UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
-------
EXCHANGE ACT OF 1934
For the quarterly period ended September 27, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission File Number
0-24620
DARLING INTERNATIONAL INC.
(Exact name of registrant as specified in its charter)
Delaware 36-2495346
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification
Number)
251 O'Connor Ridge Blvd.
Suite 300
Irving, Texas 75038
(Address of principal executive offices) (Zip Code)
(972) 717-0300
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such report(s)), and (2) has been subject to such filing
requirements for the past 90 days.
YES / X / NO
The number of shares outstanding of the Registrant's common stock, $0.01 par
value, as of November 6, 1997 was 5,187,638.
Page 2
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
FORM 10-Q FOR THE THREE MONTHS ENDED SEPTEMBER 27, 1997
TABLE OF CONTENTS
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets -
September 27, 1997 (unaudited) and December 28, 1996.......... 3
Consolidated Statements of Operations (unaudited) -
Three Months and Nine Months Ended September 27, 1997 and
September 28, 1996............................................. 4
Consolidated Statements of Cash Flows (unaudited) -
Nine months Ended September 27, 1997 and September 28, 1996.... 5
Notes to Consolidated Financial Statements (unaudited)............. 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ............................... 9
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS ............................................... 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............. 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ................................ 14
Signatures ..................................................... 16
Index to Exhibits................................................ 17
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for certain forward-looking statements. Certain matters discussed
in the Form 10-Q could be characterized as forward-looking statements. Such
forward-looking statements involve important risks and uncertainties that
could cause actual results to differ materially from those expressed in
such forward-looking statements.
Page 3
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 27, 1997 and December 28, 1996
(in thousands, except shares and per share data)
September 27, December 28,
1997 1996
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 1,816 $ 12,956
Accounts receivable, principally trade, less allowance
of $295 in 1997 and $302 in 1996 30,594 35,966
Inventories 14,529 12,643
Prepaid expenses 4,069 1,493
Deferred income tax assets 5,377 6,184
Other 257 484
------- -------
Total current assets 56,642 69,726
Property, plant and equipment, less accumulated depreciation
of $74,643 at September 27, 1997 and $55,973 at December 28, 1996 168,227 175,786
Collection routes and contracts, less accumulated amortization
of $7,532 at September 27, 1997 and $3,222 at December 28, 1996 57,820 59,940
Goodwill, less accumulated amortization of $801
at September 27, 1997 and $293 at December 28, 1996 20,444 19,905
Other assets 5,215 4,288
------- -------
$308,348 $ 329,645
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 5,113 $ 15,598
Accounts payable, principally trade 19,443 27,732
Accrued expenses 27,184 30,118
Accrued interest 1,074 4,293
------- -------
Total current liabilities 52,814 77,741
Long-term debt, less current portion 136,632 138,173
Other noncurrent liabilities 24,040 20,376
Deferred income taxes 26,893 29,322
------- -------
Total liabilities 240,379 265,612
------- -------
Stockholders' equity
Common stock, $.01 par value;
10,000,000 shares authorized;
5,183,449 and 5,151,979 shares issued and outstanding at
September 27, 1997 and at December 28, 1996, respectively 52 52
Additional paid-in capital 34,831 34,570
Retained earnings 33,086 29,411
------- -------
Total stockholders' equity 67,969 64,033
------- -------
Contingencies (note 3)
$308,348 $ 329,645
======= =======
The accompanying notes are an integral part
of these consolidated financial statements.
Page 4
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months and nine months ended September 27, 1997 and September 28, 1996
(in thousands, except per share data)
Three Months Ended Nine Months Ended
Sept 27, Sept 28, Sept 27, Sept 28,
1997 1996 1997 1996
(unaudited) (unaudited)
Net sales $114,455 $127,249 $369,061 $351,242
------- ------- ------- -------
Costs and expenses:
Cost of sales and operating expenses 94,273 101,861 299,898 280,466
Selling, general and administrative expenses 9,591 9,271 28,316 23,763
Depreciation and amortization 8,297 6,968 24,514 19,594
Provision for loss contingency - 5,946 - 6,075
------- ------- ------- -------
Total costs and expenses 112,161 124,046 352,728 329,898
------- ------- ------- -------
Operating income 2,294 3,203 16,333 21,344
------- ------- ------- -------
Other income (expense):
Interest expense (2,914) (3,099) (10,089) (8,996)
Other, net (113) (13) (44) 218
-------- ------- -------- -------
Total other income (expense) (3,027) (3,112) (10,133) (8,778)
-------- ------- ------- -------
Income (loss) before income taxes (733) 91 6,200 12,566
Income tax expense (benefit) (210) 1,344 2,525 6,275
------- ------- ------ -------
Net earnings (loss) $ (523) $ (1,253) $ 3,675 $ 6,291
======= ======= ====== =======
Primary earnings (loss) per common share $ (0.10) $ (0.24) $ 0.67 $ 1.14
======= ======= ======= =======
Fully diluted earnings (loss) per common share $ (0.10) $ (0.24) $ 0.66 $ 1.14
======= ======= ======= =======
The accompanying notes are an integral part
of these consolidated financial statements.
Page 5
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended September 27, 1997 and September 28, 1996
(in thousands)
Nine Months Ended
Sept 27, Sept 28,
1997 1996
--------------- --------
(unaudited)
Cash flows from operating activities:
Net earnings $ 3,675 $ 6,291
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 24,514 19,594
Deferred income tax expense (benefit) (1,622) 226
Loss on sales of assets 14 175
Changes in operating assets and liabilities,
net of effects from acquisitions:
Accounts receivable 5,372 3,774
Inventories and prepaid expenses (4,463) (205)
Accounts payable and accrued expenses (7,357) 7,866
Accrued interest (3,220) (1,567)
Other 124 (607)
-------- -------
Net cash provided by operating activities 17,037 35,547
-------- -------
Cash flows from investing activities:
Recurring capital expenditures (15,524) (17,204)
Capital expenditures related to acquisitions (1,005) (1,144)
Fair value of net assets acquired in acquisitions - (12,453)
Gross proceeds from sale of property, plant and
equipment and other assets 5,790 331
Payments related to routes and other intangibles (3,619) (105)
------- -------
Net cash used in investing activities (14,358) (30,575)
------- -------
Cash flows from financing activities:
Proceeds from long-term debt 233,246 15,793
Payments on long-term debt (245,272) (30,927)
Proceeds from acquisition debt - 10,400
Contract payments (1,047) (499)
Deferred loan costs (1,008) -
Issuance of common stock 262 587
-------- -------
Net cash used in financing activities (13,819) (4,646)
-------- -------
Net increase (decrease) in cash and cash equivalents (11,140) 326
Cash and cash equivalents at beginning of period 12,956 11,649
-------- -------
Cash and cash equivalents at end of period $ 1,816 $ 11,975
======== =======
The accompanying notes are an integral part
of these consolidated financial statements.
Page 6
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 27, 1997
(unaudited)
(1) General
The accompanying consolidated financial statements for the three month
and nine month periods ended September 27, 1997 and September 28, 1996
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. Certain information and footnote disclosures normally
included in annual financial statements prepared in accordance with
generally accepted accounting principles have been omitted pursuant to
such rules and regulations. However, management of the Company believes
that the disclosures herein are adequate to make the information
presented not misleading. The accompanying consolidated financial
statements should be read in conjunction with the consolidated financial
statements contained in the Company's Form 10-K for the fiscal year ended
December 28, 1996.
(2) Summary of Significant Accounting Policies
(a) Basis of Presentation
The consolidated financial statements include the accounts of the
Company and its subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
(b) Fiscal Periods
The Company has a 52/53 week fiscal year ending on the Saturday
nearest December 31. Fiscal periods for the consolidated financial
statements included herein are for the 52 weeks ended December 28,
1996, the 13 and 39 weeks ended September 27, 1997, and the 13 and
39 weeks ended September 28, 1996.
(c) Earnings (Loss) Per Common Share
Primary income (loss) per common share is computed by dividing net
income (loss) attributable to outstanding common stock by the
weighted average number of common stock shares outstanding during
the period increased by dilutive common equivalent shares (stock
options) determined using the treasury stock method. Primary
weighted average equivalent shares are determined based on the
average market price exceeding the exercise price of the stock
options. Fully diluted weighted average equivalent shares are
determined based on the higher of the average or ending market
price exceeding the exercise price of the stock options.
(3) Contingencies
(a) ENVIRONMENTAL
Blue Earth
During July 1997, the Company, the United States, and the State of
Minnesota received Court approval of the proposed settlement to
resolve the government's criminal claims relating to environmental law
violations at the Company's Blue Earth rendering plant. The specific
violations are contained in the Indictment against the Company filed
on December 16, 1996, and the Plea Agreement accepted in July 1997.
These violations relate to improper sampling, testing, and reporting
of waste contaminants in order to conceal discharges in excess of the
permitted levels. The Court approved the Plea Agreement under which
Darling has paid $2,700,000 in criminal fines and penalties, as well
as $1.0 million in restitution and remediation. A Consent Decree (the
"Decree") to resolve all state and federal civil and administrative
claims related to the Blue Earth allegations was approved by the Court
in September 1997. Pursuant to the Decree, Darling paid $300,000 in
civil and administrative penalties, and is undertaking other
requirements of the Decree. The Company recorded a provision for loss
contingency of $6,100,000 during Fiscal 1996 to cover the expected
cost of the settlement as well as legal, environmental and other
related costs.
Chula Vista
The Company is the owner of an undeveloped property located in Chula
Vista, California (the "Site"). A rendering plant was operated on the
Site until 1982. From 1959 to 1978, a portion of the Site was used as
an industrial waste disposal facility which was closed pursuant to
Closure Order No. 80-06 issued by the State of California Regional
Water Quality Control Board for the San Diego Region (the "RWQCB").
The Site has been listed by the State of California as a site for
which expenditures for removal and remedial actions may be made by the
State pursuant to the California Hazardous Substances Account Act,
California Health & Safety Code Section 25300 et seq. Technical
consultants retained by the Company have conducted various
investigations of the environmental conditions at the Site, and in
1996, requested that the RWQCB issue a "no further action" letter with
respect to the Site. The RWQCB has not yet taken any formal action in
response to such request.
(b) LITIGATION
Petruzzi
An antitrust class action suit was filed in 1986 by Petruzzi IGA
Supermarkets in the United States District Court for the Middle
District of Pennsylvania (the "Class Action Suit") seeking damages
from the Company. On September 14, 1995, the Company entered into a
settlement agreement providing for the disposal of all claims in the
Class Action Suit. The settlement agreement was approved by the
District Court on December 20, 1995. On August 18, 1997, the District
Court awarded plaintiffs attorney's fees of $1.3 million from the
Company which was paid on October 3, 1997.
Other Litigation
The Company is also a party to several other lawsuits, claims and loss
contingencies incidental to its business.
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 $6,500,000 and
$15,500,000 at September 27, 1997. Additionally, the Company maintains
reserves in connection with potential claims under its workers
compensation and auto liability policies which are partially
self-insured by the Company. The accrued expenses and other noncurrent
liabilities classifications in the Company's consolidated balance
sheets include reserves for insurance, environmental and litigation
contingencies of $18,636,000 and $20,847,000 at September 27, 1997 and
December 28, 1996, 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.
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
FORM 10-Q FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 27, 1997
PART I
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion summarizes information with respect to the
liquidity and capital resources of the Company at September 27, 1997 and factors
affecting its results of operations for the three months and nine months ended
September 27, 1997 and the comparable periods ended September 28, 1996.
RESULTS OF OPERATIONS
Three Months Ended September 27, 1997 Compared to Three Months Ended
September 28, 1996
GENERAL
The Company recorded a net loss of $0.5 million for the third quarter of
the fiscal year ending January 3, 1998 ("Fiscal 1997"), as compared to a net
loss of $1.3 million for the third quarter of the fiscal year ended December 28,
1996 ("Fiscal 1996"). Operating income decreased from $3.2 million in the third
quarter of Fiscal 1996 to $2.3 million in the third quarter of Fiscal 1997.
During the third quarter of Fiscal 1996, the Company recorded a $5.9 million
provision for loss contingency to cover estimated costs related to environmental
claims at the Company's Blue Earth, Minnesota plant. In the third quarter of
Fiscal 1997, operating income decreased from $9.1 million before the provision
for loss contingency in the third quarter of Fiscal 1996 to $2.3 million. This
decrease resulted primarily from declines in finished goods prices and a lower
volume of raw materials processed. In addition, the decrease was partially due
to an increase of $1.3 million in depreciation and amortization expenses related
to acquisitions and capital expenditures. These decreases were somewhat offset
by operating income of $1.5 million derived from the acquisition of
International Processing Corporation (IPC).
NET SALES
The Company collects and processes animal processing by-products (fat,
bones and offal), used restaurant cooking oil, and bakery by-products to produce
finished products of tallow, meat and bone meal, yellow grease and dried bakery
product. Sales are significantly affected by finished goods prices, quality of
raw material, and volume of raw material. Net sales include the sales of
produced finished goods as well as finished goods purchased for resale, which
constitute less than 10% of total sales.
During the third quarter of Fiscal 1997, net sales decreased $12.7 million
(10.0%) to $114.5 million as compared to $127.2 million during the third quarter
of Fiscal 1996 due primarily to the following A) Decreases in the volume of raw
materials processed resulted in a $10.3 million decrease in sales, offset by
$0.5 million in yield gains. B) Declines in overall finished goods prices
resulted in a decrease of approximately $7.9 million in sales. Compared to the
third quarter of Fiscal 1996, the Company's average yellow grease prices were
25.7% lower, average tallow prices were 9.5% lower, and average meat and bone
meal prices were 8.0% higher. C) Approximately $5.9 million in increased sales
resulted from the acquisition of International Processing Corporation ("IPC") on
August 30, 1996.
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 in response to changes in finished goods market conditions, while
raw materials purchased under formula prices are correlated with specific
finished goods prices.
During the third quarter of Fiscal 1997, cost of sales and operating
expenses decreased by $7.6 million (7.5%) to $94.3 million as compared to $101.9
million during the third quarter of Fiscal 1996 as a result of the following.
A) Lower raw material prices paid, correlating to decreased prices for fats
and oils, resulted in decreases of $6.8 million in cost of sales. Cost of sales
and operating expenses increased $4.3 million due to the acquisition of IPC.
B) Decreases in the volume of raw material collected and processed resulted in a
decrease of approximately $5.8 million in cost of sales and operating expenses.
C) Cost of sales and operating expenses increased $4.3 million due to the
acquisition of IPC.
SELLING, GENERAL AND ADMINISTRATIVE COSTS
AND PROVISION FOR LOSS CONTINGENCY
Selling, general and administrative costs increased $0.3 million to
$9.6 million during the third quarter of Fiscal 1997 as compared to $9.3 million
the third quarter of Fiscal 1996.
A provision for loss contingency of $5.9 million was recorded by the
Company during the third quarter of Fiscal 1996 to cover estimated costs related
to environmental claims at the Company's Blue Earth, Minnesota plant.
DEPRECIATION AND AMORTIZATION
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.
Depreciation and amortization charges increased by $1.3 million to $8.3 million
during the third quarter of Fiscal 1997 as compared to $7.0 million during the
third quarter of Fiscal 1996. This increase was due to additional depreciation
and amortization related to fixed asset additions and the acquisition of IPC.
INTEREST EXPENSE
Interest expense decreased by $0.2 million from $3.1 million during the
third quarter of Fiscal 1996 to $2.9 million during the third quarter of Fiscal
1997. Additional interest incurred on acquisition indebtedness was offset by the
refinancing of the Company's subordinated notes in June 1997 at a lower rate of
interest.
INCOME TAXES
The tax benefit of $0.2 million for the third quarter of Fiscal 1997
consists almost entirely of federal tax benefit. Tax expense for the third
quarter of Fiscal 1996 was $1.3 million. For the third quarter of Fiscal 1996,
due to the non-tax deductible nature of certain of the anticipated expenses
related to the settlement of environmental claims at the Company's Blue Earth,
Minnesota plant, these have been added back to income before taxes for the
computation of income taxes.
CAPITAL EXPENDITURES
The Company made recurring capital expenditures of $5.2 million during
the third quarter of Fiscal 1997 compared to capital expenditures of $5.7
million during the third quarter of Fiscal 1996.
Nine Months Ended September 27, 1997 Compared to Nine Months Ended
September 28, 1996
GENERAL
The Company recorded net earnings of $3.7 million for the first nine months
of Fiscal 1997, as compared to net earnings of $6.3 million for the first nine
months of Fiscal 1996. Operating income decreased from $21.3 million in the
first nine months of Fiscal 1996 to $16.3 million in the first nine months of
Fiscal 1997. During the first nine months of Fiscal 1996, the Company recorded
$6.1 million in charges to the provision for loss contingency for costs related
to environmental claims at the Company's Blue Earth, Minnesota plant. Operating
income before the provision for loss contingency decreased $11.1 million from
$27.4 million in the first nine months of Fiscal 1996 to $16.3 million in the
first nine months of Fiscal 1997. The decrease resulted primarily from declines
in finished good prices and a lower volume of raw materials processed. In
addition, the decrease was partially due to an increase of $4.9 million in
depreciation and amortization expense related to acquisitions and capital
expenditures and to a $1.7 million expenditure related to the buy back of stock
options of the former president of the Company during the first quarter of
Fiscal 1997. These were offset by a $1.9 million insurance settlement of certain
property and casualty claims with past insurers and operating income contributed
by the acquisitions of Standard Tallow and IPC.
NET SALES
During the first nine months of Fiscal 1997, net sales increased by $17.9
million (5.1%) to $369.1 million as compared to $351.2 million during the first
nine months of Fiscal 1996. This increase in sales in the first nine months of
Fiscal 1997 was due primarily to the following. A) Approximately $37.5 million
was due primarily to the acquisitions of Standard Tallow and IPC. B) Declines in
overall finished goods prices resulted in a decrease of approximately $15.9
million in sales. Compared to the first nine months of Fiscal 1996, the
Company's average yellow grease prices were 9.5% lower, average tallow prices
were 2.9% higher, and average meat and bone meal prices were 14.6% higher.
C) Decreases in the volume of raw material processed resulted in a $5.6 million
decrease in sales, offset by $1.7 million in yield gains.
COST OF SALES AND OPERATING EXPENSES
During the first nine months of Fiscal 1997, cost of sales and operating
expenses increased $19.4 million (7.0%) to $299.9 million as compared to $280.5
million during the first nine months of Fiscal 1996 primarily as a result of the
following. A) Cost of sales and operating expenses grew $26.1 million due to the
acquisitions of Standard Tallow and IPC. B) Decreases in the volume of raw
material processed resulted in a decrease of $2.8 million in cost of sales.
C) Lower raw material prices paid, correlating to lower prices for fats and
oils, resulted in decreases of $6.9 million in cost of sales. D) Finally,
increases in payroll, insurance, repairs, steam, and sewer costs resulted in
a $3.1 million increase in operating expenses.
SELLING, GENERAL AND ADMINISTRATIVE COSTS
AND PROVISION FOR LOSS CONTINGENCY
Selling, general and administrative costs were $28.3 million during the
first nine months of Fiscal 1997, a $4.5 million increase from $23.8 million for
the first nine months of Fiscal 1996. Approximately $5.2 million of the increase
was due to the acquisitions of Standard Tallow and IPC. An increase of $1.7
million related to the repurchase of stock options held by the former president
of the Company was offset by a $1.9 million refund from property and casualty
insurance claims.
A provision for loss contingency of $6.1 million was recorded by the
Company during the first nine months of Fiscal 1996 to cover costs related to
environmental claims at the Company's Blue Earth, Minnesota plant.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization charges increased by $4.9 million to
$24.5 million during the first nine months of Fiscal 1997 as compared to $19.6
million during the first nine months of Fiscal 1996. This increase was due to
the acquisitions of Standard Tallow and IPC as well as the additional
depreciation on fixed asset additions.
INTEREST EXPENSE
Interest expense increased by $1.1 million from $9.0 million during the
first nine months of Fiscal 1996 to $10.1 million during the first nine months
of Fiscal 1997 due to interest charges incurred on acquisition indebtedness.
INCOME TAXES
The tax expense of $2.5 million for the first nine months of Fiscal 1997
consists of $2.3 million of federal tax expense and $0.2 million for various
state taxes. Tax expense for the first nine months of Fiscal 1996 was $6.3
million. For the first nine months of Fiscal 1996, due to the non-tax deductible
nature of certain of the anticipated expenses related to the settlement of
environmental claims at the Company's Blue Earth, Minnesota plant, these have
been added back to income before taxes for the computation of income taxes for
the third quarter of Fiscal 1996.
CAPITAL EXPENDITURES
The Company made recurring capital expenditures of $15.5 million during
the first nine months of Fiscal 1997 compared to capital expenditures of $17.2
million during the first nine months of Fiscal 1996. Capital expenditures
related to acquisitions were $1.0 million for the first nine months of 1997
compared to $1.1 million for the same period in 1996.
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
September 27, 1997, the Company was in compliance with all provisions of the
Credit Agreement.
The Term Loan provides for $50,000,000 of borrowing. The Term Loan
bears interest, payable monthly, at LIBOR (5.7188% at September 27, 1997) plus a
margin (the "Credit Margin") (1.25% at September 27, 1997) 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 30, 2002. As of September
27, 1997, $48,750,000 was outstanding under the Term Loan.
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 5.8125% at September
27, 1997) plus the Credit Margin as well as portions at a Base Rate (8.50% at
September 27, 1997) or, for swingline advances, at a Base Rate (8.50% at
September 27, 1997). 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 30, 2002. As of September 27, 1997,
$92,800,000 was outstanding under the Revolving Credit Facility. As of September
27, 1997, the Company had outstanding irrevocable letters of credit aggregating
$8,457,398.
Effective June 27, 1997, the Company entered into interest rate swap
transactions whereby the interest obligations on $70,000,000 of Credit Agreement
floating rate debt was exchanged for fixed rate contracts terminating June 27,
2002. The fixed rate contracts bear interest, payable quarterly, at an average
rate of 6.60% plus the Credit Margin.
On September 27, 1997, the Company had working capital of $3.8 million
and a working capital ratio of 1.07 to 1, compared to a working capital deficit
of $8.0 million and a working capital ratio of 0.90 to 1 on December 28, 1996.
Net cash provided by operating activities has decreased by $18.5 million from
$35.5 million during the first nine months of Fiscal 1996 to $17.0 million
during the first nine months of Fiscal 1997. 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.
ACQUISITIONS
The Company periodically makes acquisitions which on a stand-alone
basis are not considered significant acquisitions for disclosure purposes.
During the first nine months of Fiscal 1997, the Company made acquisitions
totaling $4.2 million which included goodwill acquired of $821,000.
ACCOUNTING MATTERS
In February 1997, the Financial Accounting Standards Board issued SFAS
No. 128, Earnings Per Share. SFAS No. 128 is effective for both interim and
annual periods ending after December 15, 1997. This Statement specifies the
computation, presentation, and disclosure requirements for earnings per share
(EPS) for entities with publicly held common stock. It replaces the presentation
of primary EPS with a presentation of basic EPS and fully diluted EPS with
diluted EPS. Basic EPS excludes all dilution associated with common stock
equivalents while diluted EPS, like fully diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock. Although early application of
SFAS No. 128 application is not permitted, proforma EPS disclosure for periods
prior to adoption is permitted. Pro forma EPS for the three months and nine
months ended September 27, 1997 and September 28, 1996 are as follows:
Three Months Ended Nine Months Ended
Sept 27, Sept 28, Sept 27, Sept 28,
1997 1996 1997 1996
-------------------------------------------------------
(unaudited)
Basic EPS $ (0.10) $ (0.24) $ 0.71 $1.22
======== ======== ====== =====
Diluted EPS $ (0.10) $ (0.24) $ 0.67 $1.14
======== ======== ====== =====
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
FORM 10-Q FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 27, 1997
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
No matters were submitted to a vote of security holders during the
fiscal quarter ended September 27, 1997.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
Exhibits
Exhibits No. Description
3.1* Restated Articles of Incorporation.
3.2 Amended and Restated Bylaws, dated March 10, 1994 and
March 31, 1995.
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).
REPORTS ON FORM 8-K
There were no reports filed on Form 8-K during the fiscal quarter
ended September 27, 1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DARLING INTERNATIONAL INC.
Registrant
Date: November 10, 1997 By: /s/ Dennis B. Longmire
-------------------------
Dennis B. Longmire
Chairman and
Chief Executive Officer
Date: November 10, 1997 By: /s/ John R. Witt
--------------------------------
John R. Witt
Vice President and
Chief Financial Officer
(Principal Financial Officer)
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
FORM 10-Q FOR THE NINE MONTHS ENDED SEPTEMBER 27, 1997
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.
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).
EXHIBIT 11
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS (LOSS)
The following table details the computation of primary and fully diluted
earnings (loss) per common share, in thousands except per share data.
Three Months Ended Nine months Ended
---------------------- ----------------------
Sept 27, Sept 28, Sept 27, Sept 28,
1997 1996 1997 1996
======= ======= ======= =======
Earnings (loss):
Net (loss) earnings available to common stock $ (523) $(1,253) $3,675 $6,274
===== ======= ===== =====
Shares (Primary):
Weighted average number of
common shares outstanding 5,177 5,149 5,168 5,117
Additional shares assuming exercise of
stock options 337 422
------ ----- ------ -----
Average common shares outstanding
and equivalents 5,177 5,149 5,505 5,539
===== ===== ====== =====
Primary Earnings (loss) per common share
$(0.10) $ (0.24) $ 0.67 $ 1.14
===== ====== ====== ======
Shares (Fully Diluted):
Weighted average number of
common shares outstanding 5,177 5,149 5,168 5,117
Additional shares assuming exercise of
stock options 369 424
----- ----- ----- -----
Average common shares outstanding
and equivalents 5,177 5,149 5,537 5,541
===== ===== ===== =====
Fully Diluted Earnings (loss) per common
share $(0.10) $ (0.24) $ 0.66 $ 1.14
===== ====== ===== ======