UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 28, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ______________
Commission File Number
0-24620
DARLING INTERNATIONAL INC.
(Exact name of registrant as specified in its charter)
Delaware 36-2495346
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification
Number)
251 O'Connor Ridge Blvd.
Suite 300
Irving, Texas 75038
(Address of principal executive offices) (Zip Code)
(972) 717-0300
(Registrant's telephone number, including area code)
Not Applicable
(Former name, address and fiscal year, if changed since last report)
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 report(s)), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
The number of shares outstanding of the Registrant's common stock, $0.01
par value, as of November 11, 1996 was 5,149,444.
<PAGE>
Page 2
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
FORM 10-Q FOR THE THREE MONTHS ENDED SEPTEMBER 28, 1996
TABLE OF CONTENTS
Page No.
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets -
September 28, 1996 (unaudited) and December 30, 1995............. 3
Consolidated Statements of Operations (unaudited) -
Three Months and Nine Months Ended September 28, 1996 and
September 30, 1995 .............................................. 4
Consolidated Statements of Cash Flows (unaudited) -
Nine Months Ended September 28, 1996 and September 30, 1995...... 5
Notes to Consolidated Financial Statements (unaudited)............. 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ................................ 9
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS .................................................. 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................. 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ................................... 14
Signatures ........................................................ 16
Index to Exhibits................................................... 17
<PAGE>
Page 3
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED BALANCE SHEETS
September 28, 1996 and December 30, 1995
(in thousands, except shares and per share data)
<CAPTION>
September 28, 1996 December 30, 1995
------------------ -----------------
ASSETS (unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 11,975 $ 11,649
Accounts receivable, principally trade, less allowance
of $294 in 1996 and $147 in 1995 34,165 30,230
Inventories 15,256 11,584
Prepaid expenses 2,822 2,963
Deferred income tax assets 3,557 4,281
Other 778 3,394
Total current assets 68,553 64,101
Property, plant and equipment, less accumulated depreciation
of $49,904 at September 28, 1996 and
$34,198 at December 30, 1995 169,385 155,065
Collection routes and contracts, less accumulated amortization
of $5,176 at September 28, 1996 and
$7,854 at December 30, 1995 60,920 42,893
Goodwill, less accumulated amortization of
$101 at September 28, 1996 22,785 -
Other assets 4,422 4,003
$326,065 $266,062
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 8,558 $ 9,060
Accounts payable, principally trade 32,033 17,378
Accrued expenses (note 4) 27,682 20,831
Accrued interest 2,336 3,896
Total current liabilities 70,649 51,165
Long-term debt, less current portion 143,137 117,096
Other noncurrent liabilities 21,867 15,233
Deferred income taxes 28,701 27,735
Total liabilities 264,354 211,229
Stockholders' equity
Common stock, $.01 par value;
10,000,000 shares authorized;
5,149,349 and 5,085,510 shares issued 51 51
Additional paid-in capital 33,631 33,045
Retained earnings 28,029 21,737
Total stockholders' equity 61,711 54,833
Contingencies (note 4)
$326,065 $266,062
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
Page 4
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months and nine months ended September 28, 1996 and September 30, 1995
(in thousands, except per share data)
<CAPTION>
Three Months Ended Nine Months Ended
------------------------- -----------------------
Sept. 28, Sept. 30, Sept. 28, Sept. 30,
1996 1995 1996 1995
--------- --------- --------- ---------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net sales $127,249 $ 95,467 $351,242 $307,715
Costs and expenses:
Cost of sales and operating expense 101,861 76,872 280,466 243,831
Selling, general and administrative expenses 9,271 6,533 23,763 19,062
Depreciation and amortization 6,968 5,743 19,594 16,617
Provision for loss contingency 5,946 - 6,075 -
Total costs and expenses 124,046 89,148 329,898 279,510
Operating profit 3,203 6,319 21,344 28,205
Other income (expense):
Interest expense (3,099) (3,163) (8,996) (9,836)
Other, net (13) 7 218 (87)
Total other income (expense) (3,112) (3,156) (8,778) (9,923)
Income before income taxes 91 3,163 12,566 18,282
Income tax expense (note 4) 1,344 1,102 6,274 6,739
Net earnings (loss) $ (1,253) $ 2,061 $ 6,291 $ 11,543
Primary earnings (loss) per common share $ (0.24) $ 0.38 $ 1.14 $ 2.18
Fully diluted earnings (loss) per common share $ (0.24) $ 0.38 $ 1.14 $ 2.15
The accompanying notes are an integral part of these
consolidated financial statements.
</TABLE>
Prior periods have been reclassified to conform to current
period presentation.
<PAGE>
Page 5
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS Nine months ended
September 28, 1996 and September 30, 1995
(in thousands)
<CAPTION>
Nine Months Ended
----------------------------------
September 28, September 30,
1996 1995
-------------- -----------
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 6,291 $ 11,543
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 19,594 16,617
Deferred income tax expense 226 1,918
Loss on sales of assets 175 137
Changes in assets and liabilities, net of effects from acquisition:
Accounts receivable 3,774 2,663
Inventories and prepaid expenses (205) 302
Accounts payable and accrued expenses 7,866 (9,320)
Accrued interest (1,567) (2,364)
Other (607) (4,870)
Net cash provided by operating activities 35,547 26,366
Cash flows from investing activities:
Recurring capital expenditures (17,204) (17,417)
Other capital expenditures (1,144) (1,986)
Payments for routes (105) (4,034)
Cash received/(paid) upon acquisitions (2,053) -
Proceeds from sale of property, plant and equipment
and other assets 331 396
Net cash used in investing activities (20,175) (23,041)
Cash flows from financing activities:
Proceeds from long-term debt 15,793 98,286
Payments on long-term debt (30,927) (99,007)
Contract payments (499) (98)
Deferred loan costs - (740)
Issuance of common stock 587 760
Net cash used in financing activities (15,046) (799)
Net increase in cash and cash equivalents 326 2,526
Cash and cash equivalents at beginning of period 11,649 5,068
Cash and cash equivalents at end of period $ 11,975 $ 7,594
Supplemental Cash Flow Information: See Note 3.
he accompanying notes are an integral part of these
consolidated financial statements.
</TABLE>
<PAGE>
Page 6
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 28, 1996
(unaudited)
(1) GENERAL
The accompanying consolidated financial statements for the three month
and nine month periods ended September 28, 1996 and September 30, 1995
have been prepared by Darling International Inc. (Company) without audit,
pursuant to the rules and regulations of the Securities and Exchange
Commission (SEC). The information furnished herein reflects all
adjustments (consisting primarily of normal recurring accruals) which
are, in the opinion of management, necessary to present a fair statement
of the financial position and operating results of the Company for the
respective periods. Certain information and footnote disclosures normally
included in annual financial statements prepared in accordance with
generally accepted accounting principles have been omitted pursuant to
such rules and regulations. However, management of the Company believes
that the disclosures herein are adequate to make the information
presented not misleading. The accompanying consolidated financial
statements should be read in conjunction with the consolidated financial
statements contained in the Company's Form 10-K/A for the fiscal year
ended December 30, 1995.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
The consolidated financial statements include the accounts of the
Company and its subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
(b) Fiscal Periods
The Company has a 52/53 week fiscal year ending on the Saturday
nearest December 31. Fiscal periods for the consolidated financial
statements included herein are for the 52 weeks ended December 30,
1995, the 13 and 39 weeks ended September 28, 1996, and the 13 and
39 weeks ended September 30, 1995.
(c) Earnings (Loss) Per Common Share
Primary earnings (loss) per common share is computed by dividing
net earnings (loss) attributable to outstanding common stock by
the weighted average number of common stock shares outstanding
during the period increased by dilutive common equivalent shares
(stock options) determined using the treasury stock method.
Primary weighted average equivalent shares are determined based on
the average market price exceeding the exercise price of the stock
options. Fully diluted weighted average equivalent shares are
determined based on the higher of the average or ending market
price exceeding the exercise price of the stock options.
<PAGE>
(3) SUPPLEMENTAL CASH FLOW INFORMATION
During the nine months ended September 28, 1996, non-cash investing and
financing activities included the purchase of 100% of the common stock of
Standard Tallow Company for $10,400,000. Assets acquired, liabilities
assumed, and consideration paid for this acquisition are as follows:
Fair value of assets acquired, less cash $ 21,244,000
Liabilities assumed and incurred (12,272,000)
Bank debt incurred (10,400,000)
Cash received upon purchase $ (1,428,000)
In addition, the Company purchased 100% of the commons stock of
International Processing Corporation and International Transportation
Service, Inc. (collectively referred to as "IPC") for $30,000,000. Assets
acquired, liabilities assumed and consideration paid for this acquisition
are as follows:
Fair value of assets acquired, less cash $ 46,615,000
Liabilities assumed and incurred (13,534,000)
Bank debt incurred (29,600,000)
Cash paid upon purchase $ 3,481,000
(4) CONTINGENCIES
(a) Environmental
Blue Earth
As previously disclosed, the United States Attorney for the District
of Minnesota and the State of Minnesota are conducting an
investigation of possible wastewater violations at the Company's Blue
Earth, Minnesota plant. The Company has fully cooperated with the
government in its investigation and is in the process of negotiating
a settlement of all civil, criminal and administrative claims arising
out of the investigation. Based on the negotiations to date, the
Company believes that these claims will be settled for approximately
$4 million. Therefore, the Company has established a provision for
loss contingency of $5.9 million in the third quarter of 1996 and
$6.1 million for the nine months ended September 28, 1996 to cover
the expected cost of the claims as well as legal, environmental and
other related costs. This has resulted in an increase of the
Company's reserves for environmental or other loss contingencies of
$5.4 million at September 28, 1996. The Company's current expectation
is that a final settlement of this matter will be concluded in the
fourth quarter of 1996.
Chula Vista
The Company is the owner of an undeveloped property located in Chula
Vista, California (the "Site"). A rendering plant was operated on the
Site until 1982. From 1959 to 1978, a portion of the Site was used as
an industrial waste disposal facility which was closed pursuant to
Closure Order No. 80-06 issued by the State of California Regional
Water Quality Control Board for the San Diego Region (the "RWQCB").
The Site has been listed by the State of California as a site for
which expenditures for removal and remedial actions may be made by
the State pursuant to the California Hazardous Substances Account
Act, California Health & Safety Code Section 25300 et seq. Technical
consultants retained by the Company have conducted various
investigations of the environmental conditions at the Site, and in
1996, requested that the RWQCB issue a "no further action" letter
with respect to the Site. The RWQCB has not yet taken any formal
action in response to such request.
Certain persons owning property in proximity to the Site
("Claimants") have asserted that groundwater under their properties
is contaminated and that such contamination may have migrated from
the Site.
The Company is currently investigating these allegations.
<PAGE>
(b) Litigation
Petruzzi
An antitrust class action suit was filed in 1986 by Petruzzi IGA
Supermarkets in the United States District Court for the Middle
District of Pennsylvania (the "Class Action Suit") seeking damages
from the Company. On September 14, 1995, the Company entered into a
settlement agreement providing for the disposal of all claims in the
Class Action Suit. The settlement agreement was approved by the
District Court on December 20, 1995. The District Court has yet to
rule on the petitions for attorneys' fees.
Other Litigation
The Company is also a party to several other lawsuits, claims and
loss contingencies incidental to its business.
The Company has established reserves for environmental and other loss
contingencies as a result of the matters discussed above. Although the
ultimate liability cannot be determined with certainty, management of the
Company believes that reserves for environmental contingencies are
reasonable and sufficient based upon present governmental regulations and
information currently available to management. The Company estimates the
range of possible losses related to environmental and litigation matters,
based on certain assumptions, is between $12,050,000 and $21,150,000. The
accrued expenses and other noncurrent liabilities classifications in the
Company's consolidated balance sheets include reserves for insurance,
environmental and litigation contingencies of $21,259,000 and $16,325,000
at September 28, 1996 and December 30, 1995, respectively. There can be
no assurance, however, that final costs will not exceed current
estimates. The Company believes that any additional liability relative to
such lawsuits and claims which would not be covered by insurance,
although potentially material to the results of operations in one year,
would not have a material adverse effect on the Company's financial
position.
<PAGE>
Page 9
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
FORM 10-Q FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 28, 1996
PART I
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion summarizes information with respect to the
liquidity and capital resources of the Company at September 28, 1996 and factors
affecting its results of operations for the three months and nine months ended
September 28, 1996 and the comparable periods ended September 30, 1995.
RESULTS OF OPERATIONS
- ---------------------
Three Months Ended September 28, 1996 Compared to
Three Months Ended September 30, 1995
GENERAL
The Company recorded a net loss to common shareholders of $1.3 million
for the third quarter of the fiscal year ending December 28, 1996 ("Fiscal
1996"), as compared to net earnings of $2.1 million for the third quarter of the
fiscal year ended December 30, 1995 ("Fiscal 1995"). The loss was due to a $5.9
million provision for loss contingency recorded in the third quarter of Fiscal
1996 to cover estimated costs related to environmental claims at the Company's
Blue Earth, Minnesota plant. Operating profit before the provision for loss
contingency increased from $6.3 million in the third quarter of Fiscal 1995 to
$9.1 million in the third quarter of Fiscal 1996. Interest expense decreased
from $3.2 million in the third quarter of Fiscal 1995 to $3.1 million in the
third quarter of Fiscal 1996.
NET SALES
The Company collects and processes renderable animal by-products (fat,
bones and offal), restaurant grease, and bakery waste to produce finished
products of tallow, meat and bone meal, yellow grease, and dried bakery product.
Raw material available to non-captive renderers is limited and therefore causes
competition among renderers who bid for suppliers' materials. The amount of raw
material processed directly affects the amount of finished goods produced.
Net sales include the sales of produced and purchased finished goods.
During the third quarter of Fiscal 1996, net sales increased by $31.7 million
(33.2%) to $127.2 million as compared to $95.5 million during the third quarter
of Fiscal 1995.
This increase in sales in the third quarter of Fiscal 1996 was due
partially to the acquisition of Standard Tallow Company and IPC, significantly
higher finished goods prices and increases in the volume of raw materials
processed over the prior year. Additionally, net sales in 1995 were negatively
affected by the downgrade of certain finished goods due to weather-related raw
material quality problems. Compared to the third quarter of Fiscal 1995, average
yellow grease prices were 22.4% higher in the third quarter of Fiscal 1996.
Average tallow prices were 8.4% higher in the third quarter of Fiscal 1996
compared to the third quarter of Fiscal 1995. Average meat and bone meal prices
were 47.0% higher in the third quarter of Fiscal 1996 compared to the third
quarter of Fiscal 1995.
<PAGE>
COST OF SALES AND OPERATING EXPENSES
Cost of sales and operating expenses includes prices paid to raw
material suppliers, the costs of product purchased for resale, and the costs to
collect and process the raw material. The Company utilizes both fixed and
formula pricing methods for the purchase of raw materials. Fixed prices are
adjusted as needed for changes in competition and significant changes in
finished goods market conditions, while raw materials purchased under formula
prices are correlated with specific finished goods prices.
During the third quarter of Fiscal 1996, cost of sales and operating
expenses increased by $25.0 million (32.5%) to $101.9 million as compared to
$76.9 million during the third quarter of Fiscal 1995. Cost of sales grew due to
the acquisitions of Standard Tallow Company and IPC, greater volumes of raw
material purchased and higher raw material prices paid, correlating to increased
prices for fats and oils and meat and bone meal. Operating expenses increased as
a result of collecting and processing higher volumes of material and expenses
attributable to the expansion of CleanStar(R) , the Company's internal
restaurant waste oil collection system.
SELLING, GENERAL AND ADMINISTRATIVE COSTS AND
PROVISION FOR LOSS CONTINGENCY
Selling, general and administrative costs were $9.3 million during the
third quarter of Fiscal 1996, compared to $6.5 million for the third quarter of
Fiscal 1995. The increase in costs was primarily attributable to the
acquisitions of Standard Tallow Company and IPC, increases in compensation and
related costs, product development costs, and professional fees. The Company
recorded a $5.9 million provision for loss contingency during the third quarter
of Fiscal 1996 to cover estimated costs related to environmental claims at the
Company's Blue Earth, Minnesota plant.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization charges increased by $1.3 million to $7.0
million during the third quarter of Fiscal 1996 as compared to $5.7 million
during the third quarter of Fiscal 1995. This increase was due to additional
depreciation on fixed asset additions.
INTEREST EXPENSE
Interest expense decreased by $0.1 million from $3.2 million during the
third quarter of Fiscal 1995 to $3.1 million during the third quarter of Fiscal
1996.
INCOME TAXES
The tax expense of $1.3 million for the third quarter of Fiscal 1996
consists of $1.2 million of federal tax expense and $0.1 million for various
state taxes. Tax expense for the third quarter of Fiscal 1995 was $1.1 million.
Due to the expected non-tax deductible nature of certain of the anticipated
expenses related to the settlement of environmental claims at the Company's Blue
Earth, Minnesota plant, these have been added back to income before taxes for
the computation of income taxes.
CAPITAL EXPENDITURES
The Company made normal recurring capital expenditures of $5.7 million
during the third quarter of Fiscal 1996 compared to capital expenditures of $6.7
million during the third quarter of Fiscal 1995. In addition, the Company
acquired 100% of the stock of International Processing Corporation and
International Transportation Services for $30.0 million during the third quarter
of Fiscal 1996.
<PAGE>
Nine Months Ended September 28, 1996 Compared to
Nine Months Ended September 30, 1995
GENERAL
The Company recorded net earnings to common shareholders of $6.3
million for the first nine months of Fiscal 1996, as compared to net earnings of
$11.5 million for the first nine months of Fiscal 1995. The decrease in net
earnings is primarily attributable to $6.1 million in charges to the provision
for loss contingency during the first nine months of Fiscal 1996 for costs
related to environmental claims at the Company's Blue Earth, Minnesota plant.
Operating profit before the provision for loss contingency decreased from $28.2
million in the first nine months of Fiscal 1995 to $27.4 million in the first
nine months of Fiscal 1996 due to increases in operating costs, general and
administrative costs and depreciation which more than offset higher sales.
Interest expense decreased from $9.8 million in the first nine months of Fiscal
1995 to $9.0 million in the first nine months of Fiscal 1996.
NET SALES
During the first nine months of Fiscal 1996, net sales increased by
$43.5 million (14.1%) to $351.2 million as compared to $307.7 million during the
first nine months of Fiscal 1995.
This increase in sales in the first nine months of Fiscal 1996 was due
in part to the acquisition of IPC, improvements in the finished goods markets
and increases in the volume of raw materials processed, and was partially offset
by decreases in sales of purchased finished goods as compared to the year
earlier period. Compared to the first nine months of Fiscal 1995, average yellow
grease prices were 9.9% higher in the first nine months of Fiscal 1996. Average
tallow prices were 4.8% lower in the first nine months of Fiscal 1996 compared
to the first nine months of Fiscal 1995. Average meat and bone meal prices were
33.5% higher in the first nine months of Fiscal 1996 compared to the first nine
months of Fiscal 1995.
COST OF SALES AND OPERATING EXPENSES
During the first nine months of Fiscal 1996, cost of sales and
operating expenses increased $36.7 million (15.1%) to $280.5 million as compared
to $243.8 million during the first nine months of Fiscal 1995. Cost of sales
grew in part due to the acquisition of IPC and due to greater volumes of raw
material purchased and higher raw material prices paid, correlating to increased
prices for fats and oils and meat and bone meal, and were offset somewhat by
decreases in product purchased for resale. Operating expenses increased as a
result of collecting and processing higher volumes of material, higher steam
expense attributable to increased natural gas prices, and expenses attributable
to the expansion of CleanStar(R) , the Company's internal restaurant waste oil
collection system.
SELLING, GENERAL AND ADMINISTRATIVE COSTS
AND PROVISION FOR LOSS CONTINCENCY
Selling, general and administrative costs were $23.8 million during the
first nine months of Fiscal 1996, a $4.7 million increase from $19.1 million for
the first nine months of Fiscal 1995. The increase in costs was primarily
attributable to increases in compensation and related costs, product development
costs, professional fees and the acquisition of IPC. The Company recorded $6.1
million in charges to the provision for loss contingency during the first nine
months of the year to cover costs related to environmental claims at the
Company's Blue Earth, Minnesota plant.
<PAGE>
DEPRECIATION AND AMORTIZATION
Depreciation and amortization charges increased by $3.0 million to
$19.6 million during the first nine months of Fiscal 1996 as compared to $16.6
million during the first nine months of Fiscal 1995.
INTEREST EXPENSE
Interest expense decreased by $0.8 million from $9.8 million during the
first nine months of Fiscal 1995 to $9.0 million during the first nine months of
Fiscal 1996.
INCOME TAXES
The tax expense of $6.3 million for the first nine months of Fiscal
1996 consists of $5.4 million of federal tax expense and $0.9 million for
various state taxes. Due to the expected non-tax deductible nature of certain of
the anticipated expenses related to the settlement of environmental claims at
the Company's Blue Earth, Minnesota plant, these have been added back to net
income before taxes for the computation of income taxes. Tax expense for the
first nine months of Fiscal 1995 was $6.7 million.
CAPITAL EXPENDITURES
The Company made normal recurring capital expenditures of $17.2 million
during the first nine months of Fiscal 1996 compared to capital expenditures of
$17.4 million during the first nine months of Fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Effective May 23, 1995, the Company entered into a Credit Agreement
(the "Credit Agreement") which provides for borrowings in the form of a Term
Loan Facility, Revolving Loan Facility and an Acquisition Line. As of September
28, 1996, the Company was in compliance with all provisions of the Credit
Agreement.
The Term Loan Facility bears interest, payable monthly, at LIBOR
(5.4063% at September 28, 1996) plus a margin (1.00% at September 28, 1996)
which floats depending on the Company's compliance with certain financial
covenants. The Term Loan Facility is payable by the Company in quarterly
installments of $3,000,000 commencing on October 1, 1995 through December 31,
1995, $2,000,000 commencing on March 31, 1996 through December 31, 1999, and an
installment of $6,000,000 due on March 31, 2000 with the remaining balance due
on June 30, 2000. As of September 28, 1996, $40,000,000 was outstanding under
the Term Loan Facility.
The Revolving Loan Facility provides for borrowings up to a maximum of
$25,000,000 with sublimits available for letters of credit and a swingline.
Outstanding borrowings on the Revolving Line Facility bear interest, payable
monthly, at LIBOR (5.4063% at September 28, 1996) plus a margin (1.00% at
September 28, 1996) or, for swingline advances, at a Base Rate (8.25% at
September 28, 1996). Additionally, the Company must pay a commitment fee equal
to 0.375% on the unused portion of the Revolving Loan Facility. The Revolving
Loan Facility matures on June 30, 2000. As of September 28, 1996, the Company
had outstanding irrevocable letters of credit aggregating $8,148,648.
The Acquisition Line provides for borrowings to a maximum of
$40,000,000. Outstanding borrowings on the Acquisition Line bear interest,
payable monthly, at LIBOR (5.5274% at September 28, 1996) plus a margin (1.25%
at September 28, 1996). Availability for the borrowings on the Acquisition Line
terminates on June 30, 1997, and any outstanding borrowings convert to term debt
on that date. On August 30, 1996, the Company borrowed $29,600,000 against the
Acquisition Line to purchase 100% of the stock of International Processing
Corporation and International Transportation Services. As of September 28, 1996,
$40,000,000 was outstanding under the Acquisition Line.
The Company has Subordinated Notes outstanding with a face amount of
$69,976,000. The Subordinated Notes bear interest payable semi-annually at 11%
per annum until maturity, July 15, 2000.
On September 28, 1996, the Company had a working capital deficit of
$2.0 million and its working capital ratio was 0.97 to 1, compared to working
capital of $12.9 million and a working capital ratio of 1.25 to 1 on December
30, 1995. The decrease in working capital is the result of the $5.4 million
increase in the Company's reserves for loss contingencies relating to the
anticipated settlement of environmental claims at the Company's Blue Earth,
Minnesota plant. Net cash provided by operating activities has increased by $9.1
million from $26.4 million during the first nine months of Fiscal 1995 to $35.5
million during the first nine months of Fiscal 1996. The Company believes that
cash from operations and current cash balances, together with the undrawn
balance from the Company's loan agreements, will be sufficient to satisfy the
Company's planned capital requirements.
<PAGE>
Page 14
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
FORM 10-Q FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 28, 1996
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The information required by this item related to Blue Earth, Minnesota
environmental claims is included on pages 7 and 8 of this report and is
incorporated herein by reference.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fiscal quarter ended September 28, 1996.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibits No. Description
2 * Settlement Agreement, dated December 29, 1993, relating to the
settlement of class action litigation styled IDS Life Insurance
Company Inc., et al. v. Darling-Delaware Company, Inc., et al.,
Case No. 91 C 5166, in the United States District Court for the
Northern District of Illinois.
4.3 * Indenture, dated December 29, 1993, between Darling International
Inc. and LaSalle National Bank, as Trustee, with respect to
the First Priority Senior Subordinated Notes due July 15, 2000.
10.1*** Credit Agreement, dated as of May 23, 1995, among Darling
International Inc., The First National Bank of Boston, as
Agent, Harris Trust and Savings Bank, as Co-Agent, and the
other lenders named therein.
10.2 * Registration Rights Agreement, as amended.
10.3 * Form of Indemnification Agreement.
10.4 * Lease, dated November 30, 1993, between the Company and the Port
of Tacoma.
10.5 * Sublease, dated September 4, 1968, between the Company and Baker
Commodities.
MANAGEMENT CONTRACTS OR COMPENSATORY PLANS
10.6 * 1993 Flexible Stock Option Plan.
10.7 * Amended and Restated Employment Agreement, dated December 29,
1993, between Darling International Inc. and Kenneth A. Ghazey.
10.7(a)**** First Amendment to Amended and Restated Employment Agreement,
dated as of September 26, 1995, between Darling International
Inc. and Kenneth A. Ghazey.
10.8 * Form of Executive Severance Agreement.
<PAGE>
10.9 * 1994 Employee Flexible Stock Option Plan.
10.10 * Non-Employee Directors Stock Option Plan.
10.11** Employment Agreement, dated March 31, 1995, between Darling
International Inc. and Dennis B. Longmire.
11 Statement re computation of per share earnings.
* Incorporated by reference to the Registrant's Registration
Statements on Form S-1 filed July 15, 1994 (Registration
No. 33-79478).
** Incorporated by reference to the Form 10-Q filed May 8, 1995.
*** Incorporated by reference to Form 10-Q filed August 14, 1995.
**** Incorporated by reference to Form 10-Q filed November 13, 1995.
(b) Reports on Form 8-K.
The Registrant filed the following current report on Form 8-K
during the quarter ended September 28, 1996: Current Report on
Form 8-K dated August 30, 1996 including information regarding
the purchase of 100% of the outstanding capital stock of
International Processing Corporation ("IPC") and International
Transportation Service, Inc. ("ITS") in accordance with a
Stock Purchase Agreement dated as of August 30, 1996, among
the Registrant, IPC, ITS and the stockholders of IPC and ITS.
<PAGE>
Page 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DARLING INTERNATIONAL INC.
Registrant
Date: November 11, 1996 By: /s/ Dennis B. Longmire
------------------------------------
Dennis B. Longmire
Chief Executive Officer and
Chairman of the Board
Date: November 11, 1996 By: /s/ John R. Witt
------------------------------------
John R. Witt
Vice President and
Chief Financial Officer
(Principal Financial Officer)
<PAGE>
Page 17
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
FORM 10-Q FOR THE THREE MONTHS AND SIX MONTHS ENDED SEPTEMBER 28, 1996
INDEX TO EXHIBITS
Exhibits No. Description Page
2 * Settlement Agreement, dated December 29, 1993, relating to the
settlement of class action litigation styled IDS Life Insurance
Company, Inc., et al. v. Darling-Delaware Company, Inc., et al.,
Case No. 91 C 5166, in the United States District Court for the
Northern District of Illinois.
4.3 * Indenture, dated December 29, 1993, between Darling International
Inc. and LaSalle National Bank, as Trustee, with respect to the
First Priority Senior Subordinated Notes due July 15, 2000.
10.1*** Credit Agreement, dated as of May 23, 1995, among Darling
International Inc., The First National Bank of Boston, as
Agent, Harris Trust and Savings bank, as Co-Agent, and the other
lenders named therein.
10.2 * Registration Rights Agreement, as amended.
10.3 * Form of Indemnification Agreement.
10.4 * Lease, dated November 30, 1993, between the Company and the Port of
Tacoma.
10.5 * Sublease, dated September 4, 1968, between the Company and Baker
Commodities.
MANAGEMENT CONTRACTS OR COMPENSATORY PLANS
10.6 * 1993 Flexible Stock Option Plan.
10.7 * Amended and Restated Employment Agreement, dated December 29, 1993,
between Darling International Inc. and Kenneth A. Ghazey.
10.7(a)**** First Amendment to Amended and Restated Employment Agreement,
dated as of September 26, 1995, between Darling International Inc.
and Kenneth A. Ghazey.
10.8 * Form of Executive Severance Agreement.
10.9 * 1994 Employee Flexible Stock Option Plan.
10.10* Non-Employee Directors Stock Option Plan.
10.11** Employment Agreement, dated March 31, 1995, between Darling
International Inc. and Dennis B. Longmire.
11 Statement re computation of per share earnings...................18
* Incorporated by reference to the Registrant's Registration Statements
on Form S-1 filed July 15, 1994 (Registration No. 33-79478).
** Incorporated by reference to the Form 10-Q filed May 8, 1995.
*** Incorporated by reference to Form 10-Q filed August 14, 1995.
**** Incorporated by reference to Form 10-Q filed November 13, 1995.
<PAGE>
Page 18
EXHIBIT 11
<TABLE>
STATEMENT RE COMPUTATION OF EARNINGS PER SHARE
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------- ------------------------------
September 28, September 30, September 28, September 30,
1996 1995 1996 1995
============= ============ ============ ============
<S> <C> <C> <C> <C>
Earnings:
Net earnings (loss) available to
common stock $(1,253) $ 2,061 $ 6,274 $11,543
====== ======= ======= =======
Shares (Primary):
Weighted average number of
common shares outstanding 5,149 5,084 5,117 5,032
Additional shares assuming exercise of
stock options - 333 422 256
------ ------- ------- -------
Average common shares outstanding
and equivalents 5,149 5,417 5,539 5,288
====== ======= ======= =======
Primary Earnings (loss) per common share $ (0.24) $ 0.38 $ 1.14 $ 2.18
====== ======= ======= =======
Shares (Fully Diluted):
Weighted average number of
common shares outstanding 5,149 5,084 5,117 5,032
Additional shares assuming exercise of
stock options - 333 424 339
------ ------- ------- -------
Average common shares outstanding
and equivalents 5,149 5,417 5,541 5,371
====== ======= ======= =======
Primary Earnings (loss) per common share $ (0.24) $ 0.38 $ 1.14 $ 2.15
====== ======= ======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> SEP-28-1996
<CASH> 11975
<SECURITIES> 0
<RECEIVABLES> 34,459
<ALLOWANCES> 294
<INVENTORY> 15,256
<CURRENT-ASSETS> 68,553
<PP&E> 219,289
<DEPRECIATION> 49,904
<TOTAL-ASSETS> 326,065
<CURRENT-LIABILITIES> 70,649
<BONDS> 143,137
0
0
<COMMON> 51
<OTHER-SE> 61,660
<TOTAL-LIABILITY-AND-EQUITY> 326,065
<SALES> 351,242
<TOTAL-REVENUES> 351,242
<CGS> 280,466
<TOTAL-COSTS> 329,898
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,996
<INCOME-PRETAX> 12,566
<INCOME-TAX> 6,274
<INCOME-CONTINUING> 6,291
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,291
<EPS-PRIMARY> 1.14
<EPS-DILUTED> 1.14
</TABLE>
