partnership (1)
10.14 Intercreditor Agreement between JLM Marketing, Inc., JLM Industries,
Inc., JLM Terminals, Inc., JLM International, Olefins Marketing, Inc.,
State Street Bank and Trust Company, Caisse Nationale De Credit Agricole
and Standard Chartered Bank New York Branch (1)
10.15 Master Promissory Note by JLM International, Inc. and Olefins Marketing,
Inc. in favor of Caisse Nationale De Credit Agricole (1)
10.16 Guaranty Agreement by JLM Industries, Inc. to Caisse Nationale De Credit
Agricole, New York Branch (1)
10.17 Security Agreement between Olefins Marketing, Inc. and Caisse Nationale
De Credit Agricole, New York Branch (1)
10.18 Security Agreement between JLM International, Inc. and Caisse Nationale
De Credit Agricole, New York Branch (1)
10.19 Amended and Restated Credit Agreement among JLM Industries, Inc., JLM
Marketing, Inc., JLM Terminals, Inc., JLM International Inc., Olefins
Marketing, Inc., John L. Macdonald and State Street Bank and Trust
Company, as amended (1)
10.20 Facility Letter between Standard Chartered Bank and Olefins Marketing
(1)
10.21 Security Agreement by Olefins Marketing to Standard Chartered Bank (1)
10.22 Security Agreement by JLM International, Inc. to Standard Chartered Bank
(1)
10.23 Continuing Guaranty by JLM International, Inc. and Olefins Marketing
Corp. in favor of Standard Chartered Bank (1)
10.24 Facility letter between Generale Bank and JLM Industries (1)
10.25 Corporate Guarantee by JLM Industries, Inc. to Generale Bank (1)
10.26 Agreement by and among Union Carbide Corporation, D-S Splitter, Inc.,
JLM Industries, Inc. and Olefins Terminal Corporation (1)
10.27 Pledge and Security Agreement by JLM Industries, Inc. to Ultramar
Diamond Shamrock Corporation (1)
10.28 Management, Operating and Stockholders Agreement of Olefins Terminal
Corporation between D-S Splitter, Inc., Ultramar Diamond Shamrock
Corporation, JLM Industries, Inc., Olefins Marketing, Inc. and Olefins
Terminal Corporation (1)
10.29 Investment Agreement by and between JLM Industries, Inc. and Tan Siew
Kiat (1)
10.30 Agreement for Sale and Purchase of Common Stock between John L.
Macdonald and Gene Harmeyer, as owners of the capital stock of Aurora
Chemical, Inc., and JLM Marketing, Inc. (1)
10.31 Agreement for Sale and Purchase of Common Stock between John L.
Macdonald, owner of the capital stock of Phoenix Tank Car Corp., and JLM
Marketing, Inc. (1)
10.32 Form of Indemnification Agreement for Officers and Directors (1)
10.33 Form of 1997 Employee Stock Purchase Plan (1)
10.34 Form of Long Term Incentive Plan (1)
10.35 Form of Non-employee Directors' Plan (1)
10.36 Assignment and Assumption Agreement between Ashland Chemical, Inc. and
JLM Terminals, Inc. (1)
10.37 Asset Purchase Agreement between Union Oil Company of California and
Ashland Chemical, Inc. (1)
10.38 Tolson Holland B.V., Tolson Transport B.V. and Tolson Asia Pte Ltd
combined financial statements for the three-year period ended December
31, 1997. (1)
10.39 Final Form of Indemnification Agreements effective as of July 29, 1997
(except for Walter M. Tarpley whose effective date was January 1, 1999)
by and between the following officers and/or Directors of JLM
Industries, Inc. (1):
54
Name Date Signed
---- ----------------
John L. Macdonald....................................... January 7, 1999
Thaddeus J. Lelek....................................... January 11, 1999
Wilfred J. Kimball...................................... January 7, 1999
Frank A. Musto.......................................... January 7, 1999
John T. White........................................... January 11, 1999
Michael J. Molina....................................... January 7, 1999
Linda Sato.............................................. January 7, 1999
Sean D. Macdonald....................................... January 7, 1999
Roger C. Kahn........................................... January 24, 1999
Jerry L. Weinstein...................................... January 20, 1999
Walter M. Tarpley....................................... January 13, 1999
Employment agreement between JLM Industries, Inc. and Walter M. Tarpley
10.40 dated (2)
10.41 Tolson Holland B.V., Tolson Transport B.V. and Tolson Asia Pte Ltd
combined financial statements for the three-year period ended December
31, 1997. (3)
10.42 Purchase agreement with ICI South Africa Limited. (4)
10.43 Purchase agreement with Societe Financiere d'Entreposage et de Commerce
International de l'Alcool, S.A. (4)
Employment agreement between JLM Industries, Inc. and Michael E. Hayes
10.44 dated October 1, 2000.
10.45 First Amendment to Amended and Restated Credit Agreement dated April 16,
2001 by and between Citizens Bank of Massachusetts and JLM Industries,
Inc., JLM Terminals, Inc., JLM International, Inc. JLM Chemicals, Inc.,
Browning Chemical Corporation, JLM Realty, Inc., Mac Aviation, JLM
(IND.), Inc., JLM Illinois Marketing Services, Illinois International
Services, Inc. and JLM Export Company.
21.1 List of Subsidiaries of the Company.
23.1 Consent of Deloitte and Touche LLP to the consolidated financial
statements of JLM Industries, Inc. and subsidiaries
- - --------
(1) Incorporated by reference to the Exhibits filed with the Company's
Registration Statement on Form S-1 (File No. 333-27843) filed with the SEC
on July 21, 1997.
(2) Incorporated by reference to the Exhibits filed with the Company's Report
on Form 10-Q, dated May 14, 1999.
(3) Incorporated by reference to the Exhibits filed with the Company's Report
on Form 8-K/A, dated June 23, 1999.
(4) Incorporated by reference to the Exhibits filed with the Company's Annual
Report on Form 10-K, dated March 30, 2000.
** Confidential treatment has been requested with respect to portions of this
Exhibit.
(d) Financial Statement Schedules: See Item 14(a) above.
55
SIGNATURES
Pursuant to the requirements of section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
JLM Industries, Inc.
Date: April 17, 2001
/s/ John L. Macdonald
By: _________________________________
John L. Macdonald
President and Chief Executive
Officer
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.
Signature Title Date
--------- ----- ----
s/ John L. Macdonald President, Chief Executive Officer and April 17, 2001
_______________________________ Director (Principal Executive Officer)
John L. Macdonald
s/ Michael E. Hayes Chief Financial Officer and Vice President April 17, 2001
_______________________________ (Principal Financial Officer
Michael E. Hayes and Principal Accounting Officer)
s/ Walter M. Tarpley Vice President and Director April 17, 2001
_______________________________
Walter M. Tarpley
s/ Sean D. Macdonald Vice President and Director April 17, 2001
_______________________________
Sean D. Macdonald
s/ Jerry L. Weinstein Director April 17, 2001
_______________________________
Jerry L. Weinstein
s/ Charles Neivert Director April 17, 2001
_______________________________
Charles Neivert
s/ Vincent J. Naimoli Director April 17, 2001
_______________________________
Vincent J. Naimoli
56
EXHIBIT INDEX
3.1 Articles of Incorporation, as amended (1)
3.2 Form of Amended and Restated Articles of Incorporation (1)
3.3 Bylaws (1)
3.4 Form of Amended and Restated Bylaws (1)
4.0 Form of Common Stock Certificate (1)
10.1 Authorized Distributor Agreement between GE Petrochemicals, Inc.
and JLM Marketing, Inc. for Styrene (1)
10.2** Memorandum of Agreement between Sasol Chemical Industries (PTY)
Ltd. and JLM Marketing, Inc. for N-Propanol (1)
10.3** Memorandum of Agreement between Sasol Chemical Industries (PTY)
Ltd. and JLM Marketing, Inc. for Acetone (1)
10.4** Memorandum of Agreement between Sasol Chemical Industries (PTY)
Ltd. and JLM Marketing, Inc. for Methyl Ethyl Ketone (1)
10.5** Acetone Sales Agreement between Mt. Vernon Phenol Plant
Partnership, JLM Marketing, Inc. and JLM Industries, Inc. (1)
10.6 Asset Purchase Agreement by and among BTL Specialty Resins Corp.
and JLM Chemicals, Inc. providing for the acquisition of the Blue
Island (Illinois) Phenol Plant, as amended (1)
10.7 Propane/Propylene Agreement between Clark Oil & Refining
Corporation and BTL Specialty Resins Corp. (1)
10.8 Q-Max Process License Agreement between BTL Specialty Resins
Corp. and UOP (1)
10.9 Credit Agreement among JLM Chemicals, Inc., The
CITGroup/Equipment Financing, Inc. and The CIT Group/Business
Credit, Inc., as amended (1)
10.10 Security Agreement by JLM Chemicals, Inc. in favor of the Lenders
and The CIT Group/Equipment Financing, Inc. (1)
10.11 Pledge Agreement by JLM Industries, Inc. in favor of the Lenders
and The CIT Group/Equipment Financing, Inc. (1)
10.12 Mortgage, Assignment of Leases and Rents and Security Agreement
from JLM Chemicals, Inc. to The CIT Group/Equipment Financing,
Inc., as corrected and modified (1)
10.13 Partnership Agreement of Mt. Vernon Phenol Plant Partnership (1)
10.14 Intercreditor Agreement between JLM Marketing, Inc., JLM
Industries, Inc., JLM Terminals, Inc., JLM International, Olefins
Marketing, Inc., State Street Bank and Trust Company, Caisse
Nationale De Credit Agricole and Standard Chartered Bank New York
Branch (1)
10.15 Master Promissory Note by JLM International, Inc. and Olefins
Marketing, Inc. in favor of Caisse Nationale De Credit Agricole
(1)
10.16 Guaranty Agreement by JLM Industries, Inc. to Caisse Nationale De
Credit Agricole, New York Branch (1)
10.17 Security Agreement between Olefins Marketing, Inc. and Caisse
Nationale De Credit Agricole, New York Branch (1)
10.18 Security Agreement between JLM International, Inc. and Caisse
Nationale De Credit Agricole, New York Branch (1)
10.19 Amended and Restated Credit Agreement among JLM Industries, Inc.,
JLM Marketing, Inc., JLM Terminals, Inc., JLM International Inc.,
Olefins Marketing, Inc., John L. Macdonald and State Street Bank
and Trust Company, as amended (1)
10.20 Facility Letter between Standard Chartered Bank and Olefins
Marketing (1)
10.21 Security Agreement by Olefins Marketing to Standard Chartered
Bank (1)
57
10.22 Security Agreement by JLM International, Inc. to Standard
Chartered Bank (1)
10.23 Continuing Guaranty by JLM International, Inc. and Olefins
Marketing Corp. in favor of Standard Chartered Bank (1)
10.24 Facility letter between Generale Bank and JLM Industries (1)
10.25 Corporate Guarantee by JLM Industries, Inc. to Generale Bank (1)
10.26 Agreement by and among Union Carbide Corporation, D-S Splitter,
Inc., JLM Industries, Inc. and Olefins Terminal Corporation (1)
10.27 Pledge and Security Agreement by JLM Industries, Inc. to Ultramar
Diamond Shamrock Corporation (1)
10.28 Management, Operating and Stockholders Agreement of Olefins
Terminal Corporation between D-S Splitter, Inc., Ultramar Diamond
Shamrock Corporation, JLM Industries, Inc., Olefins Marketing,
Inc. and Olefins Terminal Corporation (1)
10.29 Investment Agreement by and between JLM Industries, Inc. and Tan
Siew Kiat (1)
10.30 Agreement for Sale and Purchase of Common Stock between John L.
Macdonald and Gene Harmeyer, as owners of the capital stock of
Aurora Chemical, Inc., and JLM Marketing, Inc. (1)
10.31 Agreement for Sale and Purchase of Common Stock between John L.
Macdonald, owner of the capital stock of Phoenix Tank Car Corp.,
and JLM Marketing, Inc. (1)
10.32 Form of Indemnification Agreement for Officers and Directors (1)
10.33 Form of 1997 Employee Stock Purchase Plan (1)
10.34 Form of Long Term Incentive Plan (1)
10.35 Form of Non-employee Directors' Plan (1)
10.36 Assignment and Assumption Agreement between Ashland Chemical, Inc.
and JLM Terminals, Inc. (1)
10.37 Asset Purchase Agreement between Union Oil Company of California
and Ashland Chemical, Inc. (1)
10.39 Tolson Holland B.V., Tolson Transport B.V. and Tolson Asia Pte Ltd
combined financial statements for the three-year period ended
December 31, 1997. (1)
10.39 Final Form of Indemnification Agreements effective as of July 29,
1997 (except for Walter M. Tarpley whose effective date was
January 1, 1999) by and between the following officers and/or
Directors of JLM Industries, Inc. (1):
Name Date Signed
---- ----------------
John L. Macdonald........................................ January 7, 1999
Thaddeus J. Lelek........................................ January 11, 1999
Wilfred J. Kimball....................................... January 7, 1999
Frank A. Musto........................................... January 7, 1999
John T. White............................................ January 11, 1999
Michael J. Molina........................................ January 7, 1999
Linda Sato............................................... January 7, 1999
Sean D. Macdonald........................................ January 7, 1999
Roger C. Kahn............................................ January 24, 1999
Jerry L. Weinstein....................................... January 20, 1999
Walter M. Tarpley........................................ January 13, 1999
10.40 Employment agreement between JLM Industries, Inc. and Walter M.
Tarpley dated (2)
10.46 Tolson Holland B.V., Tolson Transport B.V. and Tolson Asia Pte Ltd
combined financial statements for the three-year period ended
December 31, 1997. (3)
10.47 Purchase agreement with ICI South Africa Limited. (4)
58
10.48 Purchase agreement with Societe Financiere d'Entreposage et de
Commerce International de l'Alcool, S.A. (4)
10.49 Employment agreement between JLM Industries, Inc. and Michael E.
Hayes dated October 1, 2000.
10.50 First Amendment to Amended and Restated Credit Agreement dated
April 16, 2001 by and between Citizens Bank of Massachusetts and
JLM Industries, Inc., JLM Terminals, Inc., JLM International, Inc.
JLM Chemicals, Inc., Browning Chemical Corporation, JLM Realty,
Inc., Mac Aviation, JLM (IND.), Inc., JLM Illinois Marketing
Services, Illinois International Services, Inc. and JLM Export
Company.
21.2 List of Subsidiaries of the Company.
23.2 Consent of Deloitte and Touche LLP to the consolidated financial
statements of JLM Industries, Inc. and subsidiaries
- - --------
(1) Incorporated by reference to the Exhibits filed with the Company's
Registration Statement on Form S-1 (File No. 333-27843) filed with the SEC
on July 21, 1997.
(2) Incorporated by reference to the Exhibits filed with the Company's Report
on Form 10-Q, dated May 14, 1999.
(3) Incorporated by reference to the Exhibits filed with the Company's Report
on Form 8-K/A, dated June 23, 1999.
(4) Incorporated by reference to the Exhibits filed with the Company's Annual
Report on Form 10-K, dated March 30, 2000.
** Confidential treatment has been requested with respect to portions of this
Exhibit.
59