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 April 1, 2000
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, $0.01 par value, as of May 12, 2000 was 15,589,077.
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
FORM 10-Q FOR THE
THREE MONTHS ENDED APRIL 1, 2000
TABLE OF CONTENTS
PART I: FINANCIAL INFORMATION
| |
Page No. |
| Item 1. |
FINANCIAL STATEMENTS |
|
|
Consolidated Balance Sheets |
3 |
|
| April 1, 2000
(unaudited) and January 1, 2000 |
|
|
|
|
|
Consolidated Statements of Operations (unaudited) |
4 |
|
| Three Months Ended
April 1, 2000 and April 3, 1999 |
|
|
Consolidated Statements of Cash Flows (unaudited) |
5 |
|
| Three Months Ended
April 1, 2000 and April 3, 1999 |
|
|
Notes to Consolicated Financial Statements (unaudited) |
6 |
|
| Item 2. |
MANAGEMENT'S DISCUSSION AND ANALYSIS OF |
|
FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
11 |
|
|
PART II: OTHER INFORMATION |
|
| Item 4. |
SUBMISSION OF MATTERS TO A VOTE |
|
OF SECURITY HOLDERS |
16 |
|
| Item 6. |
EXHIBITS AND REPORTS ON FORM 8-K |
16 |
|
|
Signatures |
17 |
|
|
Index to Exhibits |
18 |
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
April 1, 2000 and January 1, 2000
(in
thousands, except shares and per share data)
....................................................................... April 1, January 1,
2000 2000
--------- ---------
ASSETS .................................................................(unaudited)
Current assets:
Cash and cash equivalents ..........................................$ 1,983 $ 1,828
Accounts receivable ................................................ 18,327 16,987
Inventories ........................................................ 8,471 9,644
Prepaid expenses ................................................... 3,333 3,948
Deferred income tax assets ......................................... 2,800 4,203
Other .............................................................. 512 518
--------- ---------
Total current assets ........................................... 35,426 37,128
Property, plant and equipment, less accumulated
depreciation of $127,695 at April 1, 2000 and
$122,712 at January 1, 2000 .......................................... 108,982 113,824
Collection routes and contracts, less accumulated
amortization of $16,966 at April 1, 2000 and
$15,819 at January 1, 2000 ........................................... 35,864 36,965
Goodwill, less accumulated amortization of $729
at April 1, 2000 and $741 at January 1, 2000 ......................... 4,825 4,813
Other assets ............................................................ 4,214 5,074
--------- ---------
.......................................................................$ 189,311 $197,804
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt ..................................$ 6,905 $ 7,810
Accounts payable, principally trade ................................ 7,472 11,139
Accrued expenses ................................................... 20,824 23,292
Accrued interest ................................................... 82 110
--------- ---------
Total current liabilities ...................................... 35,283 42,351
Long-term debt, less current portion .................................... 113,689 110,209
Other non-current liabilities ........................................... 18,865 19,341
Deferred income taxes ................................................... 2,587 3,990
--------- ---------
Total liabilities .............................................. 170,424 175,891
--------- ---------
Stockholders' equity:
Preferred stock, $0.01 par value; 1,000,000 shares
authorized, none issued ......................................... - -
Common stock, $0.01 par value; 25,000,000 shares authorized;
15,589,077 shares issued and outstanding ........................ 156 156
Additional paid-in capital ......................................... 35,063 35,063
Accumulated deficit ................................................ (16,332) (13,306)
--------- ---------
Total stockholders' equity ..................................... 18,887 21,913
--------- ---------
Contingencies (note 3)
.......................................................................$ 189,311 $ 197,804
========= =========
The accompanying notes are an integral part of
these consolidated financial statements.
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
Three Months Ended April 1, 2000 and April 3,
1999
(in thousands, except shares and per share
data)
Three Months Ended
-----------------------
April 1 , April 3,
2000 1999
--------- ----------
(unaudited)
Net sales ................................................................$ 62,818 $ 69,846
Costs and expenses:
Cost of sales and operating expenses ................................ 49,360 57,719
Selling, general and administrative expenses ........................ 6,559 6,945
Depreciation and amortization ....................................... 6,705 7,807
-------- --------
Total costs and expenses ....................................... 62,624 72,471
-------- --------
Operating income (loss) ........................................ 194 (2,625)
-------- --------
Other income/(expense):
Interest expense .................................................... (3,431) (3,818)
Other, net .......................................................... 211 (164)
-------- --------
Total other income/(expense) ................................... (3,220) (3,982)
-------- --------
Loss from continuing operations
before income taxes ................................... (3,026) (6,607)
Income tax benefit ....................................................... 0 (2,416)
-------- --------
Loss from continuing operations ................................ (3,026) (4,191)
Discontinued operations:
Loss on disposal of discontinued operations, net of tax ........ 0 (317)
-------- --------
Net loss .......................................................$ (3,026) $ (4,508)
======== ========
Basic loss per share:
Continuing operations ............................................$ (0.19) $ (0.27)
Discontinued operations:
Loss on disposal ............................................ - (0.02)
-------- --------
Total ..................................................$ (0.19) $ (0.29)
======== ========
Diluted loss per share:
Continuing operations ............................................$ (0.19) $ (0.27)
Discontinued operations:
Loss on disposal ............................................ - (0.02)
-------- --------
Total ..................................................$ (0.19) $ (0.29)
======== ========
The accompanying notes are an integral part of
these consolidated financial statements.
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
Three Months Ended April 1, 2000 and April 3,
1999
(in thousands)
Three Months Ended
-----------------------
April 1, April 3,
2000 1999
--------- ---------
(unaudited)
Cash flows from operating activities: .....................................
Loss from continuing operations ......................................$ (3,026) $ (4,191)
Adjustments to reconcile net loss from continuing operations
to net cash used by continuing operating activities:
Depreciation and amortization ..................................... 6,705 7,807
Deferred income tax ............................................... - 63
Gain on sales of assets ........................................... (442) (209)
Changes in operating assets and liabilities:
Accounts receivable .............................................. (1,340) (3,589)
Inventories and prepaid expenses ................................. 1,788 (1,096)
Accounts payable and accrued expenses ............................ (6,135) (7,878)
Accrued interest ................................................. (28) (498)
Other ............................................................ 864 (163)
-------- --------
Net cash used by continuing operations .............................. (1,614) (9,754)
Net cash provided by discontinued operations ........................ - 119
-------- --------
Net cash used by operating activities ............................... (1,614) (9,635)
-------- --------
Cash flows from investing activities:
Recurring capital expenditures ....................................... (884) (763)
Gross proceeds from sale of property, plant and equipment
and other assets .................................................. 715 1,429
Payments related to routes and other intangibles ..................... (185) (83)
Net cash used in discontinued operations ............................. - (330)
-------- --------
Net cash provided (used) by investing activities ............ (354) 253
-------- --------
Cash flows from financing activities:
Proceeds from long-term debt ......................................... 45,872 40,194
Payments on long-term debt ........................................... (43,275) (40,625)
Contract payments .................................................... (474) (773)
Net cash used in discontinued operations ............................. - (150)
-------- --------
Net cash provided (used) in financing activities ............ 2,123 (1,354)
-------- --------
Net increase in cash and cash equivalents
from discontinued operations ..................................... - 44
-------- --------
Net increase (decrease) in cash and cash equivalents ...................... 155 (10,692)
Cash and cash equivalents at beginning of period .......................... 1,828 12,317
-------- --------
Cash and cash equivalents at end of period ................................$ 1,983 $ 1,625
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest .........................................................$ 3,459 $ 4,234
-------- --------
Income taxes, net of refunds .....................................$ (49) $ (120)
-------- --------
The accompanying notes are an integral part of
these consolidated financial statements.
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
Notes to
Consolidated Financial Statements
April 1, 2000
(unaudited)
(1) General
| |
The accompanying consolidated financial
statements for the three month periods ended April 1, 2000 and April 3,
1999 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 a 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 1,
2000. |
(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. The operations of International Processing Corporation
("Bakery By-Products Recycling Segment") have been classified as
discontinued operations. This segment was sold during the quarter ended
July 3, 1999. Certain prior year balances have been reclassified in order
to conform to current year presentation. |
(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 April 1,
2000, and include the 13 weeks ended April 1, 2000, and the 13 weeks ended
April 3, 1999. |
(c)
Earnings Per Common Share
| |
Basic earnings (loss) per common share are
computed by dividing net earnings (loss) attributable to outstanding
common stock by the weighted average number of common stock shares
outstanding during the year. Diluted earnings 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. |
| |
The weighted average common shares used for
basic earnings (loss) per common share was 15,589,077 for both the three
months ended April 1, 2000 and April 3, 1999. The effect of all
outstanding stock options were excluded from diluted earnings/(loss) per
common share for all periods as the effect was
antidilutive. |
(3) Contingencies
LITIGATION
Melvindale
| |
A group of residents living near the
Company's Melvindale, Michigan plant has filed suit, purportedly on behalf
of a class of persons similarly situated. The class has been certified for
injunctive relief only. The court declined to certify a damage class. The
suit is based on legal theories of trespass, nuisance and negligence
and/or gross negligence, and is pending in the United States District
Court, Eastern District of Michigan. Plaintiffs allege that emissions to
the air, particularly odor, from the plant have reduced the value and
enjoyment of Plaintiffs' property, and Plaintiffs seek damages, including
mental anguish, exemplary damages and injunctive relief. In a lawsuit with
similar factual allegations, also pending in United States District Court,
Eastern District of Michigan, the City of Melvindale has filed suit
against the Company based on legal theories of nuisance, trespass,
negligence and violation of Melvindale nuisance ordinances seeking damages
and declaratory and injunctive relief. The court has dismissed the
trespass counts in both lawsuits without prejudice. The Company or its
predecessors have operated a rendering plant at the Melvindale location
since 1927 in a heavily industrialized area down river south of Detroit.
The Company has taken and is taking all reasonable steps to minimize odor
emissions from its recycling processes and is defending the lawsuit
vigorously. |
Other Litigation
| |
The Company is also a party to several other
lawsuits, claims and loss contingencies incidental to its business,
including assertions by certain regulatory agencies related to the release
of unacceptable odors from some if its processing
facilities. |
| |
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 $2.5 million and $8.5 million at April 1, 2000. The accrued
expenses and other noncurrent liabilities classifications in the Company's
consolidated balance sheets include reserves for insurance, environmental
and litigation contingencies of $19.8 million and $17.1 million at April
1, 2000 and January 1, 2000, 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) Business Segments
| |
The Company operated on a worldwide basis
within two industry segments: Rendering and Restaurant Services. Due to
unfavorable market conditions, the Esteem Products division was combined
with the Company's Rendering operations in Fiscal 2000, for internal
management reporting. Accordingly, the segment information for 1999 has
been recast to conform to the Company's current operating segments. The
measure of segment profit (loss) includes all revenues, operating expenses
(excluding certain amortization of intangibles), and selling, general and
administrative expenses incurred at all operating locations and excludes
general corporate expenses. |
| |
Included in corporate activities are general
corporate expenses and the amortization of intangibles related to "Fresh
Start Reporting." Assets of corporate activities include cash, unallocated
prepaid expenses, deferred tax assets, prepaid pension, and miscellaneous
other assets. |
Rendering
| |
Rendering consists of the collection and
processing of animal by-products from butcher shops, grocery stores and
independent meat and poultry processors, converting these wastes into
similar products such as useable oils and proteins utilized by the
agricultural and oleochemical
industries. |
Restaurant Services
| |
Restaurant Services consists of the
collection of used cooking oils from restaurants and recycling them into
similar products such as high-energy animal feed ingredients and
industrial oils. Restaurant Services also provides grease trap
servicing. |
Business Segment Net Sales (in
thousands):
Three Months Ended
------------------------------
April 1, April 3,
2000 1999
------------------------------
Rendering:
Trade $ 47,639 $ 54,519
Intersegment 7,573 8,043
--------- ---------
55,212 62,562
-------- --------
Restaurant Services:
Trade 15,179 15,327
Intersegment 2,278 1,700
--------- ----------
17,457 17,027
-------- ---------
Eliminations (9,851) (9,743)
--------- ---------
Total $ 62,818 $ 69,846
======== ========
Business Segment Profit (Loss) (in thousands):
Three Months Ended
------------------------------
April 1, April 3,
2000 1999
------------------------------
Rendering $ 2,581 $ 504
Restaurant Services 1,275 187
Corporate Activities (3,451) (3,480)
Interest expense (3,431) (3,818)
------- -------
Loss from continuing operations
before income taxes $ (3,026) $(6,607)
======= ======
| |
Certain assets are not attributable to a
single operating segment but instead relate to multiple operating segments
operating out of individual locations. These assets are utilized by both
the Rendering and Restaurant Services business segments and are identified
in the category Combined Rend./Rest. Svcs. Depreciation of Combined
Rend./Rest. Svcs. assets is allocated based upon an estimate of the
percentage of corresponding activity attributed to each segment.
Additionally, although intangible assets are allocated to operating
segments, the amortization related to the adoption of "Fresh Start
Reporting" is not considered in the measure of operating segment profit
(loss) and is included in Corporate
Activities. |
Business Segment Assets (in thousands):
April 1, January 1,
2000 2000
---------------------------------
Rendering $76,852 $79,376
Restaurant Services 23,249 24,753
Combined Rend./Rest. Svcs. 83,941 77,956
Corporate Activities 5,269 15,719
--------- --------
Total $189,311 $197,804
======= =======
(5) Income Taxes
| |
The Company assesses the amount of valuation
allowance recorded as a reduction of deferred tax assets by considering
its ability to carryback net operating losses, scheduled reversals of
future taxable and deductible temporary differences, future taxable income
and tax planning strategies. Based on the Company's assessment of these
matters at April 1, 2000, the Company recorded an additional valuation
allowance of $1.1 million to eliminate the deferred tax benefit
attributable to the fiscal 2000 first quarter
loss. |
(6) Liquidity
| |
The Company experienced operating losses and
reduced cash flow during Fiscal 1999 and 1998. The Company generated operating
income of $0.2 million for the 13-week period ended April 1, 2000 compared to an
operating loss of $2.6 million in the 13-week period ended April 3, 1999. Cash
used by operating activities was $1.6 million in the current period compared to
$9.6 million in the prior year comparable period. Prices for the products the
Company sells did not decline materially during the 13 weeks ended April 1, 2000
from Fiscal 1999 year end prices. Management believes that, unless the prices
for the products the Company sells decline materially, the Company's cash flow
from operations and availability of credit under the Revolver should enable the
Company to meet its Fiscal 2000 obligations in the ordinary course of business.
However, if prices for finished goods the Company sells were to materially
decline below current levels, the Company might be forced to seek covenant
waivers under its Credit Agreement. |
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
FORM 10-Q FOR
THE THREE MONTHS
ENDED APRIL 1, 2000
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 April 1, 2000 and factors affecting its
results of operations for the three months ended April 1, 2000 and April 3,
1999.
RESULTS OF OPERATIONS
Three Months Ended April 1, 2000 Compared to Three Months Ended
April 3, 1999
GENERAL
The Company recorded a loss from continuing
operations of $3.0 million for the first quarter of the fiscal year ending
December 30, 2000 ("Fiscal 2000"), as compared to a loss of $4.2 million for the
first quarter of the fiscal year ended January 1, 2000 ("Fiscal 1999"), an
improvement of $1.2 million. The decrease in the operating loss was primarily
due to reductions in selling, general and administrative costs and operating
expenses. Interest expense decreased from $3.8 million in Fiscal 1999 to $3.4
million in Fiscal 2000, primarily due to a $27.3 million decrease in debt
partially offset by interest rate increases.
NET SALES
The Company collects and processes animal
by-products (fat, bones and offal) and used restaurant cooking oil to produce
finished products of tallow, meat and bone meal, and yellow grease. 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
17% of total sales the first quarter of Fiscal 1999 and 10% of total sales the
first quarter of Fiscal 2000.
During the first quarter of Fiscal 2000, net
sales decreased by $7.0 million (10.0%), to $62.8 million as compared to $69.8
million during the first quarter of Fiscal 1999 primarily due to the following:
1) Decreases in overall finished goods prices resulted in a $2.7 million
decrease in sales in the first quarter of Fiscal 2000 versus the first quarter
of Fiscal 1999. The Company's average yellow grease prices were 20.90% lower,
average tallow prices were 21.34% lower, and average meat and bone meal prices
were 12.93% higher; 2) Decreases in the volume of raw materials processed
resulted in a $1.5 million decrease in sales; 3) Decreases in products purchased
for resale resulted in a $4.8 million sales decrease; 4) Inventory changes
resulted in a $1.7 million sales decrease; and 5) Increases in collection fees
(to offset a portion of the cost incurred in collecting raw material) of $3.4
million and increases in finished hides sales of $0.3 million partially offset
the decreases.
COST OF SALES AND OPERATING EXPENSES
Cost of sales and operating expenses include
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 first quarter of Fiscal 2000, cost
of sales and operating expenses decreased $8.3 million (14.4%) to $49.4 million
as compared to $57.7 million during the first quarter of Fiscal 1999 primarily
as a result of the following: 1) Lower raw material prices paid, correlating to
decreased prices for fats and oils resulted in a decrease of $1.7 million in
cost of sales; 2) Decreases in the volume of raw materials collected and
processed resulted in a decrease of approximately $0.4 million in cost of sales;
3) Decreases in products purchased for resale resulted in a $4.6 million
decrease in cost of sales; 4) Inventory changes resulted in decreases of $1.7
million in cost of sales; 5) Decreases of $0.2 million in operating expenses,
primarily labor, utilities, supplies and contract hauling costs, partially
offset by increases in natural gas and fuel; and 6) Increases of $0.3 million in
hide purchases.
SELLING, GENERAL AND ADMINISTRATIVE
COSTS
Selling, general and administrative costs were
$6.6 million during the first quarter of Fiscal 2000, a $0.3 million decrease
from $6.9 million for the first quarter of Fiscal 1999. Decreases were realized
in labor costs, travel and entertainment, and professional and legal fees.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization charges decreased
$1.1 million to $6.7 million during the first quarter of Fiscal 2000 as compared
to $7.8 million during the first quarter of Fiscal 1999.
INTEREST EXPENSE
Interest expense decreased $0.4 million from
$3.8 million during the first quarter of Fiscal 1999 to $3.4 million during the
first quarter of Fiscal 2000, primarily due to a $27.3 million decrease
in debt partially offset by an increase in interest rates.
OTHER INCOME (EXPENSE)
Other income (expense) decreased $0.4 million
from a net expense of $0.2 million during the first quarter of Fiscal 1999 to
net income of $0.2 million during the first quarter of Fiscal 2000. This
decrease was primarily due to gain received on the sale of certain customer
routes in one location, partially offset by expenses related to the sale of
certain properties.
INCOME TAXES
The Company recorded a $1.1 million increase in
the valuation allowance to reduce the carrying value of deferred tax assets
during the first quarter of Fiscal 2000 with the result that no deferred tax
benefit was recorded attributable to the Fiscal 2000 first quarter loss. The
Company recorded a $2.4 million income tax benefit in the first quarter of
Fiscal 1999.
CAPITAL EXPENDITURES
The Company made capital expenditures of $0.9
million during the first quarter of Fiscal 2000 compared to capital expenditures
of $0.8 million during the first quarter of Fiscal 1999.
DISCONTINUED OPERATIONS
The operations of the Bakery By-Products
Recycling segment is classified as discontinued operations. The Company recorded
a loss on disposal, net of tax, of $0.3 million to reflect the pending sale of
this business segment in the first quarter of Fiscal 1999. The sale of this
business segment was closed on April 5, 1999.
LIQUIDITY AND CAPITAL RESOURCES
Effective June 5, 1997, the Company entered
into a Credit Agreement (the "Credit Agreement") which originally provided for
borrowings in the form of a $50,000,000 Term Loan and $175,000,000 Revolving
Credit Facility. On October 3, 1998, the Company entered into an amendment of
the Credit Agreement whereby BankBoston, N.A., as agent, and the other
participant banks in the Credit Agreement (the "Banks") agreed to forbear from
exercising rights and remedies arising as a result of several existing events of
default of certain financial covenants (the "Defaults") under the Credit
Agreement, as amended, until November 9, 1998.
On November 6,
1998, the Company entered into an extension of the Amendment whereby the Banks
agreed to forbear from exercising rights and remedies arising as a result of the
Defaults until December 14, 1998. The forbearance period was subsequently
extended to January 22, 1999. On January 22, 1999, the Company and the Banks
entered into an Amended and Restated Credit Agreement (the "Amended and Restated
Credit Agreement").
The Amended and Restated Credit Agreement
provides for borrowings in the form of a $36,702,000 Term Loan and $135,000,000
Revolving Credit Facility.
The Term Loan provides for $36,702,000 of
borrowing. Under the Amended and Restated Credit Agreement, the Term Loan bears
interest, payable quarterly, at a Base Rate (9.0% at April 1, 2000) plus a
margin of 1%. Under the Amended and Restated Credit Agreement, the Term Loan is
payable by the Company in quarterly installments $22,500,000 on June 30, 2000;
$2,500,000 on September 30, 2000; and the balance due on December 31, 2000. The
net proceeds from the sales of various properties were applied against
installments due on June 30, 2000. The properties sold were: International
Processing Corporation ($19,600,000 on April 5, 1999); Milwaukee, WI, property
($950,000 on September 20, 1999); Bristol, VA, property ($69,000 on October 15,
1999); Las Vegas, NV, property ($2,737,000 on December 17, 1999); Chula Vista,
CA, property ($3,710,000 on December 30, 1999); Toronto routes ($394,000 on
February 4, 2000) and Scranton, PA, property ($156,000 on March 30, 2000). As of
April 1, 2000, $6,815,000 was outstanding under the Term Loan.
The Revolving Credit Facility provides for
borrowings up to a maximum of $135,000,000 with sublimits available for letters
of credit and a swingline. Under the Amended and Restated Credit Agreement, the
Revolving Credit Facility bears interest, payable quarterly, at a Base Rate
(9.0% at April 1, 2000) plus a margin of 1%. Additionally, the Company must pay
a commitment fee equal to 0.375% per annum on the unused portion of the
Revolving Credit Facility. Under the Amended and Restated Credit Agreement, the
Revolving Credit Facility provides for a mandatory reduction of the maximum
amount available of $2,500,000 on March 31, 2001, with the remaining balance due
at maturity on June 30, 2001. As of April 1, 2000, $113,681,000 was outstanding
under the Revolving Credit Facility and remaining borrowing available under the
Revolving Credit Facility was $10,230,000. The Company had outstanding
irrevocable letters of credit aggregating $11,089,000 at April 1, 2000.
Substantially all assets of the Company are
either pledged or mortgaged as collateral for borrowings under the Amended and
Restated Credit Agreement. The Amended and Restated Credit Agreement contains
certain terms and covenants, which restricts, among other matters, the
incurrence of additional indebtedness, the payment of cash dividends, the
retention of certain proceeds from sales of assets, and the annual amount of
capital expenditures, and requires the maintenance of certain minimum financial
ratios. As of April 1, 2000, no cash dividends could be paid to the Company's
stockholders pursuant to the Amended and Restated 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 April 1,
2000, the Company was party to three interest rate swap agreements. Under the
terms of the swap agreements, the interest obligation on $70 million of Amended
and Restated Credit Agreement floating-rate debt was exchanged for fixed rate
contracts which bear interest, payable quarterly. One swap agreement for $25
million matures June 27, 2002, bears interest at 6.5925% and the Company's
receive rate is based on the three month LIBOR. A second swap agreement for $25
million matures June 27, 2001, bears interest at 9.83% and the Company's receive
rate is based on the Base Rate. The third swap agreement for $20 million matures
June 27, 2002, with a one-time option for the bank to cancel at June 27, 2001,
bears interest at 9.17% and the Company's receive rate is based on the Base
Rate.
On April 1, 2000, the Company had working
capital of $0.1 million and its working capital ratio was 1.0 to 1, compared to
a working capital deficit of $5.2 million and a working capital ratio of 0.88 to
1 on January 1, 2000. As of April 1, 2000, the Company was in compliance with
all provisions of the Amended and Restated Credit Agreement.
The Company has credit available under the
Revolving Credit Facility to cover its presently foreseeable capital needs,
assuming it continues to meet the certain financial covenant tests under the
Amended and Restated Credit Agreement dated January 22, 1999, which were
adjusted downward to reflect the sharp decline in the prices the Company
received for its finished products (meat and bone meal, yellow grease and
tallow) in 1998. Such prices continued to decline through 1999. The Company has
modified its business operations in light of the continued low prices for its
finished goods. However, if prices for finished goods the Company sells were to
materially decline below those prevailing in the first three months of 2000, the
Company might be forced to seek further covenant waivers under the Amended and
Restated Credit Agreement.
ACCOUNTING MATTERS
The Company is 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 and will require the
Company to recognize all derivatives on its balance sheet at fair value. If the
derivative is a hedge, depending on the nature of the hedge, changes in the fair
value of the derivative will either be offset against the change in fair value
of the hedge item through earnings or recognized in other comprehensive income
until the hedged item is recognized in earnings. This statement, as amended by
SFAS No. 137, is effective for financial statements for fiscal years beginning
after June 15, 2000. The Company has not yet determined the impact SFAS No. 133
will have on its financial statements. The Company will adopt the provisions of
SFAS No. 133 in the first quarter of Fiscal 2001.
In March 2000, the FASB issued Interpretation
No. 44, Accounting for Certain Transactions Involving Stock Compensation: An
Interpretation of APB Opinion No. 25. Among other issues, Interpretation No. 44
clarifies the application of Accounting Principles Board Opinion No. 25 (APB No.
25) regarding: 1) the definition of employee for purposes of applying APB No.
25; 2) the criteria for determining whether a plan qualifies as a
noncompensatory plan; 3) the accounting consequence of various modifications to
the terms of a previously fixed stock option or award; and 4) the accounting for
an exchange of stock compensation awards in a business combination. The
provisions of Interpretation No. 44 affecting the Company are to be applied on a
prospective basis effective July 1, 2000.
YEAR 2000
The Company began aggressively addressing its
Year 2000 compliance issues in 1997. The Company experienced no operational
problems as a result of the date changeover from 1999 to 2000. Company
management is not aware of any Year 2000 issues remaining nor are any Year 2000
issues expected to arise.
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 section entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations" 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 affected by the Company's ability
to grow its restaurant services business, which faces competition from companies
which may have substantially greater resources than the Company.
| Item 3. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISKS |
|
The principal market risk affecting the Company is exposure to
changes in interest rates on debt. The Company does not use derivative
instruments, exclusive of interest rate swaps. While the Company does have
international operations, and operates in international markets, it considers
its market risks in such activities to be immaterial.
The Company uses interest rate swaps to hedge adverse interest
rate changes on a portion of its long-term debt. At April 1, 2000, the Company
was party to three interest rate swap agreements. Under the terms of the swap
agreements, the interest obligation on $70 million of Amended and Restated
Credit Agreement floating-rate debt was exchanged for fixed rate contracts which
bear interest, payable quarterly. One swap agreement for $25 million matures
June 27, 2002, bears interest at 6.5925% and the Company's receive rate is based
on the three-month LIBOR. A second swap agreement for $25 million matures June
27, 2001, bears interest at 9.83% and the Company's receive rate is based on the
Base Rate. The third swap agreement for $20 million matures on June 27, 2002,
with a one-time option for the bank to cancel at June 27, 2001, bears interest
at 9.17% and the Company's receive rate is based on the Base Rate.
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
FORM 10-Q FOR THE THREE MONTHS ENDED APRIL 1, 2000
PART II: Other Information
| Item 4. |
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
|
No matters were submitted to a vote of security holders during the quarter ended April 1, 2000. |
|
| Item 6. |
EXHIBITS AND REPORTS ON FORM 8-K |
| |
|
|
- Exhibits
Exhibits No. Description
11 Statement re-computation of per share earnings
27 Financial Data Schedule
- Reports on Form 8-K
There were no reports filed on Form 8-K during the three months ended April 1, 2000.
|
|
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: May 15, 2000 | | By: /s/ Denis J. Taura
Denis J. Taura
Chairman and
Chief Executive Officer |
| | | |
| Date: May 15, 2000 | | By: /s/ John O. Muse
John O. Muse
Executive Vice President
Administration and Finance
(Principal Financial Officer) |
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
FORM 10-Q FOR THE THREE MONTHS ENDED APRIL 1, 2000
INDEX TO EXHIBITS
Exhibits No. Description Page No.
11 Statement re-computation of per share earnings 19
27 Financial Data Schedule
EXHIBIT 11
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.
Three Months Ended
---------
April 1, April 3,
2000 1999
- ------------------------------------------------------------------------------------------
Loss from continuing operations ............................... $ (3,026) $ (4,191)
========== =========
Discontinued operations:
Loss on disposal of discontinued operations,
net of tax ............................................. - (317)
---------- ---------
Net loss available to common stock ........................ $ (3,026) $ (4,508)
========== =========
Shares (Basic):
Weighted average number of common shares outstanding ...... 15,589 15,589
========== =========
Basic loss per share:
Continuing operations ................................ $ (0.19) $ (0.27)
Discontinued operations:
Loss on disposal .................................. - (0.02)
---------- ---------
Total ....................................... $ (0.19) $ (0.29)
========== =========
Shares (Diluted):
Weighted average number of common shares outstanding ...... 15,589 15,589
========== =========
Additional shares assuming exercise of stock options ...... - -
---------- ---------
Average common shares outstanding and equivalents ......... 15,589 15,589
========== =========
Diluted loss per share:
Continuing operations ................................ $ (0.19) $ (0.27)
Discontinued operations:
Loss on disposal .................................. - (0.02)
---------- ---------
Total ....................................... $ (0.19) $ (0.29)
========== =========
