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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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, 2001
Commission File No. 1-12333
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)
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)
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. [_]
The aggregate market value of common stock held by non-affiliates of the
registrant at March 20, 2002 was $8,944,902, 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 March 20, 2002 was
9,359,356.
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 one of the largest chemical distributors 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 continuously 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 four 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's ("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. 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 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 further
enhanced JLM's ability to provide a broad range of pure and formulated ethanol
to core markets and key customer partners.
During 2001, the Company completed a series of transactions to sell
"non-core" assets in order to reduce its long-term debt and increase working
capital, thus enabling the Company to refocus its efforts on the running of the
core business. These transactions consisted of selling a portion of the JLM
Marketing solvents distribution business
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in the United States to Sasol North America, the sale of substantially all of
the assets of JLM Terminals, Inc., a wholly-owned subsidiary of the Company, and
the sale of all the issued and outstanding shares of JLM Chemicals Asia Pte.,
Ltd. ("JLM Asia"), a wholly-owned subsidiary of the Company.
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% 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 17.2 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% 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. 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 production is
approximately 110 billion pounds. Over 50% 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 and engineered resins products and the
markets in which it distributes these products to enhance its position as a
leading supplier to the worldwide chemical and plastics industries. Key elements
of the Company's business strategy include:
. Expand Sources of Supply through Joint Ventures, Acquisitions and
Strategic Relationships. The Company continues 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
will continue to develop its existing relationships and establish
new relationships to increase the overall volume and types of
products
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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 2001, the
Company entered into an agreement with Solpetroleo to market their
line of alcohols and ketones in North America, South America,
Central America, and Europe. Also in 2001, the Company entered into
an agreement with Repsol to market their high purity propylene
glycol USP and kosher grade products in North America. In 2000, the
Company acquired the ethanol business of Sofecia to provide a broad
range of pure and formulated ethanol to JLM's core markets and key
customer markets. Also in 2000, the Company entered the engineered
resins distribution business by negotiating a long-term exclusive
distribution agreement with Gharda Chemicals of Bombay, India to
market their line of high-performance polymer products in North,
Central and South America. In late 2000, JLM acquired specialty
distributor Franklin Polymers to expand its supplier and customer
base. In 2001, the Company began to market plastic specialty
products through strategic relationships with plastic manufacturers.
. Continue International Expansion. The Company currently has
international operations in South America, Europe (including Spain,
Russia, Turkey and the Czech Republic), Mexico 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 will 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. In 2001, the Company entered into a joint venture
agreement in Turkey with a Turkish ship owner who operates chemical
tankers mainly in the Mediterranean and Black Sea regions. The joint
venture provides a strategic relationship with respect to product
availability, flexibility and pricing.
. 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 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 2001, JLM distributed approximately 244 million pounds of acetone, of
which approximately 88.7% 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, Chemcentral, PPG Industries, 3M, and Rohm & Haas.
Phenol
In 2001, the Company distributed approximately 94 million pounds of
phenol, which was predominately 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, Tembee, Dynea Plenco and the 3M corporation.
4
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"), General Electric ("GE"), and Goodyear.
JLM's propylene customers include Borealis Exploration Limited ("Borealis"), DSM
and Dow Chemical Corporation ("Dow Chemical").
Other Products
In addition to acetone, phenol and propylene, the Company markets and
distributes other commodity, inorganic, plastics, 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, Valspar, PPG Industries Inc., and Repsol, S.A. (Spain)
("Repsol").
During each of the past three years, no single distribution relationship,
customer or group of affiliated customers has accounted for more than 10% 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 distributed in North America from its Blue Island Plant and the Mt.
Vernon Plant.
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.
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
5
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 is currently engaged in
negotiations with GE Plastics and the Mt. Vernon Partnership to extend the terms
and conditions of the agreement.
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.
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, Premcor, and Solpetroleo. 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.
Terminaling and Storage
The Company 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 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."
6
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 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, Colombia,
the Czech Republic, South Africa, Spain, Russia, Turkey, and Azerbaijan. 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% 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, when the
Company had estimated that the anticipated future undiscounted cash flows would
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.
Approximately 20% of the Company's domestic marketing revenues in 2001
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 build 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
to source butadiene for the U.S. and with Copene Petroguimicade Nordente S.A.,
Equistar, and Enterprise to export propylene from South America and the the U.S.
Some of the Company's significant olefins customers include Dow Chemical,
DuPont, Exxon Mobile, GE, Goodyear, BP Amoco, Basell and Borealis.
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
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supplier relationships, terminal and storage facilities, transportation
capabilities and 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, 2001, the Company had 158 full-time employees. Of
these, 60 employees were in management and administration, 54 in sales and
marketing and 44 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. This
agreement expires on October 31, 2004. 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 and discharges, 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.
Elevated levels of certain petroleum-related substances, organic chemicals
and metals have been detected in groundwater and/or soils at the Company's
former Wilmington, North Carolina terminal facilities, which the Company sold in
October 2001. In 1998, the Company assumed from Union Oil Company of California,
the prior owner of the site, the implementation of state approved remedial
action plans to address onsite petroleum contamination at some of its terminal
facilities. No significant cleanup activities have been conducted at the North
Carolina terminal facilities since the Company acquired them in 1992 and 1998.
Although the Wilmington, North Carolina terminal was sold in October 2001 and
the purchaser assumed liability for costs of clean-up and other remedial
activities, the Company remains subject to certain liabilities under
Environmental Laws with respect to the facilities which may cause the Company to
incur costs, which could be material.
Risk Factors
An investment in the Company's common stock involves a high degree of
risk. Stockholders and prospective purchasers should carefully consider the
following risk factors, as well as the other information contained elsewhere or
incorporated by reference in this Annual Report. If any of the following risks
actually occur, the Company's business could be materially harmed.
Worldwide chemical markets are cyclical and excess production capacity may cause
chemical prices to decline and adversely affect the Company's operations.
Sales of commodity chemicals such as acetone and phenol account for a
substantial portion of the Company's revenues. The markets for commodity
chemicals are cyclical. This cyclicality primarily results from changes in the
balance between supply and demand, the price of feedstocks and the level of
general economic activity. Historically, these markets have experienced
alternating periods of tight supply resulting in generally rising prices and
profit margins, followed by periods of large capacity additions resulting in
oversupply and generally declining prices and profit margins. In 1999, 2000 and
2001, the Company experienced losses due to excess production which resulted in
oversupply and lower prices. Although the Company believes that the supply of
phenol will not increase, the Company cannot predict with any certainty whether
the markets for acetone and phenol will favorably impact the Company's
operations or whether the Company will be profitable if a shift in the market
causes prices to decline and profit margins for these products to shrink.
If the cost of raw materials increases or the availability of raw materials
decreases, the Company's costs could increase and the Company's business could
be harmed.
In 2001, approximately 7.1% of the Company's revenues were derived from
the sale of products that the Company manufactures. An adequate supply of raw
materials at competitive prices is critical to the economic success of the
Company's manufacturing operations. The Company does not produce propylene and
benzene, the key raw materials used for the production of cumene, the primary
feedstock for the production of acetone and phenol. Currently, the Company
obtains propylene and benzene from a number of suppliers under supply contracts
at market rates. The Company believes that there are a number of alternative
sources of supply for propylene and benzene. However, if the Company's current
propylene suppliers were unable to meet their supply obligations to the Company,
the Company could be required to incur increased costs for propylene and benzene
which could have a material adverse effect on the Company's results of
operations and financial condition.
The Company's ability to pass on increases in raw material prices to the
Company's customers is, to a large extent, dependent on market conditions and is
limited because the commodity nature of certain chemicals the Company
manufactures restricts its ability to increase prices. There may be periods of
time in which the Company does not recover increases in raw material prices. If
the Company is unable to increase the selling prices of its products due to weak
demand for or oversupply of such products, it will not be able to recover such
increases in raw material prices. Therefore, increases in raw material prices
could have a material adverse effect on its results of operations and financial
condition.
Because of the cyclical nature of chemical prices, fluctuations in the selling
price of chemicals associated with the Company's distribution supply contracts
may increase the Company's costs and reduce profits.
Certain products the Company distributes are obtained through supply
relationships with other chemical producers. Typically, the Company's supply
contracts have one-year terms with provisions that automatically renew the
contracts for additional one-year terms unless notice of termination is provided
(which notice may be, under certain agreements, as short as 30 days). The
Company has long-established relationships with many of its suppliers. The
Company cannot predict whether its relationships or agreements with its
suppliers will be terminated and, if terminated, whether they can be replaced.
Due to the cyclical nature of the prices of many of the commodity chemical
products that it distributes, the Company tries to enter into distribution
agreements with external suppliers that provide it with a fixed percentage
profit per unit volume of product or otherwise reduce its exposure to
fluctuations in the selling price of the products it distributes for other
manufacturers. The Company is unable to predict whether it will be able to enter
into contracts in the future that provide similar protection against price
volatility. The Company's inability to do so could have a material adverse
effect on the Company's results of operations and financial condition. In
addition, some of the Company's agreements with its suppliers require the
Company to purchase a minimum amount of chemical product or to pay certain
agreed upon amounts for such minimum quantities if not taken. These agreements
expose the Company to financial risk and could require the Company to expend
significant amounts of capital without receiving corresponding revenues which
could have a material adverse effect on its results of operations and financial
condition.
Because a significant portion of the Company's revenues are derived from
international sales, uncertain political, economic or military conditions in
other countries where the Company operates or intends to expand its operations
could materially disrupt its business.
In 2001, approximately 70.4% of the Company's revenues were attributable
to operations conducted abroad and to export sales. In certain countries where
it currently operates or sells products, the Company may be subject to certain
political, economic or military conditions, including labor unrest, political
instability, restrictions on transfers of funds, high export duties and quotas,
domestic and international customs and tariffs, unexpected changes in regulatory
environments and potentially adverse tax consequences. The Company cannot
predict whether any of these events will occur and if they do occur, whether
they will have a material adverse effect on the Company's business.
Because the Company's business is affected by changes in currency markets,
fluctuations in foreign currency exchange rates may adversely affect the
Company's results of operations.
A portion of the Company's revenues is denominated in currencies other
than the U.S. dollar because the Company's foreign subsidiaries operate in their
local currencies. Accordingly, the Company's results of operations and financial
condition may be affected by fluctuations in the exchange rates between such
currencies and the U.S. dollar. Moreover, the Company may incur costs in
connection with conversions between currencies. From time to time, the Company
purchases short-term forward hedge exchange contracts to hedge payments that are
in currency 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 Company's results of operations. Certain increases
or decreases in these payments are then offset by gains or losses on the related
short-term forward exchange contracts. The Company has, in the past, entered
into fixed financial hedge contracts on certain of the Company's raw materials
for use in the Company's manufacturing segment. Exchange rate fluctuations or
hedge contracts may have a material adverse effect on the Company's results of
operations and financial condition.
If the Company loses any of its significant customers, it could have a material
adverse effect on its financial condition.
During each of the past three years, no single distribution relationship,
customer or group of affiliated customers has accounted for more than 10% of the
Company's revenues. However, a small number of the Company's customers
historically have accounted for a significant percentage of its sales of acetone
and phenol. If the Company loses one or more of these significant customers it
could have a material adverse effect on the Company's results of operations and
financial condition. In the past, the Company has not experienced significant
difficulties in replacing the sales volumes accounted for by the periodic loss
of significant customers. However, the Company is unable to predict whether the
historic levels of business from current customers will be maintained in the
future or whether such customers could be replaced quickly enough to avoid
adversely impacting the Company's revenues and profitability.
If the Company is unable to successfully implement its business strategy, the
Company might not continue to grow and the Company's results of operations and
financial condition could be harmed.
The Company has experienced rapid growth since its inception. The
Company's continued growth largely depends on the successful implementation of
its business strategy. The Company is unable to predict whether it will be able
to successfully implement its business strategy or whether, if implemented, such
strategy will be successful. If the Company is unable to implement its business
strategy, its results of operations and financial condition could be adversely
affected.
Because the Company is subject to various environmental laws and compliance with
these laws may entail significant costs, the Company's compliance with
environmental laws may adversely affect its operations.
The Company is subject to federal, state, local and foreign environmental
laws, rules, regulations and ordinances concerning emissions and discharges, and
the generation, handling, storage, transportation, treatment, disposal and
import and export of hazardous materials. The operation of chemical
manufacturing and storage facilities and the distribution of chemical products
entail risks under environmental laws, many of which provide for substantial
remediation costs in the event of discharges of contaminants and fines and
criminal sanctions for violations. The Company may be liable for remediation of
contamination at certain of its current and former properties and may need to
make significant capital expenditures in order to comply with existing and
future environmental laws. The Company believes that it currently complies in
all material respects with applicable environmental laws. However, the Company
may incur environmental liabilities and compliance with environmental laws may
require significant capital expenditures, each of which could have a material
adverse effect on its results of operations and financial condition.
Because the Company operates in a competitive industry, competition may
adversely affect its market position and reduce its market share.
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 its 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. Barriers to entry in the industry,
apart from capital availability, may be low, particularly with respect to
commodity products. The entrance of new competitors in the industry, including
companies who currently serve as the Company's suppliers, may reduce the
Company's ability to maintain current sales or price levels. The Company's
competitive position is based principally on customer service and support,
breadth of product line, product quality, facility location and the selling
prices of its products. The Company's commercial opportunity may be reduced or
eliminated if its competitors market their products more effectively than the
Company or if they develop and market products that are more useful or less
expensive than the Company's products. The Company cannot predict whether it
will have sufficient resources to maintain its current competitive position or
market share.
If the Company loses members of its senior management or key personnel, its
business could be harmed.
The Company's future success largely depends on the efforts and abilities
of its senior management and certain other key personnel, particularly John L.
Macdonald, its founder, President and Chief Executive Officer. The Company's
success will depend in large part on its ability to retain these individuals and
other current members of its senior management team and to attract and retain
qualified personnel in the future. The Company's loss of one or more members of
senior management or key employees or its inability to attract or retain other
qualified employees could have an adverse impact on its results of operations
and financial condition.
Concentration of ownership of the Company's common stock in its existing
principal stockholder may prevent other stockholders from influencing
significant corporate decisions.
As of March 20, 2002, John L. Macdonald, the Company's President and Chief
Executive Officer, beneficially owned, in the aggregate, approximately 44.7% of
the Company's issued and outstanding shares. As a result, Mr. Macdonald
effectively has the ability to determine the outcome of important matters
submitted to the Company's stockholders for approval, including the election of
directors and any merger, consolidation or sale of all or substantially all of
the Company's assets.
If market conditions are not favorable, or if the Company's common stock is
delisted by Nasdaq, the price of the Company's stock could decline.
The Company's common stock is publicly traded on The Nasdaq National
Market. The market price of the Company's common stock may be significantly
affected by such factors as its operating results, changes in any earnings
estimates publicly announced by the Company or by analysts, announcements of
significant business developments by the Company or its competitors and various
factors affecting the overall economic environment. In addition, the stock
market has experienced a high level of price and volume volatility, and market
prices for the stock of many companies have experienced wide price fluctuations
not necessarily related to the fundamentals or operating performance of such
companies. These market conditions may adversely affect the market price of the
Company's common stock.
In the past, the Company has failed to comply with one of the maintenance
criteria for continued listing of its common stock on The Nasdaq National
Market. Although the Company currently satisfies the continued listing criteria
for The Nasdaq National Market, there is no guarantee that the Company will be
able to maintain all of the continued listing requirements in the future. If the
Company fails to maintain any of The Nasdaq National Market's continued listing
requirements, the Company's common stock would in all likelihood be delisted and
transferred to the Nasdaq SmallCap Market (provided that the Company meets all
requirements for listing on the Nasdaq SmallCap Market and evidences an ability
to sustain long term compliance) or the OTC Bulletin Board. If the Company's
common stock is delisted from The Nasdaq National Market or if the Company fails
to meet the requirements for listing on the Nasdaq SmallCap Market, it could
adversely affect the market price of the Company's common stock and impair the
Company's ability to raise capital.
Anti-takeover provisions in the Company's charter documents and Delaware law may
deter an acquisition of the Company and could limit the price investors might be
willing to pay in the future for the Company's common stock.
Certain provisions of the Company's certificate of incorporation and
bylaws could have the effect of making it more difficult for a third party to
acquire or control, or of discouraging a third party from attempting to acquire
or control, the Company. These provisions could limit the price that certain
investors might be willing to pay in the future for shares of the Company's
common stock. These provisions (i) allow only the board of directors, the
chairman of the board of directors or the chief executive officer to call
special meetings of the stockholders, (ii) establish certain advance notice
procedures for nomination of candidates for election as directors and for
stockholder proposals to be considered at stockholders' meetings, (iii)
generally authorize the issuance of one or more classes of "blank check"
preferred stock, with such designations, rights and preferences as may be
determined from time to time by the board of directors and (iv) require approval
of holders of 80% of the outstanding voting power to amend or repeal items (i)
and (ii) above. If the Company issues preferred stock, it could decrease the
amount of earnings and assets available for distribution to the holders of the
Company's common stock or could adversely affect the rights and powers,
including the voting rights, of such holders. In certain circumstances, it could
have the effect of decreasing the market price of the Company's common stock.
8
ITEM 2. PROPERTIES:
The following table sets forth certain information as of December 31,
2001, relating to the Company's principal facilities:
Approximate
Facility Principal Activities; Location Square Feet Owned/Leased
- -------- ------------------------------ ----------- ------------
Corporate Headquarters Administration Headquarters;
Tampa, Florida 25,000 Owned(1)
Blue Island Plant Manufacturing;
Blue Island, Illinois 958,000 Owned(2)
OTC Terminal Terminaling and Storage;
Houston, Texas 104,000 Co-owned
North American Sales Offices Blue Island, Illinois * Owned(2)
Toronto, Canada * Leased
International Sales Offices Rotterdam, Netherlands * Leased
Cagua, Venezuela * Leased
Mexico City, Mexico * Leased
Bogota, Columbia * Leased
Andhra Pradesh, India * Leased
Istanbul, Turkey * Leased
Madrid, Spain * Leased
Moscow, Russia * Leased
Prague, Czech Republic * Leased
Johannesburg, South Africa * Leased
Maputo, Mozambique * Leased
Baku, Azerbaijan * Leased
JLM Realty Wilmington, North Carolina * Owned
- ----------
* Less than 25,000 square feet
(1) As collateral for a $1.9 million credit agreement entered into with
SouthTrust Bank ("SouthTrust"), the Company granted SouthTrust a first lien
on the premises located at 8675 Hidden River Parkway, Tampa, Florida, and an
assignment of all rents and leases related thereto.
(2) As security for the borrowing under the Company's $7.1 million term loan
with GATX Capital Corporation ("GATX"), the Company granted GATX a first
lien on real property located at the Company's Blue Island, Illinois
manufacturing facility.
ITEM 3. LEGAL PROCEEDINGS:
The Company is not a party to any legal proceedings, other than ordinary
routine litigation incidental to 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 13 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 of the fiscal year covered by this Report.
9
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 25, 2002, there were 123 stockholders of record. The
following table sets forth the quarterly high and low sale prices of JLM's
common stock during 2000 and 2001 on the NASDAQ National Market:
2000 High Low
- ---- ---- ---
First Quarter............................................ $8.19 $ 2.50
Second Quarter........................................... 6.13 3.06
Third Quarter............................................ 4.38 2.50
Fourth Quarter........................................... 2.75 0.75
2001
- ----
First Quarter............................................ 3.00 1.25
Second Quarter........................................... 3.52 1.30
Third Quarter............................................ 3.50 1.50
Fourth Quarter........................................... 3.13 1.39
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. On July 9,
2001, the Company received a favorable determination of the Panel and remains
listed on the NASDAQ National Market.
To date, 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 8 of Notes to Consolidated
Financial Statements).
10
ITEM 6. SELECTED FINANCIAL INFORMATION
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(in thousands, except per share data)
Year Ended December 31,
-----------------------------------------------------------------
1997 1998 1999 2000 2001
--------- --------- --------- --------- ---------
Statement of Operations Data:
Revenues ................................................. $ 286,822 $ 305,735 $ 332,698 $ 434,458 $ 340,227
Gross profit ............................................. 30,221 34,706 21,440 21,670 17,653
Operating income (loss) .................................. 13,332 11,062 (3,192) (3,581) (5,858)
Income (loss) from continuing operations before
extraordinary item .................................... 6,735 4,901 (3,541) (8,296) (2,660)
Basic Earnings (loss) Per Share:
Income (loss) from continuing operations before
extraordinary item .................................... $ 1.17 $ 0.70 $ (0.53) $ (1.26) $ (0.31)
Diluted Earnings (loss) Per Share:
Income (loss) from continuing operations before
extraordinary item .................................... $ 1.16 $ 0.70 $ (0.53) $ (1.26) $ (0.31)
Basic weighted average shares outstanding .................... 5,753 7,038 6,665 6,568 8,562
Diluted weighted average shares outstanding .................. 5,790 7,038 6,665 6,568 8,562
Other Financial Data:
Depreciation and amortization ............................ $ 2,947 $ 3,671 $ 4,046 $ 3,893 $ 3,821
EBITDA (1) ............................................... 16,850 14,733 4,853 (5,549) 5,115
Balance Sheet Data:
Working capital (deficit) ................................ $ 14,321 $ 16,057 $ 18,216 $ (906) $ 2,700
Total assets ............................................. 84,606 102,726 139,483 136,380 83,963
Total debt ............................................... 5,964 17,048 27,776 21,414 15,260
Total stockholders' equity ............................... 38,821 42,351 37,202 27,930 26,865
Cash Flow Information:
Operating activities ..................................... $ 8,606 $ 6,109 $ 3,276 $ 12,134 $ (9,820)
Investing activities ..................................... (3,176) (5,910) (13,186) 808 6,677
Financing activities ..................................... (5,012) (3,083) 9,964 (6,532) (1,879)
Capital expenditures ..................................... 2,875 1,102 2,204 1,548 592
Effect of Change in Accounting Principle (2):
Net income ............................................... (355) (834) -- -- --
Basic and diluted earnings per share ..................... (0.08) (0.12) -- -- --
- ----------
(1) 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.
(2) During 2000, the Company changed its accounting principle used for certain
inventories from last-in, first-out, to first-in, first-out. The Company's
prior year financial statements have been retroactively restated to
reflect this change.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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 19 of Notes to Consolidated Financial
Statements.
11
Critical Accounting Policies
The preparation of financial statements and related disclosures in
conformity with accounting principles generally accepted in the United States
requires management to make judgments, assumptions and estimates that affect the
amounts reported in the Consolidated Financial Statements and accompanying
notes. Note 2 to the Consolidated Financial Statements describes the significant
accounting policies and methods used in the preparation of the Consolidated
Financial Statements. Estimates are used for, but not limited to, the accounting
for the allowance for doubtful accounts, inventory allowances, investment
impairments, goodwill impairments, loss contingencies, and income taxes. Actual
results could differ from these estimates. The following critical accounting
policies are impacted significantly by judgments, assumptions and estimates used
in the preparation of the Consolidated Financial Statements.
The allowance for doubtful accounts is based on the Company's assessment
of the collectibility of specific customer accounts and the aging of the
accounts receivable. The Company utilizes credit insurance to minimize the risk
of loss from non-payment of U.S. customer receivables. If there is a
deterioration of a major customer's credit worthiness, and if balances exceed
insured limits, the Company's estimates of the recoverability of amounts due to
us could be adversely affected. The allowance for doubtful accounts is
determined primarily on the basis of management's best estimate of probable
losses, including specific allowances for known troubled accounts.
Inventory purchases and commitments are based upon future demand
forecasts. If there is a sudden and significant decrease in demand for its
products, the Company may be required to record adjustments in order to reflect
the inventory at the lower of cost or market, and the gross margin could be
adversely affected.
Other investments are primarily investments in partnerships. JLM accounts
for the majority 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. Changes in market
conditions could result in investment impairment.
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. In
response to changes in industry and market conditions, the Company may
strategically realign resources and consider restructuring or disposing of
businesses, which could result in an impairment of goodwill. When the book value
of an intangible asset exceeds associated expected future operating cash flows,
it is considered to be impaired and is written down to fair value, which is
determined based on either future cash flows or appraised values.
JLM is subject to the possibility of various loss contingencies arising in
the ordinary course of business. JLM considers the likelihood of the loss or
impairment of an asset, or the incurrence of a liability as well as JLM's
ability to reasonably estimate the amount of the loss in determining loss
contingencies. An estimated loss contingency is accrued when it is probable that
a liability has been incurred or an asset has been impaired, and the amount of
loss can be reasonably estimated. JLM regularly evaluates information currently
available to the Company to determine whether such losses should be recorded.
Contingent liabilities are often resolved over long time periods. Estimating
probable losses requires analysis of multiple forecasts that often depend on
judgments about potential actions by third parties such as regulators.
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
future effective tax rates and realization of carry forward losses could be
adversely affected if earnings are lower than anticipated in countries where
there are lower statutory rates or by unfavorable changes in tax laws or
regulations.
GENERAL
JLM is a leading marketer and distributor of certain commodity chemicals,
principally acetone and phenol. The Company believes it is the sixth largest
chemical distributor in North America. JLM is also a global distributor of
12
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.
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 that 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 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. Results for any one or more periods are not necessarily indicative of
annual results or continuing trends.
As a Percentage of Segment Revenues
Years Ended December 31,
------------------------
2001 2000 1999
---- ---- ----
Gross profit:
Marketing ..................................... 4.4% 4.8% 6.5%
Manufacturing ................................. 15.4% 8.6% 5.6%
Total gross profit ............................... 5.2% 5.0% 6.4%
Segment operating income (loss):
Marketing ..................................... (0.2%) 0.7% 0.6%
Manufacturing ................................ (5.2%) (8.8%) (14.8%)
Total segment operating income (loss) ............ (0.6%) 0.2% 0.2%
Year Ended December 31,
---------------------------------------------------------------------------
2001 2000 1999
---------------------- ---------------------- ----------------------
(in thousands, except percentages)
Revenues:
Marketing ....................................... $ 316,171 92.9% $ 410,524 94.5% $ 313,442 94.2%
Manufacturing ................................... 24,056 7.1% 23,934 5.5% 19,256 5.8%
--------- --------- --------- --------- --------- ---------
Total revenues ..................................... $ 340,227 100.0% $ 434,458 100.0% $ 332,698 100.0%
========= ========= ========= ========= ========= =========
Gross profit:
Marketing ....................................... $ 13,945 79.0% $ 19,602 90.5% $ 20,362 95.0%
Manufacturing ................................... 3,708 21.0% 2,068 9.5% 1,078 5.0%
--------- --------- --------- --------- --------- ---------
Total gross profit ................................. $ 17,653 100.0% $ 21,670 100.0% $ 21,440 100.0%
========= ========= ========= ========= ========= =========
Segment operating income (loss):
Marketing ....................................... $ (778) 13.3% $ 2,910 (81.3%) $ 2,026 (63.5%)
Manufacturing ................................... (1,254) 21.4% (2,116) 59.1% (2,848) 89.2%
--------- --------- --------- --------- --------- ---------
Total segment operating loss ....................... (2,032) 34.7% 794 (22.2%) (822) 25.7%
Corporate expense .................................. (3,826) 65.3% (4,375) 122.2% (2,370) 74.3%
--------- --------- --------- --------- --------- ---------
Total operating loss ............................... $ (5,858) 100.0% $ (3,581) 100.0% $ (3,192) 100.0%
========= ========= ========= ========= ========= =========
13
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.
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 2001 and 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.
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 2001, 2000, and 1999 respectively, the Holland operation
generated approximately $2,100,000, $386,000 and $1,000,000, 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 $735,000 in 2001, $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.
14
RESULTS OF OPERATIONS
Year Ended December 31, 2001 Compared to Year Ended December 31, 2000
Revenues. Revenues decreased $94.3 million, or 21.7%, to $340.2 million
for the year ended December 31, 2001 from $434.5 million for the prior year.
Revenues for the marketing segment decreased $94.3 million, or 23.0%, to $316.2
million for the year ended December 31, 2001 from $410.5 million for the prior
year. The Company experienced lower revenues from its marketing activities in
the United States in 2001, primarily due to the sale in 2001 of a portion of its
solvents distribution business. In addition, there were lower revenues from the
Company's Holland subsidiary primarily due to a decrease in volume. These
decreases in marketing revenues were partially offset by an increase in revenue
from the Company's Singapore subsidiary. Revenues for the manufacturing segment
increased $0.1 million, or 0.5%, to $24.1 million for the year ended December
31, 2001 from $23.9 million for the prior year. The increase in manufacturing
segment revenues was due primarily to increases in phenol selling prices.
Revenues for JLM Terminals for the years ended December 31, 2001 and 2000 were
$1.7 million and $2.0 million, respectively. Revenues for JLM Asia for the years
ended December 31, 2001 and 2000 were $131.0 million and $111.9 million,
respectively. Both of these entities were sold in October 2001 and were included
in the marketing segment.
Gross Profit. Gross profit decreased approximately $4.0 million, or 18.4%,
to $17.7 million for the year ended December 31, 2001 from $21.7 million for
prior year. Gross profit from the marketing segment decreased $5.7 million to
$13.9 million for the year ended December 31, 2001 from $19.6 million for the
prior year, a decrease of 29.1%. The decrease in gross profit was primarily due
to lower gross profits from the Company's marketing activities in the United
States due to the sale in 2001 of a portion of its solvents distribution
business and decreased sales and gross profits from its Holland subsidiary.
Gross profit from the manufacturing segment increased $1.6 million to $3.7
million for the year ended December 31, 2001 from $2.1 million for the prior
year. 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.
Selling, General and Administrative Expenses (SG&A). SG&A decreased $1.8
million, or 7.1%, to $23.5 million for the year ended December 31, 2001 from
$25.3 million for the prior year. The decrease in SG&A was primarily the result
of reductions in personnel, office closings and other cost savings initiatives
implemented by management in the last nine months of 2000 and in 2001. As a
percentage of revenues, SG&A increased to 6.9% of revenues for the year ended
December 31, 2001 from 5.8% of revenues for the prior year.
Operating Loss. Operating loss increased by $2.3 million to an operating
loss of $5.9 million for the year ended December, 31 2001 from an operating loss
of $3.6 million for the prior year.
Interest Expense - Net. Interest expense, net of interest income,
decreased $0.1 million to interest expense, net of interest income, of $2.8
million for the year ended December 31, 2001 as compared to $2.9 million for the
prior year. The Company completed a refinancing in the second quarter of 2001,
and accordingly, anticipates lower interest expense. (See "Liquidity and Capital
Resources - Refinancings and Credit Facilities").
Other Income - Net. Other income increased $12.6 million to $7.5 million
for the year ended December 31, 2001 from a loss of $(5.1) million for the prior
year. The increase was primarily attributable to a gain of $2.9 million on the
sale of the Company's solvents distribution business in the United States in the
second quarter of 2001, a settlement of a lawsuit in the amount of $3.0 million
in the third quarter of 2001, and a $3.7 million gain on the sale of the JLM
Terminals property in the forth quarter 2001. These gains were partially offset
by a $1.4 million loss relating to the sale of JLM Asia. The Company had
recorded losses in 2000 totaling $5.3 million relating to investment
impairments, which did not recur in 2001.
Foreign Currency Exchange Loss - Net. During the year ended December 31,
2001, although the Company experienced a weakening in the currencies of certain
of its foreign subsidiaries compared to the U.S. dollar, foreign currency
exchange losses were relatively unchanged. This was primarily the result of the
use of short-term forward exchange contracts to offset the impact of currency
fluctuations on certain transactions denominated in a currency other than a
subsidiary's functional currency.
15
Income Tax Provision (Benefit). The Company's income tax provision for the
year ended December 31, 2001 rose $5.2 million to $1.2 million from an income
tax benefit of $4.0 million for the prior year. The increase in the Company's
income tax provision was primarily attributable to income taxes incurred on a
gain of $2.9 million on the sale of a portion of the Company's solvents
distribution business in the United States, the lawsuit settlement in the amount
of $3.0 million, and from permanent tax differences arising during the year.
Net loss. Net loss decreased by $5.3 million to a net loss of $3.0 million
for the year ended December 31, 2001 from a net loss of $8.3 million in the
prior year.
Other Comprehensive Loss. Other comprehensive loss includes foreign
currency translation adjustments. Current assets and liabilities of foreign
subsidiaries are translated at exchange rates in effect at the balance sheet
dates. Non-current assets and liabilities are translated at their respective
historical rates. Results of operations are translated at weighted average rates
for the respective years. The effects of exchange rate changes in translating
foreign financial statements are reported in accumulated other comprehensive
income, a separate component of stockholders' equity. Net other comprehensive
loss increased by $0.2 million to $1.2 million for the year ended December 31,
2001 from comprehensive loss of $1.0 million in the prior year.
Comprehensive loss. Comprehensive loss, including the effect of other
comprehensive loss, decreased by $5.1 million to a comprehensive loss of $4.1
million for the year ended December 31, 2001 from a comprehensive loss of $9.2
million for the prior year.
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 $97.1 million to $410.5
million for the year ended December 31, 2000 from $313.4 million for the prior
year, an increase of 31.0%. The increase in marketing revenues was the result of
increased sales from the Company's domestic marketing operations, and its
Holland and Singapore subsidiaries. The increase in domestic marketing
operations was primarily due to increases in the selling price of the Company's
products. 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 $4.6 million,
or 23.8%, 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 1.4%,
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 3.9%. 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
90.9%, 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 $0.7
million to $25.3 million for the year ended December 31, 2000 from $24.6 million
for the prior year, an increase of 2.8%. 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 business and costs savings initiatives
implemented in the year 2000.
Operating Loss. Operating loss increased $0.4 million, or 12.5%, to $3.6
million for the year ended December 31, 2000 from $3.2 million for the prior
year.
16
Interest Expense--Net. Interest expense, net of interest income, increased
$1.2 million, or 70.6%, 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.
Other Income (Expense)--Net. Other income (expense) decreased $5.3
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 had 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 were
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. 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 Benefit. The Company's benefit for income taxes increased
approximately $2.4 million, or 150.0%, 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 Loss. Net loss increased approximately $4.8 million, or 137.1%, 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.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
Operating activities used approximately $9.8 million of cash in 2001. The
net loss adjusted for non-cash items such as depreciation, amortization, and
other non-cash charges incurred utilized $5.1 million of cash primarily to
reduce accounts payable. Changes in assets and liabilities used approximately
$4.7 million of cash primarily to reduce accounts payable. Investing activities
provided approximately $6.7
17
million of cash. Financing activities utilized approximately $1.9 million of
cash, primarily related to principal payments on long-term debt. Foreign
currency translation loss was $1.6 million principally as a result of increased
international business.
Operating activities provided approximately $12.1 million of cash in 2000.
The net loss adjusted for non-cash items such as depreciation, amortization, and
other non-cash charges incurred utilized $5.6 million of cash. Changes in assets
and liabilities provided approximately $17.7 million of cash. Investing
activities provided approximately $0.8 million of cash. Financing activities
utilized approximately $0.8 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 provided approximately $3.3 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 $3.5 million of cash.
Changes in assets and liabilities used approximately $0.2 million of cash.
Investing activities utilized approximately $13.2 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 was a five year
secured term loan which was scheduled to expire on November 1, 2004 and the
remaining $20.0 million had terms that expired on November 1, 2001. The loan was
repaid in June 2001.
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. In connection with the First Amendment, the Company issued a
warrant to Citizens to purchase 250,000 shares of the Company's common stock at
an exercise price equal to the market price on the date of the issuance of the
warrant (the "Citizens warants"). Pursuant to the First Amendment, the warrants
were reduced to 125,000 due to the loan being paid in full by October 1, 2001.
The loan was repaid on June 28, 2001. As of December 31, 2001 none of the
125,000 warrants had been exercised.
As of the issue date, the Company estimated the value of the Citizens
warrants using the Black-Scholes model to be $255,000, calculated based on a ten
year life, 5.25 percent risk-free interest rate, 63 percent volatility, and no
dividend yield due to lender restrictions on the Company's ability to pay
dividends. In addition the Company has never paid dividends. The value of the
warrants has been accounted for as a discount on the debt issuance, and was
charged to expense during 2001 as an extraordinary loss due to the
extinguishment of the Citizens loan.
Refinancing
On June 28, 2001, the Company consummated a series of debt and equity
financings aggregating approximately $31.5 million, the proceeds of which were
used to refinance the Company's prior credit facilities and reduce indebtedness.
The financings consisted of: (i) a $20.0 million revolving credit facility; (ii)
a $7.1 million term debt facility; (iii) a $1.9 million mortgage loan; and (iv)
a $2.5 million private placement of common stock.
Revolving Credit Facility. On June 28, 2001, the Company entered into a
revolving credit facility (the "Revolving Credit Facility") with Congress
Financial Corporation (Florida) ("Congress"). Under the terms of the Revolving
Credit Facility, the Company may borrow up to 85% of the net amount of the
Company's eligible accounts receivable, plus the lesser of (i) 55% of the value
of the Company's eligible inventory or (ii) $12.0 million, up to a maximum
amount of $20.0 million (including outstanding letters of credit). As of
December 31, 2001, $6.7 million was outstanding under the Revolving Credit
Facility, $5.0 million of which bore interest at LIBOR plus 250 basis points,
and $1.7 million of which bore interest at the rate of 5.5% per annum. As
collateral for the borrowings under the Revolving Credit Facility, the Company
granted Congress a security interest in the Company's
18
receivables, general intangibles, equipment, certain real property and records.
Borrowings under the Revolving Credit Facility will mature on June 27, 2003,
unless the credit line is extended. If the Revolving Credit Facility is
terminated prior to its expiration date, including by reason of the Company's
prepayment of borrowings, the Company will be required to pay a termination fee
of (x) $400,000 if the facility is terminated on or before June 28, 2002, or (y)
$200,000 if the facility is terminated after such date.
Term Debt Facility. On June 28, 2001, the Company entered into a $7.1
million term loan (the "Term Debt Facility") with GATX Capital Corporation
("GATX") which matures on June 27, 2007. As security for the borrowings under
the Term Debt Facility, the Company granted GATX a first lien on real property
located at the Company's Blue Island, Illinois manufacturing facility and the
Wilmington, North Carolina terminal. On October 10, 2001, the Company sold its
Wilmington, North Carolina terminal, amended its Term Debt Facility, repaid $3.0
million of the term loan to GATX along with a prepayment penalty of $83,000, and
delivered a standby letter of credit of $500,000 as additional collateral. The
balance of the Term Loan of $3.8 million bears interest at a rate of 10.99% per
annum. Pursuant to the terms of the Term Debt Facility, the Company is required
to make 70 monthly installments of principal and accrued interest in the amount
of $76,965 each, ending June 27, 2007. Borrowings may be prepaid subject to a
prepayment penalty ranging between $198,083 (if paid between June 28, 2001 and
June 30, 2002) to $18,677 (if paid between July 1, 2005 and June 30, 2006).
In connection with the Term Debt Facility, the Company issued warrants to
GATX to purchase 155,109 shares of the Company's common stock at an exercise
price of $2.30 per share (the "GATX Warrants"). The GATX Warrants are
immediately exercisable and expire on June 28, 2011. The Company also granted
GATX certain registration rights with respect to the shares underlying the GATX
Warrants. As of December 31, 2001, none of the warrants had been exercised.
As of the issue date, the Company estimated the value of the GATX warrants
using the Black-Scholes model to be $366,502, calculated based on a ten year
life, 5.28 percent risk-free interest rate, 63 percent volatility, and no
dividend yield due to lender restrictions on the Company's ability to pay
dividends. In addition the Company has never paid dividends. The value of the
warrants has been accounted for as a discount on the debt issuance, and is being
amortized to interest expense over the outstanding debt term using the effective
interest method.
Mortgage Loan. On June 15, 2001, the Company entered into a $1.9 million
credit agreement (the "Mortgage Loan") with SouthTrust Bank ("SouthTrust"). As
collateral for the Mortgage Loan, the Company granted SouthTrust a first lien on
the premises located at 8675 Hidden River Parkway, Tampa, Florida, and an
assignment of all rents and leases related thereto. The Mortgage Loan bears
interest at a rate equal to LIBOR plus 300 basis points for periods of 30, 60 or
90 days, calculated using a base year of 360 days. Pursuant to the terms of the
Mortgage Loan, the Company must make monthly payments of principal and accrued
interest until June 15, 2004 based on a ten-year amortization schedule. The
Company may prepay the principal balance due under the Mortgage Loan at any time
without penalty. As of December 31, 2001, the outstanding principal balance was
$1.8 million.
Private Placement. On June 28, 2001, the Company consummated a private
placement (the "Private Placement") of 2,173,913 shares of common stock (the
"Shares") at a purchase price of $1.15 per share, and received an aggregate of
$2.5 million in gross proceeds therefor. In connection with the Private
Placement, the Company issued warrants to purchase 250,000 shares of the
Company's common stock on March 29, 2001 to Phoenix Enterprises LLC ("Phoenix")
and its designees, at exercise prices of $1.43. The Company issued 100,000
warrants on May 24, 2001 and 325,000 warrants on June 28, 2001 to Phoenix
Enterprises LLC ("Phoenix") and its designees, at an exercise price of $1.15 per
share (collectively, the "Phoenix Warrants"). The Phoenix Warrants were
immediately exercisable at the date of the grant and were scheduled to expire
five years from the date of grant. On September 7, 2001, Phoenix exercised
warrants to purchase 555,000 shares of common stock, using the cashless exercise
provision, and received 331,048 shares of common stock. On October 11, 2001
designees of Phoenix exercised warrants to purchase 120,000 shares of common
stock, using the cashless exercise provision, and received 70,164 shares of
common stock. As of December 31, 2001, all of the Phoenix Warrants had been
exercised.
The value of the Phoenix Warrants was estimated as of the respective issue
dates using the Black-Scholes model. The Company estimated the total value of
the warrant issues to be $1,024,718, calculated based on a five year life, a
risk-free interest rate between 4.51 percent and 4.96 percent, 63 percent
volatility, and no dividend yield due to lender restrictions on the Company's
ability to pay dividends. In addition, the Company has never paid dividends. The
value of the warrants has been accounted for within paid in capital as a cost of
the issuance of the private placement.
At the time of the closing, the Company entered into a registration rights
agreement with the holders of the Shares and Phoenix Warrants which required the
Company to file a registration statement with the Securities and Exchange
Commission relating to the sale of the Shares and shares of common stock
issuable upon exercise of the
19
Phoenix Warrants within 30 days from the closing date and use the Company's best
efforts to cause such registration statement to be declared effective. The
Company filed a Form S-3 Registration Statement on July 20, 2001 relating to the
offer and sale by certain shareholders of up to 4,511,022 shares of the
Company's common stock. The Company will not receive any proceeds from the sale
of the Shares. The Company's Registration Statement on form S-3 became effective
on October 30, 2001.
In connection with the closing of the Private Placement, the Company
appointed Philip S. Sassower as a director. At closing, Phoenix and Mr. Sassower
entered into a standstill agreement with the Company pursuant to which Phoenix
and Mr. Sassower agreed for a period of two years that they (and their
affiliates) will not, directly or indirectly (i) make, or in any way
participate, directly or indirectly, in any solicitation in opposition to the
board; (ii) initiate or propose any "shareholder proposals" for submission to a
vote of stockholders; (iii) form, join or in any way participate in a group to
take any actions otherwise prohibited by the terms of the standstill agreement;
or (iv) enter into any arrangements or understandings with any third party with
respect to any of the foregoing.
The Company believes its liquidity and capital resources, including its
ability to borrow additional amounts under its credit agreements, are sufficient
to meet its currently anticipated needs through the foreseeable future and to
permit it to continue to implement its business strategy.
Settlement of Litigation
On October 9, 2001, the Company received a payment of $1.15 million in
connection with a settlement in the action entitled JLM Europe B.V., JLM
Industries (Europe) B.V., JLM International, Inc., and JLM Industries, Inc. v.
Tolson Holding B.V. and Vitol Netherlands B.V. pursuant to a stipulation dated
September 25, 2001. Upon the payment of the $1.15 million, the plaintiff JLM
companies delivered a general release to the defendants and Vitol Holding B.V.,
the defendants delivered to the plaintiff JLM companies a general release, and
the action was discontinued with prejudice by stipulation. The consideration
given to the plaintiff JLM companies included (a) the agreement by the
defendants that the promissory note given by JLM Industries (Europe) B.V. to
defendant Tolson Holding B.V., dated May 13, 1998, in the original principal
amount of $2.85 million was deemed satisfied and paid, and (b) the payment by
the defendants of the sum of $1.15 million mentioned above. The defendants had
maintained in the action that JLM Industries (Europe) B.V. owed $1.8 million and
interest thereon under the note. JLM Industries (Europe) B.V. had denied that it
owed anything on the note. It had made three installment payments of $.35
million and interest on the note, but refused to make any further payments on
the note by reason of the conduct of defendants as alleged in the complaint in
the action. This action was pending in the Supreme Court of the State of New
York in and for the County of New York.
Dispositions
On October 10, 2001, the Company sold substantially all of the assets of
JLM Terminals, Inc. ("JLM Terminals") for $6.25 million cash. The proceeds were
used to repay $3.0 million of long-term debt, and the remainder provided working
capital and liquidity for the Company. The carrying value of the property and
equipment was $2.5 million. Revenues, net income (loss), and earnings (loss) per
share, excluding the gain on the sale of assets of $3.7 million in 2001, of JLM
Terminals, for the years ended December 31, 2001, 2000, and 1999 are as follows:
Years Ended December 31,
------------------------
2001 2000 1999
------ ------ ------
(in millions, except per share data)
Revenues .................................................. $ 1.7 $ 2.0 $ 1.5
Net income (loss) ......................................... $(1.5) $(0.3) $ 0.1
Effects on basic and diluted earnings (loss) per share ... $(.18) $(.04) $ .01
20
On October 4, 2001, the Company sold all of the outstanding stock of its
wholly owned subsidiary, JLM Chemicals Asia Pte, Ltd. ("JLM Asia") for $1.7
million in cash and the cancellation of letters of credit in the amount of $3
million. The proceeds were applied to the Company's Revolving Credit Facility.
Included in the Company's results for the year ended December 31, 2001 is a
charge of $1.4 million to reflect the loss on the transaction. Revenues, net
income (loss), and earnings (loss) per share, excluding the loss on the sale of
$1.4 million in 2001, of JLM Asia, for the years ended December 31, 2001, 2000,
and 1999 are as follows:
Years Ended December 31,
--------------------------------
2001 2000 1999
------ ------ ------
(in millions, except per share data)
Revenues .................................................. $131.0 $111.9 $73.5
Net income (loss) ......................................... $ (1.3) $ 1.3 $ 1.0
Effects on basic and diluted earnings (loss) per share .... $ (.15) $ .20 $ .15
During the second quarter of 2001 the Company closed on a transaction to
sell a portion of JLM Marketing's solvents distribution business in the United
States to Sasol North America for $2.9 million in cash. The primary assets sold
as part of the transaction were customer and supplier lists, marketing records,
promotional materials, and contracts and agreements. The assets were generated
internally by the Company and as a result had no carrying value. The $2.9
million is reflected in other income in the financial statements.
Effects of Inflation
Inflation generally affects the Company by increasing the cost of labor,
equipment and raw materials. The Company does not believe that inflation has had
a material effect on its results over the last three years.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Currency Exchange Risk
As a global enterprise, JLM faces exposure to adverse movements in foreign
currency exchange rates. These exposures may change over time as business
practices evolve. The majority of the Company's U.S. transactions are
denominated in U.S. Dollars. Historically, the Company's primary exposures
relating to U.S. operations have related to nondollar-denominated sales in
foreign markets, primarily Canada. The Company's foreign subsidiaries operate in
their respective local currencies. Primary exposures for the Company's foreign
subsidiaries have related to sales and purchases in currencies other than their
own respective local currencies. The Company does, from time to time, purchase
short-term forward exchange contracts to offset the impact of currency
fluctuations on certain nonfunctional currency assets and liabilities. The
Company does not enter into derivatives or other financial instruments for
trading or speculative purposes. At December 31, 2001, the Company had forward
currency exchange agreements that remained outstanding. The fair value of the
forward currency exchange agreements at December 31, 2001 was approximately
$200,000.
The formal adoption of the Euro on January 1, 2002 as the common currency
for members of the European Union did not have a material adverse effect on our
internal systems, operating results, or financial condition.
Commodity Price Risk
The Company 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, 2001, the Company had the following related to
inventory exchanges:
Total pounds payable under the exchange contracts .............................. 470,861
Total amount payable under the exchange contracts .............................. $ 79,674
Weighted average price per pound payable under the exchange contracts .......... $ 0.1692
Since 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. In addition, the Company manufactures acetone, and
can deliver its manufactured acetone to satisfy quantities payable under
exchange
21
contracts. Therefore, the Company believes that it can reposition itself with
respect to the inventory exchanges in order to minimize the market risk inherent
in such positions.
Interest Rate Risk
The Company is subject to market risk from exposure to changes in interest
rates based upon its financing, investing and cash management activities. The
Company utilizes a balanced mix of debt maturities along with both fixed-rate
and variable-rate debt to manage its exposure to changes in interest rates. The
Company does not expect changes in interest rates to have a material adverse
effect on its income or its cash flows in fiscal 2002. However, there can be no
assurances that interest rates will not significantly change in 2002.
22
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS
Index to Consolidated Financial Statements
As of December 31, 2001 and 2000
And for the years ended December 31, 2001, 2000, and 1999
Report of Independent Certified Public Accountants........................ 24
Independent Auditors' Report.............................................. 25
Consolidated Balance Sheets............................................... 26
Consolidated Statements of Operations and Comprehensive Loss.............. 27
Consolidated Statements of Changes in Stockholders' Equity................ 28
Consolidated Statements of Cash Flows..................................... 29
Notes to Consolidated Financial Statements................................ 30
Consolidated Financial Statement Schedule
Schedule II--Valuation and Qualifying Accounts............................ 51
23
Report of Independent Certified Public Accountants
The Stockholders and Board of Directors
JLM Industries, Inc.
We have audited the accompanying consolidated balance sheet of JLM
Industries, Inc. and subsidiaries as of December 31, 2001, and the related
consolidated statements of operations and comprehensive loss, changes in
stockholders' equity, and cash flows for the year ended December 31, 2001. Our
audit also included the financial statement schedule listed in the Index at Item
14a. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of JLM Industries,
Inc. and subsidiaries as of December 31, 2001, and the consolidated results of
their operations and their cash flows for the year ended December 31, 2001, in
conformity with accounting principles generally accepted in the United States.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, present fairly
in all material respects the information set forth therein.
Ernst & Young LLP
Tampa, Florida
March 29, 2002
24
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors of
JLM Industries, Inc.:
We have audited the accompanying consolidated balance sheets of JLM Industries,
Inc. and subsidiaries (the "Company") as of December 31, 2000, and the related
consolidated statements of operations and comprehensive loss, of changes in
stockholders' equity and of cash flows for each of the two years in the period
ended December 31, 2000. Our audits also included the 2000 and 1999 financial
statement schedules listed in the Index at Item 8. These financial statements
and the financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and the financial statement schedules 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 the results of its operations and its cash flows for each of the two
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 schedules for 2000 and 1999, when
considered in relation to the basic consolidated financial statements taken as a
whole, present 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 financial statements for the change.
DELOITTE & TOUCHE LLP
Certified Public Accountants
Tampa, Florida
April 17, 2001
25
JLM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
2001 2000
------------- -------------
ASSETS
Current Assets:
Cash and cash equivalents .......................................................... $ 228,618 $ 6,873,221
Accounts Receivable:
Trade, net of allowance of approximately $611,000 and
$288,000, respectively ....................................................... 25,568,489 47,507,510
Other ........................................................................... 2,153,314 5,406,089
Inventories ........................................................................ 10,963,883 24,507,901
Prepaid expenses and other current assets .......................................... 1,877,979 2,117,533
Income tax receivable .............................................................. 176,621 --
------------- -------------
Total current assets ........................................................ 40,968,904 86,412,254
Other investments .................................................................. 6,040,344 6,021,923
Property and equipment, net ........................................................ 19,930,939 24,201,841
Goodwill and other intangibles, net ................................................ 9,989,697 12,051,583
Other assets, net .................................................................. 7,033,094 7,692,315
------------- -------------
Total assets ................................................................ $ 83,962,978 $ 136,379,916
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses .............................................. $ 34,267,597 $ 76,984,627
Current portion of debt ............................................................ 3,456,448 7,257,975
Income taxes payable ............................................................... -- 2,475,228
Deferred revenue--current .......................................................... 544,444 600,000
------------- -------------
Total current liabilities ................................................... 38,268,489 87,317,830
Long-term debt ..................................................................... 11,804,033 14,155,851
Deferred income taxes .............................................................. 3,297,520 2,628,099
Minority interest .................................................................. 731,200 754,269
Deferred revenue and other liabilities ............................................. 2,996,800 3,594,267
------------- -------------
Total liabilities ........................................................... 57,098,042 108,450,316
Commitments and Contingencies (Note 13)
Stockholders' Equity:
Preferred stock--5,000,000 shares authorized;
0 shares issued and outstanding ................................................. -- --
Common stock--$.01 par value, 30,000,000 shares authorized;
9,956,522 and 7,234,201 shares issued, respectively ............................. 99,566 72,342
Additional paid-in capital ......................................................... 24,670,830 21,768,656
Retained earnings .................................................................. 8,310,792 11,300,653
Accumulated other comprehensive loss ............................................... (3,095,353) (1,942,602)
------------- -------------
29,985,835 31,199,049
Less treasury stock at cost - 640,979 and 665,979 shares, respectively ............. (3,120,899) (3,269,449)
------------- -------------
Total stockholders' equity .................................................. 26,864,936 27,929,600
------------- -------------
Total liabilities and stockholders' equity .................................. $ 83,962,978 $ 136,379,916
============= =============
See notes to consolidated financial statements.
26
JLM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
Years Ended December 31,
2001 2000 1999
------------- ------------- -------------
Revenues ......................................................... $ 340,226,513 $ 434,457,925 $ 332,697,833
Cost of revenues ................................................. 322,573,531 412,788,160 311,257,954
------------- ------------- -------------
Gross profit ................................................. 17,652,982 21,669,765 21,439,879
Selling, general and administrative expenses ..................... 23,511,337 25,250,744 24,632,066
------------- ------------- -------------
Operating loss ............................................... (5,858,355) (3,580,979) (3,192,187)
Interest expense--net ............................................ (2,774,576) (2,948,526) (1,676,036)
Other income (expense)--net ...................................... 7,496,877 (5,123,162) 230,539
Foreign currency exchange loss--net .............................. (366,943) (437,317) (237,784)
------------- ------------- -------------
Loss before minority interest, income taxes and
extraordinary item ........................................... (1,502,997) (12,089,984) (4,875,468)
Minority interest in income of subsidiaries ...................... 23,069 (211,184) (287,218)
------------- ------------- -------------
Loss before income taxes and
extraordinary item ........................................... (1,479,928) (12,301,168) (5,162,686)
------------- ------------- -------------
Income taxes
Current ...................................................... 300,338 767,649 (4,075,746)
Deferred ..................................................... 879,965 (4,772,410) 2,453,880
------------- ------------- -------------
Total income tax (benefit) provision ......................... 1,180,103 (4,004,761) (1,621,866)
------------- ------------- -------------
Loss before extraordinary item ................................... (2,660,031) (8,296,407) (3,540,820)
Extraordinary item:
Loss from debt extinguishment (net of income tax
benefit of approximately $210,000) ....................... (329,830) -- --
------------- ------------- -------------
Net loss ......................................................... (2,989,861) (8,296,407) (3,540,820)
Other comprehensive loss ......................................... (1,152,751) (956,782) (1,114,691)
------------- ------------- -------------
Comprehensive loss ............................................... $ (4,142,612) $ (9,253,189) $ (4,655,511)
============= ============= =============
Basic and diluted loss per share:
Loss before extraordinary item ............................... $ (0.31) $ (1.26) $ (0.53)
Extraordinary loss ........................................... (0.04) -- --
------------- ------------- -------------
Net loss ..................................................... $ (0.35) $ (1.26) $ (0.53)
============= ============= =============
Weighted average basic and diluted shares outstanding ............ 8,561,631 6,568,042 6,664,580
See notes to consolidated financial statements.
27
JLM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended December 31, 1999, 2000 and 2001
Accumulated
Additional Other Total
Common Paid-in Retained Comprehensive Treasury Stockholders'
Stock Capital Earnings (Loss) Income Stock Equity
------------ ------------ ------------ ------------ ------------ ------------
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
Issuance of stock ................... 1,120 45,161 -- -- 148,550 194,831
Sale of stock to employees .......... 353 67,131 -- -- -- 67,484
Issuance of warrants ................ -- 1,646,220 -- -- -- 1,646,220
Sale of stock - private placement ... 21,739 1,147,674 -- -- -- 1,169,413
Cashless exercise of warrants ....... 4,012 (4,012) -- -- -- --
Net loss ............................ -- -- (2,989,861) -- -- (2,989,861)
Other Comprehensive Loss ............ -- -- -- (1,152,751) -- (1,152,751)
------------ ------------ ------------ ------------ ------------ ------------
Balance at December 31, 2001 ........ $ 99,566 $ 24,670,830 $ 8,310,792 $ (3,095,353) $ (3,120,899) $(26,864,936)
============ ============ ============ ============ ============ ============
See notes to consolidated financial statements.
28
JLM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
2001 2000 1999
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ........................................................................... $ (2,989,861) $ (8,296,407) $ (3,540,820)
Adjustments to reconcile net loss to net cash provided by (used in) operating
activities:
Deferred income taxes .......................................................... 879,765 (4,772,410) 2,453,880
Minority interest in income of subsidiaries .................................... (23,069) 211,184 287,218
Loss (gain) on other investments ............................................... 176,548 3,306,203 (259,854)
Gain on disposition of subsidiaries ............................................ (2,303,710) -- --
Gain on sale of part of solvents business ...................................... (2,900,000) -- --
Issuance of restricted stock ................................................... -- 150,162 217,514
Depreciation and amortization .................................................. 3,820,847 3,893,142 4,045,626
Debt and accrued interest settled in legal settlement .......................... (1,954,960) -- --
Extraordinary loss ............................................................. 329,830 -- --
Stock issued in lieu of compensation ........................................... 194,831 -- --
Loss (gain) on sale of assets .................................................. -- (320,614) 28,490
Allowance for doubtful accounts ................................................ (322,931) 263,048 286,248
(Increase) decrease in assets:
Accounts receivable .......................................................... 9,903,048 343,531 (16,708,686)
Inventories .................................................................. 8,016,005 (2,901,261) (330,113)
Prepaid expenses and other current assets .................................... 204,561 (240,060) (1,936,166)
Other assets ................................................................. (1,127,430) 13,652 (3,710,954)
(Decrease) increase in liabilities:
Accounts payable and accrued expenses ........................................ (19,021,625) 15,159,396 21,918,542
Income taxes (payable)/receivable ............................................ (2,049,015) 5,053,170 (3,395,258)
Deferred revenue ............................................................. (630,921) 476,458 3,919,477
Other liabilities ............................................................ (22,102) (204,832) 1,206
------------ ------------ ------------
Net cash (used in) provided by operating activities .......................... (9,820,188) 12,134,362 3,276,350
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets ................................................... -- 2,435,606 --
Acquisition of investments ..................................................... -- (1,020,858) (3,938,285)
Proceeds from sale of investments .............................................. 81,292 941,641 666,564
Net proceeds from sale of subsidiaries ......................................... 7,188,120 -- --
Capital expenditures ........................................................... (591,918) (1,548,413) (2,203,571)
Purchase of subsidiaries ....................................................... -- -- (7,710,888)
------------ ------------ ------------
Net cash provided by (used in) investing activities........................... 6,677,494 807,976 (13,186,180)
------------ ------------ ------------
CASH FLOW FROM FINANCING ACTIVITIES:
Net (repayments of) proceeds from loans payable ................................ -- -- (454,295)
Net proceeds from revolving line of credit ..................................... 6,743,370 -- --
Net proceeds from debt ......................................................... 10,015,892 291,917 58,044,321
Principal payments of debt ..................................................... (20,900,206) (6,654,412) (46,915,814)
Proceeds from sale of stock, net of offering costs ............................. 2,261,614 68,872 2,553
Purchase of treasury shares .................................................... -- (238,280) (713,242)
------------ ------------ ------------
Net cash (used in) provided by financing activities .......................... (1,879,330) (6,531,903) 9,963,523
------------ ------------ ------------
Effect of foreign exchange rates on cash ........................................... (1,622,579) (956,782) (1,114,691)
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents ......................... (6,644,603) 5,453,653 (1,060,998)
Cash and cash equivalents, beginning of year ....................................... 6,873,221 1,419,568 2,480,566
------------ ------------ ------------
Cash and cash equivalents, end of year ............................................. $ 228,618 $ 6,873,221 $ 1,419,568
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest ....................................................................... $ 2,399,734 $ 2,462,046 $ 1,425,071
Income taxes ................................................................... $ -- $ -- $ 249,456
Noncash operating activities:
Deferred tax asset adjustment .................................................. $ -- $ 214,428 $ 341,400
Noncash investing activities:
Capital lease obligations ...................................................... $ -- $ 121,330 $ 51,686
Contribution of net assets of former subsidiary to joint venture investment .... $ -- $ 2,523,075 $ --
Noncash financing activities:
Warrants issued in connection with the sale of stock ........................... $ 1,024,718 $ -- $ --
Warrants issued in connection with debt ........................................ $ 621,502 $ -- $ --
Issuance of restricted stock ................................................... $ -- $ 150,162 $ 217,514
See notes to consolidated financial statements.
29
JLM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2001 and 2000
And for the years ended December 31, 2001,
2000 and 1999
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 sixth largest chemical
distributor 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. The consolidated financial statements 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 5), the accounts of JLM
Terminals, Inc. through October 10, 2001, the date this entity sold
substantially all of its assets (see Note 16 ), and the accounts of JLM
Chemicals Asia Pte, Ltd, through October 4, 2001, the date this entity was sold
(see Note 16) . The principal operating subsidiaries are JLM Marketing, Inc.
("JLM Marketing"), JLM Chemicals, Inc. ("JLM Chemicals"), JLM International,
Inc., JLM Industries (Europe) B.V., JLM Chemicals Canada, Inc. ("JLM Canada"),
JLM (Ind), Inc. 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.
Change in Accounting Principle
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, representing 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.
Management believes that the change in accounting method from LIFO to FIFO
results in a better matching of costs with the related revenues during periods
of fluctuating prices and is the primary method used in the industry in which
the Company operates. The effect of the change resulted in a decrease of $.12
per basic and diluted share, net of tax, during 1998. There was no impact on the
Company's 1999 earnings per share. If the Company had not changed its accounting
method from LIFO to FIFO during 2000, net income would have been decreased by
$267,867, net of tax, or $.04 per share for the year ended December 31, 2000.
Cash and Cash Equivalents
Cash and cash equivalents consist of highly liquid investments with
original maturities of three months or less.
30
JLM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2. Summary of Significant Accounting Policies--Continued
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, 2001 and 2000, JLM was owed approximately $80,000 and $148,000,
respectively, under these contracts which are included in inventory.
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. Direct internal costs associated with major equipment overhauls are
capitalized and depreciated over the estimated useful life.
A summary of the lives used for computing depreciation is as follows:
Buildings.................................................... 15 and 31.5 years
Vehicles..................................................... 2 to 10 years
Equipment.................................................... 5 to 15 years
Furniture and fixtures....................................... 3 to 5 years
Leasehold improvements....................................... Life of lease
Goodwill and Other Intangibles
Goodwill and other intangibles resulting from business acquisitions,
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.
Other Assets
Other assets consist primarily of the cash surrender values of life
insurance policies held on key employees and license fees.
On December 31, 1996, JLM entered into consulting and non-competition
agreements (the "Agreements") with two independent third parties. The terms of
the Agreements required the Company to make payments of $230,000 per year,
payable semi-annually beginning January 1, 1997 through December 31, 2002 for
consulting services, and to provide a loan in the amount of $470,000 which was
to be forgiven if the third parties complied with the terms of the
non-competition agreement through December 31, 2006. The payments for consulting
services were capitalized and amortized over the lives of the agreements. In
1999, the Consulting Agreements were terminated, and unamortized payments of
approximately $200,000 were written off on December 31, 1999. In 2000, the
$470,000 note receivable from the third parties was determined to be
uncollectible and was written off on December 31, 2000.
31
JLM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2. Summary of Significant Accounting Policies--Continued
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 agreements
using the straight-line method, which approximates the effective interest
method. Amortization expense related to deferred financing costs was
approximately $183,000, $60,000 and $36,000 during 2001, 2000, and 1999,
respectively.
Income Taxes
JLM accounts for income taxes under the asset and liability method as
required by Statement of Financial Accounting Standard ("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.
Other Comprehensive Loss
Other comprehensive loss 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 an
economic hedge against foreign accounts payable and receivables. Market value
gains and losses are recognized and generally offset foreign exchange gains and
losses on these payables and receivables. Gains and losses on foreign exchange
contracts are recorded in Foreign currency exchange loss, net in the
Consolidated Statement of Operations and Comprehensive Loss. The Company records
forward exchange contracts as assets or liabilities and reflects changes in the
market value in the statement of operations. At December 31, 2001, the Company
had open forward currency exchange agreements with fair values of approximately
$200,000. These contracts are included in Prepaid expenses and other current
assets in the Consolidated Balance Sheet. At December 31, 2000 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 17 for
additional information on the Company's stock-based compensation.
Loss Per Share
Basic 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 loss per share reflects the potential dilutive effect of
securities (which can consist of stock options, warrants, 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 2001, 2000, and 1999. During each of the years ended
2001, 2000, and 1999, the effect of these securities was antidilutive.
32
JLM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2. Summary of Significant Accounting Policies--Continued
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.
Additionally, the Company defers revenue related to all prepayments received for
the purchase of fixed quantities of inventory at fixed prices. Revenue is
recognized over the term of the agreement based on the units sold under the
agreement. The Company records a provision for loss if at any time such
agreements will require the Company to sell product in the future at prices
below cost. No reserve was required for the years ended December 31, 2001, 2000
and 1999. Included in long term deferred revenue and other liabilities is
approximately $2,972,000 and $3,594,000 of remaining deferred revenue at
December 31, 2001 and 2000, respectively. The Company includes in revenue any
shipping costs that are charged to customers, and includes related shipping
charges as cost of sales.
In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin 101 ("SAB 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
beginning in 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 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 materially 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.
33
JLM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2. Summary of Significant Accounting Policies--Continued
Impact of Recently Issued Accounting Standards
Statement of Financial Accounting Standard ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities", as amended, establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging activities.
Under SFAS No. 133, certain contracts that were not formerly considered
derivatives may now meet the definition of a derivative. The Company adopted
SFAS No. 133 effective January 1, 2001. The Company uses derivatives and
financial instruments in managing certain risks. The Company records the
derivatives as assets or liabilities and reflects changes in the market value in
the statement of operations. The Company does not enter into derivatives or
other financial instruments for trading or speculative purposes. Managed risk
includes the risk associated with changes in fair value of transactions
denominated in currencies other than the Company's various local currencies.
Issued in July 2001, SFAS No. 141, "Business Combinations", and SFAS No.
142, "Goodwill and Other Intangible Assets" make significant changes to the
accounting for business combinations, goodwill, and intangible assets. SFAS No.
141 eliminated the pooling-of-interests method of accounting for business
combinations with limited exceptions for combinations initiated prior to July 1,
2001. In addition, it further clarifies the criteria for recognition of
intangible assets separately from goodwill. This statement is effective for
business combinations completed after June 30, 2001. SFAS No. 142 discontinues
the practice of amortizing goodwill and indefinite lived intangible assets and
initiates an annual review for impairment. Impairment would be examined more
frequently if certain indicators are encountered. Intangible assets with a
determinable useful life will continue to be amortized over that period. The
Company is required to implement SFAS No. 142 on January 1, 2002. The Company
has not yet determined the amount of goodwill impairment under these new
standards. Amortization of goodwill will cease as of January 1, 2002, and
thereafter, all goodwill and any indefinite-lived intangible assets must be
tested at least annually for impairment. The effect of the non-amortization
provisions on 2002 operations is expected to decrease amortization expense by
approximately $282,000.
Issued in October 2001, SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets", replaces SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
The accounting model for long-lived assets to be disposed of by sales applies to
all long-lived assets, including discontinued operations, and replaces the
provisions of APB Opinion No. 30, "Reporting Results of Operations - Reporting
the Effects of Disposal of a Segment of a Business", for the disposal of
segments of a business. SFAS No. 144 requires that those long-lived assets be
measured at the lower of the carrying amount or fair value less cost to sell,
whether reported in continuing operations or in discontinued operations.
Therefore, discontinued operations will no longer be measured at net realizable
value or include amounts for operating losses that have not yet occurred. SFAS
No. 144 also broadens the reporting for discontinued operations to include all
components of an entity with operations that can be distinguished from the rest
of the entity and that will be eliminated from the ongoing operations of the
entity in a disposal transaction. The provisions of SFAS No. 144 are effective
for financial statements issued for fiscal years beginning after December 15,
2001 and, generally are to be applied prospectively. Early application is
encouraged. The Company has not yet determined the impact that the adoption of
SFAS No. 144 will have on its financial statements.
34
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:
2001 2000
------------ ------------
Land and buildings .................................................... $ 5,047,343 $ 8,466,199
Vehicles .............................................................. 267,466 574,072
Equipment ............................................................. 25,618,572 26,017,178
Leased equipment--capital leases ...................................... 1,347,616 1,319,663
Furniture and fixtures ................................................ 1,394,233 1,421,251
Leasehold improvements ................................................ -- 656,011
------------ ------------
33,675,230 38,454,374
Less accumulated depreciation and amortization ........................ (13,744,291) (14,252,533)
------------ ------------
$ 19,930,939 $ 24,201,841
============ ============
Depreciation and amortization expense for property and equipment was
approximately $2,862,000, $2,970,000 and $3,040,000, for the years ended
December 31, 2001, 2000, and 1999, respectively. Future minimum capital lease
payments for 2002 and 2003 are approximately, $61,000 and $78,000 respectively.
There are no capital leases with terms extending beyond 2003.
4. Goodwill and Other Intangibles
The Company's goodwill and intangibles consist of the following as of
December 31:
Estimated
Useful Lives 2001 2000
-------------- ------------ ------------
Goodwill ........................................... 10 to 40 years $ 7,939,788 $ 8,166,408
Non-compete contracts .............................. 3 years 131,028 183,429
Employee contracts ................................. 3 years 48,884 194,492
Customer list or base .............................. 15 years 2,753,900 4,160,367
Tax credit ......................................... 19 years 1,108,609 1,108,609
------------ ------------
11,982,209 13,813,305
Accumulated a mortization .......................... (1,992,512) (1,761,722)
------------ ------------
Goodwill and other intangibles, net ................ $ 9,989,697 $ 12,051,583
============ ============
Included in the accompanying balance sheets within the caption Other
assets, net, is the following as of December 31:
Estimated
Useful Lives 2001 2000
-------------- ------------ ------------
Distribution rights................................. 15 years $ 4,257,744 $ 3,975,527
Accumulated a mortization........................... (697,600) (382,966)
------------ ------------
Distribution rights, net............................ $ 3,560,144 $ 3,592,561
============ ============
Amortization expense during 2001, 2000, and 1999 was approximately
$959,000, $923,000, and $1,006,000 respectively.
35
JLM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. Other Investments
Other investments 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, an old line 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, 2001 and 2000 was approximately $195,000 and
$129,000 respectively. As of December 31, 2001 and 2000, the Company's
investment in Quibarca totaled approximately $3,732,000 and $3,000,000
respectively. The Company has a note payable to an individual as part of the
purchase of their 49% interest. As of December 31, 2001, there were three
payments of $125,000 per year remaining.
The following summarizes the assets, liabilities and stockholders' equity
of Quibarca at December 31:
2001 2000
----------- -----------
Assets
Current .................................... $ 6,936,781 $ 6,894,264
Noncurrent ................................. 1,477,292 343,709
----------- -----------
Total assets ................................... $ 8,414,073 $ 7,237,973
=========== ===========
Liabilities and Partners' Capital
Current liabilities ........................ $ 4,045,537 $ 3,315,924
Partners' capital .......................... 4,368,536 3,922,049
----------- -----------
Total liabilities and partners' capital ........ $ 8,414,073 $ 7,237,973
=========== ===========
The following summarizes revenues, cost of revenues, and net income for the
years ended December 31:
2001 2000
----------- -----------
Revenues ....................................... $12,391,172 $ 9,184,447
Cost of revenues ............................... 10,150,494 7,448,751
Net income ..................................... 398,143 263,953
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,
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, 2001 and 2000, the amount of this investment was
approximately $496,000. During 2001, 2000, and 1999 JLM did not contribute to
the partnership or receive any distributions.
36
JLM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. Other Investments--Continued
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 25.0% 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. 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. In the first quarter of 2001, the Company wound down the operations
of JLM Siam.
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, 2001 and 2000, JLM's other investments totaled
approximately $193,000 and $217,000, respectively. Of these amounts,
approximately $124,000 and $161,000, respectively, are accounted for using the
cost method and approximately $69,000 and $56,000, 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. During 2000, management evaluated the
collectibility of this receivable and reduced the $3,000,000 note receivable to
its estimated fair market value and recorded a loss of $1,500,000. During 2001
the Company obtained an order from a court in Athens, Greece awarding the
Polyform MEPE's assets in Greece to the Company. The assets are being carried at
$1,500,000 and have been classified as other investments in the consolidated
balance sheets.
Marketable Securities
JLM's marketable securities held for trading purposes were approximately
$120,000 and $378,000, at December 31, 2001 and 2000, respectively. The Company
incurred gains (losses) of approximately $(177,000), $(835,000) and $615,000
during the years ended December 31, 2001, 2000 and 1999, respectively.
6. 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, 2001, 2000 and 1999, OTC had net
losses of approximately $2,921,000, $2,422,000 and $1,891,000, 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, the Company will not record
additional losses on its investment until future operating income from OTC
surpasses the cumulative
37
JLM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. Olefins Terminal Corporation - continued
unrecorded operating losses or until any contingent payment obligations are
required. As of December 31, 2001, the Company had cumulative unrecorded
operating losses from OTC of approximately $4,704,000.
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, 2001, 2000 and 1999.
The following summarizes the assets, liabilities and stockholders' deficit
of OTC at December 31:
2001 2000
------------ ------------
Assets
Current ............................................................. $ 350,681 $ 720,340
Noncurrent .......................................................... 1,299,936 3,412,874
------------ ------------
Total assets ............................................................ $ 1,650,617 $ 4,133,214
============ ============
Liabilities and Stockholders' Deficit
Current liabilities ................................................. $ 7,979,519 $ 506,422
Noncurrent liabilities .............................................. -- 7,300,000
Stockholders' deficit ............................................... (6,328,902) (3,673,208)
------------ ------------
Total liabilities and stockholders' deficit ............................. $ 1,650,617 $ 4,133,214
============ ============
The following summarizes revenues, cost of revenues, and net loss for the
years ended December 31:
2001 2000 1999
------------ ------------ ------------
Revenues ........................................... $ 1,722,413 $ 2,551,666 $ 3,201,662
Cost of revenues ................................... 1,514,913 1,558,984 1,760,953
Net loss ........................................... (2,920,694) (2,422,331) (1,891,089)
7. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following at December
31:
2001 2000
------------ ------------
Accounts payable ........................................................ $ 25,287,013 $ 68,716,547
Accrued expenses ........................................................ 8,980,584 8,268,080
------------ ------------
$ 34,267,597 $ 76,984,627
============ ============
38
JLM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. Debt
Debt consists of the following at December 31:
2001 2000
----------- -----------
Notes payable to shareholders due in June 2002. Interest is Payable monthly at
10.0%, per annum ........................................................................... $ 1,000,000 $ 1,250,000
Mortgage payable due in monthly installments of principal and accrued interest until
June 15, 2004, based on a ten-year amortization schedule, at which time the
remaining balance is due. Interest is payable monthly at LIBOR plus 300 basis
points. LIBOR was 2.043% at December 31, 2001 .............................................. 1,806,458 --
Term loan payable to a corporation due in equal monthly payments of $76,965 through
June 2007. Interest is payable monthly at the rate of 10.99% ............................... 3,610,911 --
Revolving credit facility due June 2003. Interest is payable monthly at the rate of
either LIBOR plus 250 basis points or at prime rate plus .5 points .......................... 6,743,370 --
Mortgage payable due in equal monthly installments through June 2004. Interest
was payable monthly at 9.59%, per annum. The mortgage was paid in June 2001 ............... -- 1,316,124
Installment note payable to an individual due in equal annual installments of $125,000
without interest. The note is due in June 2004 ............................................. 375,000 --
Installment note payable due in ten equal monthly installments through July 2002.
Interest is payable monthly at 3.952% ....................................................... 667,975 --
Acquisition line of credit payable due in November 2004. Interest was payable
monthly at prime rate plus 1.75%. The line of credit was paid in June 2001 ................ -- 9,787,763
Secured loans payable due May 19, 2005. Interest was payable monthly at 14.4%
per annum. The loans were paid during 2001 ................................................ -- 88,624
Promissory note to a corporation. Interest rate is 8%. Annual installment of
$18,750 plus interest is due December 6, 2002 .............................................. 18,750 37,500
Note payable due in semi-annual installments through November 2000 with a
balloon payment due May 2001. Interest was payable semi-annually at LIBOR
plus one point for all payments except for the last one which the rate was LIBOR
plus three points. The loan was paid in May 2001 .......................................... -- 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% ............................................................ 899,388 899,388
Secured loans payable due in November 2002. Interest was payable monthly at
prime plus 1.25%. The prime rate was 9.5% at December 31, 2000. The loan was
paid in June 2001 ........................................................................... -- 6,045,000
Capital lease obligations due in equal monthly installments through August 2003
Interest is payable monthly at rates between 4.83%--16.99% ................................. 138,629 189,427
----------- -----------
Total .................................................................................. 15,260,481 21,413,826
Less current portion ................................................................... 3,456,448 7,257,975
----------- -----------
Long-term portion ...................................................................... $11,804,033 $14,155,851
=========== ===========
Long-term debt becoming due during subsequent fiscal years ending on December 31
is approximately as follows:
2002 ............................................................ $ 3,456,000
2003 ............................................................ 7,692,000
2004 ............................................................ 2,181,000
2005 ............................................................ 704,000
Thereafter ...................................................... 1,227,000
-----------
$15,260,000
===========
39
JLM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. Debt--Continued
The Company's debt is collateralized by substantially all of JLM's assets.
As of December 31, 2001, JLM had a total of approximately $40,000,000 of credit
facilities, consisting of line of credit and letter of credit agreements,
available with various financial institutions of which approximately $23,020,000
was unused. Availability under these agreements is subject to borrowing base
calculations. Total availability under all agreements at December 31, 2001 was
approximately $13,100,000. Additionally, as of December 31, 2001 and 2000, JLM
had guaranteed vendor letters of credit of approximately $7,760,000 and
$33,100,000, respectively. Certain provisions of the loans payable restrict the
Company's ability to pay dividends.
Credit agreement
The Company was party to the Amended and Restated Credit Agreement with
Citizens Bank of Massachusetts ("Citizens") (f/k/a State Street Bank and Trust)
(the "Credit Agreement"). The Credit Agreement contained certain financial
covenants which if not complied with by the Company would be deemed a default
under the agreement. At various times, the Company was not in compliance with
certain of these covenants. 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. In
connection with the First Amendment, the Company issued a warrant to Citizens to
purchase 250,000 shares of the Company's common stock at an exercise price of
$1.15 per share. Pursuant to the First Amendment, the number of shares issuable
under the warrants was reduced to 125,000 due to the loan being paid in full
prior to October 1, 2001. The loan was repaid on June 28, 2001. As of December
31, 2001, none of the 125,000 warrants had been exercised.
As of the issue date, the Company estimated the value of the Citizens
warrants using the Black-Scholes model to be $255,000, calculated based on a ten
year life, 5.25 percent risk-free interest rate, 63 percent volatility, and no
dividend yield due to lender restrictions on the Company's ability to pay
dividends. In addition the Company has never paid dividends. The value of the
warrants has been accounted for as a discount on the debt issuance, and was
charged to expense during 2001 as an extraordinary loss due to the
extinguishment of the Citizens loan.
Refinancing
On June 28, 2001, the Company consummated a series of debt and equity
financings aggregating approximately $31.5 million, the proceeds of which were
used to refinance the Company's prior credit facilities and reduce indebtedness.
The financings consisted of: (i) a $20.0 million revolving credit facility; (ii)
a $7.1 million term debt facility; (iii) a $1.9 million mortgage loan; and (iv)
a $2.5 million private placement of common stock.
Revolving Credit Facility
On June 28, 2001, the Company entered into a revolving credit facility (the
"Revolving Credit Facility") with Congress Financial Corporation (Florida)
("Congress"). Under the terms of the Revolving Credit Facility, the Company may
borrow up to 85% of the net amount of the Company's eligible accounts
receivable, plus the lesser of (i) 55% of the value of the Company's eligible
inventory or (ii) $12.0 million, up to a maximum amount of $20.0 million
(including outstanding letters of credit). As of December 30, 2001, $6.7 million
was outstanding under the Revolving Credit Facility, $5 million of which bore
interest at LIBOR plus 250 basis points, and $1.7 million of which bore interest
at the rate of 5.5% per annum. As collateral for the borrowings under the
Revolving Credit Facility, the Company granted Congress a security interest in
the Company's receivables, general intangibles, equipment, certain real property
and records. Borrowings under the Revolving Credit Facility will mature on June
27, 2003, unless the credit line is extended. If the Revolving Credit Facility
is terminated prior to its expiration date, including by reason of the Company's
prepayment of borrowings, the Company will be required to pay a termination fee
of (x) $400,000 if the facility is terminated on or before June 28, 2002, or (y)
$200,000 if the facility is terminated after such date.
40
JLM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. Debt--Continued
Term Debt Facility
On June 28, 2001, the Company entered into a $7.1 million term loan (the
"Term Debt Facility") with GATX Capital Corporation ("GATX") which matures on
June 27, 2007. As security for the borrowings under the Term Debt Facility, the
Company granted GATX a first lien on real property located at the Company's Blue
Island, Illinois manufacturing facility and the Wilmington, North Carolina
terminal. On October 10, 2001, the Company sold its Wilmington, North Carolina
terminal, amended its Term Debt Facility, repaid $3.0 million of the term loan
to GATX along with a prepayment penalty of $83,000, and delivered a standby
letter of credit of $500,000 as additional collateral. The balance of the Term
Loan of $3.6 million bears interest at a rate of 10.99% per annum. Pursuant to
the terms of the Term Debt Facility, the Company is required to make 70 monthly
installments of principal and accrued interest in the amount of $76,965 each,
ending June 27, 2007. Borrowings may be prepaid subject to a prepayment penalty
ranging between $198,083 (if paid between June 28, 2001 and June 30, 2002) to
$18,677 (if paid between July 1, 2005 and June 30, 2006).
In connection with the Term Debt Facility, the Company issued warrants to
GATX to purchase 155,109 shares of the Company's common stock at an exercise
price of $2.30 per share (the "GATX Warrants"). The GATX Warrants were
immediately exercisable and expire on June 28, 2011. The Company also granted
GATX certain registration rights with respect to the shares underlying the GATX
Warrants. As of December 31, 2001, none of the warrants had been exercised.
As of the issue date, the Company estimated the value of the GATX warrants
using the Black-Scholes model to be $366,502, calculated based on a ten year
life, 5.28 percent risk-free interest rate, 63 percent volatility, and no
dividend yield due to lender restrictions on the Company's ability to pay
dividends. In addition the Company has never paid dividends. The value of the
warrants has been accounted for as a discount on the debt issuance, and is being
amortized to interest expense over the outstanding debt term using the effective
interest method.
Mortgage Loan
On June 15, 2001, the Company entered into a $1.9 million credit agreement
(the "Mortgage Loan") with SouthTrust Bank ("SouthTrust"). As collateral for the
Mortgage Loan, the Company granted SouthTrust a first lien on the premises
located at 8675 Hidden River Parkway, Tampa, Florida, and an assignment of all
rents and leases related thereto. The Mortgage Loan bears interest at a rate
equal to LIBOR plus 300 basis points for periods of 30, 60 or 90 days,
calculated using a base year of 360 days. As of September 30, 2001, borrowings
under the Mortgage Loan bore interest at LIBOR plus 300 basis points. Pursuant
to the terms of the Mortgage Loan, the Company must make monthly payments of
principal and accrued interest until June 15, 2004 based on a ten-year
amortization schedule. The Company may prepay the principal balance due under
the Mortgage Loan at any time without penalty. As of December 31, 2001, the
outstanding principal balance was $1.8 million.
9. Stockholders' Equity
Private Placement
On June 28, 2001, the Company consummated a private placement (the
"Private Placement") of 2,173,913 shares of common stock (the "Shares") at a
purchase price of $1.15 per share, and received an aggregate of $2.5 million in
gross proceeds therefor. In connection with the Private Placement, the Company
issued warrants to purchase 250,000 shares of the Company's common stock on
March 29, 2001 to Phoenix Enterprises LLC ("Phoenix") and its designees, at
exercise prices of $1.43. The Company issued 100,000 warrants on May 24, 2001
and 325,000 warrants on June 28, 2001 to Phoenix Enterprises LLC ("Phoenix") and
its designees, at an exercise price of $1.15 per share (collectively, the
"Phoenix Warrants"). The Phoenix Warrants were immediately exercisable at the
date of the grant and were scheduled to expire five years from the date of
grant. On September 7, 2001, Phoenix exercised warrants to purchase 555,000
shares of common stock, using the cashless exercise provision, and received
331,048 shares of common stock. On October 11, 2001, designees of Phoenix
exercised warrants to purchase 120,000 shares of common stock, using the
cashless exercise provision, and received 70,164 shares of common stock. As of
December 31, 2001, all of the Phoenix Warrants had been exercised.
41
JLM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9. Stockholders' Equity - continued
The value of the Phoenix Warrants was estimated as of the respective issue
dates using the Black-Scholes model. The Company estimated the total value of
the warrant issues to be $1,024,718, calculated based on a five year life,
risk-free interest rates between 4.51 percent and 4.96 percent, 63 percent
volatility, and no dividend yield due to lender restrictions on the Company's
ability to pay dividends. In addition, the Company has never paid dividends. The
value of the warrants has been accounted for within additional paid in capital
as a cost of the issuance of the private placement.
At the time of the closing, the Company entered into a registration rights
agreement with the holders of the Shares and Phoenix Warrants which required the
Company to file a registration statement with the Securities and Exchange
Commission relating to the sale of the Shares and shares of common stock
issuable upon exercise of the Phoenix Warrants within 30 days from the closing
date and use the Company's best efforts to cause such registration statement to
be declared effective. The Company filed a Form S-3 Registration Statement on
July 20, 2001 relating to the offer and sale by certain shareholders of up to
4,511,022 shares of the Company's common stock. The Company will not receive any
proceeds from the sale of the Shares. The Company's Registration Statement on
Form S-3 became effective on October 30, 2001.
10. Related Party Transactions
The Company has a balance receivable of approximately $1,405,000 and
$1,369,000 owed by the majority stockholder at December 31, 2001 and 2000
respectively.
11. Income Taxes
The significant components of the deferred tax assets and liabilities were
as follows at December 31:
2001 2000
----------- -----------
Deferred tax assets:
Foreign intangible assets ........................ $ 135,727 $ 202,552
Foreign net operating loss and other carryforwards 1,549,215 2,449,019
Tax loss carryforwards ........................... 3,298,241 3,865,887
Minimum tax credit carryforward .................. 1,052,991 1,052,991
Other investments ................................ 584,100 584,100
Other ............................................ 735,444 418,905
----------- -----------
7,355,718 8,573,454
Valuation allowance .............................. (1,684,942) (2,651,571)
----------- -----------
Total deferred tax assets .................... 5,670,776 5,921,883
----------- -----------
Deferred tax liabilities:
Property ......................................... (6,403,099) (5,974,385)
Nonconsolidated investments ...................... (493,962) (589,534)
Foreign prepaid expenses ......................... (752,043) (643,758)
Foreign reserves and other ....................... (1,319,192) (1,319,192)
Other ............................................ -- (23,113)
----------- -----------
Total deferred tax liabilities ............... (8,968,296) (8,549,982)
----------- -----------
Net deferred tax liability ................... $(3,297,520) $(2,628,099)
=========== ===========
The valuation allowance for deferred tax assets as of December 31, 2001 and
2000 was $1,684,942, and $2,651,571 respectively, which serves to reduce the
potential tax benefits to be derived from foreign tax jurisdictions due to
management's assessment that it is not more likely than not to realize these
benefits. The net change in the total valuation allowance for the years ended
December 31, 2001, 2000, and 1999, was a decrease of $966,629, an increase of
$613,574, and a decrease of $247,649, respectively.
42
JLM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
11. Income Taxes--Continued
Current and deferred income tax provision (benefit) consisted of the
following at December 31:
2001 2000 1999
----------- ----------- -----------
Current
Federal ........................ $ (32,414) $ (233,351) $(4,502,282)
State and local ................ 86,730 (12,280) (26,385)
Foreign ........................ 246,022 1,013,280 452,921
----------- ----------- -----------
Total Current ............... 300,338 767,649 (4,075,746)
Deferred ........................... 879,765 (4,772,410) 2,453,880
----------- ----------- -----------
Total income tax (benefit) provision $ 1,180,103 $(4,004,761) $(1,621,866)
=========== =========== ===========
The income tax provision reflected above for 2001 does not reflect the
deferred income tax benefit of $210,344 related to the extraordinary item.
At December 31, 2001, there were Venezuelan NOLs of approximately
$2,250,000, available to offset future foreign taxable income. These net
operating losses expire in various years after 2002. At December 31, 2001 and
2000, there were Holland NOLs of approximately $2,100,000 and $4,800,000,
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:
2001 2000 1999
------ ------ ------
Statutory federal income tax rate ........................................................... 34.00% (34.00)% (34.00)%
State and local income taxes, net of federal income tax benefit ............................. (11.34) (3.55) (4.45)
Difference arising from transactions with, and profit and
loss of, foreign subsidiaries not deductible or
includible for U.S. tax purposes ........................................................ (4.84) 1.85 7.93
Repatriation of earnings from non-U.S subsidiaries .......................................... (15.71) -- --
Difference arising from the repatriation from and transaction to
dispose of the stock of JLM Asia (62.51) -- --
Other ....................................................................................... (18.34) 3.14 (0.90)
------ ------ ------
Effective income tax rate ................................................................... (78.74)% (32.56)% (31.42)%
====== ====== ======
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 $ 2, 000,000. 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.
12. Treasury Stock
On January 1, 2000 and 1999 the Company purchased 5,040 and 6,090 shares,
respectively, of common stock from certain officers of the Company valued at
approximately $17,000 and $30,500. 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 whereby the Company could purchase up to 500,000 shares of
its common stock. On September 6, 2000, the Company's Board of Directors
approved another Stock Repurchase Program whereby the Company could purchase up
to 100,000 shares of its common stock. During 2000 and 1999, the Company
purchased approximately 92,000 and 149,000
43
JLM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
12. Treasury Stock--Continued
shares of its common stock for approximately $238,000 and $713,000,
respectively, under the Stock Repurchase Program.
In August 2001, the Company issued 25,000 shares of its common stock out
of treasury in satisfaction of an obligation for consulting services rendered.
The shares held in treasury had been acquired by the Company at a cost of
approximately $149,000.
13. 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, 2001, are as follows:
2002............................................................ $2,613,000
2003............................................................ 1,983,000
2004............................................................ 1,394,000
2005............................................................ 810,000
2006 and thereafter............................................. 186,000
----------
Total minimum lease payments.................................... $6,986,000
==========
Total rental expenses for all operating leases approximated $3,362,000,
$2,682,000 and $1,914,000 for the years ended December 31, 2001, 2000 and 1999,
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 three of their facilities:
the JLM Chemicals, Blue Island, Illinois facility; the JLM Terminals facility;
and the JLM Realty 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.
In 1998, the Company assumed from the previous owner of both the JLM
Terminals facility and the JLM Realty 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 wrote off the $1,100,000 in the
fourth quarter of 2000.
44
JLM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
13. Commitments and Contingencies--Continued
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, and 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. 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.
The Company is committed for the future purchase of raw materials used in
its Blue Island facility at the current market price less a specified discount.
Commitments are for the monthly purchase of 25,000 barrels of benzene, and
30,000 barrels of propane propylene through the end of 2002. Additionally, the
Company extracts propylene from the propane propylene and is committed to sell
7,000 barrels per month of odorized propane back to the supplier at the current
market price less a specified discount. This commitment is in effect through the
end of 2002.
14. 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 the Company
matched 100% of the contribution of eligible employees, up to a maximum amount
of 6% of the employees' compensation. In 2001 and 2000, there was no Company
contribution for non-union employees, but the Company made matching
contributions 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
$84,000, $81,000 and $376,000 in 2001, 2000 and 1999, respectively.
15. 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.
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
2001, the Company did not exceed the $50,000 minimum. 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.
45
JLM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
15. Acquisitions--Continued
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 1999 operating
results of the Company were insignificant.
16. Dispositions
During the second quarter of 2001 the Company sold a portion of JLM
Marketing's solvents distribution business in the United States to Sasol North
America for $2,900,000 in cash. The primary assets sold as part of the
transaction were customer and supplier lists, marketing records, promotional
materials, and contracts and agreements. The assets were generated internally by
the Company and as a result had no carrying value. The $2,900,000 is reflected
in Other income in the consolidated statement of operations and comprehensive
loss.
On October 4, 2001, the Company sold all of the outstanding stock of its
wholly owned subsidiary, JLM Chemicals Asia Pte, Ltd. ("JLM Asia") for
$1,700,000 in cash and the cancellation of letters of credit in the amount of
$3,000,000. Included in the Company's results for the year ended December 31,
2001 is a charge of $1,.419,043 to reflect the loss on the transaction. As a
result of the sale, $469,657 of cumulative foreign currency translation
adjustments has been transferred from equity and included in the statement of
operations as part of the loss recognized on the disposition. Revenues, net
income (loss), and earnings (loss) per share, excluding the loss on the sale of
$1,419,043 in 2001, of JLM Asia, for the years ended December 31, 2001, 2000,
and 1999 are as follows:
Years Ended December 31,
--------------------------------------------------------
2001 2000 1999
--------------------------------------------------------
Revenues ............................................................. $ 130,961,912 $ 111,936,590 $ 73,547,183
Net income (loss) .................................................... $ (1,281,553) $ 1,303,870 $ 997,768
Effects on basic and diluted earnings (loss) per share .............. $ (0.15) $ 0.20 $ 0.15
On October 10, 2001, the Company sold substantially all of the assets of
JLM Terminals, Inc. ("JLM Terminals") for $6.25 million cash. The carrying value
of the property and equipment was $2.5 million. Revenues, net income (loss), and
earnings (loss) per share, excluding the gain on the sale of assets of $3.7
million, of JLM Terminals, for the years ended December 31, 2001, 2000, and 1999
are as follows:
Years Ended December 31,
--------------------------------------------------------
2001 2000 1999
--------------------------------------------------------
Revenues ............................................................. $ 1,657,822 $ 2,009,767 $ 1,534,276
Net income (loss) .................................................... $(1,524,841) $ (265,364) $ 68,795
Effects on basic and diluted earnings (loss) per share ............... $ (0.18) $ (0.04) $ 0.01
46
JLM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
17. 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.
During 2001, 2000, and 1999, the Company granted options for 15,000,
104,000, and 100,000 shares with an exercise price ranging from $2.60-$2.70,
$3.00-$3.30, and $5.00-$5.50, respectively. There were options to purchase
375,500 shares outstanding at December 31, 2001. The average market price of the
Company's common stock was less than the exercise price of the options
throughout 2001. At December 31, 2001, 374,500 shares were available for future
grants.
The following table illustrates information concerning the options issued
under the Company's Long-Term Incentive Plan for the years ended December 31,
2001 2000 1999
------ ------- -------
Options granted ................ 15,000 104,000 100,000
Options vested ................. 49,327 -- 116,713
Options exercised .............. -- -- --
Options cancelled .............. 38,800 148,532 26,333
Options expired ................ -- -- --
The Company has adopted the disclosure-only provisions of SFAS No. 123.
Accordingly, no compensation cost has been recognized for the options in the
accompanying consolidated statements of operations. Had compensation cost for
the options been determined based on the fair value at the grant date for awards
in 2001, 2000 and 1999, consistent with the provisions of SFAS No. 123, JLM's
net loss and loss per share for the years ended December 31, 2001, 2000, and
1999 would have been reduced to the pro forma amounts indicated below:
2001 2000 1999
------------ ------------ ------------
As reported:
Net loss .................... ($ 2,989,861) ($ 8,296,407) ($ 3,540,820)
Basic and diluted net
loss per share ............ (0.35) (1.26) (0.53)
Proforma:
Net loss .................... ($ 3,030,725) (8,489,559) (3,942,123)
Basic and diluted net
loss per share .............. (0.35) (1.29) (0.59)
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 2001, 2000, and 1999, respectively: expected
volatility of 63.0%, 54.0%, and 65.4%; risk-free interest rate of 5.25%, 6.39%,
and 6.34%; and expected lives of 5 years, 3.5 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.
18. 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
47
JLM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
18. Employee Stock Purchase Plan--Continued
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 2001, 2000, and 1999, employees of the Company purchased
16,980, 26,020, and 590 shares, respectively, of the Company's common stock
under the Purchase Plan, yielding proceeds to the Company of $23,060, $68,872,
and $2,553, respectively.
On September 28, 2001, the Company approved an additional employee stock
purchase plan as amended, (the "2001 Purchase Plan") whereby an aggregate of
600,000 shares of Common Stock are reserved for issuance under the 2001 Purchase
Plan. Under the 2001 Purchase Plan all employees will be given the opportunity
to enter into a subscription agreement to purchase shares of JLM Company Stock
in an amount equal to 10% of their compensation. The subscription agreement
covers the following four consecutive stock purchase dates defined in the plan
as "Delivery Dates". The Delivery Dates coincide with the first day of each
calendar quarter, January 1, April 1, July 1, and October 1. The purchase price
for the shares is fair market value defined as the average of the closing sale
prices for the Company's common stock for the ten trading days immediately
preceding each Delivery Date, and is paid for through payroll contributions from
the employee over the three month period following the purchase. During 2001
employees of the Company purchased 18,281 shares of the Company's common stock
under the 2001 Purchase Plan, yielding proceeds to the Company of $44,424.
19. Segment Reporting
JLM's business consists of a marketing and a manufacturing segment. JLM's
marketing segment includes its distribution, storage and terminaling operations
and all other sourcing operations.
The following schedule presents information about JLM's continuing
operations in these segments and geographic locations for the years ended
December 31:
Industry Segment 2001 2000 1999
------------- ------------- -------------
Revenues:
Marketing ................ $ 316,170,983 $ 410,524,343 $ 313,442,329
Manufacturing ............ 24,055,530 23,933,582 19,255,504
------------- ------------- -------------
$ 340,226,513 $ 434,457,925 $ 332,697,833
============= ============= =============
Operating (Loss) Income:
Marketing ................ $ (778,070) $ 2,910,368 $ 2,026,219
Manufacturing ............ (1,253,637) (2,116,152) (2,847,746)
Corporate ................ (3,826,648) (4,375,195) (2,370,660)
------------- ------------- -------------
$ (5,858,355) $ (3,580,979) $ (3,192,187)
============= ============= =============
Capital Expenditures:
Marketing ................ $ 140,278 $ 1,036,037 $ 921,754
Manufacturing ............ 451,640 512,376 1,276,817
Corporate ................ -- -- 5,000
------------- ------------- -------------
$ 591,918 $ 1,548,413 $ 2,203,571
============= ============= =============
Depreciation and Amortization:
Marketing ................ $ 1,727,449 $ 1,987,325 $ 1,945,414
Manufacturing ............ 1,958,848 1,760,127 1,703,281
Corporate ................ 134,550 145,690 396,931
------------- ------------- -------------
$ 3,820,847 $ 3,893,142 $ 4,045,626
============= ============= =============
Identifiable Assets:
Marketing ................ $ 47,743,425 $ 90,571,929 $ 102,198,980
Manufacturing ............ 21,429,348 24,666,907 24,174,644
Corporate ................ 14,790,205 12,141,080 13,109,160
------------- ------------- -------------
$ 83,962,978 $ 136,379,916 $ 139,482,784
============= ============= =============
48
JLM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
19. Segment Reporting--Continued
Geographic Location 2001 2000 1999
------------- ------------- -------------
Revenues:
United States ........... $ 100,779,705 $ 150,699,157 $ 137,870,521
Venezuela ............... -- 1,673,624 6,779,238
Holland ................. 81,614,985 131,611,851 93,714,583
Singapore ............... 128,507,685 111,568,490 73,212,683
South Africa ............ 22,661,010 23,392,630 7,338,330
Other nations ........... 6,663,128 15,512,173 13,782,478
------------- ------------- -------------
$ 340,226,513 $ 434,457,925 $ 332,697,833
============= ============= =============
Operating (Loss) Income:
United States ........... $ (2,149,448) $ (2,169,502) $ (4,656,413)
Venezuela ............... -- (537,510) (360,738)
Holland ................. (1,417,556) 672,770 1,695,458
Singapore ............... 1,251,441 1,414,023 1,403,464
South Africa ............ 128,611 93,861 (148,553)
Other nations ........... 155,245 1,320,574 1,245,255
Corporate ............... (3,826,648) (4,375,195) (2,370,660)
------------- ------------- -------------
$ (5,858,355) $ (3,580,979) $ (3,192,187)
============= ============= =============
Identifiable Assets:
United States ........... $ 57,237,862 $ 68,752,786 $ 81,950,564
Venezuela ............... -- 5,659,945 3,862,645
Holland ................. 13,168,874 17,041,868 23,931,789
Singapore ............... -- 28,715,830 13,438,680
South Africa ............ 8,564,925 9,256,293 8,952,621
Other nations ........... 4,991,317 6,953,194 7,346,485
------------- ------------- -------------
$ 83,962,978 $ 136,379,916 $ 139,482,784
============= ============= =============
20. Quarterly Financial Data (Unaudited)
Quarter Ended
-------------------------------------------------------------------------
Mar 31 Jun 30 (1) Sept 30 (2) Dec 31 (3)
------------- ------------- ------------- -------------
Fiscal 2001
Revenues ........................................ $ 116,038,922 $ 105,755,292 $ 82,966,386 $ 35,465,913
Gross profit .................................... 6,482,944 5,100,210 3,147,927 2,921,901
Net income (loss) before extraordinary
item ......................................... 252,501 577,015 (1,142,596) (2,346,951)
Net income (loss) before extraordinary
item, per share-basic ........................ $ 0.04 $ 0.08 $ (0.12) $ (0.24)
Net income (loss) before extraordinary
item, per share-diluted ...................... $ 0.04 $ 0.08 $ (0.12) $ (0.24)
Net income (loss) ............................... 252,501 577,015 (1,142,596) (2,676,781)
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)
(1) Includes the $2.9 million gain relating to the sale of a portion of JLM
Marketing's solvents distribution business in the United States.
(2) Includes the $1.4 million loss relating to the sale of JLM Asia and the
$3.0 million gain on settlement of a lawsuit.
(3) Includes the $3.7 million gain relating to the sale of the JLM Terminals
property.
49
JLM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
21. Extraordinary item
During 2001, the Company completed a series of debt and equity financings,
and used a portion of the proceeds to extinguish certain loans. Upon
extinguishment of the debt, the Company recorded a charge of $285,075. Also in
2001, the Company was required to make a substantial loan payment upon the sale
of the related collateral and recorded a charge of $255,100. In each instance,
the charges were comprised of unamortized deferred finance charges and the
difference between the carrying amount of the obligations and the redemption
amounts. Applicable income taxes related to the extraordinary charges was a tax
benefit of $210,344.
50
JLM INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 2001, 2000 and 1999
Balance at Charged to Balance at
Beginning of Year Expenses Deductions End of Year
----------------- -------- ---------- -----------
Year ended December 31, 2001
Accumulated amortization (1) ................... $3,713,559 $1,060,266 $ 456,414(3) $4,317,411
Allowance for doubtful accounts ................ $ 287,754 $ 602,628 $ 279,697(4) $ 610,685
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
(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.
(3) Represents the sale of intangible assets of JLM Asia.
(4) Represents write-offs of uncollectible accounts.
51
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On November 13, 2001, the Company dismissed Deloitte & Touche LLP ("D&T")
as its independent accountants for the year ending December 31, 2001. This
decision was approved by the Audit Committee of the Company.
There was no disagreement with D&T on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or procedure.
On November 13, 2001, Ernst & Young LLP was engaged as the Company's new
independent accountants.
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 following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of March 20, 2002, for (i)
each person known by the Company to own beneficially more than 5% of the
outstanding Common Stock, (ii) each director and nominee for director of the
company, (iii) each of the named executive officers (as defined under applicable
Securities and Exchange Commission Rules) of the Company (the "Named Executive
Officers") and (iv) all executive officers and directors as a group.
Number
Beneficially Percent of
Directors, Directors Nominees & Executive Officers Owned (1) Class
Name of Beneficial Owner (8)
John L. Macdonald .................................................... 4,248,340 (2) 44.7%
Maxwell Stolzberg, as Trustee of an Irrevocable Trust ................ 2,519,608 (2) 26.9%
Philip S. Sassower ................................................... 373,248 (3) 4.0%
Walter M. Tarpley .................................................... 83,332 (4) *
Michael Molina ....................................................... 55,021 (4) *
Linda Sato ........................................................... 33,152 (4) *
Sean D. Macdonald .................................................... 22,490 (4) *
A. Gordon Tunstall ................................................... 11,330 (5) *
Jerry A. Weinstein ................................................... 16,000 (5) *
Vincent J. Namoli .................................................... 10,000 (5) *
All Directors, Nominees for Directors and Executive Officers
as a group (9 persons) ........................................... 4,852,913 50.2%
5% Shareholders
Derry Macdonald ...................................................... 1,349,000 (6) 14.4%
Dimensional Fund Advisors, Inc. ...................................... 463,600 (7) 5.0%
52
* Less than one percent ownership
(1) Beneficial ownership of shares, as determined in accordance with
applicable Securities and Exchange Commission rules, includes shares to
which a person has or shares voting power and/or investment power and any
shares as of a given date which such persons has the right to acquire
within 60 days after such date. Except as otherwise indicated, all shares
are held of record with sole voting and investment power.
(2) Of the shares shown for Mr. Macdonald and Mr. Stolzberg, as Trustee,
2,519,608 shares are held of record by an Irrevocable Trust of which Mr.
Stolzberg is Trustee and Mr. Macdonald is the grantor and sole
beneficiary. Under terms of the Irrevocable Trust, Mr. Stolzberg, as
Trustee, has the full and exclusive right and power to vote and dispose of
all shares of the Common Stock held by the Irrevocable Trust. However, as
a result of Mr. Macdonald's right to terminate the Irrevocable Trust by
providing written notice at certain specified times and acquire beneficial
ownership of the shares of Common Stock held by the Irrevocable Trust, Mr.
Macdonald and the Trustee may be deemed to share voting and investment
control with respect to the shares of Common Stock held by the Irrevocable
Trust. Also, of the shares shown for Mr. Macdonald, 1,349,000 are held of
record by Derry L. Macdonald, but Mr. Macdonald is deemed to beneficially
own these shares because pursuant to a Stockholders Voting Agreement,
Irrevocable Proxy and Right of First Refusal Mr. Macdonald has a right to
vote the shares. For Mr. Macdonald, the number of shares include 167,040
shares of Common Stock held by two irrevocable trusts created for the
benefit of Mr. Macdonald's children for which Mr. Macdonald disclaims
beneficial ownership. Mr. Macdonald personally owns 61,026 shares.
Additionally, Mr. Macdonald's shares include 151,666 shares deemed to be
beneficially owned by Mr. Macdonald by virtue of certain stock options
that are currently exercisable.
(3) For Mr. Sassower, the number of shares includes 331,048 shares held by
Phoenix Enterprises LLC, of which Mr. Sassower is the managing member.
Additionally, 37,200 shares are held by the Phillip S. Sassower 1996
Charitable Remainder Annuity Trust, of which Mr. Sassower and his wife are
co-trusteees and 5,000 shares issuable upon exercise of stock options
granted to Mr. Sassower, which are currently exercisable or exercisable
within 60 days of March 31,2002.
(4) For Mr. Tarpley, the number of shares includes 43,333 shares of vested
options and 39,999 shares personally owned. For Mr. Molina, the number of
shares includes 38,333 shares of vested options and 16,688 share
personally owned. For Ms. Sato, the number of shares includes 21,000
shares of vested options and 12,152 shares personally owned. For Mr. Sean
Macdonald, the number of shares includes 13,333 shares of vested options,
and 9,157 shares personally owned.
(5) For Mr. Weinstein, the number of shares shown reflects 16,000 shares
deemed to be beneficially owned by him by virtue of certain stock options
that are currently exercisable or will become exercisable in 60 days. For
Mr. Tunstall, the number of shares shown reflects 5,000 shares deemed to
be beneficially owned by him by virtue of certain stock options that are
currently exercisable or will become exercisable in 60 days, and 6,330
shares personally owned. For Mr. Naimoli, the number of shares shown
reflects 10,000 shares deemed to be beneficially owned by him by virtue of
certain stock options that are currently exercisable or will become
exercisable in 60 days.
(6) This information is derived from a Schedule 13G dated October 25, 2001
filed by Derry L. Macdonald. The business address of Ms. Macdonald is 1047
Royal Pass Road, Tampa, Florida 33602. John L. Macdonald has the right to
vote these shares pursuant to a Stockholders Voting Agreement, Irrevocable
Proxy and Right of First Refusal.
(7) This information is derived from a Schedule 13G dated February 12, 2002
filed by Dimensional Fund Advisors. The address of Dimensional Fund
Advisors is 1299 Ocean Avenue, 11th Floor, Santa Monica, CA 90401.
(8) The business address for Messrs. Macdonald, Stolzberg (as trustee),
Sassower, Tarpley, Molina, S. Macdonald, Weinstein, Tunstall, Naimoli and
Ms. Sato is c/o JLM Industries, Inc., 8675 Hidden River Parkway, Tampa,
Florida 33637. The business address for Mr. Tunstall is 13153 N. Dale
Mabry, Tampa, Florida 33618.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY 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.
53
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 Ernst &
Young LLP are found in Item 8 "Consolidated Financial Statements and
Supplemental Data" herein.
2. 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.
3. 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, 2001, 2000 and 1999
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. During the last quarter of the fiscal year ended
December 31, 2001, the Company filed the following Reports on
Form 8-K:
On October 5, 2001, the Company filed a Current Report on Form 8-K
disclosing the anticipated sale of substantially all of the assets of JLM
Terminals, Inc. and the sale of JLM Asia Pte, Ltd.
On October 18, 2001, the Company filed a Current Report on Form 8-K
disclosing the consummation of the sale of substantially all of the assets of
JLM Terminals, Inc. and the sale of the JLM Asia Pte, Ltd., pro forma financial
information relating to the sales, and the settlement of certain legal
proceedings to which the Company and certain of its affiliates were parties.
On November 9, 2001 the Company filed a Current Report on Form 8-K
incorporating by reference the matters set forth in the Company's earnings press
release dated November 7, 2001.
On November 19, 2001 the Company filed a Current Report on Form 8-K
disclosing changes in Registrant's Certifying Accountant.
(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)
4.1 Warrant to purchase shares of common stock of the Company held
by GATX Capital Corporation, dated June 28, 2001 (6)
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)
54
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 Propane/Propylene Agreement between Clark Oil & Refining
Corporation and BTL Specialty Resins Corp. (1)
10.7 Q-Max Process License Agreement between BTL Specialty Resins
Corp. and UOP (1)
10.8 Credit Agreement among JLM Chemicals, Inc., The
CITGroup/Equipment Financing, Inc. and The CIT Group/Business
Credit, Inc., as amended (1)
10.9 Security Agreement by JLM Chemicals, Inc. in favor of the Lenders
and The CIT Group/Equipment Financing, Inc. (1)
10.10 Pledge Agreement by JLM Industries, Inc. in favor of the Lenders
and The CIT Group/Equipment Financing, Inc. (1)
10.11 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)
10.12 Partnership Agreement of Mt. Vernon Phenol Plant Partnership (1)
10.13 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)
10.14 Master Promissory Note by JLM International, Inc. and Olefins
Marketing, Inc. in favor of Caisse Nationale De Credit Agricole
(1)
10.15 Guaranty Agreement by JLM Industries, Inc. to Caisse Nationale
De Credit Agricole, New York Branch (1)
10.16 Security Agreement between Olefins Marketing, Inc. and Caisse
Nationale De Credit Agricole, New York Branch (1)
10.17 Security Agreement between JLM International, Inc. and Caisse
Nationale De Credit Agricole, New York Branch (1)
10.18 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)
10.19 Facility Letter between Standard Chartered Bank and Olefins
Marketing (1)
10.20 Security Agreement by Olefins Marketing to Standard Chartered
Bank (1)
10.21 Security Agreement by JLM International, Inc. to Standard
Chartered Bank (1)
10.22 Continuing Guaranty by JLM International, Inc. and Olefins
Marketing Corp. in favor of Standard Chartered Bank (1)
10.23 Facility letter between Generale Bank and JLM Industries (1)
10.24 Corporate Guarantee by JLM Industries, Inc. to Generale Bank (1)
55
10.25 Agreement by and among Union Carbide Corporation, D-S Splitter,
Inc., JLM Industries, Inc. and Olefins Terminal Corporation (1)
10.26 Pledge and Security Agreement by JLM Industries, Inc. to
Ultramar Diamond Shamrock Corporation (1)
10.27 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)
10.28 Investment Agreement by and between JLM Industries, Inc. and Tan
Siew Kiat (1)
10.29 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)
10.30 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)
10.31 Form of Indemnification Agreement for Officers and Directors (1)
10.32 Form of 1997 Employee Stock Purchase Plan (1)
10.33 2001 Employee Stock Purchase Plan (7)
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 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)
10.38 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
10.39 Employment agreement between JLM Industries, Inc. and Walter M.
Tarpley dated December 3, 1998 (2)
10.40 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)
10.41 Purchase agreement with ICI South Africa Limited. (4)
56
10.42 Purchase agreement with Societe Financiere d'Entreposage et de
Commerce International de l'Alcool, S.A. (4)
10.43 Employment agreement between JLM Industries, Inc. and Michael E.
Hayes dated October 1, 2000 (5)
10.44 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 (5)
10.45 Loan and Security Agreement, dated June 28, 2001, by and between
the Company and Congress Financial Corporation (Florida) (6)
10.46 Loan Agreement, dated June 28, 2001, by and between the Company
and GATX Capital Corporation (6)
10.47 Credit Agreement, dated June 15, 2001, by and between the Company
and SouthTrust Bank (6)
10.48 Purchase Agreement, dated June 7, 2001, by and among the Company
and the Investors listed on Schedule I attached thereto (6)
10.49 Share Sale Agreement, dated September 19, 2001, by and among Chan
Kwok Weng, Kong Hwai Ming and Unibros Investment Pte Ltd. and
JLM International, Inc. (8)
10.50 Asset Purchase Agreement, dated October 1,2001, by and between
JLM Terminals, Inc. and CTI of North Carolina, Inc. (8)
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
23.2 Consent of Ernst & Young 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 (Reg. No. 333-27843) filed with
the Commission on July 21, 1997.
(2) Incorporated by reference to the Exhibits filed with the Company's
Report on Form 10-Q, filed with the Commission on May 14, 1999.
(3) Incorporated by reference to the Exhibits filed with the Company's
Report on Form 8-K/A, filed with the Commission on June 23, 1999.
(4) Incorporated by reference to the Exhibits filed with the Company's
Annual Report on Form 10-K, filed with the Comission on March 30,
2000.
(5) Incorporated by reference to the Exhibits filed with the Company's
Annual Report on Form 10-K, filed with the Commission on April 18,
2001.
(6) Incorporated by reference to the Exhibits filed with the Company's
Report on Form 8-K, filed with the Commission on July 6, 2001.
(7) Incorporated by reference to Exhibit 4.1 to the Company's
Registration Statement on Form S-8 (Reg. No. 333-70614)filed with
the Commission on October 1, 2001.
(8) Incorporated by reference to the Exhibits filed with the Company's
Report on Form 8-K, filed with the Commission on October 18, 2001.
** Confidential treatment has been requested with respect to portions
of this Exhibit.
(d) Financial Statement Schedules: See Item 14(a) above.
57
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 1, 2002
By: /s/ John L. Macdonald
-------------------------------------
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 1, 2002
- -------------------------------- Director (Principal Executive Officer)
John L. Macdonald
/s/ Michael Molina Vice President and Chief Financial Officer April 1, 2002
- -------------------------------- (Principal Financial Officer
Michael Molina and Principal Accounting Officer)
/s/ Walter M. Tarpley Vice President, Chief Operating Officer April 1, 2002
- -------------------------------- and Director
Walter M. Tarpley
/s/ Sean D. Macdonald Vice President and Director April 1, 2002
- --------------------------------
Sean D. Macdonald
/s/ Jerry L. Weinstein Director April 1, 2002
- --------------------------------
Jerry L. Weinstein
/s/ Philip S. Sassower Director April 1, 2002
- --------------------------------
Philip S. Sassower
/s/ Vincent J. Naimoli Director April 1, 2002
- --------------------------------
Vincent J. Naimoli
/s/ A. Gordon Tunstall Director April 1, 2002
- --------------------------------
A. Gordon Tunstall
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)
4.1 Warrant to purchase shares of common stock of the Company held by
GATX Capital Corporation, dated June 28, 2001 (6)
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 Propane/Propylene Agreement between Clark Oil & Refining Corporation
and BTL Specialty Resins Corp. (1)
10.7 Q-Max Process License Agreement between BTL Specialty Resins Corp. and
UOP (1)
10.8 Credit Agreement among JLM Chemicals, Inc., The CITGroup/Equipment
Financing, Inc. and The CIT Group/Business Credit, Inc., as amended
(1)
10.9 Security Agreement by JLM Chemicals, Inc. in favor of the Lenders and
The CIT Group/Equipment Financing, Inc. (1)
10.10 Pledge Agreement by JLM Industries, Inc. in favor of the Lenders and
The CIT Group/Equipment Financing, Inc. (1)
10.11 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)
10.12 Partnership Agreement of Mt. Vernon Phenol Plant Partnership (1)
10.13 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)
10.14 Master Promissory Note by JLM International, Inc. and Olefins
Marketing, Inc. in favor of Caisse Nationale De Credit Agricole (1)
10.15 Guaranty Agreement by JLM Industries, Inc. to Caisse Nationale De
Credit Agricole, New York Branch (1)
10.16 Security Agreement between Olefins Marketing, Inc. and Caisse
Nationale De Credit Agricole, New York Branch (1)
10.17 Security Agreement between JLM International, Inc. and Caisse
Nationale De Credit Agricole, New York Branch (1)
10.18 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)
10.19 Facility Letter between Standard Chartered Bank and Olefins Marketing
(1)
10.20 Security Agreement by Olefins Marketing to Standard Chartered Bank (1)
10.21 Security Agreement by JLM International, Inc. to Standard Chartered
Bank (1)
10.22 Continuing Guaranty by JLM International, Inc. and Olefins Marketing
Corp. in favor of Standard Chartered Bank (1)
10.23 Facility letter between Generale Bank and JLM Industries (1)
10.24 Corporate Guarantee by JLM Industries, Inc. to Generale Bank (1)
10.25 Agreement by and among Union Carbide Corporation, D-S Splitter, Inc.,
JLM Industries, Inc. and Olefins Terminal Corporation (1)
10.26 Pledge and Security Agreement by JLM Industries, Inc. to Ultramar
Diamond Shamrock Corporation (1)
10.27 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)
10.28 Investment Agreement by and between JLM Industries, Inc. and Tan Siew
Kiat (1)
10.29 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)
10.30 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)
10.31 Form of Indemnification Agreement for Officers and Directors (1)
10.32 Form of 1997 Employee Stock Purchase Plan (1)
10.33 2001 Employee Stock Purchase Plan (7)
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 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)
10.38 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
10.39 Employment agreement between JLM Industries, Inc. and Walter M.
Tarpley dated December 3, 1998 (2)
10.40 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)
10.41 Purchase agreement with ICI South Africa Limited. (4)
10.42 Purchase agreement with Societe Financiere d'Entreposage et de
Commerce International de l'Alcool, S.A. (4)
10.43 Employment agreement between JLM Industries, Inc. and Michael E. Hayes
dated October 1, 2000. (5)
10.44 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. (5)
10.45 Loan and Security Agreement, dated June 28, 2001, by and between the
Company and Congress Financial Corporation (Florida) (6)
10.46 Loan Agreement, dated June 28, 2001, by and between the Company and
GATX Capital Corporation (6)
10.47 Credit Agreement, dated June 15, 2001, by and between the Company and
SouthTrust Bank (6)
10.48 Purchase Agreement, dated June 7, 2001, by and among the Company and
the Investors listed on Schedule I attached thereto (6)
10.49 Share Sale Agreement, dated September 19, 2001, by and among Chan
Kwok Weng, Kong Hwai Ming and Unibros Investment Pte Ltd. and JLM
International, Inc. (8)
10.50 Asset Purchase Agreement, dated October 1,2001, by and between JLM
Terminals, Inc. and CTI of North Carolina, Inc. (8)
21.1 List of Subsidiaries of the Company.
23.1 Consent of Deloitte & Touche LLP to the consolidated financial
statements of JLM Industries, Inc. and subsidiaries
23.2 Consent of Ernst & Young 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 (Reg. No. 333-27843) filed with the
Commission on July 21, 1997.
(2) Incorporated by reference to the Exhibits filed with the Company's Report
on Form 10-Q, filed with the Commission on May 14, 1999.
(3) Incorporated by reference to the Exhibits filed with the Company's Report
on Form 8-K/A, filed with the Commission on June 23, 1999.
(4) Incorporated by reference to the Exhibits filed with the Company's Annual
Report on Form 10-K, filed with the Commission on March 30, 2000.
(5) Incorporated by reference to the Exhibits filed with the Company's Annual
Report on Form 10-K, filed with the Commission on April 18, 2001.
(6) Incorporated by reference to the Exhibits filed with the Company's Report
on Form 8-K, filed with the Commission on July 6, 2001.
(7) Incorporated by reference to Exhibit 4.1 to the Company's Registration
Statement on Form S-8 (Reg. No. 333-70614), filed with the Commission on
October 1, 2001.
(8) Incorporated by reference to the Exhibits filed with the Company's Report
on Form 8-K, filed with the Commission on October 18, 2001.
** Confidential treatment has been requested with respect to portions of this
Exhibit.