UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended July 4, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File Number 0-24620
DARLING INTERNATIONAL INC.
(Exact name of registrant as specified in its charter)
DELAWARE 36-2495346
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
251 O'CONNOR RIDGE BLVD., SUITE 300, IRVING, TEXAS 75038
(Address of principal executive offices)
(972) 717-0300
(Registrant's telephone number)
Not applicable
(Former name, address and fiscal year, if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such report(s)), and (2) has been subject to such filing
requirements for the past 90 days.
YES /X/ NO / /
The number of shares outstanding of the Registrant's common stock, $0.01 par
value, as of August 14, was 15,587,292.
<PAGE>
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
FORM 10-Q FOR THE THREE MONTHS ENDED JULY 4, 1998
TABLE OF CONTENTS
Page No.
PART I: FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets . . . . . . . . . . . . . 3
July 4, 1998 (unaudited) and January 3, 1998
Consolidated Statements of Operations (unaudited) . . . . . . 4
Three Months and Six Months Ended July 4, 1998 and June 28, 1997
Consolidated Statements of Cash Flows (unaudited). . . . . . . 5
Six Months Ended July 4, 1998 and June 28, 1997
Notes to Consolidated Financial Statements (unaudited). . . . . 6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . . . 9
PART II: OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . 15
Item 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS. . . . . . . . . . . . . . . . 15
Item 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . 16
Signatures . . . . . . . . . . . . . . . . . . 17
Index to Exhibits . . . . . . . . . . . . . . . . 18
<PAGE>
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
July 4, 1998 and January 3, 1998
(in thousands, except shares and per share data)
July 4, January 3,
1998 1998
--------- ---------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 3,279 $ 2,955
Accounts receivable 21,855 32,459
Inventories 12,647 13,897
Prepaid expenses 6,402 3,459
Deferred income tax assets 3,448 4,006
Other 661 383
--------- ---------
Total current assets 48,292 57,159
Property, plant and equipment, less accumulated
depreciation of $95,998 at July 4, 1998 and
$81,552 at January 3, 1998 164,415 170,636
Collection routes and contracts, less accumulated
amortization of $11,914 at July 4, 1998 and
$8,700 at January 3, 1998 58,140 58,715
Goodwill, less accumulated amortization of $1,381
at July 4, 1998 and $949 at January 3, 1998 20,560 20,902
Other assets 4,670 5,565
--------- ---------
$ 296,077 $ 312,977
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 5,113 $ 5,113
Accounts payable, principally trade 19,577 22,426
Accrued expenses 25,301 25,385
Accrued interest 919 911
--------- ---------
Total current liabilities 50,910 53,835
Long-term debt, less current portion 130,750 142,181
Other non-current liabilities 25,901 21,391
Deferred income taxes 22,732 25,814
--------- ---------
Total liabilities 230,293 243,221
--------- ---------
Stockholders' equity
Common stock, $.01 par value; 25,000,000 shares
authorized; 15,582,912 and 15,563,037 shares
issued and outstanding at July 4, 1998 and at
January 3, 1998, respectively 156 156
Preferred stock, $0.01 par value; 1,000,000
shares authorized, none issued - -
Additional paid-in capital 34,841 34,780
Retained earnings 30,787 34,820
Accumulated other comprehensive income - -
--------- --------
Total stockholders' equity 65,784 69,756
--------- --------
Contingencies (note 3)
$ 296,077 $ 312,977
========= =========
The accompanying notes are an integral
part of these consolidated financial statements.
<PAGE>
<TABLE>
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months and six months ended July 4, 1998 and June 28, 1997
(in thousands, except per share data)
<CAPTION>
Three Months Ended Six Months Ended
------------------------ ---------------------
July 4, June 28, July 4, June 28,
1998 1997 1998 1997
-------- -------- -------- --------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net sales $ 99,271 $128,796 $207,354 $254,605
------- ------- ------- -------
Costs and expenses:
Cost of sales and operating expenses 82,423 103,259 169,855 205,623
Selling, general and administrative expenses 8,718 7,529 19,492 18,726
Depreciation and amortization 9,265 8,241 18,353 16,216
--------- ------- -------- --------
Total costs and expenses 100,406 119,029 207,700 240,565
------- ------- -------- --------
Operating income (loss) (1,135) 9,767 (346) 14,040
---------- ------- --------- --------
Other income (expense):
Interest expense (2,748) (3,699) (5,856) (7,354)
Other, net (438) 143 (360) 247
---------- ------- --------- --------
Total other income (expense) (3,186) (3,556) (6,216) (7,107)
--------- ------- -------- --------
Income (loss) before income taxes (4,321) 6,211 (6,562) 6,933
Income tax expense (benefit) (1,692) 2,399 (2,529) 2,734
----------- ------- -------- --------
Net earnings (loss) $ (2,629) $ 3,812 $ (4,033) $ 4,199
========== ======= ========= =======
Basic earnings (loss) per common share $ (0.17) $ 0.25 $ (0.26) $ 0.27
========== ======= ======== =====
Diluted earnings (loss) per common share $ (0.17) $ 0.23 $ (0.26) $ 0.26
========== ======= ======== =====
The accompanying notes are an integral part
of these consolidated financial statements.
</TABLE>
<PAGE>
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS Six months
ended July 4, 1998 and June 28, 1997
(in thousands)
Six Months Ended
July 4, June 28,
1998 1997
---------- --------
(unaudited)
Cash flows from operating activities:
Net earnings (loss) $ (4,033) $ 4,199
Adjustments to reconcile net
earnings (loss) to net cash
provided by operating activities:
Depreciation and amortization 18,353 16,216
Deferred income tax expense (benefit) (2,524) (723)
Gain on sales of assets (13) (622)
Changes in operating assets and liabilities
net of effects from acquisitions:
Accounts receivable 10,604 3,652
Inventories and prepaid expenses (1,718) (1,471)
Accounts payable and accrued expenses (2,932) (3,133)
Accrued interest 8 (3,765)
Other 6,856 3,746
-------- --------
Net cash provided by operating activities 24,601 18,099
-------- --------
Cash flows from investing activities:
Recurring capital expenditures (8,616) (10,289)
Capital expenditures related to acquisitions - (1,001)
Net proceeds from sale of property, plant and
equipment and other assets 172 5,051
Payments related to routes and other intangibles (2,733) (3,607)
-------- --------
Net cash used in investing activities (11,177) (9,846)
-------- --------
Cash flows from financing activities:
Proceeds from long-term debt 45,811 201,044
Payments on long-term debt (57,242) (214,589)
Contract payments (1,730) (737)
Deferred loan costs - (965)
Issuance of common stock 61 196
-------- --------
Net cash used in financing activities (13,100) ( 15,051)
-------- --------
Net increase (decrease) in cash and cash equivalents 324 (6,798)
Cash and cash equivalents at beginning of period 2,955 12,956
-------- --------
Cash and cash equivalents at end of period $ 3,279 $ 6,158
======== ========
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
July 4, 1998
(unaudited)
(1) General
The accompanying consolidated financial statements for the three month
and six month periods ended July 4, 1998 and June 28, 1997 have been
prepared by Darling International Inc. (Company) without audit, pursuant
to the rules and regulations of the Securities and Exchange Commission
(SEC). The information furnished herein reflects all adjustments
(consisting only of normal recurring accruals) which are, in the opinion
of management, necessary to present a fair statement of the financial
position and operating results of the Company as of and for the
respective periods. However, these operating results are not necessarily
indicative of the results expected for full fiscal year. Certain
information and footnote disclosures normally included in annual
financial statements prepared in accordance with generally accepted
accounting principles have been omitted pursuant to such rules and
regulations. However, management of the Company believes that the
disclosures herein are adequate to make the information presented not
misleading. The accompanying consolidated financial statements should be
read in conjunction with the audited consolidated financial statements
contained in the Company's Form 10-K for the fiscal year ended January 3,
1998.
(2) Summary of Significant Accounting Policies
(a) Basis of Presentation
The consolidated financial statements include the accounts of the
Company and its subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
(b) Fiscal Periods
The Company has a 52/53 week fiscal year ending on the Saturday
nearest December 31. Fiscal periods for the consolidated financial
statements included herein are as of January 3, 1998, and include
the 13 and 26 weeks ended July 4, 1998, and the 13 and 26 weeks
ended June 28, 1997.
(c) Earnings Per Common Share
In February, 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No.128,
"Earnings Per Share" ("SFAS No. 128"). SFAS No. 128 revised the
previous calculation methods and presentations of earnings per
share and requires that all prior-period earnings (loss) per
share data be restated. The Company adopted SFAS No. 128 in the
fourth quarter of 1997 as required by this Statement.
Basic earnings (loss) 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. Diluted earnings (loss) per common share are computed
by dividing net earnings attributable to outstanding common stock
by the weighted average number of common shares outstanding
during the year increased by dilutive common equivalent shares
(stock options) determined using the treasury stock method, based
on the average market price exceeding the exercise price of the
stock options. All prior-period earnings (loss) per share amounts
have been restated in accordance with SFAS No. 128.
<PAGE>
The weighted average common shares used for basic earnings (loss)
per common share was 15,580,000 and 15,574,000 for the three
months and six months ended July 4, 1998, and 15,504,000 and
15,489,000 for the three months and six months ended June 28,
1997. The effect of dilutive stock options added 831,000 and
945,000 shares for the three months and six months ended June 28,
1997. For the three months and six months ended July 4, 1998, no
stock options were included in the calculation of diluted
earnings (loss) per common share as the effect was antidilutive.
(3) Contingencies
(a) ENVIRONMENTAL
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"). In June 1982, RWQCB staff approved a
completed closure plan which included construction of a containment
cell (the "Containment Cell") on a portion (approximately 5 acres)
of the Site to isolate contaminated soil excavated from the Site.
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. In 1997 the RWQCB issued Order No.
97-40 prescribing a maintenance and monitoring program for the
Containment Cell. In June 1998 the RWQCB provided a letter to
assure potential purchasers and lenders of limitations on their
liability connected to the balance of the Site (approximately 30
acres) in order to facilitate a potential sale. The Company
continues to work with the RWQCB to define the scope of an
additional order which will address the Company's future
obligations for that remaining portion of the Site.
(b) LITIGATION
Other Litigation
The Company is also a party to several other lawsuits, claims and
loss contingencies incidental to its business, including assertions
by regulatory agencies related to the release of unacceptable odors
from some of its processing facilities.
<PAGE>
The Company has established loss reserves for environmental and
other 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 $3.8 million and $12.8 million at July 4, 1998. The
accrued expenses and other noncurrent liabilities classifications
in the Company's consolidated balance sheets include reserves for
insurance, environmental and litigation contingencies of $21.6
million and $15.7 million at July 4, 1998 and January 3, 1998,
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.
(4) Changes in Accounting Principles
Effective January 4, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income." This Statement requires that all items recognized under
accounting standards as components of comprehensive earnings be
reported in an annual financial statement that is displayed with the
same prominence as the other annual financial statements. This
Statement also requires that the Company classify items of other
comprehensive earnings by their nature in an annual financial
statement. Comprehensive income did not differ from net income for the
periods ended July 4, 1998 and June 28, 1997.
<PAGE>
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
FORM 10-Q FOR THE THREE MONTHS AND SIX MONTHS
ENDED JULY 4, 1998
PART I
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion summarizes information with respect to the
liquidity and capital resources of the Company at July 4, 1998 and factors
affecting its results of operations for the three months and six months ended
July 4, 1998 and June 28, 1997.
RESULTS OF OPERATIONS
Three Months Ended July 4, 1998 Compared to Three Months Ended June 28, 1997
GENERAL
The Company recorded a net loss of $2.6 million for the second quarter
of the fiscal year ending January 2, 1999 ("Fiscal 1998"), as compared to net
earnings of $3.8 million for the second quarter of the fiscal year ended January
3, 1998 ("Fiscal 1997"). Operating income decreased $10.9 million to an
operating loss of $1.1 million in the second quarter of Fiscal 1998 from
operating income of $9.8 million in the second quarter of Fiscal 1997. The
decrease in operating income was primarily due to: 1) Declines in overall
finished goods prices; 2) Declines in the volume of raw materials processed; and
3) Approximately $1.1 million in increased depreciation and amortization expense
related to acquisitions and capital expenditures. Interest expense decreased
from $3.7 million in Fiscal 1997 to $2.7 million in Fiscal 1998, primarily due
to the refinancing of all outstanding debt on June 5, 1997, resulting in a lower
overall interest rate.
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.
In addition, the Company provides grease trap collection services to
Restaurants. 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, trap grease services, and finished goods purchased for
resale, which constitute less than 10% of total sales.
During the second quarter of Fiscal 1998, net sales decreased 22.9%, to
$99.3 million as compared to $128.8 million during the second quarter of Fiscal
1997 primarily due to the following: 1) Decreases in overall finished goods
prices resulted in a $20.3 million decrease in sales in the second quarter of
Fiscal 1998 versus the second quarter of Fiscal 1997. The Company's average
yellow grease prices were 16.2% lower, average tallow prices were 4.9% lower,
and average meat and bone meal prices were 37.9% lower. Average corn prices were
16.5% lower; 2) Decreases in the volume of raw materials processed resulted in a
$3.8 million decrease in sales; 3) Decreases in finished hides sales accounted
for $2.0 million in sales decreases; 4) Inventory changes accounted for an
additional decrease of $4.9 million in sales; and 5) Service charge income
increased $1.4 million to somewhat offset the other decreases.
<PAGE>
COST OF SALES AND OPERATING EXPENSES
Cost of sales and operating expenses includes prices paid to raw
material suppliers, the cost of product purchased for resale, and the cost to
collect and process 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 the second quarter of Fiscal 1998, cost of sales and operating
expenses decreased $20.9 million (20.2%) to $82.4 million as compared to $103.3
million during the second quarter of Fiscal 1997 primarily as a result of the
following: 1) Lower raw material prices paid, correlating to decreased prices
for fats and oils, meat and bone meal and corn resulted in decreases of $17.0
million in cost of sales; 2) Decreases in the volume of raw materials collected
and processed resulted in a decrease of approximately $2.4 million in cost of
sales and operating expenses; and 3) Changes in inventory levels resulted in an
approximately $4.0 million decrease in cost of sales, offset by a $3.0 million
increase in product purchased for resale.
SELLING, GENERAL AND ADMINISTRATIVE COSTS
Selling, general and administrative costs were $8.7 million during the
second quarter of Fiscal 1998, a $1.2 million increase from $7.5 million for the
second quarter of Fiscal 1997. This increase resulted from a favorable $1.9
million insurance settlement of certain property and casualty claims from past
insurers which was recorded during the second quarter of 1997. This was somewhat
offset by a $0.7 million decrease in labor costs.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization charges increased $1.1 million to $9.3
million during the second quarter of Fiscal 1998 as compared to $8.2 million
during the second quarter of Fiscal 1997. This increase was primarily due to
additional depreciation on fixed asset additions and amortization on intangibles
acquired as a result of various acquisitions. The Company adopted Fresh Start
Accounting in 1994. Under this method of accounting, the assets acquired prior
to December 1994 were restated at fair market value and depreciated over
estimated remaining lives of 5-15 years.
INTEREST EXPENSE
Interest expense decreased $1.0 million from $3.7 million during the
second quarter of Fiscal 1997 to $2.7 million during the second quarter of
Fiscal 1998, primarily due to the refinancing of all outstanding debt on June 5,
1997 at a lower overall rate of interest.
INCOME TAXES
The income tax benefit of $1.7 million for the second quarter of Fiscal
1998 consists of federal tax benefit and various state and foreign taxes. This
is a decrease of $4.1 million from $2.4 million income tax expense during the
second quarter of Fiscal 1997.
CAPITAL EXPENDITURES
The Company made capital expenditures of $2.7 million during the second
quarter of Fiscal 1998 compared to capital expenditures of $4.9 million during
the second quarter of Fiscal 1997.
<PAGE>
Six Months Ended July 4, 1998 Compared to Six Months Ended June 28, 1997
GENERAL
The Company recorded a net loss of $4.0 million for the first six
months of Fiscal 1998, as compared to net earnings of $4.2 million for the first
six months of Fiscal 1997. Operating income decreased from $14.0 million in the
first six months of Fiscal 1997 to an operating loss of $0.3 million in the
first six months of Fiscal 1998. The decrease in operating income was primarily
due to: 1) Declines in overall finished goods prices; 2) Declines in the volume
of raw materials processed; and 3) Approximately $2.2 million in increased
depreciation and amortization expense related to acquisitions and capital
expenditures. Interest expense decreased from $7.4 million to $5.9 million in
Fiscal 1998, primarily due to the refinancing of all outstanding debt on June 5,
1997, resulting in a lower overall interest rate.
NET SALES
During the first six months of Fiscal 1998, net sales decreased by
$47.2 million (18.5%) to $207.4 million as compared to $254.6 million during the
first six months of Fiscal 1997, primarily due to the following: 1) Decreases in
overall finished goods prices resulted in a $46.5 million decrease in sales in
the first six months of Fiscal 1998, versus the first six months of Fiscal 1997.
The Company's average yellow grease prices were 20.6% lower, average tallow
prices were 11.3% lower, and average meat and bone meal prices were 32.5% lower.
Average corn prices were 12.5% lower; 2) Decreases in the volume of raw
materials processed resulted in a $6.9 million decrease in sales, offset by $1.5
million in yield gains; 3) Decreases in finished hides sales accounted for $4.9
million in sales decreases; and 4) Increases in service charge income of $2.8
million and inventory changes of $5.0 million somewhat offset the decreases.
COST OF SALES AND OPERATING EXPENSES
During the first six months of Fiscal 1998, cost of sales and operating
expenses decreased $35.7 million (17.4%) to $169.9 million as compared to $205.6
million during the first six months of Fiscal 1997, primarily as a result of the
following: 1) Lower raw material prices paid, correlating to decreased prices
for fats and oils, meat and bone meal and corn resulted in decreases of $36.4
million in cost of sales; 2) Decreases in the volume of raw materials collected
and processed resulted in a decrease of approximately $4.5 million in cost of
sales and operating expenses; and 3) Changes in inventory levels resulted in an
approximately $3.7 million increase in cost of sales.
SELLING, GENERAL AND ADMINISTRATIVE COSTS
Selling, general and administrative costs were $19.5 million during the
first six months of Fiscal 1998, a $0.8 million increase from $18.7 million for
the first six months of Fiscal 1997. Approximately $0.5 million in increased
expenses related to the functional reorganization of the Company by line of
business and other expenses related to legal and environmental matters.
<PAGE>
DEPRECIATION AND AMORTIZATION
Depreciation and amortization charges increased by $2.2 million to
$18.4 million during the first six months of Fiscal 1998, as compared to $16.2
million during the first six months of Fiscal 1997. This increase was primarily
due to additional depreciation on fixed asset additions and amortization on
intangibles acquired as a result of various acquisitions.
INTEREST EXPENSE
Interest expense decreased by $1.5 million from $7.4 million during the
first six months of Fiscal 1997, to $5.9 million during the first six months of
Fiscal 1998, primarily due to the refinancing of all outstanding debt on June 5,
1997, at a lower overall rate of interest.
INCOME TAXES
The income tax benefit of $2.5 million for the first six months of
Fiscal 1998 consists of federal tax benefit and various state and foreign taxes.
This is a decrease of $5.2 million from the $2.7 million income tax expense
during the first six months of Fiscal 1997.
CAPITAL EXPENDITURES
The Company made capital expenditures of $8.6 million during the first
six months of Fiscal 1998, compared to capital expenditures of $11.3 million
during the first six months of Fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
Effective June 5, 1997, the Company entered into a Credit Agreement
(the "Credit Agreement") which provides for borrowings in the form of a
$50,000,000 Term Loan and $175,000,000 Revolving Credit Facility. As of July 4,
1998 the Company was in compliance with all provisions of the Credit Agreement,
as amended.
The Term Loan provides for $50,000,000 of borrowing. The Term Loan
bears interest payable monthly at LIBOR (5.6875% at July 4, 1998), plus a margin
(the "Credit Margin") (1.625% at July 4, 1998) which floats based on the
achievement of certain financial ratios. The Term Loan is payable by the Company
in quarterly installments of $1,250,000 commencing on June 30, 1997 through
March 31, 1999: $2,500,000 commencing on June 30, 1999 through March 31, 2002;
and an installment of $10,000,000 due on June 5, 2002. As of July 4, 1998,
$43,750,000 was outstanding under the Term Loan.
<PAGE>
The Revolving Credit Facility provides for borrowings up to a maximum
of $175,000,000 with sublimits available for letters of credit and a swingline.
Outstanding borrowings on the Revolving Credit Facility bear interest, payable
monthly, at various LIBOR rates (ranging from 5.6563% to 5.6992% at July 4,
1998) plus the Credit Margin as well as portions at a Base Rate (8.50% at July
4, 1998) or, for swingline advances, at the Base Rate. Additionally, the Company
must pay a commitment fee equal to 0.25% per annum on the unused portion of the
Revolving Credit Facility. The Revolving Credit Facility matures on June 5,
2002. As of July 4, 1998, $92,000,000 was outstanding under the Revolving Credit
Facility. As of July 4, 1998, the Company had outstanding irrevocable letters of
credit aggregating $12,445,000.
The Credit Agreement contains certain terms and covenants, which, among
other matters, restrict the incurrence of additional indebtedness, the payment
of cash dividends and the annual amount of capital expenditures, and requires
the maintenance of certain minimum financial ratios. Certain financial covenants
to the Credit Agreement required amendments, effective June 30, 1998, due to
declines in the prices of the commodities which the Company sells, as discussed
above. As of July 4, 1998, the Company was in compliance with all provisions of
the Credit Agreement, as amended. If such commodity prices do not improve, the
Company will seek (i) further amendments or waivers of certain covenants or (ii)
alternative long-term financing. As of July 4, 1998, no cash dividends could be
paid to the Company's stockholders pursuant to the Credit Agreement.
The Company has only very limited involvement with derivative financial
instruments and does not use them for trading purposes. Interest rate swap
agreements are used to reduce the potential impact of increases in interest
rates on floating-rate long-term debt. At July 4, 1998, the Company was party to
three interest rate swap agreements, each with a term of five years (all
maturing June 27, 2002). Under terms of the swap agreements, the interest
obligation of $70 million of Credit Agreement floating-rate debt was exchanged
for fixed rate contracts which bear interest, payable quarterly, at an average
rate of 6.6% plus a credit margin.
On July 4, 1998, the Company had a working capital deficit of $2.6
million and its working capital ratio was 0.95 to 1 compared to working capital
of $3.3 million and a working capital ratio of 1.06 to 1 on January 3, 1998.
This decrease in working capital is mainly attributable to decreases in accounts
receivable due to lower finished goods prices. Although operating income
declined substantially the first six months of Fiscal 1998 as compared to the
first six months of Fiscal 1997, overall debt declined $11.4 million during the
first six months of Fiscal 1998. Net cash provided by operating activities has
increased $6.5 million from $18.1 million during the first six months of Fiscal
1997 to $24.6 million during the first six months of Fiscal 1998. 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 1997, the Financial Accounting standards Board issued SFAS No.
131, Disclosures about Segments of an Enterprise and Related Information. SFAS
No. 131 is effective for annual periods beginning after December 15, 1997. This
Statement established standards for the way that public business enterprises
report information about operating segments in annual financial statements. The
Statement defines operating segments as components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision maker in deciding how to allocate resources and in
assessing performance. The Company anticipates that this Statement will require
additional disclosure regarding operating segments in Fiscal 1998.
<PAGE>
The Company is also assessing the reporting and disclosure requirements
of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities.
This statement establishes accounting and reporting standards for derivative
instruments and hedging activities. The statement is effective for financial
statements for fiscal years beginning after June 15, 1999. The Company believes
SFAS No. 133 will not have a material impact on its financial statements or
accounting policies. The Company will adopt the provisions of SFAS No. 133 in
the first quarter of 2000.
OTHER
As a result of computer programs being written using two digits rather
than four to define the applicable years, there is a concern by the business
community as to whether these systems will be able to process information
beginning in the year 2000. To deal with this concern, the Company has initiated
programs and information systems reviews in an attempt to ensure that key
systems and processes will remain functional. This objective is to be achieved
either by modifying present systems or by installing new systems. While there
can be no assurance that all modifications will be successful, management does
not expect that costs of modifications or consequences of any unsuccessful
modifications will have a material adverse effect on the Company.
FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes "forward-looking"
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All
statements other than statements of historical facts included in the Quarterly
Report on Form 10-Q, including, without limitation, the statements under the
sections entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Legal Proceedings" and located elsewhere herein
regarding industry prospects and the Company's financial position are
forward-looking statements. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable; it can give no
assurance that such expectations will prove to be correct. Important factors
that could cause actual results to differ materially from the Company's
expectations include: the Company's continued ability to obtain sources of
supply for its rendering operations; general economic conditions in the European
and Asian markets; and prices in the competing commodity markets which are
volatile and are beyond the Company's control. Future profitability may be
effected by the Company's ability to grow its restaurant services business and
the development of its value-added feed ingredients, all of which face
competition from companies which may have substantially greater resources than
the Company.
<PAGE>
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
FORM 10-Q FOR THE THREE MONTHS AND SIX MONTHS
ENDED JULY 4, 1998
PART II: Other Information
Item 1. LEGAL PROCEEDINGS
The information required by this item is included on pages 7 and 8 of
this report and is incorporated herein by reference.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The matters voted upon at the annual meeting of stockholders held on
May 27, 1998 were as follows:
(i) The election of five directors to serve until the next annual
meeting of stockholders or until their successors have been
elected and qualified. The number of votes cast for and
against the election of each nominee, as well as the number of
abstentions and broker non-votes with respect to the election
of each nominee, were as follows:
Fredric J. Klink
For 13,689,200 Against/Witheld 242,259
Dennis B. Longmire
For 13,689,545 Against/Witheld 241,914
Denis J. Taura
For 13,688,095 Against/Witheld 243,364
Bruce Waterfall
For 13,689,395 Against/Witheld 242,064
William L. Westerman
For 13,689,350 Against/Witheld 242,109
(ii) The amendment of the 1994 Employee Flexible Stock Option Plan
to increase the number of shares of Common Stock, issuable
thereunder from 2,052,198 shares to 2,552,198 shares. The
number of votes cast for and against the proposal, as well as
the number of abstentions and broker non-votes were as
follows:
For 11,585,646 Against/Witheld 2,345,795 Abstain 18
<PAGE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibits No. Description
3.1* Restated Articles of Incorporation.
3.2* Amended and Restated Bylaws, dated March 10, 1994 and
March 31, 1995.
10.14 Master Lease Agreement between STI and Darling International Inc.
dated as of May 14, 1998.
11 Statement re-computation of per share earnings.
27 Financial Data Schedule
* Incorporated by reference to the Registrant's Registration
Statement on Form S-1 (Registration No. 33-79478).
(b) REPORTS ON FORM 8-K
There were no reports filed on Form 8-K during the three months ended
July 4, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DARLING INTERNATIONAL INC.
Registrant
Date: August 18, 1998 By: /s/ Dennis B. Longmire
Dennis B. Longmire
Chairman and
Chief Executive Officer
Date: August 18, 1998 By: /s/ John O. Muse
John O. Muse
Vice President and
Chief Financial Officer
(Principal Financial Officer)
<PAGE>
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
FORM 10-Q FOR THE THREE MONTHS ENDED JULY 4, 1998
INDEX TO EXHIBITS
Exhibits No. Description Page No.
3.1* Restated Articles of Incorporation
3.2* Amended and Restated Bylaws, dated March 10, 1994 and
March 31, 1995.
10.14 Master Equipment Lease between STI Credit Corporation and
Darling International Inc. dated as of May 14, 1998. 19
11 Statement re-computation of per share earnings. 18
27 Financial Data Schedule
* Incorporated by reference to the Registrant's Registration Statement
on Form S-1 (Registration No. 33-79478).
<PAGE>
EXHIBIT 11
<TABLE>
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
The following table details the computation of basic and diluted earnings
(loss) per common share, in thousands except per share data.
<CAPTION>
Three Months Ended Six Months Ended
---------------------------- ----------------------------
July 4, June 28, July 4, June 28,
1998 1997 1998 1997
--------------------------------------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Earnings (Loss) (Basic):
Net earnings (loss) available $ (2,629) $ 3,812 $ (4,033) $ 4,199
to common stock ======== ======== ========= ========
Shares (Basic):
Weighted average number of
common shares outstanding 15,580 15,504 15,574 15,489
======== ======== ========= ========
Basic earnings (loss) per common share $ (0.17) $ 0.25 $ (0.26) $ 0.27
======== ======== ========= ========
=========================================================================================================
Earnings (Loss) (Diluted):
Net earnings (loss) available $ (2,629) $ 3,812 $ (4,033) $ 4,199
to common stock ======== ======== ========= ========
Shares (Diluted):
Weighted average number of
common shares outstanding 15,580 15,504 15,574 15,489
Additional shares assuming exercise
of stock options - 831 - 945
-------- -------- --------- -------
Average common shares outstanding
and equivalents 15,580 16,335 15,574 16,434
======== ======== ========= =======
Diluted earnings (loss) per
common share $ (0.17) $ 0.23 $ (0.26) $ 0.26
======== ======== ========= ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-START> JAN-04-1998
<PERIOD-END> JUL-04-1998
<CASH> 3,279
<SECURITIES> 0
<RECEIVABLES> 21,855
<ALLOWANCES> 243
<INVENTORY> 12,647
<CURRENT-ASSETS> 48,292
<PP&E> 243,115
<DEPRECIATION> 109,293
<TOTAL-ASSETS> 296,077
<CURRENT-LIABILITIES> 50,910
<BONDS> 135,863
0
0
<COMMON> 156
<OTHER-SE> 65,628
<TOTAL-LIABILITY-AND-EQUITY> 296,077
<SALES> 207,354
<TOTAL-REVENUES> 207,354
<CGS> 169,855
<TOTAL-COSTS> 207,700
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,856
<INCOME-PRETAX> (6,562)
<INCOME-TAX> (2,529)
<INCOME-CONTINUING> (4,033)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,033)
<EPS-PRIMARY> (0.26)
<EPS-DILUTED> (0.26)
</TABLE>
STI CREDIT CORPORATION
Mail Code 130
P. 0. Box 4418
Atlanta, Georgia 30302-4418
MASTER EQUIPMENT LEASE
Lease Number
453-01
This Master Equipment Lease (hereinafter the "Lease") by and between
STI Credit Corporation (hereinafter called "Lessor") with its principal place of
business located at 1 Park Place, Atlanta, Georgia and Darling International
Inc. (hereinafter called "Lessee") with its principal place of business located
at 251 O'Connor Ridge Boulevard, Suite 300, Irving, Texas 75038.
For and in consideration of the mutual covenants and promises contained
herein and other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, Lessor and Lessee agree as follows:
1. Lessor leases to Lessee and Lessee leases and hires from Lessor all
machinery, equipment and other property ("Equipment") described in Exhibit A
attached hereto and made a part hereof. Said Equipment will be located at the
location as set forth in Exhibit A attached hereto and made a part hereof. The
rental for the Equipment described above shall be equal to the amounts set forth
in Schedule A attached hereto and made a part hereof, plus all applicable taxes.
Terms and conditions of this lease will be set forth as agreed upon by Lessor's
proposal to Lessee dated , with such terms and conditions amended from time to
time, as mutually agreed upon by Lessor and Lessee.
2. Should any rental payment not be paid within ten (10) days after the
regularly scheduled due date, a late charge not exceeding five percent (5%) of
the monthly rental payment may be charged to cover administrative expenses
incurred by Lessor upon such default. Said charge shall be made only once on any
given rental installment during the term of the Lease.
3. The term of the Lease for the Equipment described in Paragraph 1
above shall commence as set forth in Schedule A attached hereto and made a part
hereof. All rental payments shall be payable in advance at Lessor's address set
forth above or at such other place as Lessor may designate, such rental payments
to be paid without notice or demand to Lessee and without abatement, set-off or
deduction of any amount whatsoever by Lessee, all rights of set-off or similar
claims being hereby waived by Lessee.
4. It is understood that Lessor is not the manufacturer or vendor of
the Equipment, nor the agent of the manufacturer or vendor of the Equipment, and
that LESSOR GIVES NO WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO THE
EQUIPMENT, INCLUDING ANY WARRANTY AS TO, MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE, OR CAPACITY, OR AS TO THE EXISTENCE OF PATENT OR LATENT
DEFECTS, OR ANY WARRANTY THAT THE EQUIPMENT WILL MEET THE REQUIREMENTS OF ANY
LAW, RULE, SPECIFICATION OR CONTRACT. LESSOR IS NOT RESPONSIBLE FOR ANY REPAIRS,
SERVICE OR DEFECT IN THE EQUIPMENT OR THE OPERATION THEREOF OR FOR ANY LOSS,
DELAY OR DAMAGE RESULTING FROM DEFECT IN, BREAKAGE OR INEFFICIENCY OF THE
EQUIPMENT. In lieu of any warranty by Lessor, Lessor agrees to cooperate with
Lessee, at Lessee's sole option and expense, to provide Lessee with the benefit,
if any, of any warranty or maintenance commitment given by any third-party
manufacturer or vendor with respect to the Equipment, provided that Lessee shall
hold Lessor harmless from any liability in connection with such effort and
undertaking.
5. ln no event shall Lessor be liable for consequential, incidental or
indirect damages, including lost profits, or for any negligence, except for
Lessor's gross negligence or willful misconduct or breach of this Lease.
6. Lessee represents and warrants to Lessor (i) if Lessee is a
corporation, that Lessee is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization, and is
qualified to do business in all jurisdictions in which it conducts business,
(ii) that the making of this Lease was duly authorized on the part of Lessee and
constitutes a valid obligation, binding upon and enforceable against Lessee in
accordance with its terms, (iii) that neither the making of this Lease nor the
performance in accordance with the terms hereof will violate any provision of
any law or any judgment, order or ruling of any court or governmental agency or
be in conflict with, result in a breach of, or constitute a default under
Lessee's organizational documents (if Lessee is a corporation) or any agreement
to which Lessee is a party or by which Lessee or its property is bound, and (iv)
that there are no pending, or to the knowledge of Lessee, threatened actions or
proceedings before any court or administrative or governmental agency that are
reasonably expected to have a material adverse effect on the financial condition
or business operations of Lessee. Furthermore Lessee represents and warrants
that all financial statements that have heretofore been presented by Lessee to
Lessor in conjunction with the transaction which is the subject of this Lease
fairly and accurately present a true and correct picture of Lessee's financial
condition and income. Such financial statements do not contain any untrue
statement of a material fact, nor do they omit to state a material fact required
to be stated therein or necessary in order to make such financial statements not
misleading; and there is no fact, situation or event which materially adversely
affects or, so far as Lessee can now foresee, will materially adversely affect
the properties, business, assets, income, prospects or condition (financial or
otherwise) of Lessee. It is understood by the Lessee that the Lease has been
approved by Lessor on the strength of the representations that have been made by
Lessee.
7. Lessee covenants and agrees that Lessee will provide to Lessor (i)
within 120 days after its fiscal year end, Lessee's annual audited financial
statements and (ii) with reasonable promptness, such other information as Lessor
may reasonably request.
8. This Lease (including the Schedules and Exhibits which form a part
of this Lease) correctly sets forth the entire agreement between Lessor and
Lessee. No representations, agreements or understandings shall be binding on
either of the parties hereto unless specifically set forth in this Lease or a
written amendment to this Lease. The term "Lessee" as used herein shall include
any and all Lessees who sign hereunder, each of whom shall be jointly and
severally bound hereby.
9. Lessee and Lessor from time to time, and by mutual consent, may
lease other items of property, subject to the terms, provisions and conditions
contained in this Lease, for such rental term and payments as may be agreed, by
the execution of a subsequent Schedule A to Master Equipment Lease, each of
which, together with any Exhibits and Schedules thereto, shall become an
amendment hereto and a part hereof. The term "Equipment" as used in Paragraphs
10 through 23 of this Lease shall include all property described in any
subsequent Schedule to Master Equipment Lease and any Exhibits thereto.
10. Lessee shall maintain a safety program and use its reasonable and
diligent best efforts to cause its employees and other operatives, as
applicable, to maintain compliance with such safety program such that they will
use the equipment in a proper and prudent manner, in material compliance and
material conformance with all applicable national, state, municipal, local and
other laws, ordinances and regulations and all operating and maintenance
instructions and manuals of the manufacturer of the Equipment. Lessee will not
remove or alter any labels, plates or other markings attached to the Equipment
identifying the Equipment, and if such labels, plates or other markings are
supplied by Lessor during the term of this Lease, Lessee shall affix and keep
the same in a prominent place on the Equipment.
11. Lessee, at its expense shall keep the Equipment in good repair,
condition and working order, normal wear and tear excepted, and shall furnish
any and all parts, mechanisms and devices required to keep the Equipment in good
and working order. All repairs, parts, mechanisms and devices furnished or
permanently affixed to the Equipment and any other additions or improvements of
any kind whatsoever made to the Equipment shall automatically become part of the
Equipment and property of Lessor. No alterations or additions to the Equipment
shall be made without the prior written consent of the Lessor.
<PAGE>
Page Two
12. Lessee shall at its expense insure the Equipment for its full
replacement value and shall assume and be responsible for all risks of damage to
the Equipment during the term of this Lease and while the Equipment is in the
possession or under the custody and control of Lessee, notwithstanding the
expiration or other termination of the Lease. Lessee shall also maintain
liability insurance coverage against bodily injury and property damage arising
out of the possession or use of the Equipment. Such property and liability
insurance shall be maintained with insurance companies satisfactory to Lessor,
shall satisfy all requirements set forth in Exhibit B attached hereto and made a
part hereof, shall name Lessor as insured and loss payee on property insurance
and as an additional insured on liability insurance, and shall provide for
thirty (30) days written notice to Lessor prior to cancellation or any change
which affects any interest of Lessor Lessee shall furnish Lessor with evidence
of all such insurance policies. The proceeds of any insurance resulting from
loss, theft or damage to Equipment shall, as mutually agreed upon by Lessor and
Lessee, be applied toward repair, restoration or replacement of such Equipment
or, if not so applied, then toward payment of Lessee's obligations hereunder,
with any insurance proceeds in excess of Lessee's obligations hereunder to be
retained by Lessee. Lessee irrevocably appoints Lessor as Lessee's
attorney-in-fact, at such time that an event of default hereunder has occurred
and is continuing, to make any claim for, to receive payment for, and to execute
and endorse any documents, checks or other instruments in payment for, loss,
theft or damage under any such insurance policy, this power coupled with an
interest. No loss, theft or damage to Equipment or any part thereof shall impair
any obligation of Lessee under this Lease, which shall continue in full force
and effect. In the event of loss, theft or damage of any kind to any Equipment,
Lessee shall promptly notify Lessor of such loss, theft or damage and, as
mutually agreed upon by Lessor and Lessee, shall: (a) Place such Equipment in
good repair, condition and working order; or (b) Replace such Equipment with
like Equipment in good repair, condition, and working order and furnish to
Lessor any necessary documents requested by Lessor so as to vest good and
marketable title thereto in Lessor, unencumbered by any lien or security
interest; or (c) Pay to Lessor in cash within ten (10) days of loss, theft or
damage an amount equal to the sum calculated pursuant to clause (h) of Paragraph
19 of this Lease. Upon such payment, this Lease shall terminate with respect to
such Equipment and Lessee shall upon demand by Lessor return such Equipment to
Lessor "as is" and at such location as Lessor shall designate.
13. Lessee shall maintain in its principal office full and complete records
showing the location of each item of Equipment. Said records shall be available
to Lessor during regular business hours for the purpose of inspection and
duplication. Lessor shall have free access at all reasonable times to inspect
any item of Equipment.
14. Lessee shall keep Equipment free and clear of all levies, liens and
encumbrances and shall pay all license fees, registration fees, assessments,
charges and taxes (local, municipal, state and national) which may now or
hereafter be imposed upon the ownership, leasing, rental, sale, possession or
use of Equipment, excluding, however, all taxes on or measured by Lessor's net
income or capital. Lessee shall make, prepare and file all required ad valorem
and similar taxes and pay the same. In case of failure by Lessee to pay such
fees, assessments, charges and taxes or to keep Equipment free and clear of
levies, liens or encumbrances or to keep Equipment properly insured or to keep
Equipment in good repair and working order, all as hereinbefore specified,
Lessor shall have the right, but shall not be obligated, to make such payments
or effect such obligations of Lessee at Lessee's sole expense, the cost thereof
to be repayable by Lessee within thirty (30) days of the date such payments were
made by Lessor together with interest thereon from the date paid by Lessor until
repaid by Lessee at the rate of ten percent (10%) per annum.
15. Upon the expiration of this Lease, Lessee will have the right to
purchase the equipment under this lease for an amount as set forth in Schedule
(A) entitled "TRAC" Rental Adjustment. Lessee shall provide Lessor at least
sixty (60) days prior written notification of its election to purchase the
equipment, such purchase to be made at the expiration of this Lease or within
ten (10) days thereafter. In the event Lessee chooses not to exercise this
right, then Lessee shall promptly return at Lessee's risk and expense the
Equipment to Lessor at a location satisfactory to Lessor and in good repair and
working order, normal wear and tear excepted. Notwithstanding the expiration or
termination of this Lease, the terms and provisions of this Lease shall continue
to apply with respect to the Equipment until its return to Lessor, provided that
rental payments shall be calculated and owing on a per diem basis (based on the
monthly rental) until such return.
16. (a) Lessee agrees to indemnify Lessor against all loss, damage, expense
or penalty arising from any action on account of any injury to person or
property of any character whatsoever occasioned by the operation, handling or
transportation of any Equipment during the term of this Lease or while the
Equipment is in the possession or under the custody and control of Lessee,
notwithstanding the expiration or other termination of this Lease. (b) Lessor
intends to claim cost recovery deductions for Federal income tax purposes with
respect to the Equipment under Section 168 of the Internal Revenue Code of 1986
(the "Code") in amounts determined with reference to a tax basis equal to the
Lessor's capitalized cost of the Equipment and using the most accelerated
depreciation method allowed by Section 168(b) of the Code and the shortest
recovery period allowed by Section 168(c) of the Code for property of the same
type as the Equipment. Accordingly, the Lessee represents, warrants and
covenants that at all times during the term of the Lease: (i) The Equipment will
not fail, by reason of the identity, tax status or any other attribute of the
Lessee or of any user of the Equipment or by reason of the location of the
Equipment, to be eligible for cost recovery deductions under Section 168 of the
Code at the most accelerated rate allowable thereunder for property of the same
type as the Equipment; (ii) All items of income, gain, loss, deduction or credit
attributable to the Equipment will be treated as derived from, or allocated to,
sources within the United States within the meaning of Section 861 of the Code
and the regulations promulgated thereunder; (iii) With respect to the Equipment
and any indebtedness incurred by the Lessor to finance the Equipment, neither
the Lessee nor any affiliates, subsidiaries and assignees of Lessee will claim
(a) cost recovery deductions with respect to the Equipment, (b) deductions in
the amount of any interest paid or accrued with respect to any loan incurred by
the Lessor to finance the Equipment, or (c) any corresponding credit or
deduction under applicable state or local tax laws; (iv) The Equipment does not
constitute "limited use property" within the meaning of Revenue Procedure 76-30,
1976-2 C.B. 647 and is not "tax-exempt use property" within the meaning of
Section 168(h) of the Code or property otherwise described in Section 168(g)(1)
of the Code; and (v) The Lessee will keep and make available for inspection and
copying by the Lessor such records as shall be necessary to establish the
factual basis for the matters referred to in this Paragraph 16(b), and upon
request by the Lessor, the Lessee will certify the correctness of such records
and any facts contained therein.
If Federal or state tax enforcement authorities formally notify the
Lessor of a disallowance, elimination, reduction, or disqualification, or if
there shall be a disallowance, elimination, reduction, or disqualification, in
whole or in part, of any Federal, state or local income tax deduction for
depreciation or cost recovery with respect to the Equipment as a result of
Lessee's breach of a covenant of Lessee under this paragraph 16(b), the Lessee
shall pay to the Lessor as additional rent an amount such that the amount after
deduction therefrom of all taxes required to be paid by the Lessor with respect
to the receipt of such amount under the laws of any Federal, state or local
government or taxing authority in the United States shall compensate the Lessor
for the loss of deferral of its income tax liability, including any interest,
penalties or additions to taxes payable as a result of such disallowance,
elimination, reduction or disqualification.
Any amounts payable to the Lessor pursuant to this Paragraph 16(b)
shall be payable upon demand by the Lessor, accompanied by a statement
describing in reasonable detail the loss of depreciation or cost recovery
benefits and setting forth the computation of the amounts so payable.
<PAGE>
Page Three
The Lessee shall not be responsible for, and the Lessor shall not be
entitled to a payment under this Paragraph 16(b) on account of any loss due to
one or more of the following events:
(i) The Lessor's sale of the Equipment, except for a sale occasioned by
the Lessee's fault,
(ii) The failure of the Lessor timely to claim depreciation or cost
recovery deductions with respect to the Equipment unless such failure
results from circumstances other than those caused by the Lessor, or
(iii) The failure of the Lessor to have sufficient income from which
to deduct such depreciation or cost recovery deductions. Upon receipt
of formal notification by any Federal, state or local taxing
authorities of a proposed disallowance or adjustment (collectively a
"Disallowance") of any credit or deduction, as a result of which
additional rent may be payable by the Lessee in accordance with this
Paragraph 16(b), the Lessor shall promptly notify the Lessee of such
Disallowance. The Lessor hereby agrees to exercise in good faith its
best efforts (determined in the sole discretion of tax counsel to the
Lessor to be reasonable, proper and consistent with the overall tax
interests of the Lessor) to avoid requiring the Lessee to pay such
additional rent; provided, however, that the Lessor shall have the
sole discretion to determine whether or not to undertake judicial or
administrative proceedings beyond the level of a Federal or state
auditing agent; and provided further, however, that the Lessor shall
not be required to take any action pursuant to this sentence unless
and until the Lessee shall have agreed to indemnify the Lessor for any
liability, cost, expense or loss which the Lessor may incur as a
result of contesting such Disallowance beyond the level of a Federal
or State auditing agent, together with any and all costs and expenses
that may be incurred by the Lessor in enforcing this indemnity, and
shall have agreed to pay the Lessor on demand all such liabilities,
costs, expenses and losses which the Lessor may incur in contesting
such Disallowance. (c) All of the Lessor's rights and privileges
arising from the indemnities contained in this Paragraph 16 shall
survive the expiration or other termination of the Lease and such
indemnities are expressly made for the benefit of, and shall be
enforceable by the Lessor, its successors and assigns.
17. {Intentionally left blank}
18. Any one or more of the following events or conditions shall constitute
an event of default hereunder: (a) Nonpayment of any rent or other amount
provided for in this Lease for ten (10) days after the same becomes due, whether
by acceleration or otherwise, or default by Lessee in the performance of any
other obligation, term, covenant or condition of this Lease, and such default
continues for a period of ten (10) days after notification from Lessor to
Lessee. (b) Nonpayment of any rent or other amount provided for in any lease,
note, document or agreement under which Lessee is indebted for a sum exceeding
$1,000,000.00 to any person or entity other than Lessor or any parent or
affiliate corporation of Lessor beyond any grace period provided with respect
thereto or default by Lessee in the performance of any other obligation, term,
covenant or condition of such lease, note, document or agreement which causes
such person or entity to cause such indebtedness to become due prior to its
stated maturity date; (c) Any writ or order of attachment or execution or other
legal process levied on or charged against any Equipment or other property of
Lessee, tangible or intangible, real or personal and not released or satisfied
within thirty (30) days; (d) {Intentionally left blank} (e) Lessee ceases to
actively conduct its business; (f) The filing by or against Lessee of a petition
in bankruptcy or any other debtor relief proceedings, whether under the
Bankruptcy Code or otherwise; and only if such a petition is an involuntary
petition, such involuntary petition is not dismissed within sixty (60) days. (g)
The making of any assignment for the benefit of creditors by Lessee or
appointment of a receiver or trustee for Lessee's assets or the initiation of
any proceeding for the dissolution or liquidation or settlement of Lessee or its
affairs; (h) {Intentionally left blank} (i) Any certificate, statement,
representation, warranty or audit heretofore or hereafter furnished by or on
behalf of Lessee or any guarantor or other party liable for payment or
performance of this Lease, proves to have been false in any material respect at
the time as of which the facts therein set forth were stated or certified; or
upon the date of execution of this Lease or any Schedule to Master Equipment
Lease there shall have been any material adverse change in any of the facts
disclosed by such certificate, statement, representation, warranty or audit,
which shall not have been disclosed to Lessor in writing at or prior to the time
of such execution; or (j) {Intentionally left blank}
19. Upon the happening of any event of default as defined herein, and
during the continuance thereof, Lessor may, at its sole option and without
demand, notice or presentment of any kind, (a) declare this Lease to be in
default; (b) take possession of any or all Equipment wherever located, without
court order or other process of law or any hearing or proceedings prior to
repossession, Lessee hereby waiving all such notice, process, proceedings and
any and all damages caused by such taking of possession; (c) terminate this
Lease as to all or any Equipment covered hereby, whereupon Lessee shall
forthwith surrender and return the Equipment as specified in Paragraph 15 above;
(d) terminate any other lease, note, document or agreement between Lessor and
Lessee; (e) lease all or any of the Equipment upon such terms and to such
lessees as Lessor, in its sole discretion, may elect; (f) sell all or any of the
Equipment upon such terms and to such purchasers as Lessor, in its sole
discretion, may elect; (g) collect interest on all amounts not paid when due
under this Lease at a rate of 10% per annum from the date due until paid; (h)
recover from Lessee the sum of (i) all amounts then due and owing by Lessee
under the terms of this Lease, including without limitation, accrued and unpaid
monthly rental payments, accrued interest, costs incurred by Lessor pursuant to
Paragraph 14 above, and indemnifications then owing pursuant to Paragraph 16
above, plus (ii) the present value of all rental payments payable for the
remaining term of this Lease plus (iii) the amount of any tax benefits lost by
Lessor as a result of exercising its rights and remedies hereunder, plus (iv) if
Lessor shall not have obtained possession of the Equipment, the value of
Lessor's residual interest in such Equipment, plus (v) all costs, expenses and
reasonable attorney's fees incurred by Lessor in the exercise of any of its
rights or remedies hereunder or as a result of enforcing any of the terms,
conditions or provisions hereof; and (i) pursue any other remedy available to
Lessor at law or in equity. In the event Lessor sells or leases any of the
Equipment after declaring a default hereunder, such sale or lease shall be free
and clear of any interest of Lessee hereunder, and Lessor shall apply against
the amount recoverable from Lessee pursuant to clause (h) above, the proceeds of
any sale less the value of Lessor's residual interest in the Equipment so sold
and the proceeds of any lease (based on the present value of the rental payments
due under such lease from the date such lease commences through the last day of
the term of this Lease). For purposes of this Paragraph 19, the present value of
lease payments shall equal the sum of all future rental payments payable under
the lease, with each such payment discounted to its net present value at a
simple interest rate equal to six percent (6%) per annum. All remedies described
in the preceding paragraph shall be cumulative and may, at Lessor's option, be
enforced concurrently. The exercise of any one remedy shall not be deemed an
election of remedies precluding the exercise of any other remedy.
<PAGE>
Page Four
20. Lessor may assign the rents reserved herein or any or all of Lessor's
rights hereunder and the rights of Lessor's assignee shall be independent of any
claim of Lessee against Lessor. Lessee upon receiving notice of any such
assignment by Lessor, shall abide thereby and make payment as may be therein
directed. Upon any such assignment, the term "Lessor" herein shall be deemed to
refer to the assignee. Lessee shall not assign this Lease or sublet the
Equipment without the prior written consent of the Lessor; but provided however
Lessee shall be allowed to assign or sublet the equipment to Darling Restaurant
Services, Inc., provided Lessee shall remain unconditionally obligated for the
terms and conditions of this Lease. Lessee shall not move the Equipment from the
location originally designated in this Lease except for transfers that may occur
from time to time between the Lessee's operating facilities located within the
forty-eight (48) contiguous states of Canada. If transferred, Lessee will give
Lessor written notice within thirty (30) days after the transfer.
21. Neither the Equipment nor any part thereof shall be, or be considered
to be, a fixture or a part of any real property in which it may be installed,
and the Lessee agrees that it will not affix said Equipment or any part thereof,
nor allow the same to be affixed, to any real property in such a manner that the
same may be, or be considered to be, a part of any real estate, building or
improvement. When required by Lessor, Lessee shall secure and furnish to Lessor,
Landlord's and/or Mortgagee's waivers and consents, prior to the delivery of the
Equipment.
22. Time is of the essence of this Lease. This Lease may be amended or
varied only in writing signed by both Lessor and Lessee. No waiver or failure to
exercise any right or rights by Lessor shall be deemed a waiver of such right or
rights at any time and Lessor at all times retains the right to require strict
compliance with the terms of this Lease. Upon request by Lessor, Lessee shall
execute and deliver to Lessor such documents, including without limitation,
financing statements, as Lessor shall deem necessary or desirable for recording
or filing to protect the interest of Lessor in Equipment. All filing expenses
shall be paid by Lessee. All notices hereunder shall be sufficient if in writing
and given personally or mailed to the parties involved at its address set forth
herein. Any such notice mailed to such address shall be effective four (4) days
after being deposited in the United States mail, duly addressed and with postage
prepaid. This Lease has been made, executed and delivered in Atlanta, Georgia
and shall in all respects be governed by the laws of the State of Georgia, and
Lessee consents and submits to the jurisdiction of all courts located in the
State of Georgia. This Lease takes effect only when accepted by Lessor at its
principal office in Atlanta, Georgia and shall not be deemed made or executed
until so accepted by the Lessor.
23. LESSEE HEREBY ACKNOWLEDGES THAT LESSEE HAS READ THIS LEASE AND IS AWARE
OF ALL TERMS HEREOF AND THAT THE LEASE IS NONCANCELABLE BY LESSEE FOR THE FULL
TERM SET FORTH HEREIN AND ACKNOWLEDGES RECEIPT OF AN EXACT COPY OF THIS LEASE.
ANY INVALIDITY OR UNENFORCEABILITY OF A PARTICULAR PROVISION OF THIS LEASE SHALL
NOT AFFECT THE OTHER PROVISIONS HEREOF AND THIS LEASE SHALL BE CONSTRUED IN ALL
RESPECTS AS IF SUCH INVALID OR UNENFORCEABLE PROVISION WERE OMITTED.
Executed this 14th day of May 1998 .
--------- ------------------- ---
By execution hereof, the signer certifies that he has read this
Master Equipment Lease, and that he is duly authorized to execute
this Lease on behalf of Lessee.
LESSEE: Darling International Inc.
(CORPORATE SEAL) By:
Title:
By:
Title:
ACCEPTED BY LESSOR: STI Credit Corporation
By:
Title:
Date: , 19 .
THIS LEASE CANNOT BE CANCELLED BY LESSEE
<PAGE>
SUNTRUST Bank, Atlanta SCHEDULE TO
Mail Code 130 MASTER EQUIPMENT LEASE
P.O. Bo 4418
Atlanta GA 30302 Lease Number _____________
This lease, by and between SunTrust Bank, Atlanta (hereinafter called
"Lessor") with its principal place of business located at 1 Park Place, Atlanta,
Georgia and(hereinafter called "Lessee") with its principal place of business
located at
For and in consideration of the mutual covenants and promises contained
herein and other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, Lessor and Lessee agree as follows:
1. Lessor leases to Lessee and Lessee leases and hires from Lessor all
machinery, equipment and other property ("Equipment") described in Exhibit A of
page(s) attached hereto and made a part of this Schedule and also a part of the
Lease described in Paragraph 7 hereof.
Said Equipment will be located at
in the city of in the county of
in the state of .
The rental for the Equipment described above shall be equal to the
amounts set forth in Schedule A attached hereto and made a part hereof and also
a part of the Lease described in Paragraph 7 hereof, plus all applicable taxes.
The schedule of rental payments for the Equipment described above shall consist
of payments made on a monthly basis for years, which shall be the term of the
Lease for the Equipment described above. In addition a security or retained
deposit of $
shall be paid to the Lessor in advance of lease commencement and shall be held
by Lessor, without interest, throughout the term of the Lease and will be
appropriately applied before the end of the Lease term.
2. Should any rental payment not be paid within ten days after the
regularly scheduled due date, a late charge not exceeding five percent of the
monthly rental payment may be charged to cover administrative expenses incurred
by Lessor upon such default. Said charge shall be made only once on any given
rental installment during the term of the Lease.
3. The term of the Lease for the Equipment described in Paragraph 1
hereof shall commence on the date of the execution by Lessee of the
Acknowledgment of Delivery and Acceptance of such Equipment in the form supplied
by Lessor. The first monthly rental payment shall be due and payable on the date
of execution of such Acknowledgment by Lessee, and subsequent monthly rental
payments shall be due and payable on the same date of each month thereafter,
unless otherwise agreed upon in writing by Lessor and Lessee. All rental
payments shall be payable in advance at Lessor's address set forth above or at
such other place as Lessor may designate, such rental payments to be paid
without notice or demand to Lessee and without abatement, set-off or deduction
of any amount whatsoever by Lessee, all rights of set-off or similar claims
being hereby waived by Lessee.
4. It is understood that Lessor is not the manufacturer or vendor of
the Equipment, nor the agent of the manufacturer or vendor of the Equipment, and
that LESSOR GIVES NO WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO THE
EQUIPMENT, INCLUDING ANY WARRANTY AS TO QUIET ENJOYMENT, MERCHANTABILITY,
FITNESS FOR A PARTICULAR PURPOSE, OR CAPACITY, OR AS TO THE EXISTENCE OF PATENT
OR LATENT DEFECTS, OR ANY WARRANTY THAT THE EQUIPMENT WILL MEET THE REQUIREMENTS
OF ANY LAW, RULE, SPECIFICATION OR CONTRACT. LESSOR IS NOT RESPONSIBLE FOR ANY
REPAIRS, SERVICE OR DEFECT IN THE LEASED EQUIPMENT OR THE OPERATION THEREOF OR
FOR ANY LOSS, DELAY OR DAMAGE RESULTING FROM DEFECT IN, BREAKAGE OR INEFFICIENCY
OF THE EQUIPMENT. In lieu of any warranty by Lessor, Lessor agrees to cooperate
with Lessee, at Lessee's sole option and expense, to provide Lessee with the
benefit, if any, of any warranty or maintenance commitment given by any
third-party manufacturer or vendor with respect to the Equipment, provided that
Lessee shall hold Lessor harmless from any liability in connection with such
effort and undertaking.
THIS SCHEDULE IS NONCANCELABLE BY LESSEE AND IS GIVEN IN ACCORDANCE
WITH, AND SUBJECT TO THE TERMS OF, THE LEASE DESCRIBED IN PARAGRAPH 7 HEREOF,
AND IS A FORMAL AMENDMENT THERETO AND IS HEREBY MADE A PART THEREOF.
5. In no event shall Lessor be liable for consequential, incidental or
indirect damages, including lost profits, or for any negligence.
<PAGE>
6. To induce Lessor to lease to Lessee the Equipment described in
Paragraph 1 hereof, Lessee represents and warrants that each representation and
warranty of Lessee set forth in the Lease is true and correct on and as of the
date of execution of this Schedule as though made on such date and that no event
of default and no event which with notice or lapse of time or both exists or
would result from execution of this Schedule.
7. The Equipment leased under this Schedule to Master Equipment Lease
is leased, by the Lessor to the Lessee and from the Lessor by the Lessee, in
accordance with and subject to the terms, provisions and conditions of a certain
Master Equipment Lease dated the day of , 19 , (the "Lease"), provided however,
that the length of the term of the Lease with respect to the Equipment described
in this Schedule and the amount of the rental payments for the Equipment
described in this Schedule shall be the term and amount set forth in Paragraph 1
of this Schedule.
8. Lessee and Lessor agree to perform and observe each and every term,
provision and condition contained herein and in the Lease.
Executed this day of , 19 .
------------- ----------------------- -----
By execution
hereof, the signer
hereby certifies
that he has read
this Schedule
INCLUDING THE
ABOVE MENTIONED
MASTER EQUIPMENT
LEASE, and that he
is duly authorized
to execute this
Schedule on behalf
of Lessee.
LESSEE:
By:
Title:
By:
(CORPORATE SEAL) Title:
ACCEPTED BY LESSOR: SUNTRUST Bank, Atlanta
By:
Title:
Date: , 19 .
THIS LEASE CANNOT BE CANCELLED BY LESSEE
