UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-A12B
FOR REGISTRATIONOF CERTAIN CLASSES OF SECURITIES PURSUANT TO
SECTION 12(b) or (g) OF THE SECURITIES EXCHANGE ACT OF 1934
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)
Securities to be registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
- ---------------------------------- --------------------------------
common stock, par value $0.01 American Stock Exchange
If this Form relates to the registration of a class of debt securities and is
effective upon filing pursuant to General Instruction A.(c)(1), please check the
following box. [ ]
If this Form relates to the registration of a class of debt securities and is to
become effective simultaneously with the effectiveness of a concurrent
registration statement under the Securities Act of 1933 pursuant to General
Instruction A.(c)(2), please check the following box. [ ]
Securities to be registered pursuant to Section 12(g) of the Act:
None
-Pg 1-
<PAGE>
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
FORM 8-A12B
ITEM 1. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED.
The information required by Item 1 is set forth under the caption
"Description of Capital Stock" in the Final Prospectus forming a part of
Amendment No. 1 to the Registrant's Registration Statement on Form S-1
(Registration Number 33-79478), filed on July 15, 1994, pursuant to the
Securities Act of 1933, as amended, which description is incorporated herein by
reference.
ITEM 2. EXHIBITS.
99.1 Amendment No. 1, previously filed on July 15, 1994, to the
Registration Statement on Form S-1 (Registration No. 33-79478),
previously filed on May 27, 1994, and incorporated herein by
reference.
13.1 Annual Report on Form 10-K (File No. 0-24620) for the year ended
December 28, 1996, previously filed on March 27, 1997, and
incorporated herein by reference.
13.2 Quarterly Report on Form 10-Q (File No. 0-24620) for the quarter ended
March 29, 1997, previously filed on May 13, 1997, and incorporated
herein by reference.
13.3 Quarterly Report on Form 10-Q (File No. 0-24620) for the quarter ended
June 28, 1997, previously filed on August 12, 1997, and incorporated
herein by reference.
99.2 Notice of Annual Meeting and Proxy Statement, previously filed on
April 25, 1997, and incorporated herein by reference.
3.1 Amended and Restated Bylaws, dated March 31, 1995, and incorporated
herein by reference to Exhibit 3.2 of the Registrant's Quarterly
Report on Form 10-Q (File No. 0-24620) for the quarter ended June 28,
1997, previously filed on August 12, 1997.
3.2 Restated Articles of Incorporation, dated December 28, 1993, and
incorporated herein by reference to Exhibit 3.1 of the Registrant's
Registration Statement on Form S-1 (Registration No. 33-79478),
previously filed on May 27, 1994.
4.1 Specimen of Common Stock certificate.
99.3 1996 Annual Report to Stockholders.
-Pg 2-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant has duly caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized.
DARLING INTERNATIONAL INC.
Registrant
Date: September 3, 1997 By: /s/ Dennis B. Longmire
-------------------------
Dennis B. Longmire
Chairman and
Chief Executive Officer
Date: September 3, 1997 By: /s/ John R Witt
---------------------------------
John R. Witt
Vice President and
Chief Financial Officer
(Principal Financial Officer)
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<PAGE>
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
FORM 8-A12B
INDEX TO EXHIBITS
Exhibits No. Description Page
99.1 Amendment No. 1, previously filed on July 15, 1994, to the
Registration Statement on Form S-1 (Registration No. 33-79478),
previously filed on May 27, 1994, and incorporated herein by
reference.
13.1 Annual Report on Form 10-K (File No. 0-24620) for the year ended
December 28, 1996, previously filed on March 27, 1997, and
incorporated herein by reference.
13.2 Quarterly Report on Form 10-Q (File No. 0-24620) for the quarter
ended March 29, 1997, previously filed on May 13, 1997, and
incorporated herein by reference.
13.3 Quarterly Report on Form 10-Q (File No. 0-24620) for the quarter
ended June 28, 1997, previously filed on August 12, 1997, and
incorporated herein by reference.
99.2 Notice of Annual Meeting and Proxy Statement, previously filed on
April 25, 1997, and incorporated herein by reference.
3.1 Amended and Restated Bylaws, dated March 31, 1995, and incorporated
herein by reference to Exhibit 3.2 of the Registrant's Quarterly Report
on Form 10-Q (File No. 0-24620) for the quarter ended June 28, 1997,
previously filed on August 12,
1997.
3.2 Restated Articles of Incorporation, dated December 28, 1993, and
incorporated herein by reference to Exhibit 3.1 of the Registrant's
Registration Statement on Form S-1 (Registration No. 33-79478),
previously filed on May 27, 1994.
4.1 Specimen of Common Stock certificate. 5
99.3 1996 Annual Report to Stockholders. 7
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EXHIBIT 4.1
(Front of certificate)
27662 46222 52015
DARLING INTERNATIONAL INC.
INCORPORATED UNDER THE LAWS COMMON STOCK
OF THE STATE OF DELAWARE
NUMBER SHARES
D
This certificate is transferable in CUSIP 237266 10 1
Boston, Mass and New York, NY See reverse for certain definitions
This certifies that
-------------------------------------------------
(screened graphic of farm animals)
is the owner of
--------------------------------------------------------
FULLY PAID AND NON ASSESSABLE SHARES OF COMMON STOCK, PAR VALUE
$.01 PER SHARE OF DARLING INTERNATIONAL INC.
transferable on the books of the Corporation by the holder hereof in person or
by attorney upon surrender of this Certificate properly endorsed. This
Certificate is not valid unless countersigned by the Transfer Agent and
registered by the Registrar. This Certificate and the shares represented hereby
are issued and shall be held subject to all of the provisions of the Certificate
of Incorporation and Bylaws, as amended, from time to time, of the Corporation
(a copy of which Certificate of Incorporation and Bylaws is on file with the
Transfer Agent), to all of which, holder, by his acceptance hereof, consents.
In Witness Whereof, the Corporation has caused the facsimile signatures
of its duly authorized officers and the facsimile seal of the Corporation to be
affixed to this Certificate.
Dated:
(corporate seal here)
/s/ Kenneth A. Ghazey Countersigned and Registered
President BankBoston, N.A.
Transfer Agent and Registrar
/s/ Brad Phillips
Treasurer By
Authorized Signature
Security-Columbian Banknote Company
-Pg 5-
<PAGE>
(Reverse side of certificate)
DARLING INTERNATIONAL INC.
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO
REQUESTS THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF OF THE
CORPORATION, AND THE QUALIFICATIONS, LIIMITATIONS OR RESTRICTIONS OF SUCH
PREFERENCES AND/OR RIGHTS. SUCH REQUEST MAY BE MADE TO THE CORPORATION, OR THE
TRANSFER AGENT OF THE CORPORATION.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of
survivorship and not as tenants in common
UNIF GIFT MIN ACT - Custodian
-------- ---------
(Cust) (Minor)
under Uniform Gifts to Minors Act
-------------------------
(State)
Additional abbreviations may also be used though not in the above list.
For value received, _______ hereby sell, assign and transfer unto
Please insert social security or other
identifying number of assignee
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF ASSIGNEE
Shares represented by the within Certificate, and do hereby irrevocably
constitute and appoint
Attorney to transfer the said shares on the books of the within-named
Corporation with full power of substitution in the premises.
Dated,
---------------------------------
X
NOTICE: ------------------------------
THE SIGNATURES(S) TO THIS (SIGNATURE)
ASSIGNMENT MUST CORRES-
POND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICU-
LAR WITHOUT ALTERATION X
OR ENLARGEMENT OR ANY -------------------------------
CHANGE WHATEVER. (SIGNATURE)
THE SIGNATURE(S) SHOULD BE GUARANTED BY AN "ELIGIBLE GUARANTOR
INSTITUTION" AS DEFINED IN RULE 17Ad-15 UNDER THE SECURITIES AND EXCHANGE
ACT OF 1934, AS AMENDED.
SIGNATURE(S) GUARANTEED BY:
-Pg 6-
EXHIBIT 99.3
(cover):
graphic of word "before"
Darling International Inc.
1996 Annual Report
-Pg 7-
<PAGE>
(inside front cover):
graphic of the word "after"
<PAGE>
(Page 1)
Darling International Inc. is the largest independent recycler of food
processing by-products in the United States. The company was founded in 1882 in
Chicago, Illinois and has grown to include 47 plants nationwide. Darling
continues its commitment to be the quality leader of the industry, with 11
plants certified under the international quality standard ISO 9002. Darling is
the only publicly traded company in its industry, with its stock listed on the
NASDAQ National Market System under "DARL."
(graphic: United States map with plant locations marked)
caption: "Darling maintains the largest geographic presence of any food
processing by-products recycler in the nation, increased further by the
1996 entry into the Southeast region."
TABLE OF CONTENTS
- -------------------------------------------------------
Financial Highlights 1
Letter to the Shareholders 2
Overview 4
Selected Financial Data 13
Management's Discussion and Analysis 14
Statements of Operations 18
Balance Sheets 19
Statements of Stockholders' Equity 20
Statements of Cash Flows 21
Notes 22
Auditors' Report 34
Stock Information 35
Corporate Information 36
FINANCIAL HIGHLIGHTS
(in thousands of dollars except per share data)
1996 1997
Operating data
Net sales $488,914 $421,608
Operating profit 27,436 36,109
Operating cash flow* 55,047 58,685
Net income 7,674 14,380
Earnings per share 1.38 2.70
Balance sheet data
Working capital surplus
(deficiency) $ (8,015) $ 12,936
Total assets 329,645 266,062
Current portion of debt 15,598 9,060
Total long-term debt
less current portion 138,173 117,096
Stockholders' equity 64,033 54,833
Other data
Capital expenditures $ 28,631 $ 24,636
*Operating profit plus depreciation and amortization.
<PAGE>
(Page 2)
(illustrative graph: Operating Cash Flow)
To Our Stockholders,
1996 was a year of both challenge and change for your company. Our industry
and our company faced challenges that dictated change in our operation of the
company, as well as our approach to the market. When viewed in light of this
necessary transition, although the 1996 results are somewhat disappointing, I
believe we have put in place the building blocks for future growth in earnings.
Our 1996 revenues of $488 million exceeded 1995 revenues by 16%. We
experienced significant internal growth, as well as growth by acquisition.
Operating profits decreased from 1995 to 1996, primarily due to two factors: 1)
over $5 million in increased depreciation related to acquisitions and other
capital expenditures, and 2) a $6.1 million provision for the resolution of the
previously reported Blue Earth, Minnesota, environmental situation. While these
items adversely affected our net profits, cash flow from our operations were up
by more than 4% after eliminating the one-time costs of Blue Earth.
One of 1996's challenges was the uncertainty caused by the "Mad Cow
disease" in the U.K. This disease has prompted the Food and Drug Administration
to propose new regulations aimed at preventing the disease in the U.S., where
there has not been a single case to date. Although we continue to believe that
the proposed new FDA regulation of the rendering industry is not warranted, we
have assessed the expected impact of the new rules and believe the company can
respond in a manner that will minimize any adverse effects.
Among our acquisitions was the addition of International Processing
Corporation (IPC). This new member of the Darling family is the largest recycler
of bakery and confectionery by-products in the country. These by-products are
recycled back into animal feeds as an excellent source of energy. Bakery
by-product prices are largely determined by corn prices. Despite the crash of
the corn market shortly after the completion of this acquisition, we remain
confident that new IPC management will make bakery recycling an important
long-term contributor to the growth and value of our company.
Our research and new product development activities made major strides
during the year. We are presently gearing up commercial manufacture of the first
of our "Esteem" family of value-added products. These "special use" products are
the result of using new technologies to further process certain of our current
products. Advances in food animal production systems have created the need for a
new generation of feedstuffs. Darling Research and Technology department is
working diligently to fill this need.
<PAGE>
(Page 3)
(illustrative graphic: Stockholders' Equity)
Our focus on quality continued with six additional plants being certified
by the international quality standard ISO 9002, bringing the total to eleven. We
remain the only ISO-certified renderer in North America. This attention to
strict quality documentation and guidelines has opened doors for Darling
products in international markets demanding ISO-caliber production and marketing
procedures.
Our CleanStar 2000(TM) system for the collection of used restaurant cooking
oil continues to receive extremely positive reviews from the market. A patent
for this system was issued on March 11, 1997. This new system has many
advantages for the restaurant operators. It allows for safer handling of used
cooking oil and a cleaner, more presentable environment in and around the
restaurant kitchen, as well as greater security for restaurant employees. The
in-house inventor of CleanStar received the first Darling Extraordinary
Achievement Award for his idea and efforts to make the system commercially
viable. Innovation is encouraged at all levels of the Darling organization.
As in the past, we will continue to place significant emphasis on the
growth of our businesses and earnings while paying increased attention to the
efficiency of our asset management. We will continue our previously stated goal
of increasing current and long-term profitability of our company through
investment in growth businesses and the development of value-added products and
services. At the same time, we will continue to develop stretch goals in the
areas of our current core businesses where the returns can be expected to be
above our self-imposed threshold. In cases where we have locations or businesses
that are of limited potential, we will proceed with divestiture plans and will
redeploy the capital from these underperforming assets into investments that
meet our return criteria.
Fiscal 1996 brought many challenges and changes. We have reacted to these
changes and responded to the challenges. Thanks to the loyalty and commitment of
almost 2,000 dedicated employees, our company continues to grow and prosper. The
difficulties we faced last year have made us stronger, smarter, and more
committed to the improvement of our company for the benefit of our employees and
for our stockholders who have put their faith in us. Our goal is to increase the
value of your investment while making each stockholder proud to be a part of the
culture that is Darling.
/s/ Dennis B. Longmire
Chairman of the Board
Chief Executive Officer
<PAGE>
(Page 4)
(illustrative graph: Interest Expense)
SOMETHING FROM NOTHING
Providing the world with high quality, useable ingredients derived from food
by-product materials is the foundation of Darling's success. From its simple,
though essential, beginnings in the meat-packing industry, Darling has been
serving the food industry for over a century; yet this indispensable collection
service to the food industry often goes unnoticed.
Darling International is the largest independent food waste recycler in the
country, with forty-seven operating facilities nationwide processing 6.2 billion
pounds of food by-products in 1996. This service, followed by state-of-the-art
reprocessing, enables Darling International to recycle these food by-products
into useful finished products and ingredients for use in the agricultural and
oleochemical industries.
The Company's diversified raw material sources provide a wide range of finished
products which are sold as essential ingredients to customers around the world.
These customers range from large animal feed producers, poultry and swine
integrators, and pet food manufacturers to oleochemical, soap and detergent
companies with markets worldwide. These industries use Darling's high quality
products to manufacture consumer goods that surround each of us each day.
Darling's products are ultimately found in the cars you drive, in the paint on
your home, in the fertilizer that greens your lawn, in your pet food, and in
your shampoo and shaving creams. It is Darling's job to take the befores that no
one wants and to help turn them into the afters that the world uses every day.
<PAGE>
(Page 5)
(Illustration full page - captions below)
Before
Used Restaurant Cooking Oil is a Darling source of raw material targeted for
future growth. Because of stringent regulations regarding disposal of commercial
cooking oil, Darling's collection and recycling services provide an
environmentally sound solution for restaurants.
After
The used restaurant oil is refined into yellow grease, sold primarily to the
agricultural industry as an ingredient for animal feed. It is also sold to
consumer and industrial manufactures for use in lubricants, concrete, dyes and
inks, rubber and plastics, and numerous other products.
<PAGE>
(Page 6)
To maintain its leadership role in the industry and enhance shareholder value,
Darling has begun to focus on the creation of value-added products and the
introduction of innovative restaurant services to collect used cooking oil. It
is anticipated these areas will provide significant opportunities for future
growth and profits to complement the company's commodity driven rendering
business.
ENHANCING OUTLOOK
Darling's Research and Technology department has been diligently working in
areas that promise tremendous opportunity to bring higher valued feed
ingredients to market, respond to customer needs for detailed nutritional
information on standard products, and raise the industry's quality standards.
In 1996, a new product line was introduced under the brand name Esteem Products,
featuring value-added products that are planned to be marketed in 1997. One of
these products, Peptide-Plus, creates a new market niche for Darling,
representing a new era in advanced peptide nutrition for the growth of pigs.
Other products are in various development stages and offer encouraging prospects
for future market growth.
<PAGE>
(Page 7)
(illustrative graph: Return on Stockholder's Equity)
Adding value to the Company's product lineup also involves enhancing the quality
of existing products. Through the industry's and Darling's combined research
endeavors, more progress has been made in improving amino acid digestibility in
the past eight years than was accomplished in the past twenty-five. In addition,
Darling is working with a computer software company to bring complete analyses
of all its products directly to the customer for formulation within the
customer's in-house system. Complete ingredient analysis gives the customers the
information they need on a timely basis and Darling an advantage in the
marketplace. In 1996, Darling began to implement industry-specific leading-edge
technology that will enable a quick response to customers' requests for advanced
product information. This use of Near Infra-Red (NIR) in the Detroit facility
provides rapid determination of product analysis and assists the plant in
monitoring to ensure consistent production quality.
Bringing customers the products and services they need with the quality they
expect is backed by Darling's commitment to the international quality standard
of ISO-9002. As of January 1997, 11 Darling plants and the Dallas Marketing
department have been certified, with 3 other facilities just months away from
certification. In addition to ISO-9002, the Company's continuing commitment to
customer satisfaction prompted the formation of Darling's Quality Leadership
Council (QLC), charged with upgrading Company-wide quality standards that will
distinguish Darling from its competitors.
<PAGE>
(Page 8)
(Illustration full page - captions below)
Before
Bakerage By-Products are a new raw material source for Darling. Excess or
below-spec product and broken or stale goods are collected from bakeries,
confectioners, and cookie and snack manufacturers.
After
The collected bakerage by-products are reprocessed into a high-energy animal
feed additive called dried bakery product, which is sold to animal feed and pet
food manufacturers. Dried bakery product also offers research and development
opportunities for value-added products.
<PAGE>
(Page 9)
(illustrative graph: Operating Cash Flow/Interest)
Darling International's innovative lead was enhanced by another year of growth
and expansion. Among several acquisitions completed in 1996, the acquisition of
Atlanta-based International Processing Corporation (IPC) diversified Darling's
raw material sources to include such food industries as bakeries, snack food
producers, confectioners, and pasta manufacturers. IPC converts the returns and
overruns from these industries into a high energy ingredient used in poultry,
livestock and pet feeds. This acquisition not only gave the company a needed
entree in the Southeast, but also brought with it a new finished product to
Darling's lineup, dried bakery product.
QUICK SERVICE FOR FAST TIMES
Keeping ahead of a world on the move, Darling has identified and answered the
service needs of an ever growing quick service restaurant (QSR) industry with
the CleanStar2000 system. This premium service product is designed for the high
volume demands of QSR's and is a vital addition to Darling's already extensive
cooking oil recycling service. Over 50% of the QSR volume is now drive-thru
business and this ratio continues to increase. With customers on the go,
restaurants demand dependable oil collection service that saves time and money,
while improving the outer appearance of their drive-thru facilities.
<PAGE>
(Page 10)
The patented CleanStar 2000 storage system allows the restaurant to
automatically collect the used cooking oil in a nationally approved indoor
storage unit. Used oil is either pumped directly from the fryer through a
thermal hose or is transported from the fryer in a specially-designed caddie.
When the unit is ready to be emptied, it is accessed via an outdoor valve by a
CleanStar collection vehicle. This is a safer and more efficient alternative to
the traditional means of having used oil hand-carried out the back door late at
night and then lifted and disposed into the recyclers' bin. In addition to
providing a clean, environmentally friendly solution to cooking oil collection,
CleanStar 2000 gives restaurant owners other significant benefits. These include
eliminating spills, back injuries, burns, slips, falls, and the security risk of
opening a restaurant's back door late at night.
Darling tested this new service idea in 1995 and received favorable responses
that lead to the new product roll-out in 1996. By January 1997, the CleanStar
2000 system had been widely accepted in ten metropolitan market areas with 3,000
units installed. Still in its infancy, the CleanStar 2000 system offers great
promise for Darling and the customers it serves.
<PAGE>
(Page 11)
(Illustration full page - captions below)
Before
Animal Processing By-Products are the raw materials at the core of Darling's
recycling business. Darling collects by-products from meat-packing plants as it
has since the Company's beginnings in the 1800's, as well as from butcher shops,
grocery stores, and independent meat and poultry processors.
After
The collected material is processed into oils and protein products sold to
agricultural, oleochemical and soap manufacturers for use in animal feeds,
paints, pharmaceuticals, and a variety of consumer and industrial products.
Darling also provides hides to the leather goods and automobile industries.
<PAGE>
(Page 12)
(illustrative graph: Sales)
A WORLD OF OPPORTUNITY
American Made . . . World Renowned!
Darling is indeed a provider of quality products to the global marketplace. The
Company's finished products have found a home in over 33 countries, with the
list growing each year. Its centralized marketing department and geographically
diverse production facilities provide the flexibility to tailor sales as market
demand shifts from one region to another. From the soap manufacturer in Japan
and the feed manufacturer in Egypt, to the pet food manufacturer in the United
States, Darling's experienced sales team monitors daily market trends and
provides high quality products around the world.
Long-term relationships built over the years have earned Darling a trust not
easily won in overseas markets. The Company's commitment to the international
quality standard, ISO-9002, has helped strengthen and build corporate
partnerships. Darling's excellent worldwide performance is supported by a
professional export staff whose knowledge of international trade makes doing
business convenient from anywhere in the world.
The Company's commitment to quality, research, and opportunistic growth ensures
that Darling will continue to take the befores a modern society leaves behind
and provide the materials for producing the afters the worldwide consumer needs
and desires.
<PAGE>
(Page 13)
SELECTED FINANCIAL DATA
The following sets forth selected financial information regarding the Company's
consolidated results of operations and financial position for the periods and
dates indicated. The selected financial data presented under the captions
"Statement of operations data" and "Balance sheet data" should be read in
conjunction with the consolidated financial statements and notes thereto and the
section captioned "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere herein.
<TABLE>
<CAPTION>
For Fiscal Year Ended Saturday nearest Dec. 31 of:
Predecessor
-----------------------
1996 1995 1994 1993 1992
(amounts in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Operating Data:
Net sales $488,914 $421,608 $354,333 $332,780 $330,550
Cost of sales and operating expenses 395,025 336,248 282,908 269,979 264,078
Selling, general and administrative 32,767 26,675 25,680 21,139 21,303
expenses
Depreciation and amortization 27,611 22,576 19,871 18,975 21,304
Provision for loss contingencies 6,075 - - 1,595 -
------- ------- -------- ------- -------
Operating profit 27,436 36,109 25,874 21,092 23,865
======= ======= ======== ======= =======
Interest expense 12,994 13,311 15,206 29,644 31,230
Income tax expense 7,305 8,740 3,391 8,464 1,449
Net income (loss) attributable to
outstanding common stock $ 7,674 $ 14,380 $ 7,357 $220,029 $(24,692)
======= ======= ======= ======= =======
Primary earnings (loss) per common $ 1.38 $ 2.70 $ 1.47 $ 43.94 $ (4.93)
====== ======= ======= ======= =======
share
Primary weighted average common share
and common share equivalents 5,544 5,322 5,000 5,008 5,011
====== ======= ====== ====== =======
Balance Sheet Data:
Working capital (deficiency) (8,015) 12,936 (2,959) (281) (308,243)
Total assets 329,645 266,062 245,505 236,294 155,097
Total debt 153,771 126,156 120,709 133,664 248,510
Stockholders' equity (deficit) 64,033 54,833 39,482 27,027 (270,851)
Capital expenditures 28,631 24,636 17,822 16,320 14,274
<FN>
(1) Effective December 29, 1993, the Company consummated a settlement
agreement of a class action lawsuit and applied fresh start reporting. As
a result, the consolidated financial information for the periods after the
application of fresh start reporting is presented on a different basis
than that for the prior periods, and therefore is not comparable. See Note
3 to the consolidated financial statements.
</FN>
</TABLE>
<PAGE>
(Page 14)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of the Company's financial condition and
results of operations should be read in conjunction with the historical
consolidated financial statements and notes thereto.
RESULTS OF OPERATIONS
Fiscal Year Ended December 28, 1996 ("Fiscal 1996") Compared to Fiscal Year
Ended December 30, 1995 ("Fiscal 1995")
General
The Company recorded net earnings of $7.7 million for Fiscal 1996
compared to net earnings of $14.4 million for Fiscal 1995. The decrease was
primarily due to: 1) a $6.1 million provision for loss contingency recorded in
Fiscal 1996 to cover estimated costs related to environmental violations at the
Company's Blue Earth, Minnesota plant; and 2) approximately $5 million in
depreciation and amortization expense related to acquisitions and capital
expenditures. Additionally, as a result of an extreme fourth quarter 1996 drop
in the price of corn, bakerage operating margins were not adequate to offset the
related depreciation, amortization and interest costs associated with the
acquisition of IPC. Operating profit before the provision for loss contingency
decreased from $36.1 million in Fiscal 1995 to $33.5 million in Fiscal 1996.
Interest expense decreased from $13.3 million in Fiscal 1995 to $13.0 million in
Fiscal 1996, primarily due to decreased interest rates.
Net Sales
The Company collects and processes animal by-products (fat, bones and
offal), used restaurant cooking oil, and bakery by-products to produce finished
products of tallow, meat and bone meal, yellow grease, and dried bakery product.
Sales are significantly affected by finished goods prices, quality of raw
material, and volume of raw material. Net sales include the sales of produced
finished goods as well as finished goods purchased for resale, which constitute
less than 10% of the total. During Fiscal 1996, net sales increased 16.0%, to
$488.9 million as compared to $421.6 million during Fiscal 1995.
Of the increase in sales in Fiscal 1996, approximately $31.6 million
was due primarily to the acquisitions of Standard Tallow Company ("Standard
Tallow") and International Processing Corporation ("IPC"). The remainder was
primarily due to improvements in finished goods prices and increases in the
volume of raw materials processed, offset by yield reductions due to raw
material quality. The Company experienced significantly higher domestic finished
market prices while overseas markets were considerably depressed compared to the
prior year. Compared to Fiscal 1995, the Company's average yellow grease prices
were 8.6% higher during Fiscal 1996. Average tallow prices were 1.8% lower
during the same period. Average meat and bone meal prices were 31.3% higher
during Fiscal 1996 as compared to Fiscal 1995.
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 cost 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 where possible 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 Fiscal 1996, cost of sales and operating expenses increased
$58.8 million (17.5%), to $395.0 million as compared to $336.2 million during
Fiscal 1995. Cost of sales grew due to the acquisitions of Standard Tallow 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, higher steam expense attributable to increased natural gas
prices, and expenses attributable to the expansion of CleanStar 2000, the
Company's internal used restaurant cooking oil collection system.
<PAGE>
(Page 15)
Selling, General and Administrative Expenses and Provisions for Loss Contingency
Selling, general and administrative expenses were $32.7 million during
Fiscal 1996, a $6.0 million increase from $26.7 million during Fiscal 1995. The
increase in expenses was primarily attributable to the acquisitions of Standard
Tallow and IPC, increases in compensation and related costs, product development
costs, and professional fees. The Company recorded $6.1 million in charges to
the provision for loss contingency during Fiscal 1996 to cover costs related to
environmental violations at the Company's Blue Earth, Minnesota plant.
Depreciation and Amortization
Depreciation and amortization charges increased $5.0 million, to $27.6
million during Fiscal 1996 as compared to $22.6 million during Fiscal 1995. This
increase was due to additional depreciation on fixed asset additions and
amortization on intangibles acquired as a result of the acquisitions of Standard
Tallow and IPC.
Interest Expense
Interest expense decreased $0.3 million, to $13.0 million during Fiscal
1996 as compared to $13.3 million during Fiscal 1995, primarily due to decreased
interest rates.
Income Taxes
In Fiscal 1996, the Company recorded a $7.3 million income tax expense
which consisted of $6.7 million of federal tax expense and $0.6 million for
various state taxes, after taking into account the expected non-tax deductible
nature of approximately $3.0 million of the expenses related to the settlement
of environmental violations at the Company's Blue Earth, Minnesota plant. In
Fiscal 1995, the Company recorded an $8.7 million income tax expense which
consisted of $7.8 million of federal tax expense and $0.9 million of state tax
expense.
Capital Expenditures
The Company's capital expenditures consist primarily of investments in
facilities, collection operations and environmental equipment. The Company made
capital expenditures of $28.6 million during Fiscal 1996 as compared to $24.6
million in Fiscal 1995.
Fiscal Year Ended December 30, 1995 ("Fiscal 1995") Compared to Fiscal Year
Ended December 31, 1994 ("Fiscal 1994")
General
The Company recorded net earnings of $14.4 million for Fiscal 1995
compared to net earnings of $7.4 million for Fiscal 1994. Operating profit
increased $10.2 million, to $36.1 million in Fiscal 1995 from $25.9 million in
Fiscal 1994. Interest expense, relating primarily to the Subordinated Notes,
decreased from $15.2 million in Fiscal 1994 to $13.3 million in Fiscal 1995 due
to a scheduled rate reduction.
Net Sales
Net sales include the sales of produced and purchased finished goods.
During Fiscal 1995, net sales increased 19.0%, to $421.6 million as compared to
$354.3 million during Fiscal 1994.
This increase in sales in Fiscal 1995 was due to improvements in the
finished goods markets and an increase of 6.3% in the volume of raw material
processed. Average yellow grease prices were 11.4% higher during Fiscal 1995 as
compared to Fiscal 1994 and average tallow prices were 11.1% higher during the
same period. These price increases were primarily due to strengthening worldwide
demands for fats and oils. Average meat and bone meal prices were 6.2% lower
during Fiscal 1995 as compared to Fiscal 1994.
<PAGE>
(Page 16)
Cost of Sales and Operating Expenses
During Fiscal 1995, the cost of sales and operating expenses increased
$53.3 million (18.9%), to $336.2 million as compared to $282.9 million during
Fiscal 1994. Cost of sales grew due to increased purchases of finished product,
greater volumes of raw material purchased, and higher raw material prices paid
due to increased prices for fats and oils, offset somewhat by lower prices for
meat and bone meal. Operating expenses increased as a result of collecting and
processing higher volumes of material, offset somewhat by lower steam expense
attributable to decreased natural gas prices.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $26.7 million during
Fiscal 1995, a $1.0 million increase from $25.7 million during Fiscal 1994. The
increase in expenses was primarily related to increases in compensation and
related costs and increases in product development costs.
Depreciation and Amortization
Depreciation and amortization charges increased $2.7 million, to $22.6
million during Fiscal 1995 as compared to $19.9 million during Fiscal 1994. This
increase was due to additional depreciation on fixed asset additions.
Interest Expense
Interest expense decreased $1.9 million, to $13.3 million during Fiscal
1995 as compared to $15.2 million during Fiscal 1994. This decrease is a result
of the interest rate on the Company's outstanding Subordinated Notes decreasing
from 13.75% in Fiscal 1994 to 11.0% per annum in Fiscal 1995.
Income Taxes
In Fiscal 1995, the Company recorded a $8.7 million income tax expense
which consisted of $7.8 million of federal tax expense and $0.9 million for
various state taxes. In Fiscal 1994, the Company recorded a $3.4 million income
tax expense which consisted of $3.6 million of federal tax expense and $0.5
million of state tax expense, offset by $0.7 million of foreign tax benefit.
Capital Expenditures
The Company's capital expenditures consist primarily of investments in
facilities, collection operations and environmental equipment. The Company made
capital expenditures of $24.6 million during Fiscal 1995 as compared to $17.8
million in Fiscal 1994.
- -----------------------------------------------
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 ("Term Loan Facility"), Revolving Loan Facility ("Revolving Loan
Facility") and an Acquisition Line ("Acquisition Line"). As of December 28,
1996, the Company was in compliance with all provisions of the Credit Agreement.
The Term Loan Facility bears interest, payable monthly, at LIBOR
(5.6055% at December 28, 1996) plus a margin (1.0% at December 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
$2,000,000 commencing 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 December 28, 1996, $38,000,000 was outstanding under the
Term Loan Facility.
<PAGE>
(Page 17)
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 Loan Facility bear interest, payable
monthly, at LIBOR (5.6055% at December 28, 1996) plus a margin (1.0% at December
28, 1996) or, for swingline advances, at a Base Rate (8.25% at December 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 December 28, 1996, $5,000,000 was outstanding
under the Revolving Loan Facility. As of December 28, 1996, the Company had
outstanding irrevocable letters of credit aggregating $8,513,648.
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 (5.6055% at December 28, 1996) plus a margin (1.25% at
December 28, 1996). Outstanding borrowings under the Acquisition Line as of June
30, 1997 convert to term debt on that date. At that time, the Acquisition Line
is payable by the Company in quarterly installments of $2,500,000 commencing
October 1, 1997 through June 30, 1999; and $5,000,000 commencing October 1, 1999
through June 30, 2000. On May 8, 1996, the Company borrowed $10,400,000 against
the Acquisition Line to purchase 100% of the stock of Standard Tallow. On August
30, 1996, the Company borrowed $29,600,000 against the Acquisition Line to
purchase 100% of the stock of IPC. As of December 28, 1996, $40,000,000 was
outstanding under the Acquisition Line.
All accounts receivable, inventory and certain related intangibles of
the Company are pledged as collateral for borrowings under the Credit Agreement.
The Credit Agreement contains certain terms and covenants, which, among other
matters, restrict the incurrence of additional indebtedness, payment of cash
dividends, and expenditures for capital and environmental needs and requires the
maintenance of certain minimum ratios. As of December 28, 1996, no cash
dividends could be paid to the Company's stockholders pursuant to the Credit
Agreement.
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 December 28, 1996, the Company had a working capital deficit of $8.0
million and its working capital ratio was 0.90 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 primarily the result of the acquisitions of
IPC and Standard Tallow combined with the $6.5 million increase in current
maturities of long-term debt and the $5.1 million increase in the Company's
reserves for loss contingencies related to the anticipated settlement of
environmental violations at the Company's Blue Earth, Minnesota plant. Net cash
provided by operating activities has increased $12.2 million from $34.2 million
during Fiscal 1995 to $46.4 million during 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.
ACCOUNTING MATTERS
In June 1996, the Financial Accounting Standards Board issued SFAS No. 125,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities. SFAS No. 125 is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after December 31,
1996, and is to be applied prospectively. This Statement provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities based on consistent application of a
financial-components approach that focuses on control. It distinguishes
transfers of financial assets that are sales from transfers that are secured
borrowings. Management of the Company does not expect that adoption of SFAS No.
125 will have a material impact on the Company's financial position, results of
operations, or liquidity.
<PAGE>
(Page 18)
<TABLE>
<CAPTION>
Consolidated Statements of Operations
Three years ended December 28, 1996
(in thousands, except per share data)
December 28, December 30, December 31,
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Net sales (note 14) $ 488,914 $ 421,608 $ 354,333
------- ------- -------
Costs and expenses:
Cost of sales and operating expenses 395,025 336,248 282,908
Selling, general and administrative expenses 32,767 26,675 25,680
Depreciation and amortization 27,611 22,576 19,871
Provision for loss contingencies 6,075 - -
-------- -------- -------
Total costs and expenses 461,478 385,499 328,459
------- ------- -------
Operating profit 27,436 36,109 25,874
-------- -------- -------
Other income (expense):
Interest expense (note 9) (12,994) (13,311) (15,206)
Other, net 537 322 80
-------- -------- -------
Total other income (expense) (12,457) (12,989) (15,126)
-------- ------- -------
Income before income taxes 14,979 23,120 10,748
Income tax expense (note 11) 7,305 8,740 3,391
-------- -------- --------
Net earnings $ 7,674 $ 14,380 $ 7,357
======== ======== ========
Net earnings per common share (note 1) $ 1.38 $ 2.70 $ 1.47
===== ===== =====
Fully diluted earnings per common share (note 1) $ 1.38 $ 2.67 $ 1.47
===== ===== =====
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
(Page 19)
Consolidated Balance Sheets
December 28, 1996 and December 30, 1995
(in thousands, except share and per share data)
December 28, December 30,
1996 1995
ASSETS (note 8)
Current assets:
Cash and cash equivalents $ 12,956 $ 11,649
Accounts receivable, principally trade, less
allowance of $302 and $147 35,966 30,230
Inventories (note 4) 12,643 11,584
Prepaid expenses 1,493 2,963
Deferred income tax assets (note 11) 6,184 4,281
Other 484 3,394
---------- ---------
Total current assets 69,726 64,101
Property, plant and equipment, net (note 5) 175,786 155,065
Collection routes and contracts, less accumulated
amortization of $3,222 and 7,854 59,940 42,893
Goodwill, less accumulated amortization of
$293 at December 28, 1996 (note 2) 19,905 -
Other assets (note 6) 4,288 4,003
--------- ---------
$329,645 $266,062
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (note 9) $ 15,598 $ 9,060
Accounts payable, principally trade 27,732 17,378
Accrued expenses (note 7) 30,118 20,831
Accrued interest (note 9) 4,293 3,896
--------- ---------
Total current liabilities 77,741 51,165
Long-term debt, less current portion (note 9) 138,173 117,096
Other noncurrent liabilities (note 10) 20,376 15,233
Deferred income taxes (note 11) 29,322 27,735
-------- --------
Total liabilities 265,612 211,229
------- -------
Stockholders' equity (notes 3, 9, 11 and 12):
Common stock, $.01 par value; 10,000,000 shares
authorized, 5,151,979 and 5,085,510 shares
issued and outstanding 52 51
Additional paid-in capital 34,570 33,045
Retained earnings 29,411 21,737
-------- --------
Total stockholders' equity 64,033 54,833
-------- --------
Commitments and contingencies (notes 8 and 15)
$329,645 $266,062
======= =======
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
(Page 20)
<TABLE>
<CAPTION>
Consolidated Statements of Stockholders' Equity
Three years ended December 28, 1996
(In thousands, except share data)
Common stock Class A common stock
Additional Total
Number $.01 par Number $.01 par paid-in Retained stockholders'
of shares value of shares value capital earnings equity
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1994 4,749,620 $ 47 249,975 $ 3 $ 26,977 $ - $ 27,027
Exchange of Class A common stock
for common stock 249,975 3 (249,975) (3) - - -
Tax benefits relating to January
1, 1994 valuation allowance - - - - 5,098 - 5,098
Net earnings - - - - - 7,357 7,357
--------- ---- -------- ---- ------- ------ -----
Balances at December 31, 1994 4,999,595 50 - 32,075 7,357 39,482
-
Issuance of common stock 85,915 1 - - 759 - 760
Tax benefits relating to January
1, 1994 valuation allowance - - - - 211 - 211
Net earnings - - - - - 14,380 14,380
--------- ---- -------- ---- ------- ------- ------
Balances at December 30, 1995 5,085,510 51 - - 33,045 21,737 54,833
Issuance of common stock 66,469 1 - - 619 - 620
Tax benefits relating to January
1, 1994 valuation allowance - - - - 906 - 906
Net earnings - - - - - 7,674 7,674
--------- ---- ------- ---- -------- ------ -------
Balances at December 28, 1996 5,151,979 $ 52 - $ - $ 34,570 $29,411 $ 64,033
========= ==== ======= ==== ======== ====== =======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
(Page 21)
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
Three years ended December 28, 1996
(in thousands)
<S> <C> <C> <C>
December 28, December 30, December 31,
1996 1995 1994
------------ ----------- ------------
Cash flows from operating activities:
Net earnings $ 7,674 $ 14,380 $ 7,357
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 27,611 22,576 19,871
Deferred income tax expense (benefit) (88) 6,319 1,263
Loss on sale of assets 294 196 465
Changes in operating assets and liabilities, net of effects from
acquisitions:
Accounts receivable 1,978 (3,418) (3,853)
Inventories and prepaid expenses 3,724 2,244 (7,752)
Accounts payable and accrued expenses 4,007 (2,170) 10,453
Accrued interest 391 (653) 4,260
Other 824 (5,278) 510
-------- -------- ---------
Net cash provided by operating activities 46,415 34,196 32,574
-------- -------- ---------
Cash flows from investing activities:
Recurring capital expenditures (25,111) (22,649) (17,822)
Capital expenditures related to acquisitions (3,520) (1,987) -
Net proceeds from sale of property, plant and equipment,
assets held for disposition and other assets 507 721 754
Payments for routes (707) (4,051) (1,725)
Net cash paid as a result of acquisitions (note 1) (2,098) - -
-------- -------- ---------
Net cash used in investing activities (30,929) (27,966) (18,793)
-------- -------- ---------
Cash flows from financing activities:
Proceeds from long-term debt 20,124 107,178 53,013
Payments on long-term debt (33,223) (105,931) (65,968)
Contract payments (1,700) (916) (1,048)
Deferred loan costs - (740) -
Issuance of common stock 620 760 -
-------- -------- ---------
Net cash provided by (used in) financing activities (14,179) 351 (14,003)
-------- -------- ---------
Net increase (decrease) in cash and cash equivalents 1,307 6,581 (222)
Cash and cash equivalents at beginning of year 11,649 5,068 5,290
-------- -------- ---------
Cash and cash equivalents at end of year $ 12,956 $ 11,649 $ 5,068
======== ======== =========
Supplemental disclosure of cash flow information: Cash paid during the year for:
Interest $ 12,603 $ 13,964 $ 10,947
======== ======== ========
Income taxes, net of refunds $ 1,647 $ 3,920 $ 1,689
======== ========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
(Page 22)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) GENERAL
(a) NATURE OF OPERATIONS
Darling International Inc. (the "Company") believes it is the largest
independent recycler of food processing by-products in the United
States, operating a fleet of vehicles, through which it collects
animal by-products, used restaurant cooking oil and bakery
by-products from butcher shops, grocery stores, independent meat and
poultry processors, restaurants and bakeries nationwide. The Company
processes raw materials through facilities located throughout the
United States into finished products, such as tallow, meat and bone
meal, yellow grease and dried bakery product. The Company sells its
finished products domestically and internationally to producers of
soap, cosmetics, rubber, pet food and livestock feed for use as
ingredients in such products.
(b) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(1) 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.
(2) Fiscal Year
The Company has a 52/53 week fiscal year ending on the Saturday
nearest December 31. Fiscal years for the consolidated financial
statements included herein are for the 52 weeks ended December
28, 1996, the 52 weeks ended December 30, 1995, and the 52 weeks
ended December 31, 1994.
(3) Inventories
Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out (FIFO) method.
(4) Property, Plant and Equipment
Historically, property, plant and equipment are recorded at
cost. Depreciation is computed by the straight-line method over
the estimated useful lives of assets, which range from three to
30 years. In accordance with Fresh Start Reporting (see Note 3),
property, plant and equipment were restated to their approximate
fair value as of January 1, 1994. Subsequent additions are
recorded at cost.
Maintenance and repairs are charged to expense as incurred and
expenditures for major renewals and improvements are
capitalized.
(5) Collection Routes and Contracts
Collection routes, restrictive covenants and consulting
agreements are recorded at cost and are amortized using the
straight-line method over periods ranging from three to 15
years.
(6) Goodwill
Goodwill, which represents the excess of purchase price over
fair value of net assets acquired, is amortized on a
straight-line basis over the expected periods to be benefited,
not exceeding 30 years. Annually, the Company makes an
assessment to determine the recoverability of this intangible
asset.
(7) Environmental Expenditures
Environmental expenditures incurred to mitigate or prevent
environmental contamination that has yet to occur and that
otherwise may result from future operations are capitalized.
Expenditures that relate to an existing condition caused by past
operations and that do not contribute to current or future
revenues are expensed or charged against established
environmental reserves. Reserves are established when
environmental assessments and/or clean-up requirements are
probable and the costs are reasonably estimable.
<PAGE>
(Page 23)
(8) Income Taxes
The Company accounts for income taxes using the asset and
liability method. Under the asset and liability method, deferred
tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities
and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the
enactment date.
(9) Income Per Common Share
Net earnings per common share are computed by dividing net
earnings attributable to outstanding common stock by the
weighted average number of common stock shares outstanding
during the year 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.
Stock options are excluded from the computations for the year
ended December 31, 1994 because the effect is antidilutive or
immaterial.
(10) Stock Option Plans
Prior to January 1, 1996, the Company accounted for its stock
option plan in accordance with the provisions of Accounting
Principles Board ("APB") Opinion No. 25, Accounting for Stock
Issued to Employees, and related interpretations. As such,
compensation expense would be recorded on the date of grant only
if the current market price of the underlying stock exceeded the
exercise price. On January 1, 1996, the Financial Accounting
Standards Board issued SFAS No. 123, Accounting for Stock-Based
Compensation, which permits entities to recognize as expense
over the vesting period the fair value of all stock-based awards
on the date of grant. Alternatively, SFAS No. 123 allows
entities to continue to apply the provisions of APB Opinion No.
25 and provide pro forma net income and pro forma earnings per
share disclosures for employee stock option grants made in 1995
and future years as if the fair-value-based method defined in
SFAS No. 123 had been applied. The Company has elected to
continue to apply the provisions of APB Opinion No. 25 and
provide the pro forma disclosure provisions of SFAS No. 123.
(11) Statements of Cash Flows
The Company considers all short-term highly liquid instruments,
with an original maturity of three months or less, to be cash
equivalents.
(12) Supplemental Schedule of Non-cash Investing and Financing
Activities
During the year ended December 28, 1996, non-cash investing and
financing activities included the purchase of 100% of the common
stock of Standard Tallow for $10,400,000. Assets acquired,
liabilities assumed, and consideration paid for this acquisition
are as follows (in thousands):
Fair value of assets acquired, less cash $ 20,066
Liabilities assumed and incurred (11,094)
Bank debt incurred (10,400)
-------
Cash (received)paid upon purchase $ (1,428)
========
<PAGE>
(Page 24)
In addition, the Company purchased 100% of the common 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 (in
thousands):
Fair value of assets acquired, less cash $ 47,835
Liabilities assumed and incurred (14,710)
Bank debt incurred (29,600)
------
Cash (received)paid upon purchase $ 3,525
========
(13) Use of Estimates
The preparation of the consolidated financial statements in
conformity with generally accepted accounting principles 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
from those estimates.
(14) Impairment of Long-Lived Assets and Long-Lived Assets
To Be Disposed Of
The Company adopted the provisions of SFAS No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of, on December 31, 1995. This Statement requires
that long-lived assets and certain identifiable intangibles be
reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset to
future net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount
of the assets exceed the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or
fair value less costs to sell. Adoption of this Statement did not
have a material impact on the Company's financial position,
results of operations, or liquidity.
(15) Financial Instruments
The carrying amount of cash and cash equivalents, accounts
receivable, accounts payable and accrued expenses approximates
fair value due to the short maturity of these instruments.
The carrying amount of outstanding borrowings under the Credit
Agreement at December 28, 1996 and December 30, 1995 approximates
fair value since the borrowings bear interest at current market
rates.
The fair market value of the Subordinated Notes approximated
$73,000,000 at December 28, 1996 and $72,000,000 at December 30,
1995. The fair value of the Subordinated Notes was estimated
based on current borrowing rates available for financings with
non-rated, non-investment grade bonds with similar terms and
maturities.
<PAGE>
(Page 25)
(2) ACQUISITIONS
On August 30, 1996, the Company acquired 100% of the outstanding capital
stock of IPC in accordance with a Stock Purchase Agreement (dated August
30, 1996, between the Company, IPC and the stockholders of IPC (the
"Sellers")). IPC processes by-products collected from bakeries, pasta
manufacturers, confectioners and snack food producers for sale to the
animal feed industry. The purchase price for the capital stock of IPC was
$30,000,000. The purchase price was paid in cash and was determined by
agreement between the Company and the Seller. The Company funded $29.6
million of the purchase price with funds financed under the Acquisition
Facility pursuant to the Credit Agreement among the Company, The First
National Bank of Boston, as agent, and Harris Trust and Savings Bank, as
co-agent. The remaining $400,000 of the purchase price was funded out of
cash on hand. In connection with the acquisition, the Company also paid
approximately $2.8 million in full payment and retirement of certain
indebtedness of IPC. The Company used cash on hand to fund the repayment
of such indebtedness.
The acquisition was accounted for under the purchase method of accounting
in accordance with Accounting Principles Board Opinion No. 16 and
operations since the acquisition date have been included in the
consolidated statements of earnings. The excess of the total acquisition
cost over the recorded value of assets acquired was allocated to goodwill
in the amount of $15.9 million and will be amortized over 30 years.
The pro forma results of operations which follow assume that the
acquisition had occurred at the beginning of each period presented. In
addition to combining the historical results of operations of the two
companies, the pro forma calculations include adjustments for the
estimated effect on the Company's historical results of operations for
depreciation and amortization and interest related to the acquisition.
(in thousands, except per share data)
Year ended Year ended
December 28, December 31,
1996 1995
(unaudited) (unaudited)
--------------------------------
Sales $ 544,436 $ 477,459
Net earnings 10,298 14,227
Earnings per share $1.86 $2.67
On May 8, 1996, the Company acquired 100% of the common stock of
Standard Tallow for $10,400,000. The Company recorded goodwill
associated with this acquisition in the amount of $4.3 million which
will be amortized over 30 years.
(3) THE SETTLEMENT AND FRESH START REPORTING
On October 22, 1993, the Company entered into a settlement agreement
providing for a restructure of the Company's debt and equity and
resolution of a class action lawsuit ("the Settlement"). On December
29, 1993 (the "Effective Date"), the Settlement was consummated and
became binding on all original note holders.
The Settlement was accomplished pursuant to a court order which was
tantamount to a prepackaged bankruptcy despite the fact that the
Settlement did not occur under the Bankruptcy Code. Accordingly, the
Company has accounted for the Settlement using "Fresh Start Reporting"
as of January 1, 1994 in accordance with Statement of Position 90-7,
"Financial Reporting by Entities In Reorganization Under the United
States Bankruptcy Code" ("SOP 90-7") issued by the American Institute
of Certified Public Accountants.
<PAGE>
(Page 26)
Using a valuation of the Company performed by an independent appraiser,
the Company determined the total reorganization value of all its assets
to be approximately $236,294,000 as of January 1, 1994. The historical
values of the Company's liabilities, other than deferred income taxes,
approximated fair value at January 1, 1994. Deferred income taxes were
recorded in conformity with generally accepted accounting principles.
The Company's accumulated deficit was eliminated as of January 1, 1994.
(4) INVENTORIES
A summary of inventories follows (in thousands):
December 28, December 30,
1996 1995
-------------------------------
Finished product $ 12,005 $ 11,038
Supplies and other 638 546
--------- ---------
$ 12,643 $ 11,584
======= =======
(5) PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment follows (in thousands):
December 28, December 30,
1996 1995
--------------------------------
Land $ 20,717 $ 18,545
Buildings and improvements 26,113 22,730
Machinery and equipment 122,195 100,632
Vehicles 50,269 39,994
Construction in process 12,465 7,362
--------- ----------
231,759 189,263
Accumulated depreciation (55,973) (34,198)
--------- ---------
$175,786 $155,065
======= =======
(6) OTHER ASSETS
Other assets consist of the following (in thousands):
December 28, December 30,
1996 1995
--------------------------------
Prepaid pension cost (note 13) $ 2,028 $ 2,250
Deposits and other 2,260 1,753
------- -------
$ 4,288 $ 4,003
======= =======
(7) ACCRUED EXPENSES
Accrued expenses consist of the following (in thousands):
December 28, December 30,
1996 1995
---------------------------------
Insurance $ 2,257 $ 3,787
Compensation and benefits 4,854 5,328
Utilities and sewage 2,904 2,240
Reserve for environmental and
litigation matters (note 15) 7,350 2,000
Income taxes payable 3,034 297
Other 9,719 7,179
-------- -------
$ 30,118 $ 20,831
======== =======
(8) LEASES
The Company leases nine plants and storage locations, four office
locations and a portion of its transportation equipment. Leases are
noncancellable and expire at various times through the year 2028. Minimum
rental commitments under noncancellable leases as of December 28, 1996,
are as follows (in thousands):
Period Ending Fiscal Operating Leases
-------------------- ----------------
1997 $ 2,143
1998 1,732
1999 1,442
2000 1,280
2001 1,058
Thereafter 9,733
-------
Total $17,388
Rent expense for the years ended December 28, 1996, December 30, 1995 and
December 31, 1994 was $1,929,000, $1,163,000 and $1,081,000,
respectively.
<PAGE>
(Page 27)
(9) LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
December 28, December 30,
1996 1995
-----------------------------
Credit Agreement:
Revolving Loan Facility $ 5,000 $ 5,000
Term Loan Facility 38,000 47,000
Acquisition Line 40,000 -
First Priority Senior Subordinated Notes 69,976 69,976
Other notes 795 4,180
-------- --------
153,771 126,156
Less current maturities 15,598 9,060
-------- --------
$138,173 $117,096
======== ========
CREDIT AGREEMENT
Effective May 23, 1995, the Company entered into a Credit Agreement (the
"Credit Agreement") which provides for borrowings in the form of a
Revolving Loan Facility, Term Loan Facility, and an Acquisition Line.
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 Loan Facility bear
interest, payable monthly, at LIBOR (5.6055% at December 28, 1996) plus a
margin (1.0% at December 28, 1996) or, for swingline advances, at a Base
Rate (8.25% at December 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 December 28, 1996, $5,000,000 was outstanding under the Revolving Loan
Facility. As of December 28, 1996, the Company had outstanding
irrevocable letters of credit aggregating $8,513,648.
The Term Loan Facility bears interest, payable monthly, at LIBOR (5.6055%
at December 28, 1996) plus a margin (1.00% at December 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 $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 December 28, 1996,
$38,000,000 was outstanding under the Term Loan Facility.
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 (5.6055% at December 28, 1996) plus a margin (1.25% at
December 28, 1996). Outstanding borrowings under the Acquisition Line as
of June 30, 1997 convert to term debt on that date. At that time, the
Acquisition Line is payable by the Company in quarterly installments of
$2,500,000 commencing October 1, 1997 through June 30, 1999; and
$5,000,000 commencing October 1, 1999 through June 30, 2000. On May 8,
1996, the Company borrowed $10,400,000 against the Acquisition Line to
purchase 100% of the stock of Standard Tallow. On August 30, 1996, the
Company borrowed $29,600,000 against the Acquisition Line to purchase
100% of the stock of IPC. As of December 28, 1996, $40,000,000 was
outstanding under the Acquisition Line.
All accounts receivable, inventory and certain related intangibles of the
Company are pledged as collateral for borrowings under the Credit
Agreement. The Credit Agreement contains certain terms and covenants,
which, among other matters, restrict the incurrence of additional
indebtedness, payment of cash dividends, and expenditures for capital and
environmental needs and require the maintenance of certain minimum
financial ratios. As of December 28, 1996, no cash dividends could be
paid to the Company's stockholders pursuant to the Credit Agreement.
<PAGE>
(Page 28)
SUBORDINATED NOTES
The Subordinated Notes have a face amount of $69,976,000, are unsecured,
and bear interest at a rate of 13.75% per annum for the period from
December 29, 1993 through December 30, 1995 and 11% per annum thereafter
until maturity. Interest is payable in cash on each January 15 and July
15, beginning July 15, 1994. The Subordinated Notes are subject to
redemption in whole or in part at the option of the Company at redemption
prices, plus accrued and unpaid interest. The Subordinated Notes mature
on July 15, 2000 and are subordinate to all outstanding borrowings under
the Credit Agreement.
The Subordinated Notes indenture contains certain terms and covenants,
which primarily relate to asset sales, additional indebtedness, dividend
payments and early redemption of capital stock. Under the Subordinated
Notes indenture, the Company is permitted to incur additional
indebtedness within certain limits and subject to certain performance
criteria.
OTHER
Aggregate maturities of long-term debt subsequent to December 28, 1996
are as follows (in thousands):
1997 $15,598
1998 18,113
1999 23,084
2000 96,976
(10) OTHER NONCURRENT LIABILITIES
Other noncurrent liabilities consist of the following (in thousands):
December 28, December 30,
1996 1995
---------------------------
Reserve for insurance, environmental
and litigation matters (note 15) $ 9,829 $10,395
Liabilities associated with consulting
and noncompete agreements 9,356 3,714
Other 1,191 1,124
------- -------
$20,376 $15,233
======= ======
The Company sponsors a defined benefit health care plan that provides
postretirement medical and life insurance benefits to certain employees.
The Company accounts for this plan in accordance with Statement of
Financial Accounting Standards No. 106 and the effect on the Company's
financial position and results of operations is immaterial.
(11) INCOME TAXES
Income tax expense (benefit) attributable to income before income taxes
consists of the following (in thousands):
December 28, December 30, December 31,
1996 1995 1994
-----------------------------------------------
Current:
Federal $6,801 $1,883 $1,755
State 592 509 373
Foreign - 29 -
Deferred:
Federal (62) 5,921 1,884
State (26) 398 161
Foreign - - (782)
------ ------ ------
$7,305 $8,740 $3,391
====== ====== ======
<PAGE>
(Page 29)
Income tax expense for the years ended December 28, 1996, December 30,
1995, and December 31, 1994 differed from the amount computed by applying
the statutory U.S. federal income tax rate (35%) to income before income
taxes as a result of the following (in thousands):
December 28, December 30, December 31,
1996 1995 1994
-------------------------------------------
Computed "expected"
tax expense $ 5,243 $ 8,092 $ 3,762
State income taxes,
net of federal benefit 368 590 347
Tax-exempt income of
foreign sales corporation (323) (448) (587)
Nondeductible fines and
penalties (note 15) 1,058 - -
Other, net 959 506 (131)
------- -------- --------
$ 7,305 $ 8,740 $ 3,391
======= ======= =======
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 28, 1996 and December 30, 1995 are presented below (in
thousands):
December 28, December 30,
1996 1995
----------------------------
Deferred tax assets:
Net operating loss carryforwards $ 29,859 $ 32,042
Foreign tax credits and capital
loss carryforwards 4,434 4,434
Loss contingency reserves 6,038 5,700
Deferred loan and other costs capitalized
and amortized for tax purposes 890 1,142
Other 2,112 2,333
-------- -------
Total gross deferred tax assets 43,333 45,651
Less valuation allowance (19,472) (20,402)
-------- -------
Net deferred tax assets 23,861 25,249
-------- -------
Deferred tax liabilities:
Collection routes and contracts (13,337) (13,352)
Property, plant and equipment (32,812) (34,456)
Other (850) (895)
------- -------
Total gross deferred tax liabilities (46,999) (48,703)
------- -------
$(23,138) $(23,454)
======= =======
The portion of the deferred tax assets and liabilities expected to be
recognized in fiscal 1997 has been recorded at December 28, 1996 in the
accompanying consolidated balance sheet as a net current deferred income
tax asset of $6,184,000. The remaining non-current deferred tax assets
and liabilities have been recorded as a net deferred income tax liability
of $29,322,000 at December 28, 1996 in the accompanying consolidated
balance sheet.
The valuation allowance for deferred tax assets as of December 28, 1996
and December 30, 1995 was $19,472,000 and $20,402,000, respectively. The
net changes in the total valuation allowance for the years ended December
28, 1996 and December 30, 1995 were decreases of $930,000 and $1,329,000,
respectively. The Company believes that the remaining net deferred tax
assets at December 28, 1996 and December 30, 1995 will be realized
primarily through future reversals of existing taxable temporary
differences.
At December 28, 1996, the Company had net operating loss carryforwards
for federal income tax purposes of approximately $78,575,000 which are
available to offset future federal taxable income through 2008. The
availability of the net operating loss carryforwards to reduce future
taxable income is subject to various limitations. As a result of the
change in ownership, the Company believes utilization of its net
operating loss carryforwards is limited to $3,400,000 per year for the
remaining life of the net operating losses. The Company also has
approximately $3,780,000 of foreign tax credits and approximately
$314,000 of capital loss carryforwards which are available to reduce
future federal income taxes, if any, through 1998.
The Company reports tax benefits utilized related to the January 1, 1994
valuation allowance ($906,000 in 1996, $211,000 in 1995 and $5,098,000 in
1994) as a direct addition to additional paid-in capital.
(12) STOCKHOLDERS' EQUITY
(a) COMMON EQUITY
On December 29, 1993, the Company issued 4,749,620 and 249,975
shares of the Company's common stock and Class A common stock,
respectively. On November 2, 1994, all shares of Class A common
stock were converted to common stock on a one-for-one basis.
<PAGE>
(Page 30)
(b) STOCK OPTIONS
At December 29, 1993, the Company granted options to purchase
128,205 shares of the Company's Class A common stock to the former
owners of the Redeemable Preferred Stock. The options have a term
of ten years from the date of grant and may be exercised at a
price of $10.35 per share (approximated market value at the date
of grant). On November 2, 1994, all outstanding shares of Class A
common stock were converted into an equal number of shares of
common stock and all options to purchase Class A common stock
became options to purchase common stock.
The 1993 Flexible Stock Option Plan and the 1994 Employee Flexible
Stock Option Plan provide for the granting of stock options to key
officers and salaried employees of the Company and its
subsidiaries. Options to purchase common stock were granted at a
price approximating fair market value at the date of grant.
Options granted under the plans expire ten years from the date of
grant. Vesting occurs on each anniversary of the grant date as
defined in the specific option agreement. The plans also provide
for the acceleration by one year of vesting of all non-vested
shares upon the termination of the employee's employment in
certain circumstances or upon a change in management control.
The Non-Employee Directors Stock Option Plan provides for the
granting of options to non-employee directors of the Company. As
of December 28, 1996, options to purchase 82,000 shares of common
stock had been granted pursuant to this plan. The options have a
term of ten years from the date of grant and may be exercised at a
price of $10.00 - $27.125 per share (approximated market value at
the date of grant). The options vest 25% six months after the
grant date and 25% on each anniversary date thereafter.
The per share weighted average fair value of stock options granted
during 1996 and 1995 was $13.89 and $8.22, respectively, on the
date of grant using the Black Scholes option-pricing model with
the following weighted assumptions:
1996 1995
--------------------------
Expected dividend yield 0.0% 0.0%
Risk-free interest rate 6.6% 6.5%
Expected life 10 years 10 years
Expected volatility 6.20 5.59
The Company applies APB Opinion No. 25 in accounting for its Plans
and, accordingly, no compensation cost has been recognized for its
stock options in the financial statements as stock options were
granted at market value on the grant date. Had the Company
determined compensation cost based on the fair value at the grant
date for its stock options under SFAS No. 123, the Company's net
earnings would have been reduced to the pro forma amounts
indicated below (in thousands, except per share):
1996 1995
------ ------
Net earnings As reported $7,674 $14,380
Pro forma $7,104 $14,308
Primary earnings per common share As reported $1.38 $2.70
Pro forma $1.28 $2.69
Pro forma net earnings reflects only options granted in 1996 and
1995. Therefore, the full impact of calculating compensation cost
for stock options under SFAS No. 123 is not reflected in the pro
forma net income amounts presented above because compensation cost
is reflected over the options vesting period and compensation cost
for options granted prior to January 1, 1995 are not considered.
<PAGE>
(Page 31)
A summary of transactions for all stock options granted follows:
<TABLE>
<CAPTION>
Option Weighted-avg.
Number of exercise price exercise price
shares per share per share
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Options outstanding at January 1, 1994 622,705 $8.57 - 10.35 $ 8.94
Granted 182,300 10.00 - 12.375 12.01
Canceled (49,450) 8.57 8.57
-----------
Options outstanding at December 31, 1994 755,555 8.57 - 12.375 9.70
Granted 247,700 13.875 - 27.75 17.08
Canceled (9,430) 10.00 - 12.375 8.85
Exercised (85,915) 8.57 - 12.375 11.04
-----------
Options outstanding at December 30, 1995 907,910 8.57 - 27.75 11.78
Granted 145,900 26.375-30.875 28.84
Canceled (9,536) 8.57 - 12.375 9.30
Exercised (66,564) 8.57 - 12.375 10.20
-----------
Options outstanding at December 28, 1996 977,710 8.57 - 30.875 14.51
===========
===========
Options exercisable at December 28, 1996 490,587 $8.57 - 30.875 $ 11.89
===========
</TABLE>
At December 28, 1996, the range of exercise prices and weighted-average
remaining contractual life of outstanding options was $8.57-$30.875 and
7.89 years, respectively.
At December 28, 1996 and December 31, 1995, the number of options
exercisable was 349,335 and 490,587, respectively, and the weighted-average
exercise price of those options was $10.31 and $11.89, respectively.
(13) EMPLOYEE BENEFIT PLANS
The Company has retirement and pension plans covering substantially all
of its employees. Most retirement benefits are provided by the Company
under separate final-pay noncontributory pension plans for all salaried
and hourly employees (excluding those covered by union-sponsored plans)
who meet service and age requirements. Benefits are based principally on
length of service and earnings patterns during the five years preceding
retirement.
The Company's funding policy for those plans is to contribute annually
not less than the minimum amount required nor more than the maximum
amount that can be deducted for federal income tax purposes.
Contributions are intended to provide not only for benefits attributed to
service to date but also for those expected to be earned in the future.
The following table sets forth the plans' funded status and amounts
recognized in the Company's consolidated balance sheets based on the
measurement date (October 1, 1996 and 1995) (in thousands):
<TABLE>
<CAPTION>
December 28, 1996 December 30, 1995
----------------------------- -----------------------------
Assets Benefits Assets Benefits
exceed exceed exceed exceed
benefits assets benefits assets
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $29,317 $ 2,023 $ 3,184 $ 27,057
====== ======= ======= =======
Accumulated benefit obligation,
including vested benefits 29,103 2,163 3,352 27,205
====== ======= ======= =======
Projected benefit obligation for
services rendered to date 32,341 2,163 3,352 30,100
Plan assets at fair value (primarily equity
and debt instruments) 33,234 1,978 3,996 29,452
------ ------- ------- -------
Plan assets in excess of (less than)
projected benefit obligation 893 (185) 644 (648)
Unrecognized net loss from past
experience different from that assumed
and effects of changes in assumptions 840 468 344 1,720
Adjustment for contributions made from
measurement date to year end - 12 23 167
------- ------- -------- -------
Prepaid pension cost
included in consolidated balance sheet $ 1,733 $ 295 $ 1,011 $ 1,239
======= ======= ======= =======
</TABLE>
<PAGE>
(Page 32)
Net pension cost includes the following components (in thousands):
December 28, December 30, December 31,
1996 1995 1994
------------------------------------------
Service cost $ 1,033 $ 779 $ 906
Interest cost 2,463 2,241 2,086
Actual return on plan assets (2,737) (4,363) 892
Net amortization and deferral (154) 1,839 (3,445)
-------- -------- ------
Net pension cost $ 605 $ 496 $ 439
======== ======== =======
Assumptions used in accounting for the employee benefit pension plans were:
December 28, December 30,
1996 1995
--------------------------
Weighted average discount rate 7.75% 7.50%
Rate of increase in future compensation levels 5.02% 5.90%
Expected long-term rate of return on assets 8.75% 8.75%
The Company participates in several multi-employer pension plans which
provide defined benefits to certain employees covered by labor contracts.
These plans are not administered by the Company and contributions are
determined in accordance with provisions of negotiated labor contracts.
Information with respect to the Company's proportionate share of the
excess, if any, of the actuarially computed value of vested benefits over
these pension plans' net assets is not available. The cost of such plans
amounted to $1,333,000, $1,288,000, and $1,252,000 for the years ended
December 28, 1996, December 30, 1995, and December 31, 1994,
respectively.
(14) NET SALES
The Company has no material foreign operations, but exports a portion of
its products to customers in various foreign counties. Total export sales
were $119,055,000, $169,829,000, and $105,698,000 for the years ended
December 28, 1996, December 30, 1995, and December 31, 1994,
respectively.
Concentration of credit risk is limited due to the Company's diversified
customer base and the fact that the Company sells commodities. No single
customer accounted for more than 10% of the Company's net sales in 1996,
1995 and 1994.
(15) CONTINGENCIES
(a) ENVIRONMENTAL
Blue Earth
The United States Attorney for the District of Minnesota and
the State of Minnesota since 1992 have been conducting an
investigation of alleged state and federal wastewater violations at
the Company's Blue Earth, Minnesota plant. The Company has fully
cooperated with the government in its investigation and continues to
do so. The Company and the U.S. Attorney have reached a settlement
providing for payment of a total of $4,000,000. This settlement
payment is intended to resolve all federal and state civil, criminal
and administrative claims, through payment of civil and criminal
fines and penalties, as well as funding the restitution, remediation
and community service required as part of the criminal settlement.
The settlement is subject to court approval, and is subject to the
resolution of pending negotiations with the U.S. Environmental
Protection Agency of the terms of a Consent Decree. The Company
recorded a provision for loss contingency of $6,100,000 during Fiscal
1996 to cover the expected cost of the settlement as well as legal,
environmental and other related costs.
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.
<PAGE>
(Page 33)
Underground Storage Tanks
The Company's processing operations do not produce hazardous or toxic
wastes; however, the Company does operate underground fuel storage
tanks ("UST's") that are subject to federal, state and local laws and
regulations. As of December 28, 1996, the Company has removed or
closed 165 of its 177 UST's. The Company plans to remove an
additional number of UST's in 1997.
(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 purchases its workers compensation, auto and general
liability insurance on a retrospective basis. The Company accrues its
expected ultimate costs related to claims occurring during each fiscal
year and carries this accrual as a reserve until such claims are paid by
the Company.
The Company has established loss reserves for insurance, environmental
and litigation matters 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 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 $10,000,000 and $19,100,000 at
December 28, 1996. The accrued expenses and other noncurrent liabilities
classifications in the Company's consolidated balance sheets include
reserves for insurance, environmental and litigation contingencies of
$20,847,000 and $16,325,000 at December 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 may not be covered
by insurance would not likely have a material adverse effect on the
Company's financial position, although it could potentially have a
material impact on the results of operations in any one year.
(16) QUARTERLY FINANCIAL DATA (UNAUDITED AND IN THOUSANDS EXCEPT
PER SHARE AMOUNTS):
<TABLE>
<CAPTION>
Year Ended December 28, 1996
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
First Quarter Second Quarter Third Quarter Fourth Quarter
Net sales $109,741 $114,253 $127,249 $137,672
Operating profit 8,918 9,223 3,203 6,092
Net earnings (loss) 3,931 3,613 (1,253) 1,382
Primary earnings (loss) per share 0.72 0.65 (0.24) 0.25
<CAPTION>
Year Ended December 30, 1995
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
First Quarter Second Quarter Third Quarter Fourth Quarter
Net sales $106,590 $105,658 $ 95,467 $113,893
Operating profit 11,908 9,977 6,319 7,905
Net earnings 5,049 4,433 2,061 2,837
Primary earnings per share 1.01 0.84 0.38 0.52
</TABLE>
<PAGE>
(Page 34)
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Darling International Inc.:
We have audited the consolidated financial statements of Darling International
Inc. and subsidiaries as of December 28, 1996 and December 30, 1995, and the
related consolidated statements of operations, stockholders' equity (deficit)
and cash flows for each of the years in the three-year period ended December 28,
1996. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Darling
International Inc. and subsidiaries as of December 28, 1996 and December 30,
1995, and the results of their operations and their cash flows for each of the
years in the three-year period ended December 28, 1996, in conformity with
generally accepted accounting principles. Also in our opinion, the related
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
KPMG Peat Marwick LLP
Dallas, Texas
February 7, 1997
<PAGE>
(Page 35)
STOCK INFORMATION
The common stock of Darling International Inc. is traded on the National Market
System of the National Association of Securities Dealers' Automated Quotation
System ("Nasdaq") under the symbol "DARL."
The following table sets forth the quarterly high and low sale prices of the
Common Stock as reported by the Nasdaq National Market System for the three
fiscal years ended December 28, 1996:
Fiscal 1994 Quarter Ended High Low
April 2, 1994 N/A N/A
July 2, 1994 N/A N/A
October 1, 1994 $13.00 $11.00
December 31, 1994 $13.25 $10.75
Fiscal 1995 Quarter Ended High Low
April 1, 1995 $14.125 $13.000
July 1, 1995 $23.375 $13.750
September 30, 1995 $30.000 $22.250
December 30, 1995 $29.000 $21.750
Fiscal 1996 Quarter Ended
March 30, 1996 $30.625 $26.625
June 29, 1996 $29.000 $21.750
September 28, 1996 $28.250 $24.750
December 28, 1996 $31.875 $27.250
At March 24, 1997, there were approximately 67 stockholders of record.
The Company has not paid dividends on the common stock since January, 1989, and
has no plans to pay dividends in the foreseeable future. The Company intends
instead to retain future earnings for reinvestment in its business or reduction
of its indebtedness.
<PAGE>
Page 36
CORPORATE INFORMATION
DIRECTORS
Dennis B. Longmire
Chairman of the Board since 1995
Former President of Premier Agri-Technologies
Former Vice President at Central Soya Co., Inc.
Craig Scott Bartlett, Jr.
Director since 1994
Former Sr. Lending Officer and Chairman, Credit Policy Committee,
National Westminster Bank, USA
Fredric J. Klink
Director since 1995
Partner, Dechert Price and Rhoads (law firm)
Denis J. Taura
Director since 1993
Chairman and founder of D. Taura & Associates (consulting firm)
Former Partner with KPMG Peat Marwick
John C. Waterfall
Director since 1995
President and co-founder, Morgens, Waterfall, Vintiadis & Company, Inc.
OFFICERS
Dennis B. Longmire
Chief Executive Officer
Douglas P. Anderson
Executive Vice President
John R. Witt
Vice President and Chief Financial Officer
Omer A. Dreiling, II
Vice President of Southwest Division
James A. Ransweiler
Vice President of Great Lakes Division
Robert L. Willis
Vice President of Midwest Division
Robert E. McMullen
President of International Processing Corporation
James A. Coalson
Vice President of Research & Technology
William R. McMurtry
Vice President of Environmental Affairs
Richard Diamond
Vice President of Market Development
Mark C. Levy
Vice President and Corporate Controller
Gilbert L. Gutierrez
Vice President of Human Resources
Joseph R. Weaver, Jr.
General Counsel and Secretary
Brad Phillips
Treasurer
(Inside back cover)
PRINCIPAL OFFICES
Darling International Inc.
251 O'Connor Ridge Blvd., Suite 300
Irving, Texas 75038 phone: (972)717-0300
STOCK INFORMATION The Common Stock of Darling International Inc. is traded on
the National Market System of the National Association of Securities Dealers'
Automated Quotation System ("Nasdaq") under the symbol "DARL."
TRANSFER AGENT AND REGISTRAR
The First National Bank of Boston
c/o Boston EquiServe
P.O. Box 8040
Boston, MQ 02266-8040
LEGAL COUNSEL
Dechert Price & Rhoads
30 Rockefeller Plaza
New York, NY 10112
AUDITORS
KPMG Peat Marwick LLP
200 Crescent Court, Suite 300
Dallas, Texas 75201-1885
THE ANNUAL MEETING
will be held at 10:00 a.m. on May 20, 1997
at: The Mansion on Turtle Creek
2821 Turtle Creek, Dallas, Texas 75219
DARLING INTERNATIONAL INC.'s
Annual Report on FORM 10-K
is available upon request without charge,
c/o: Investor Relations,
Darling International Inc.
251 O'Connor Ridge Blvd., Suite 300
Irving, TX 75038
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(back cover):
(Darling logo)
Darling International Inc.
251 O'Connor Ridge Blvd., Suite 300, Irving, TX 75038
