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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended January 3, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
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)
Registrant's telephone number, including area code: (972) 717-0300
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $0.01 par value per share
(Title of Class)
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant was approximately $40,000,000 as of March 20, 1998 based upon the
closing price of such stock as reported on the American Stock Exchange ("AMEX")
on that day.
There were 15,573,392 shares of common stock, $0.01 par value, outstanding
at March 20, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
Selected designated portions of the Registrant's definitive Proxy Statement
are incorporated by reference into Part III of this Annual Report.
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
FORM 10-K FOR THE FISCAL YEAR ENDED JANUARY 3, 1998
TABLE OF CONTENTS
Page No.
PART I.
ITEM 1. BUSINESS...........................................................3
ITEM 2. PROPERTIES.........................................................8
ITEM 3. LEGAL PROCEEDINGS..................................................8
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...............10
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.......................................10
ITEM 6. SELECTED FINANCIAL DATA...........................................11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION......................13
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.......................19
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE...............................42
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT................42
ITEM 11. EXECUTIVE COMPENSATION............................................42
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT....................................................42
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS....................42
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K.......................................................43
SIGNATURES ..................................................46
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
FORM 10-K FOR THE FISCAL YEAR ENDED JANUARY 3, 1998
PART I
ITEM 1. BUSINESS
General
Founded by the Swift meat packing interests and the Darling family in
1882, Darling International Inc. ("Darling" or the "Company") was incorporated
in Delaware in 1962 under the name "Darling-Delaware Company, Inc." On December
28, 1993, the Company changed its name from "Darling-Delaware Company, Inc." to
"Darling International Inc." The address of the Company's principle executive
office is 251 O'Connor Ridge Boulevard, Suite 300, Irving, Texas, 75038, and its
telephone number at such address is (972)717-0300.
The Company is a recycler of food processing by-products and believes
that it is the largest independent processor in the United States in terms of
raw material processed annually.
The Company collects and recycles animal processing by-products, used
restaurant cooking oil, and bakerage by-products from restaurants, butcher
shops, grocery stores, bakeries, and independent meat and poultry processors
nationwide. In addition, the Company provides grease trap collection services to
restaurants. The Company processes such raw materials at 51 facilities located
throughout the United States into finished products such as tallow, meat and
bone meal, yellow grease, and dried bakery product. The Company sells these
products nationally and internationally, primarily to producers of various
industrial and commercial oleo-chemicals, soaps, pet foods and livestock feed,
for use as ingredients in their products or for further processing into basic
chemical compounds.
The Company's net sales were $498.4 million, $488.9 million and $421.6
million during the 1997, 1996 and 1995 fiscal years, respectively. Net sales
from rendering operations accounted for 89.1%, 95.6% and 100% of the Company's
net sales during the 1997, 1996 and 1995 fiscal years, respectively. The
Company's bakery by-products recycling operations accounted for 10.9% and 4.4%
of the Company's net sales during the 1997 and 1996 fiscal years, respectively.
Processing Operations
The Company creates finished products primarily through the drying,
grinding, separating and blending of its various raw materials. The process
starts with the collection of animal processing by-products (fat, bones,
feathers and offal), used restaurant cooking oil, and bakery by-products from
meat packers, grocery stores, butcher shops, meat markets, poultry processors,
restaurants and bakeries.
The animal processing by-products are ground and heated to extract
water and separate oils from animal tissue as well as to sterilize and make the
material suitable as an ingredient for animal feed. Meat and bone meal is
separated from the cooked material by pressing the material, then grinding and
sifting it through screens. The separated tallow is centrifuged and/or refined
for purity. The primary finished products derived from the processing of animal
by-products are tallow and meat and bone meal. Other by-products include poultry
meal, feather meal and blood meal. Used restaurant cooking oil is processed
under a separate procedure that involves heating, settling and sterilizing, as
well as refining, resulting in derived yellow grease, feed-grade animal fat, or
oleo-chemical feedstocks. Bakery by-products are ground, heated to extract
moisture, and blended to produce a high-calorie animal feed ingredient.
Purchase and Collection of Raw Materials
The Company operates a fleet of approximately 1,200 trucks and
tractor-trailers to collect raw materials from more than 80,000 restaurants,
butcher shops, grocery stores, bakeries, and independent meat and poultry
processors. The Company replaces or upgrades its vehicle fleet to maintain
efficient operations.
Raw materials are collected in one of two manners. Certain large
suppliers, such as large meat processors, poultry processors, and bakeries are
furnished with bulk trailers in which the raw material is loaded. The Company
transports these trailers directly to a processing facility. The Company
provides the remaining suppliers, primarily grocery stores, butcher shops, and
smaller bakeries and confectioners, with containers in which to deposit the raw
material. The containers are picked up by or emptied into Company trucks on a
periodic basis. The type and frequency of service is determined by individual
supplier requirements, the volume of raw material generated by the supplier,
supplier location, and weather, among other factors.
Used restaurant cooking oil is placed in various sizes and types of
containers which are supplied by the Company. In some instances, these
containers are loaded directly onto the trucks, while in other instances the oil
is pumped through a vacuum hose into the truck. The Company also provides an
alternative collection service to restaurants, CleanStar 2000(R) , a
self-contained collection system that is housed inside the restaurant, with the
used cooking oil pumped directly into collection vehicles via an outside valve.
The CleanStar 2000(R) system and service is provided either on a fee basis to
the raw material customer or as a negotiated offset to the cost of raw materials
purchased (see discussion of CleanStar expenditures in Item 7). Approximately 4%
of the Company's restaurant suppliers utilize the CleanStar 2000(R) system. The
frequency of all forms of collection service is determined by the volume of oil
generated by the restaurant.
The raw materials collected by the Company are transported either
directly to a processing plant or to a transfer station, where materials from
several collection routes are loaded into trailers and transported to a
processing plant. Collections of animal processing by-products generally are
made during the day, and materials are delivered to plants for processing within
24 hours of collection to eliminate spoilage. Collection of used restaurant
cooking oil and bakery by-products can be made at any time of the day or night,
depending on supplier preference; these materials may be held for longer periods
of time before processing.
During the past year, the Company's largest single supplier accounted
for less than 5% of the total raw material processed by the Company, and the 10
largest raw materials suppliers accounted for approximately 27% of the total raw
material processed by the Company. For a discussion of the Company's competition
for raw materials, see "Competition."
Raw Materials Pricing
The Company has two primary pricing arrangements with its raw materials
suppliers. More than half of the Company's annual volume of raw materials is
acquired on a "formula" basis. Under a formula arrangement, the charge or credit
for raw materials is tied to published finished product commodity prices after
deducting a fixed service charge. The service charge is designed to enable the
Company to cover all of its collection and processing costs and realize a
profit. The Company acquires the remaining annual volume of raw material under
"non-formula" arrangements whereby suppliers either are paid a fixed price, are
not paid, or are charged for the collection service, depending on various
economic factors.
The credit received or amount charged for raw material under both
formula and non-formula arrangements is based on various factors, including the
type of raw materials, the expected value of the finished product to be
produced, the anticipated yields, the volume of material generated by the
supplier, and processing and transportation costs. Competition among processors
to procure raw materials also affects the price paid for raw materials. See
"Competition."
Formula prices are generally adjusted on a weekly or monthly basis
while non-formula prices or charges are adjusted as needed to respond to
significant changes in finished product prices.
Finished Products
The finished products that result from the processing of animal
by-products are oils (primarily tallow and yellow grease) and proteins
(primarily meat and bone meal). Raw material received from bakeries are
processed into dried bakery product. Oils are used as ingredients in the
production of pet food, animal feed and soaps. Oleo-chemical producers use these
oils as feedstocks to produce specialty ingredients used in paint, rubber,
paper, concrete, plastics and a variety of other consumer and industrial
products. Meals are used primarily as high protein additives in pet food and
animal feed. Dried bakery product is used primarily as an additive in animal
feed.
Predominantly all of the Company's finished products are commodities
which are quoted on established commodity markets or are priced relative to such
commodities. While the Company's finished products are generally sold at prices
prevailing at the time of sale, the Company's ability to deliver large
quantities of finished products from multiple locations and to coordinate sales
from a central location enables the Company to occasionally receive a premium
over the then-prevailing market price.
Marketing, Sales and Distribution of Finished Products
The Company markets its finished products worldwide. Marketing
activities are primarily conducted through the Company's marketing department
which is headquartered in Irving, Texas. The Company also maintains sales
offices in Los Angeles, California, Atlanta, Georgia, and Newark, New Jersey for
sales and distribution of selected products. This sales force is in contact with
several hundred customers daily and coordinates the sale and assists in the
distribution of most finished products produced at the Company's processing
plants. The Company sells its finished products internationally through
commodities brokers and through Company agents in various countries.
The Company sells to numerous foreign markets, including the European
Economic Community, Asia, the Pacific Rim, North Africa, Mexico and South
America. The Company has no material foreign operations, but exports a portion
of its products to customers in various foreign counties. Total export sales
were $101,040,000, $119,055,000, and $169,829,000, for the years ended January
3, 1998, December 28, 1996, and December 30, 1995, respectively. The level of
export sales may vary from year to year depending on the relative strength of
domestic versus overseas markets. The Company obtains payment protection for
most of its foreign sales by requiring payment before shipment or by requiring
bank letters of credit or guarantees of payment from U.S. government agencies.
The Company ordinarily is paid for its products in U.S. dollars and has not
experienced any material currency translation losses or any material foreign
exchange control difficulties.
The Company has not experienced any material restrictions on the export
of its products, although certain countries, including India and certain Middle
East countries restrict the import of proteins and fats and oils made from
porcine and bovine material, and the European Community has restrictions on
proteins and fats and oils made from specified bovine materials. The B.S.E.
situation in Europe and new F.D.A. restrictions, coupled with much lower prices
for competing commodities, caused lower prices for some of the Company's key
products. See Note 14 of Notes to Consolidated Financial Statements for
information regarding the Company's export sales.
Finished products produced by Darling are distributed primarily by
truck and rail from the Company's plants shortly following production. While
there are some temporary inventory accumulations at various port locations for
export shipments, inventories rarely exceed three weeks' production and,
therefore, the Company uses limited working capital to carry inventories and
reduces its exposure to fluctuations in commodity prices.
Realignment
Commencing 1998, as part of an overall strategy to better commit
financial resources, the Company reorganized its operations into four diverse
yet distinctive areas. These are: 1) Rendering, the core business of turning
inedible waste from meat and poultry processors into high quality feed
ingredients and fats for other industrial applications; 2) Restaurant Services,
a group focused on growing the grease collection business while expanding the
line of services offered to restaurants and food processors; 3) Bakery
By-Products Recycling, a group which produces high quality bakery by-products to
the feed industry; and 4) Esteem Products, the new business dedicated to using
newly developed technologies to produce more highly refined products from
established supply sources. Management believes that organizing along business
lines will enable the Company to utilize its flexibility and diversification to
service a changing, more sophisticated market place.
Competition
Management of the Company believes that the most competitive aspect of
the business is the procurement of raw materials rather than the sale of
finished products. During the last ten years, pronounced consolidation within
the meat packing industry has resulted in bigger and more efficient slaughtering
operations, the majority of which utilize "captive" processors. Simultaneously,
the number of small meat packers, which have historically been a dependable
source of supply for non-captive processors, has decreased significantly.
Although the total amount of slaughtering may be flat or only moderately
increasing, the availability, quantity and quality of raw materials available to
the independent processors from these sources have all decreased. These factors
have been offset, in part, however, by increasing environmental consciousness.
The need for restaurants to comply with environmental regulations concerning the
proper disposal of used restaurant cooking oil is offering a growth area for
this raw material source.
In marketing its finished products, the Company faces competition from
other processors and from producers of other suitable commodities. Tallows and
greases are in certain instances substitutes for soybean oil and palm stearine,
while meat and bone meal is a substitute for soybean meal. Dried bakery product
is a substitute for corn in animal feed. Consequently, the prices of tallow,
yellow grease, meat and bone meal, and dried bakery product correlate to some
degree with these commodities. The markets for finished products are impacted
mainly by the worldwide supply of fats, oils, proteins and grains. Among other
factors that influence the prices that the Company receives for its finished
products include the worldwide supply of oils and proteins, the quality of the
Company's finished products, consumer health consciousness, worldwide credit
conditions and U.S. government foreign aid. From time to time, the Company
enters into arrangements with its suppliers of raw materials pursuant to which
such suppliers buy back the Company's finished products.
Seasonality
The amount of raw materials made available to the Company by its
suppliers is relatively stable on a weekly basis except for those weeks
including a major holiday during which availability of raw materials declines
because major meat and poultry processors are not operating. Weather is also a
factor. Extremely warm weather adversely affects the ability of the Company to
make higher quality products because the raw material deteriorates more rapidly
than in cooler weather, while extremely cold weather, in certain instances, can
hinder the collection of raw materials.
Employees and Labor Relations
As of January 3, 1998, the Company employed approximately 1,900 persons
full-time. Approximately 41% of the total number of employees are covered by
collective bargaining agreements; however, the Company has no national or
multi-plant union contracts. Management believes that the Company's relations
with its employees and their representatives are good. There can be no
assurance, however, that new agreements will be reached without union action or
will be on terms satisfactory to the Company.
Regulations
The Company is subject to the rules and regulations of various federal,
state and local governmental agencies. These include, but are not limited to,
the FDA, which regulates food and feed production , USDA, which regulates
collection and production methods, EPA, which regulates air and water discharge
requirements, as well as local and state agencies governing air and water
discharge. Such rules and regulations may influence the Company's operating
results at one or more facilities.
The FDA rule on the feeding of mammalian protein to ruminant animals
took effect in August of 1997 as a measure to prevent the potential occurrence
of BSE (Bovine Spongiform Encephalopathy) in the United States. As expected,
this rule has had little effect on the operations of the company, and the
company is in compliance with the provisions of the rule.
Settlement
On December 29, 1993, the Company consummated the settlement (the
"Settlement") of a class action lawsuit (the "Class Action") filed against the
Company on August 15, 1991, in connection with, among other things, the
Company's issuance and subsequent default in payment of interest due under
approximately $175.0 million of 14% Senior Subordinated Notes due March 15, 1999
(the "Original Notes") and breach of the indenture governing the Original Notes
(the "Original Notes Indenture"). As part of the Settlement and the attendant
restructuring (the "Restructuring") of the Company's capitalization, Original
Noteholders received, upon surrender of their Original Notes, 4,749,484 shares
of Common Stock (the "Noteholders' Common Stock"), $70.0 million aggregate
principal amount of First Priority Senior Subordinated Notes due July 15, 2000
(the "Subordinated Notes") and approximately $5.0 million in cash. In addition,
pursuant to the Settlement, the Company issued 249,975 shares of Class A Common
Stock, options to purchase 128,205 shares of Class A Common Stock and options to
purchase 494,500 shares of Common Stock.
ITEM 2. PROPERTIES
The Company's 51 operating facilities consist of 27 full service
rendering plants, eleven bakery recycling plants, seven yellow grease/trap
grease plants, two blending plants, two research and technology plants, one
spray dry plant and one edible plant. Except for nine leased facilities, all of
these facilities are owned by the Company. The following is a listing of the
Company's operating facilities:
Location Description Location Description
-------- ----------- -------- -----------
Alton, IA .............Rendering Linkwood, MD.............Rendering
Billings, MT...........Rendering Los Angeles, CA..........Rendering
Blue Earth, MN ........Rendering Milwaukee, WI............Rendering
Boise, ID..............Rendering Mt. Pleasant, TX (IPC)...Bakerage
Calhoun, GA (IPC)......Bakerage Newark, NJ...............Rendering
Carteret, NJ (IPC).....Bakerage Norfolk, NE..............Rendering
Chicago, IL (IPC)......Bakerage Norfolk, NE .............Spray Dry
Chicago, IL............Yellow Grease Norfolk, NE .............R&T
Cincinnati, OH.........Yellow Grease Omaha, NE................Rendering
Cincinnati, OH (IPC)...Bakerage Omaha, NE ...............Blending
Cleveland, OH .........Rendering Omaha, NE................Edible Oils
Coldwater, MI..........Rendering Russellville, AR.........Rendering
Collinsville, OK.......Rendering San Angelo, TX...........Rendering
Conley, GA (IPC) ......Bakerage San Antonio, TX (IPC)....Bakerage
Dallas, TX.............Rendering San Francisco, CA........Rendering
Detroit, MI............Rendering Sioux City, IA...........Rendering
Durham, NC (IPC).......Bakerage St. Louis, MO............Rendering
Fort Lauderdale, FL....Yellow Grease Tacoma, WA...............Rendering
Fresno, CA.............Rendering Tampa, FL................Yellow Grease
Henderson, NV..........Yellow Grease Terre Haute, IN (IPC)....Bakerage
Houston, TX............Rendering Turlock, CA..............Rendering
Houston, TX ...........Yellow Grease Wahoo, NE................Rendering
Kansas City, KS........Rendering Wahoo, NE ...............R&T
Kansas City, KS (IPC)..Bakerage West Point, NE...........Rendering
Kearny, NJ ............Blending
Lake City, GA (IPC).....Bakerage
Lake City, GA (IPC).....Yellow Grease
In addition, the Company owns or leases 20 transfer stations in the
United States and one transfer station in Canada that serve as collection points
for routing raw material to the processing plants set forth above.
ITEM 3. LEGAL PROCEEDINGS
(a) ENVIRONMENTAL
Blue Earth
In July 1997, the Company, the United States Attorney for the District of
Minnesota, 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 $2.7 million 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 $6.1
million 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.
Underground Storage Tanks
The Company's processing operations do not produce hazardous or toxic
wastes; however, the Company does operate underground fuel storage tanks
("UST's") that are subject to federal, state and local laws and
regulations. As of January 3, 1998, the Company has removed or closed 177
of its 183 UST's.
(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, including assertions by certain
regulatory agencies related to the release of unacceptable odors from some
of its processing facilities.
Although the ultimate liability cannot be determined with certainty, the Company
has estimated its probable liability and established a reserve with respect to
these contingencies. 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The matters voted on at the Special Meeting of Stockholders held on
October 28, 1997, were as follows:
(i) Amendment to the Company's Restated Certificate of Incorporation
in order to increase the number of shares of Common Stock, par
value $0.01 per share, authorized for issuance thereunder from
ten million (10,000,000) shares to twenty-five (25,000,000)
million shares in order to affect a three-for-one stock split of
the Company's Common Stock (in the form of a stock dividend) and
to increase the amount of the Company's authorized but unissued
stock.
For 4,783,095 Against 5,608 Abstain 300 Non-Vote 0
(ii) Amendment to the Company's Restated Certificate of Incorporation
in order to authorize one million (1,000,000) shares of preferred
stock, par value $0.01 per share, issuable in series with the
terms of each series to be fixed by the Board of Directors of the
Company.
For 4,142,924 Against 300,408 Abstain 1,410 Non-Vote 343,261
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
On September 12, 1997 the common stock began trading on the American
Stock Exchange under the symbol "DAR". Prior to that date, the common stock
became eligible for trading on the Nasdaq National Market under the symbol
"DARL" on September 8, 1994. On October 28, 1997, the Stockholders of the
Company approved a three-for-one stock split. The following table sets forth,
for the quarters indicated, the high and low sales prices per share for the
common stock as reported on the American Stock Exchange or Nasdaq National
Market retroactively restated to reflect the stock split.
Fiscal Quarter Market Price
High Low
---------------- -----------------
1997:
First Quarter $9.833 $7.333
Second Quarter $10.000 $6.917
Third Quarter $10.000 $8.000
Fourth Quarter $11.604 $8.500
1996:
First Quarter $10.208 $8.875
Second Quarter $9.667 $7.250
Third Quarter $9.417 $8.250
Fourth Quarter $10.625 $9.083
As of March 16, 1998, there were 74 holders of record of the common
stock.
The Company has not declared or paid any dividend on the common stock
since January 3, 1989. The Company's Credit Agreement restricts the Company's
ability to pay dividends. The Company does not currently anticipate paying cash
dividends on the common stock in the foreseeable future, but intends instead to
retain future earnings for reinvestment in its business or reduction of its
indebtedness.
ITEM 6. SELECTED FINANCIAL DATA
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table presents selected consolidated historical financial
data for the periods indicated. The Company accounted for the resolution of a
class action lawsuit (the "Settlement") in accordance with fresh start reporting
("Fresh Start Reporting"), as set forth in Statement of Position 90-7. See Note
3 of Notes to Consolidated Financial Statements. As a result, the Company's
Consolidated Balance Sheets at January 3, 1998, December 28, 1996 December 30,
1995 and December 31, 1994 and the Consolidated Statement of Operations for the
years ended January 3, 1998, December 28, 1996, December 30, 1995 and December
31, 1994 are presented on a different basis than that for periods before Fresh
Start Reporting, and, therefore, are not comparable. The selected historical
consolidated financial data set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements of the Company for the
three years ended January 3, 1998, December 28, 1996, and December 30, 1995, and
the related notes thereto.
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
FORM 10-K FOR THE FISCAL YEAR ENDED JANUARY 3, 1998
PART II
Predecessor
-----------
Fiscal 1997 Fiscal 1996 Fiscal 1995 Fiscal 1994 Fiscal 1993
----------- ----------- ----------- ----------- -----------
Weeks Ended Weeks Ended Weeks Ended Weeks Ended Weeks Ended
January 3, December 28, December 30, December 31, January 1,
1998 1996 1995 1994 1994
- - -------------------------------------------------------------------------------------------------------- -----------
(amounts in thousands, except per share data)
Operating Data:
Net sales $498,421 $488,914 $421,608 $354,333 $332,780
------- ------- ------- ------- -------
Cost of sales and operating expenses 404,159 395,025 336,248 282,908 269,979
Selling, general and administrative expenses 38,645 32,767 26,675 25,680 21,139
Depreciation and amortization 33,670 27,611 22,576 19,871 18,975
Provision for loss contingencies - 6,075 - - 1,595
------- ------- ------- ------- -------
Operating profit 21,947 27,436 36,109 25,874 21,092
Interest expense 13,732 12,994 13,311 15,206 29,644
Other (income) expense, net (163) (537) (322) (80) (487)
------- ------- ------- ------- -------
Income (loss) before reorganization
items and income taxes 8,378 14,979 23,120 10,748 (8,065)
Reorganization items:
Professional fees - - - - (5,336)
Fresh start valuation adjustment - - - - 80,843
------- ------- ------- ------- -------
Income before income taxes 8,378 14,979 23,120 10,748 67,442
Income tax expense 2,969 7,305 8,740 3,391
------- ------- ------- -------
Net earnings $5,409 $7,674 $14,380 $7,357
======= ======= ======= =======
Basic earnings per common share (b) 0.35 0.50 0.95 0.49
Diluted earnings per common share (b) 0.33 0.46 0.90 0.49
Weighted average shares outstanding (b) 15,519 15,375 15,138 15,000
Diluted weighted average shares
outstanding (b) 16,461 16,674 15,966 15,000
Other Data:
EBITDA (a) 55,617 61,122 58,685 45,745 41,662
Depreciation 26,573 22,282 18,595 15,994 16,569
Amortization 7,097 5,329 3,981 3,877 2,406
Capital expenditures 26,573 28,631 24,636 17,822 16,320
Balance Sheet Data:
Working capital (deficiency) 3,324 (8,015) 12,936 (2,959) (281)
Total assets 312,977 329,645 266,062 245,505 236,294
Current portion of long-term debt 5,113 15,598 9,060 11,577 11,098
Total long-term debt less current portion 142,181 138,173 117,096 109,132 122,566
Stockholders' equity 69,756 64,033 54,833 39,482 27,027
(a) "EBITDA" represents, for any relevant period, operating profit plus
depreciation and amortization and provision for loss contingencies. EBITDA
is presented here not as a measure of operating results, but rather as a
measure of the Company's debt service ability and is not intended to be a
presentation in accordance with generally accepted accounting principles.
(b) All prior period shares outstanding and earnings per share have been
restated in accordance with SFAS No. 128. (See Note 1(b)(9) in Notes to
Consolidated Financial Statements).
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of the Company's financial condition and
results of operations should be read in conjunction with the historical
consolidated financial statements and notes thereto included in Item 8.
Results of Operations
Fifty-three Week Fiscal Year Ended January 3, 1998 ("Fiscal 1997") Compared to
Fifty-two Week Fiscal Year Ended December 28, 1996 ("Fiscal 1996")
General
The Company recorded net earnings of $5.4 million for Fiscal 1997
compared to net earnings of $7.7 million for Fiscal 1996. Operating income
decreased from $27.4 million for Fiscal 1996 to $21.9 million for Fiscal 1997.
During 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 $11.6 million from $33.5 million in Fiscal 1996 to
$21.9 million in Fiscal 1997. The decrease was primarily due to: 1) declines in
the volume of raw materials processed; 2) approximately $6 million in increased
depreciation and amortization expense related to acquisitions and capital
expenditures; and 3) a $1.7 million expenditure related to the buy back of stock
options from the former president of the company. These were offset by a $1.9
million insurance settlement of certain property and casualty claims with past
insurers. Interest expense increased from $13.0 million in Fiscal 1996 to $13.7
million in Fiscal 1997, primarily due to increased debt related to acquisitions.
Net Sales
The Company collects and processes animal by-products (fat, bones and
offal), used restaurant cooking oil, and bakery by-products to produce finished
products of tallow, meat and bone meal, yellow grease, and dried bakery product.
Sales are significantly affected by finished goods prices, quality of raw
material, and volume of raw material. Net sales include the sales of produced
finished goods, grease trap services, and finished goods purchased for resale,
which constitute less than 10% of total sales.
During Fiscal 1997, net sales increased 1.9%, to $498.4 million as
compared to $488.9 million during Fiscal 1996 primarily due to the following: 1)
The acquisition of International Processing Corporation ("IPC") and Standard
Tallow ("Standard") in 1996 resulted in an increase in sales of $36.9 million in
Fiscal 1997 versus Fiscal 1996; 2) Overall finished goods prices were relatively
flat and resulted in an increase of approximately $3.0 million in sales.
Compared to Fiscal 1996 finished goods prices, the Company's average yellow
grease prices were 14.9% lower, average tallow prices were 0.6% lower, and
average meat and bone meal prices were 7.6% higher; 3) Decreases in the volume
of raw materials processed resulted in a $31.2 million decrease in sales, offset
by $4.6 million in yield gains; and 4) Decreases in finished hides prices
and inventory changes accounted for an additional decrease of $3.2 million in
sales.
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 the raw material. The Company utilizes both fixed and
formula pricing methods for the purchase of raw materials. Fixed prices are
adjusted where possible as needed for changes in competition and significant
changes in finished goods market conditions, while raw materials purchased under
formula prices are correlated with specific finished goods prices.
During Fiscal 1997, cost of sales and operating expenses increased $9.1
million (2.3%), to $404.2 million as compared to $395.0 million during Fiscal
1996 primarily as a result of the following: 1) Cost of sales and operating
expenses grew $25.8 million due to the acquisition of Standard Tallow and IPC;
2) Decreases in the volume of raw material collected and processed resulted in a
decrease of approximately $18.9 million in cost of sales and operating expenses;
3) Lower raw material prices paid, correlating to decreased prices for fats and
oils resulted in decreases of $2.1 million in cost of sales; 4) Changes in
inventory levels resulted in approximately $1.9 million increase in cost of
sales; and 5) finally, higher payroll costs resulted in a $2.2 million increase
in operating expenses.
Selling, General and Administrative Expenses and
Provisions for Loss Contingency
Selling, general and administrative expenses were $38.6 million during
Fiscal 1997, a $5.9 million increase from $32.7 million during Fiscal 1996. The
increase in expenses was primarily attributable to the acquisitions of Standard
Tallow and IPC. The Company recorded $6.1 million in charges to the provision
for loss contingency during Fiscal 1996 to cover estimated costs related to
environmental violations at the Company's Blue Earth, Minnesota plant.
Depreciation and Amortization
Depreciation and amortization charges increased $6.1 million, to $33.7
million during Fiscal 1997 as compared to $27.6 million during Fiscal 1996. This
increase was due to additional depreciation on fixed asset additions and
amortization on intangibles acquired as a result of the acquisitions of Standard
Tallow and IPC.
Interest Expense
Interest expense increased $0.7 million, to $13.7 million during
Fiscal 1997 as compared to $13.0 million during Fiscal 1996, primarily due to
increased debt related to the acquisitions.
Income Taxes
The income tax expense of $3.0 million for Fiscal 1997 consists of $2.4
million of federal tax expense and $0.6 million for various state and foreign
taxes. In Fiscal 1996, the Company recorded a $7.3 million income tax expense
which consisted of $6.7 million of federal tax expense and $0.6 million for
various state taxes, after taking into account the non-tax deductible nature of
certain of the expenses related to the settlement of environmental claims at the
Company's Blue Earth, Minnesota plant.
Capital Expenditures
The Company made capital expenditures of $26.6 million during Fiscal
1997 as compared to $28.6 million in Fiscal 1996.
- - -----------------------------
Fiscal Year Ended December 28, 1996, ("Fiscal 1996") Compared to Fiscal Year
Ended December 30, 1995 ("Fiscal 1995")
The Company recorded net earnings of $7.7 million for Fiscal 1996
compared to net earnings of $14.4 million for Fiscal 1995. The decrease was
primarily due to: 1) a $6.1 million provision for loss contingency recorded in
Fiscal 1996 to cover estimated costs related to environmental violations at the
Company's Blue Earth, Minnesota plant; and 2) approximately $5 million in
depreciation and amortization expense related to acquisitions and capital
expenditures. Additionally, as a result of an extreme fourth quarter 1996 drop
in the price of corn, bakerage operating margins were not adequate to offset the
related depreciation, amortization and interest costs associated with the
acquisition of IPC. Operating profit before the provision for loss contingency
decreased from $36.1 million in Fiscal 1995 to $33.5 million in Fiscal 1996.
Interest expense decreased from $13.3 million in Fiscal 1995 to $13.0 million in
Fiscal 1996, primarily due to decreased interest rates.
Net Sales
The $67.3 million increase in sales in Fiscal 1996 compared to Fiscal
1995 is due to the following: 1) Approximately $31.6 million was due primarily
to the acquisition of Standard Tallow Company ("Standard Tallow") and
International Processing Corporation ("IPC"); 2) Improvements in finished goods
prices resulted in an increase of approximately $45.0 million in sales. The
Company experienced significantly higher domestic finished market prices while
overseas markets were considerably depressed compared to the prior year.
Compared to Fiscal 1995, the Company's average yellow grease prices were 8.6%
higher during Fiscal 1996. Average tallow prices were 1.8% lower and average
meat and bone meal prices were 31.3% higher; 3) Increases in the volume of raw
materials processed resulted in a $19.1 million increase in sales, offset by
$5.6 million in yield reductions due to raw material quality; and 4) The volume
of finished goods purchased for resale decreased from $60.5 million to $39.2
million due to depressed overseas markets.
Cost of Sales and Operating Expenses
During Fiscal 1996, cost of sales and operating expenses increased
$58.8 million (17.5%), to $395.0 million as compared to $336.2 million during
Fiscal 1995 as a result of the following: 1) Cost of sales and operating
expenses grew $26.9 million due to the acquisition of Standard Tallow and IPC;
2) Increases in the volume of raw material collected and processed resulted in
an increase of approximately $16.1 million in cost of sales and operating
expenses; 3) Higher raw material prices paid, correlating to increased prices
for fats and oils and meat and bone meal, resulted in increases of $41.2 million
in cost of sales; 4) Decreases in the volume of finished goods purchased for
resale resulted in a $20.0 million decrease in cost of sales; and 5) Changes
in inventory levels resulted in an approximately $7.0 million decrease in cost
of sales; and 6) finally, higher steam expenses attributable to increased
natural gas prices, and expenses attributable to the expansion of CleanStar
2000(R), the Company's inside used restaurant cooking oil collection system,
resulted in a $1.8 million increase in operating expenses.
Selling, General and Administrative Expenses and
Provision for Loss Contingency
Selling, general and administrative expenses were $32.7 million during
Fiscal 1996, a $6.0 million increase from $26.7 million during Fiscal 1995. The
increase in expenses was primarily attributable to the acquisitions of Standard
Tallow and IPC, increases in compensation and related costs, product development
costs, and professional fees. The Company recorded $6.1 million in charges to
the provision for loss contingency during Fiscal 1996 to cover costs related to
environmental violations at the Company's Blue Earth, Minnesota plant.
Depreciation and Amortization
Depreciation and amortization charges increased $5.0 million, to $27.6
million during Fiscal 1996 as compared to $22.6 million during Fiscal 1995. This
increase was due to additional depreciation on fixed asset additions and
amortization on intangibles acquired as a result of the acquisitions of Standard
Tallow and IPC.
Interest Expense
Interest expense decreased $0.3 million, to $13.0 million during Fiscal
1996 as compared to $13.3 million during Fiscal 1995, primarily due to decreased
interest rates.
Income Taxes
In Fiscal 1996, the Company recorded a $7.3 million income tax expense
which consisted of $6.7 million of federal tax expense and $0.6 million for
various state taxes, after taking into account the expected non-tax deductible
nature of approximately $3.0 million of the expenses related to the settlement
of environmental violations at the Company's Blue Earth, Minnesota plant. In
Fiscal 1995, the Company recorded an $8.7 million income tax expense which
consisted of $7.8 million of federal tax expense and $0.9 million of state tax
expense.
Capital Expenditures
The Company's capital expenditures consist primarily of investments in
facilities, collection operations and environmental equipment. The Company made
capital expenditures of $28.6 million during Fiscal 1996 as compared to $24.6
million in Fiscal 1995.
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 January
3, 1998, 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 (5.9375% at January 3, 1998) plus a
margin (the "Credit Margin") (1.25% at January 3, 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 January 3,
1998, $46,250,000 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 5.8125% to 5.9648% at January 3,
1998) plus the Credit Margin as well as portions at a Base Rate (8.50% at
January 3, 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 January 3, 1998, $100,875,000 was outstanding under the Revolving
Credit Facility. As of January 3, 1998, the Company had outstanding irrevocable
letters of credit aggregating $8,401,000.
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. As of January 3, 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 January 3, 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 on $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 January 3, 1998, the Company had working capital of $3.3 million and
its working capital ratio was 1.06 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. The
increase in working capital is primarily the result of the $10.5 million
decrease in current maturities of long-term debt. Net cash provided by operating
activities has decreased $19.4 million from $46.4 million during Fiscal 1996 to
$27.1 million during 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 Fiscal 1997, the Company made acquisitions totaling $11.7 million which
included goodwill acquired of $2.2 million.
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.
In June 1997, the Financial Accounting Standards also issued SFAS No.
130, Reporting Comprehensive Income. SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997. This Statement establishes standards for
reporting and display of comprehensive income and its components. Comprehensive
income is defined as the change in equity of a business enterprise during a
period from transactions and other events and circumstances from non-owner
sources. Reclassification of financial statements for earlier periods provided
for comparative purposes is required. The Company does not anticipate
restatement of its financial statements upon adoption of SFAS No. 130.
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 Annual Report on Form 10-K 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 Annual Report on Form
10-K, including, without limitation, the statements under the sections entitled
"Business," "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 expectation
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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Pages
Independent Auditors' Report 20
Consolidated Balance Sheets-
January 3, 1998 and December 28, 1996 21
Consolidated Statements of Operations-
Three years ended January 3, 1998 22
Consolidated Statements of Stockholders' Equity -
Three years ended January 3, 1998 23
Consolidated Statements of Cash Flows -
Three years ended January 3, 1998 24
Notes to Consolidated Financial Statements -
January 3, 1998 and December 28, 1996 25
Financial Statement Schedule:
II - Valuation and Qualifying Accounts 41
All other schedules are omitted since the required
information is not present or is not present in
amounts sufficient to require submission of the
schedule, or because the information required is
included in the consolidated financial statements and
notes thereto.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Darling International Inc.:
We have audited the consolidated financial statements of Darling International
Inc. and subsidiaries as listed in the accompanying index. In connection with
our audits of the consolidated financial statements, we also have audited the
financial statement schedule as listed in the accompanying index. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Darling
International Inc. and subsidiaries as of January 3, 1998 and December 28, 1996,
and the results of their operations and their cash flows for each of the years
in the three-year period ended January 3, 1998, in conformity with generally
accepted accounting principles. Also in our opinion, the related financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
KPMG Peat Marwick LLP
Dallas, Texas
February 20, 1998
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
Consolidated Balance Sheets
January 3, 1998 and December 28, 1996
(in thousands, except share and per share data)
January 3, December 28,
ASSETS (note 9) 1998 1996
- - --------------- ---------- -----------
Current assets:
Cash and cash equivalents $ 2,955 $ 12,956
Accounts receivable 32,459 35,966
Inventories (note 4) 13,897 12,643
Prepaid expenses 3,459 1,493
Deferred income tax assets (note 11) 4,006 6,184
Other 383 484
--------- ---------
Total current assets 57,159 69,726
Property, plant and equipment, net (note 5) 170,636 175,786
Collection routes and contracts, less accumulated amortization
of $8,700 at January 3, 1998 and $3,222 at December 28, 1996 58,715 59,940
Goodwill, less accumulated amortization of $949 at January 3, 1998
and $293 at December 28, 1996 (note 2) 20,902 19,905
Other assets (note 6) 5,565 4,288
--------- ---------
$ 312,977 $ 329,645
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (note 9) $ 5,113 $ 15,598
Accounts payable, principally trade 22,426 27,732
Accrued expenses (note 7) 25,385 30,118
Accrued interest (note 9) 911 4,293
-------- --------
Total current liabilities 53,835 77,741
Long-term debt, less current portion (note 9) 142,181 138,173
Other noncurrent liabilities (note 10) 21,391 20,376
Deferred income taxes (note 11) 25,814 29,322
-------- --------
Total liabilities 234,221 265,612
-------- --------
Stockholders' equity (notes 3, 9, 11 and 12):
Common stock, $.01 par value; 25,000,000 shares
authorized, 15,563,037 and 15,455,937 shares issued
and outstanding at January 3, 1998 and December 28,1996 156 155
Preferred stock, $0.01 par value; 1,000,000 shares
authorized, none issued - -
Additional paid-in capital 34,780 34,467
Retained earnings 34,820 29,411
-------- --------
Total stockholders' equity 69,756 64,033
-------- --------
Commitments and contingencies (notes 8 and 15)
$ 312,977 $ 329,645
======== ========
The accompanying notes are an integral part
of these consolidated financial statements.
Consolidated Statements of Operations
Three years ended January 3, 1998
(in thousands, except per share data)
January 3, December 28, December 30,
1998 1996 1995
----------- ------------ ------------
Net sales (note 14) $ 498,421 $ 488,914 $421,608
-------- -------- -------
Costs and expenses:
Cost of sales and operating expenses 404,159 395,025 336,248
Selling, general and administrative expenses 38,645 32,767 26,675
Depreciation and amortization 33,670 27,611 22,576
Provision for loss contingencies - 6,075 -
-------- -------- -------
Total costs and expenses 476,474 461,478 385,499
-------- -------- -------
Operating income 21,947 27,436 36,109
-------- -------- -------
Other income (expense):
Interest expense (note 9) (13,732) (12,994) (13,311)
Other, net 163 537 322
-------- -------- -------
Total other income (expense) (13,569) (12,457) (12,989)
--------- --------- -------
Income before income taxes 8,378 14,979 23,120
Income tax expense (note 11) 2,969 7,305 8,740
-------- -------- -------
Net earnings $ 5,409 $ 7,674 $ 14,380
======== ======== =======
Basic earnings per share (note 1) $ 0.35 $ 0.50 $ 0.95
======== ======== =======
Diluted earnings per share (note 1) $ 0.33 $ 0.46 $ 0.90
======== ======== =======
The accompanying notes are an integral part
of these consolidated financial statements.
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Three years ended January 3, 1998
(In thousands, except share data)
Common stock
----------------------
Additional Total
Number $.01 par paid-in Retained stockholders'
of shares value capital earnings equity
--------------------------------------------------------------------------------------------------------
Balances at December 31, 1994 14,998,785 $150 $ 31,975 $ 7,357 $ 39,482
Issuance of common stock 257,745 3 757 - 760
Tax benefits relating to
January 1, 1994 valuation allowance - - 211 - 211
Net earnings - - - 14,380 14,380
---------- ----- ------- ------- -------
Balances at December 30, 1995 15,256,530 153 32,943 21,737 54,833
Issuance of common stock 199,407 2 618 - 620
Tax benefits relating to
January 1, 1994 valuation allowance - - 906 - 906
Net earnings - - - 7,674 7,674
---------- ----- ------- ------- -------
Balances at December 28, 1996 15,455,937 155 34,467 29,411 64,033
Issuance of common stock 107,100 1 313 - 314
Net earnings - - - 5,409 5,409
---------- ----- ------- ------- -------
Balances at January 3, 1998 15,563,037 $156 $34,780 $34,820 $69,756
========== ===== ======= ======= =======
The accompanying notes are an integral
part of these consolidated financial statements.
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Three years ended January 3, 1998
(in thousands)
January 3, December 28, December 30,
1998 1996 1995
----------- ------------ ------------
Cash flows from operating activities
Net earnings $ 5,409 $ 7,674 $ 14,380
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 33,670 27,611 22,576
Deferred income tax expense (benefit) (1,330) (88) 6,319
Loss (gain) on sale of assets (910) 294 196
Changes in operating assets and liabilities, net
of effects from acquisitions:
Accounts receivable 3,507 1,978 (3,418)
Inventories and prepaid expenses (3,220) 3,724 2,244
Accounts payable and accrued expenses (4,700) 4,007 (2,170)
Accrued interest (3,382) 391 (653)
Other (1,907) 824 (5,278)
---------- ----------- -----------
Net cash provided by operating activities 27,137 46,415 34,196
---------- ----------- -----------
Cash flows from investing activities:
Recurring capital expenditures (22,283) (25,111) (22,649)
Capital expenditures related to acquisitions (4,290) (3,520) (1,987)
Gross proceeds from sale of property, plant and equipment,
assets held for disposition and other assets 6,061 507 721
Payments related to routes and other intangibles (6,870) (707) (4,051)
Fair value of net assets acquired in acquisitions (note 1) - (42,098) -
---------- ----------- -----------
Net cash used in investing activities (27,382) (70,929) (27,966)
---------- ----------- -----------
Cash flows from financing activities:
Proceeds from long-term debt 283,124 20,124 107,178
Payments on long-term debt (289,601) (33,223) (105,931)
Proceeds from acquisition debt - 40,000 -
Contract payments (2,585) (1,700) (916)
Deferred loan costs (1,008) - (740)
Issuance of common stock 314 620 760
---------- ----------- -----------
Net cash provided by (used in) financing activities (9,756) 25,821 351
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents (10,001) 1,307 6,581
Cash and cash equivalents at beginning of year 12,956 11,649 5,068
---------- ----------- -----------
Cash and cash equivalents at end of year $ 2,955 $ 12,956 $ 11,649
========== =========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 17,114 $ 12,603 $ 13,964
---------- ----------- -----------
Income taxes, net of refunds $ 4,345 $ 1,647 $ 3,920
---------- ----------- -----------
The accompanying notes are an integral
part of these consolidated financial statements.
DARLING INTERNATIONAL INC.
Notes to Consolidated Financial Statements
January 3, 1998 and December 28, 1996
(1) GENERAL
(a) NATURE OF OPERATIONS
Darling International Inc. (the "Company") believes it is the largest
independent recycler of food processing by-products in the United
States, operating a fleet of vehicles, through which it collects
animal by-products, used restaurant cooking oil, and bakery
by-products from butcher shops, grocery stores, independent meat and
poultry processors, restaurants, and bakeries nationwide. The Company
processes raw materials through facilities located throughout the
United States into finished products, such as tallow, meat and bone
meal, yellow grease, and dried bakery product. The Company sells its
finished products domestically and internationally to producers of
soap, cosmetics, rubber, pet food and livestock feed for use as
ingredients in such products.
(b) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(1) Basis of Presentation
The consolidated financial statements include the accounts of
the Company and its subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
(2) Fiscal Year
The Company has a 52/53 week fiscal year ending on the Saturday
nearest December 31. Fiscal years for the consolidated financial
statements included herein are for the 53 weeks ended January 3,
1998, the 52 weeks ended December 28, 1996, and the 52 weeks
ended December 30, 1995.
(3) Inventories
Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out (FIFO) method.
(4) Property, Plant and Equipment
Historically, property, plant and equipment are recorded at
cost. Depreciation is computed by the straight-line method over
the estimated useful lives of assets: 1) Buildings and
improvements - 24 to 30 years, 2) Machinery and equipment - 3 to
8 years, and 3) Vehicles - 4 to 6 years. In accordance with
Fresh Start Reporting (see Note 3), property, plant and
equipment were restated to their approximate fair value as of
January 1, 1994. Subsequent additions are recorded at cost.
Maintenance and repairs are charged to expense as incurred and
expenditures for major renewals and improvements are
capitalized.
(5) Collection Routes and Contracts
Collection routes, restrictive covenants and consulting
agreements are recorded at cost and are amortized using the
straight-line method over periods ranging from 3 to 15 years.
(6) Goodwill
Goodwill, which represents the excess of purchase price over
fair value of net assets acquired, is amortized on a
straight-line basis over the expected periods to be benefited,
not exceeding 30 years. Annually, the Company makes an
assessment to determine the recoverability of this intangible
asset.
(7) Environmental Expenditures
Environmental expenditures incurred to mitigate or prevent
environmental contamination that has yet to occur and that
otherwise may result from future operations are capitalized.
Expenditures that relate to an existing condition caused by past
operations and that do not contribute to current or future
revenues are expensed or charged against established
environmental reserves. Reserves are established when
environmental assessments and/or clean-up requirements are
probable and the costs are reasonably estimable.
(8) Income Taxes
The Company accounts for income taxes using the asset and
liability method. Under the asset and liability method, deferred
tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities
and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the
enactment date.
(9) 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 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 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 per share amounts have been
restated in accordance with SFAS No. 128.
The weighted average common shares used for basic earnings per
common share was 15,519,000, 15,375,000 and 15,138,000 for 1997,
1996 and 1995 respectively. The effect of dilutive stock options
added 942,000, 1,299,000 and 828,000 shares for 1997, 1996 and
1995 respectively for the computation of diluted earnings per
common share.
(10) Stock Option Plans
Prior to January 1, 1996, the Company accounted for its stock
option plan in accordance with the provisions of Accounting
Principles Board ("APB") Opinion No. 25, Accounting for Stock
Issued to Employees, and related interpretations. As such,
compensation expense would be recorded on the date of grant only
if the current market price of the underlying stock exceeded the
exercise price. On January 1, 1996, the Financial Accounting
Standards Board issued SFAS No. 123, Accounting for Stock-Based
Compensation, which permits entities to recognize as expense
over the vesting period the fair value of all stock-based awards
on the date of grant. Alternatively, SFAS No. 123 allows
entities to continue to apply the provisions of APB Opinion No.
25 and provide pro forma net income and pro forma earnings per
share disclosures for employee stock option grants made in 1995
and future years as if the fair-value-based method defined in
SFAS No. 123 had been applied. The Company has elected to
continue to apply the provisions of APB Opinion No. 25 and
provide the pro forma disclosure provisions of SFAS No. 123.
(11) Statements of Cash Flows
The Company considers all short-term highly liquid instruments,
with an original maturity of three months or less, to be cash
equivalents.
(12) Supplemental Schedule of Non-Cash Investing and Financing
Activities
During the year ended December 28, 1996, non-cash investing and
financing activities included the purchase of 100% of the common
stock of Standard Tallow for $10,400,000. Assets acquired,
liabilities assumed, and consideration paid for this acquisition
are as follows (in thousands):
Fair value of assets acquired, less cash $ 20,066
Liabilities assumed and incurred (11,094)
-------
Fair value of net assets acquired 8,972
Bank debt incurred (10,400)
-------
Cash (received)paid upon purchase $ (1,428)
=======
In addition, the Company purchased 100% of the common stock of
International Processing Corporation and International
Transportation Service, Inc. (collectively referred to as "IPC")
for $30,000,000. Assets acquired, liabilities assumed and
consideration paid for this acquisition are as follows (in
thousands):
Fair value of assets acquired, less cash $ 47,836
Liabilities assumed and incurred (14,710)
--------
Fair value of net assets acquired 33,126
Bank debt incurred (29,600)
--------
Cash (received)paid upon purchase $ 3,526
========
(13) Use of Estimates
The preparation of the consolidated financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
(14) Impairment of Long-Lived Assets and Long-Lived Assets To Be
Disposed Of
The Company adopted the provisions of SFAS No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of, on December 31, 1995. This Statement
requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Recoverability of assets to be
held and used is measured by a comparison of the carrying amount
of an asset to future net cash flows expected to be generated by
the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceed the fair value of the
assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell. Adoption
of this Statement did not have a material impact on the
Company's financial position, results of operations, or
liquidity.
(15) Financial Instruments
The carrying amount of cash and cash equivalents, accounts
receivable, accounts payable and accrued expenses approximates
fair value due to the short maturity of these instruments. The
carrying amount of $70,000,000 of outstanding borrowings under
the Credit Agreement at January 3, 1998, approximated
$71,800,000 since these borrowings bear interest at a fixed rate
pursuant to an interest rate swap.
The carrying amount of the balance of outstanding borrowings
under the Credit Agreement at January 3, 1998 and December 28,
1996 approximated fair value since the borrowings bear interest
at current market rates.
The fair market value of the Subordinated Notes approximated
$73,000,000 at December 28, 1996. The fair value of the
Subordinated Notes was estimated based on current borrowing
rates available for financings with non-rated, non-investment
grade bonds with similar terms and maturities.
(16) Derivative Instruments
The Company's use of derivative instruments is limited to
interest rate swaps which are entered into with the intent of
managing overall borrowing costs. The Company does not use
derivative instruments for trading purposes.
The Company has entered into interest rate swaps to effectively
fix the interest rate of a portion of its long term debt. The
notational amount of the swaps fixes approximately 48% of total
long term debt at January 3, 1998, at an underlying rate of
7.85%. These swaps settle at maturity, June 27, 2002. The
Company's credit risk related to interest rate swaps is
considered minimal due to strong creditworthy counterparties,
settlement on a net basis, and short durations.
(2) ACQUISITIONS
During Fiscal 1997, as part of the Company's strategy to expand its
presence in the grease trap business, the Company made the following
acquisitions: Enduro, Midwest Recycling, and Torvac, totaling $11.7
million which included goodwill acquired of $2.2 million.
On August 30, 1996, the Company acquired 100% of the outstanding capital
stock of IPC in accordance with a Stock Purchase Agreement (dated August
30, 1996, between the Company, IPC and the stockholders of IPC (the
"Sellers")). IPC processes by-products collected from bakeries, pasta
manufacturers, confectioners and snack food producers for sale to the
animal feed industry. The purchase price for the capital stock of IPC was
$30,000,000. The purchase price was paid in cash and was determined by
agreement between the Company and the Seller. The Company funded $29.6
million of the purchase price with funds financed under the Acquisition
Facility pursuant to the Credit Agreement among the Company, The First
National Bank of Boston, as agent, and Harris Trust and Savings Bank, as
co-agent. The remaining $400,000 of the purchase price was funded out of
cash on hand. In connection with the acquisition, the Company also paid
approximately $2.8 million in full payment and retirement of certain
indebtedness of IPC. The Company used cash on hand to fund the repayment
of such indebtedness.
The IPC acquisition was accounted for under the purchase method of
accounting in accordance with Accounting Principles Board Opinion No. 16
and operations since the acquisition date have been included in the
consolidated statements of operations. The excess of the total
acquisition cost over the recorded value of assets acquired was allocated
to goodwill in the amount of $15.9 million and will be amortized over 30
years.
The pro forma results of operations which follow assume that the IPC
acquisition had occurred at the beginning of each period presented. In
addition to combining the historical results of operations of the two
companies, the pro forma calculations include adjustments for the
estimated effect on the Company's historical results of operations for
depreciation and amortization and interest related to the acquisition.
(in thousands, except per share data)
Year ended Year ended
December 28, December 31,
1996 1995
(unaudited) (unaudited)
-----------------------------------
Net sales $ 544,436 $ 477,459
Net earnings 10,298 14,227
Basic earnings per share $0.67 $0.94
On May 8, 1996, the Company acquired 100% of the common stock of
Standard Tallow for $10,400,000. The Company recorded goodwill
associated with this acquisition in the amount of $4.3 million which
will be amortized over 30 years.
(3) THE SETTLEMENT AND FRESH START REPORTING
On October 22, 1993, the Company entered into a settlement agreement
providing for a restructure of the Company's debt and equity and
resolution of a class action lawsuit ("the Settlement"). On December
29, 1993 (the "Effective Date"), the Settlement was consummated and
became binding on all original note holders.
The Settlement was accomplished pursuant to a court order which was
tantamount to a prepackaged bankruptcy despite the fact that the
Settlement did not occur under the Bankruptcy Code. Accordingly, the
Company has accounted for the Settlement using "Fresh Start Reporting"
as of January 1, 1994 in accordance with Statement of Position 90-7,
"Financial Reporting by Entities In Reorganization Under the United
States Bankruptcy Code" ("SOP 90-7") issued by the American Institute
of Certified Public Accountants.
Using a valuation of the Company performed by an independent appraiser,
the Company determined the total reorganization value of all its assets
to be approximately $236,294,000 as of January 1, 1994. The historical
values of the Company's liabilities, other than deferred income taxes,
approximated fair value at January 1, 1994. Deferred income taxes were
recorded in conformity with generally accepted accounting principles.
The Company's accumulated deficit was eliminated as of January 1, 1994.
(4) INVENTORIES
A summary of inventories follows (in thousands):
January 3, December 28,
1998 1996
--------------------------------
Finished product $ 13,338 $ 12,005
Supplies and other 559 638
------- -------
$ 13,897 $ 12,643
======= =======
(5) PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment follows (in thousands):
January 3, December 28,
1998 1996
---------------------------------
Land $ 19,141 $ 20,717
Buildings and improvements 24,768 26,113
Machinery and equipment 133,521 122,195
Vehicles 57,589 50,269
Construction in process 17,169 12,465
-------- --------
252,188 231,759
Accumulated depreciation (81,552) (55,973)
-------- --------
$ 170,636 $ 175,786
======== ========
(6) OTHER ASSETS
Other assets consist of the following (in thousands):
January 3, December 28,
1998 1996
------------------------------
Prepaid pension cost (note 13) $ 2,612 $ 2,028
Deposits and other 2,953 2,260
------- -------
$ 5,565 $ 4,288
======= =======
(7) ACCRUED EXPENSES
Accrued expenses consist of the following (in thousands):
January 3, December 28,
1998 1996
-------------------------------
Insurance $ 3,363 $ 2,257
Compensation and benefits 5,817 4,854
Utilities and sewage 2,640 2,904
Reserve for environmental and
litigation matters (note 15) 2,000 7,350
Income taxes payable 3,011 3,034
Other 8,554 9,719
-------- -------
$ 25,385 $ 30,118
======== =======
(8) LEASES
The Company leases nine plants and storage locations, four office
locations and a portion of its transportation equipment. Leases are
noncancellable and expire at various times through the year 2028. Minimum
rental commitments under noncancellable leases as of January 3, 1998, are
as follows (in thousands):
Period Ending Fiscal Operating Leases
-------------------- ----------------
1998 $ 2,028
1999 1,649
2000 1,331
2001 1,189
2002 958
Thereafter 8,796
-------
Total $ 15,951
=======
Rent expense for the years ended January 3, 1998, December 28, 1996, and
December 30, 1995 was $2,263,000, $1,929,000, and $1,163,000,
respectively.
(9) LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
January 3, December 28,
1998 1996
------------------------------
Credit Agreement:
Revolving Credit Facility $ 100,875 $ 5,000
Term Loan 46,250 38,000
Acquisition Line - 40,000
First Priority Sr. Subordinated Notes - 69,976
Other notes 169 795
--------- --------
147,294 153,771
Less current maturities 5,113 15,598
--------- --------
$ 142,181 $ 138,173
========= ========
CREDIT AGREEMENT
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 a $175,000,000 Revolving Credit. Facility. As
of January 3, 1998, 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 (5.9375% at January 3, 1998) plus a
margin (the "Credit Margin") (1.25% at January 3, 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 January 3, 1998, $46,250,000 was outstanding under
the Term Loan Facility.
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 5.8125%
to 5.9648% at January 3, 1998) plus the Credit Margin as well as portions
at a Base Rate (8.50% at January 3, 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
January 3, 1998, $100,875,000 was outstanding under the Revolving Credit
Facility. As of January 3, 1998, the Company had outstanding irrevocable
letters of credit aggregating $8,401,000.
The Company has only very limited involvement with derivative financial
instruments and does not use them for trading purposes. The interest rate
swap agreement is used to reduce the potential impact of increases in
interest rates on floating-rate long-term debt. At January 3, 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
agreement, the interest obligation on $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.
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 payment of capital expenditures,
and requires the maintenance of certain minimum financial ratios. As of
January 3, 1998, no cash dividends could be paid to the Company's
stockholders pursuant to the Credit Agreement.
SUBORDINATED NOTES
On June 27, 1997, the Company redeemed Subordinated Notes with a face
amount of $69,976,000, using proceeds from the Revolving Credit Facility.
OTHER
Aggregate maturities of long-term debt subsequent to January 3, 1998 are
as follows (in thousands):
1998 $ 5,113
1999 8,806
2000 10,000
2001 10,000
2002 113,375
(10) OTHER NONCURRENT LIABILITIES
Other noncurrent liabilities consist of the following (in thousands):
January 3, December 28,
1998 1996
-------------------------
Reserve for insurance, environmental
and litigation matters (note 15) $10,246 $ 9,829
Liabilities associated with consulting
and noncompete agreements 9,887 9,356
Other 1,258 1,191
------ ------
$21,391 $20,376
====== ======
The Company sponsors a defined benefit health care plan that provides
postretirement medical and life insurance benefits to certain employees.
The Company accounts for this plan in accordance with Statement of
Financial Accounting Standards No. 106 and the effect on the Company's
financial position and results of operations is immaterial.
(11) INCOME TAXES
Income tax expense (benefit) attributable to income before income taxes
consists of the following (in thousands):
January 3, December 28, December 30,
1998 1996 1995
-----------------------------------------------
Current:
Federal $3,135 $6,801 $1,883
State 291 592 509
Foreign 14 - 29
Deferred:
Federal (812) (62) 5,921
State (70) (26) 398
Foreign 411 - -
----- ----- -----
$2,969 $7,305 $8,740
===== ===== =====
Income tax expense for the years ended January 3, 1998, December 28,
1996, and December 30, 1995, differed from the amount computed by
applying the statutory U.S. federal income tax rate (35%) to income
before income taxes as a result of the following (in thousands):
January 3, December 28, December 30,
1998 1996 1995
---------------------------------------
Computed "expected" tax expense $ 2,932 $ 5,243 $ 8,092
State income taxes,
net of federal benefit 144 368 590
Tax-exempt income of
foreign sales corporation (463) (323) (448)
Nondeductible fines and
penalties (note 15) - 1,058 -
Other, net 356 959 506
------- ------- -------
$ 2,969 $ 7,305 $ 8,740
======= ======= =======
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
January 3, 1998 and December 28, 1996 are presented below (in thousands):
January 3, December 28,
1998 1996
-----------------------------
Deferred tax assets:
Net operating loss carryforwards $ 28,582 $ 29,859
Foreign tax credits and capital
loss carryforwards 4,434 4,434
Loss contingency reserves 5,309 6,038
Deferred loan and other costs
capitalized and amortized for
tax purposes - 890
Other 1,620 2,112
--------- --------
Total gross deferred tax assets 39,945 43,333
Less valuation allowance (19,472) (19,472)
--------- --------
Net deferred tax assets 20,473 23,861
--------- --------
Deferred tax liabilities:
Collection routes and contracts (11,022) (13,337)
Property, plant and equipment (30,001) (32,812)
Other (1,258) (850)
--------- --------
Total gross deferred tax liabilities (42,281) (46,999)
--------- --------
$ (21,808) $ (23,138)
========= ========
The portion of the deferred tax assets and liabilities expected to be
recognized in Fiscal 1998 has been recorded at January 3, 1998, in the
accompanying consolidated balance sheet as a net current deferred income
tax asset of $4,006,000. The remaining non-current deferred tax assets
and liabilities have been recorded as a net deferred income tax liability
of $25,814,000 at January 3, 1998 in the accompanying consolidated
balance sheet.
The valuation allowance for deferred tax assets as of January 3, 1998 and
December 28, 1996 was $19,472,000. The net changes in the total valuation
allowance for the year ended December 28, 1996 was a decrease of
$930,000. The Company believes that the remaining net deferred tax assets
at January 3, 1998 and December 28, 1996 will be realized primarily
through future reversals of existing taxable temporary differences.
At January 3, 1998, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $75,215,000 which are
available to offset future federal taxable income through 2008. The
availability of the net operating loss carryforwards to reduce future
taxable income is subject to various limitations. As a result of the
change in ownership, the Company believes utilization of its net
operating loss carryforwards is limited to $3,400,000 per year for the
remaining life of the net operating losses. The Company also has
approximately $3,896,000 of foreign tax credits and approximately
$313,000 of capital loss carry forwards which are available to reduce
future federal income taxes, if any, through 1998.
The Company reports tax benefits utilized related to the January 1,
1994 valuation allowance ($906,000 in 1996 and $211,000 in 1995) as a
direct addition to additional paid-in capital.
(12) STOCKHOLDERS' EQUITY
(a) COMMON EQUITY
On October 28, 1997, the Stockholders of the Company approved a
three-for-one stock split. As a result, all references to shares
or per share data have been retroactively restated to reflect the
three-for-one stock split.
(b) STOCK OPTIONS
At December 29, 1993, the Company granted options to purchase
384,615 shares of the Company's common stock to the former owners
of the Redeemable Preferred Stock. The options have a term of ten
years from the date of grant and may be exercised at a price of
$3.45 per share (approximated market value at the date of grant).
The 1993 Flexible Stock Option Plan and the 1994 Employee Flexible
Stock Option Plan provide for the granting of stock options to key
officers and salaried employees of the Company and its
subsidiaries. Options to purchase common stock were granted at a
price approximating fair market value at the date of grant.
Options granted under the plans expire ten years from the date of
grant. Vesting occurs on each anniversary of the grant date as
defined in the specific option agreement. The plans also provide
for the acceleration by one year of vesting of all non-vested
shares upon the termination of the employee's employment in
certain circumstances or upon a change in management control.
The Non-Employee Directors Stock Option Plan provides for the
granting of options to non-employee directors of the Company. As
of January 3, 1998, options to purchase 327,000 shares of common
stock had been granted pursuant to this plan. The options have a
term of ten years from the date of grant and may be exercised at a
price of $3.33 - $9.042 per share (approximated market value at
the date of grant). The options vest 25% six months after the
grant date and 25% on each anniversary date thereafter.
The per share weighted average fair value of stock options granted
during 1997, 1996 and 1995 was $7.34, $4.63 and $2.74,
respectively, on the date of grant using the Black Scholes
option-pricing model with the following weighted assumptions:
1997 1996 1995
----------------------------------
Expected dividend yield 0.0% 0.0% 0.0%
Risk-free interest rate 5.25% 6.6% 6.5%
Expected life 10 years 10 years 10 years
Expected volatility 4.12-4.43 6.20 5.59
The Company applies APB Opinion No. 25 in accounting for its Plans
and, accordingly, no compensation cost has been recognized for its
stock options in the financial statements as stock options were
granted at market value on the grant date. Had the Company
determined compensation cost based on the fair value at the grant
date for its stock options under SFAS No. 123, the Company's net
earnings would have been reduced to the pro forma amounts
indicated below (in thousands, except per share):
1997 1996 1995
-------------------------
Net earnings As reported $5,409 $7,674 $14,380
Pro forma $4,374 $7,104 $14,308
Basic earnings
per common share As reported $0.35 $0.50 $0.95
Pro forma $0.28 $0.46 $0.95
Pro forma net earnings reflects only options granted in 1997, 1996
and 1995. Therefore, the full impact of calculating compensation
cost for stock options under SFAS No. 123 is not reflected in the
pro forma net income amounts presented above because compensation
cost is reflected over the options vesting period and compensation
cost for options granted prior to January 1, 1995 are not
considered.
A summary of transactions for all stock options granted follows:
Option exercise Weighted-avg.
Number of price exercise price
shares per share per share
----------------------------------------------------
Options outstanding at December 31, 1994 2,266,662 $2.857-4.125 $3.2342
Granted 743,100 4.646-9.25 5.6914
Canceled (28,290) 3.333-4.125 3.6841
Exercised (257,745) 2.857-4.125 2.9496
---------
Options outstanding at December 30, 1995 2,723,727 2.857-9.25 3.9269
Granted 430,200 8.792-10.292 9.6183
Canceled (29,190) 2.857-4.125 3.4018
Exercised (199,407) 2.857-4.125 3.0998
---------
Options outstanding at December 28, 1996 2,925,330 2.857-10.292 4.8255
Granted 683,062 8.25-10.875 9.25
Canceled (450,300) 2.857-10.292 3.5062
Exercised (107,100) 3.33-8.833 4.5346
---------
Options outstanding at January 3, 1998 3,050,992 $2.857-10.875 $6.005
=========
Options exercisable at January 3, 1998 1,927,382 $2.857-10.292 $4.7302
=========
At January 3, 1998, the range of exercise prices and
weighted-average remaining contractual life of outstanding options
was $2.857-$10.292 and 7.5 years, respectively.
At January 3, 1998 and December 28, 1996, the number of options
exercisable was 1,927,382 and 1,391,212 respectively, and the
weighted-average exercise price of those options was $4.7302 and
$3.9853, respectively.
(13) EMPLOYEE BENEFIT PLANS
The Company has retirement and pension plans covering substantially all
of its employees. Most retirement benefits are provided by the Company
under separate final-pay noncontributory pension plans for all salaried
and hourly employees (excluding those covered by union-sponsored plans)
who meet service and age requirements. Benefits are based principally on
length of service and earnings patterns during the five years preceding
retirement.
The Company's funding policy for those plans is to contribute annually
not less than the minimum amount required nor more than the maximum
amount that can be deducted for federal income tax purposes.
Contributions are intended to provide not only for benefits attributed to
service to date but also for those expected to be earned in the future.
The following table sets forth the plans' funded status and amounts
recognized in the Company's consolidated balance sheets based on the
measurement date (October 1, 1997 and 1996) (in thousands):
January 3, 1998 December 28, 1996
----------------------------- -------------------------
Assets Benefits Assets Benefits
exceed exceed exceed exceed
benefits assets benefits assets
----------------------------------------------------------
Actuarial present value of benefit obligations:
Vested benefit obligation $32,588 $ 2,491 $29,317 $ 2,023
====== ===== ====== =======
Accumulated benefit obligation,
including vested benefits 32,823 2,702 29,103 2,163
====== ===== ====== ======
Projected benefit obligation for
services rendered to date 37,520 2,702 32,341 2,163
Plan assets at fair value (primarily equity
and debt instruments) 39,945 2,368 33,234 1,978
------ ----- ------ -------
Plan assets in excess of (less than)
projected benefit obligation 2,425 (334) 893 (185)
Unrecognized net loss (gain) from past
experience different from that assumed
and effects of changes in assumptions (547) 668 840 468
Adjustment for contributions made from
measurement date to year end - 400 - 12
------ ----- ------ -------
Prepaid pension cost
included in consolidated balance sheet $ 1,878 $ 734 $ 1,733 $ 295
====== ======= ====== =======
Net pension cost includes the following components (in thousands):
January 3, December 28, December 30,
1998 1996 19995
--------------------------------------
Service cost $1,024 $ 1,033 $ 779
Interest cost 2,557 2,463 2,241
Actual return on plan assets (8,708) (2,737) (4,363)
Net amortization and deferral 5,793 (154) 1,839
------ ------- -------
Net pension cost $ 666 $ 605 $ 496
====== ======= ======
Assumptions used in accounting for the employee benefit pension plans
were:
January 3, December 28, December 30,
1998 1996 1995
--------------------------------------
Weighted average discount rate 7.25% 7.75% 7.50%
Rate of increase in future
compensation levels 5.15% 5.02% 5.90%
Expected long-term rate of
return on assets 9.25% 8.75% 8.75%
The Company participates in several multi-employer pension plans which
provide defined benefits to certain employees covered by labor contracts.
These plans are not administered by the Company and contributions are
determined in accordance with provisions of negotiated labor contracts.
Information with respect to the Company's proportionate share of the
excess, if any, of the actuarially computed value of vested benefits over
these pension plans' net assets is not available. The cost of such plans
amounted to $1,529,000, $1,333,000, and $1,288,000, for the years ended
January 3, 1998, December 28, 1996, and December 30, 1995, respectively.
(14) NET SALES
The Company has no material foreign operations, but exports a portion of
its products to customers in various foreign countries. Total export
sales were $101,040,000, $119,055,000, and $169,829,000, for the years
ended January 3, 1998, December 28, 1996, and December 30, 1995,
respectively.
Concentration of credit risk is limited due to the Company's diversified
customer base and the fact that the Company sells commodities. No single
customer accounted for more than 10% of the Company's net sales in 1997,
1996, and 1995.
(15) CONTINGENCIES
(a) ENVIRONMENTAL
Blue Earth
In July 1997, the Company, the United States Attorney for the District of
Minnesota, 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 $2.7 million 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 $6.1
million 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.
Underground Storage Tanks
The Company's processing operations do not produce hazardous or toxic
wastes; however, the Company does operate underground fuel storage tanks
("UST's") that are subject to federal, state and local laws and
regulations. As of January 3, 1998, the Company has removed or closed 177
of its 183 UST's.
(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 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, including assertions by certain
regulatory agencies related to the release of unacceptable odors from some
of 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 $4.3 million and $13.3 million at January
3, 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 $15.7
million and $20.8 million at January 3, 1998 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.
(16) QUARTERLY FINANCIAL DATA (UNAUDITED AND IN THOUSANDS EXCEPT PER SHARE
AMOUNTS):
Year Ended January 3, 1998
-------------------------------------------------------------------
First Quarter Second Quarter Third Quarter Fourth Quarter
Net sales $125,809 $128,796 $114,455 $129,361
Operating income 4,273 9,767 2,294 5,613
Net earnings (loss) 386 3,812 (523) 1,734
Basic earnings (loss) per share 0.02 0.25 (0.03) 0.11
Diluted earnings (loss) per share 0.02 0.23 (0.03) 0.10
Year Ended December 28, 1996
----------------------------------------------------------------------
First Quarter Second Quarter Third Quarter Fourth Quarter
Net sales $109,741 $114,253 $127,249 $137,672
Operating income 8,918 9,223 3,203 6,092
Net earnings (loss) 3,931 3,613 (1,253) 1,382
Basic earnings (loss) per share 0.26 0.24 (0.08) 0.09
Diluted earnings (loss) per share 0.24 0.22 (0.08) 0.08
SCHEDULE II
Valuation and Qualifying Accounts
(In thousands)
Additions Charged to:
Balance at ------------------------ Balance at
Beginning Costs and End of
Description of Period Expenses Other Deductions Period
- - -------------------------------------- ---------- ----------- --------- ---------- -------------
Accumulated amortization of
collection routes and contracts:
Year ended January 3, 1998 $ 3,222 $ 6,441 $ - $ 963 $ 8,700
======== ========= ======== ======= ========
Year ended December 28, 1996 $ 7,854 $ 5,036 $ - $ 9,668 $ 3,222
======== ========= ======== ======= ========
Year ended December 30, 1995 $ 3,877 $ 3,977 $ - $ - $ 7,854
======== ========= ======== ======= ========
Accumulated amortization of
goodwill:
Year ended January 3, 1998 $ 293 $ 656 $ - $ - $ 949
========= ========= ======== ======= ========
Year ended December 28, 1996 $ - $ 293 $ - $ - $ 293
========= ========= ======== ======= ========
Note: Deductions consist of the write-off of fully amortized collection routes
and contracts in 1996 and 1997.
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
FORM 10-K FOR THE FISCAL YEAR ENDED JANUARY 3, 1998
PART II
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item with respect to items 401 and 405
of Regulation S-K appears in the sections entitled "Election of Directors,"
"Executive Officers" and "Compliance with Section 16(a) of the Exchange Act"
included in the Registrant's definitive Proxy Statement relating to the 1997
Annual Meeting of Stockholders, which information is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item appears in the section entitled
"Executive Compensation" included in the Registrant's definitive Proxy Statement
relating to the 1997 Annual Meeting of Stockholders, which information is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item appears in the section entitled
"Security Ownership of Certain Beneficial Owners and Management" included in the
Registrant's definitive Proxy Statement relating to the 1997 Annual Meeting of
Stockholders, which information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company paid Denis Taura, a director of the Company, fees and
expenses of $63,368 related to management consulting services provided to the
Company.
Fredrick J. Klink, a director of the Company, is a partner in the law
firm of Dechert, Price & Rhodes. The Company paid Dechert, Price & Rhodes fees
for the performance of various legal services.
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
FORM 10-K FOR THE FISCAL YEAR ENDED JANUARY 3, 1998
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report:
(1) The following consolidated financial statements are included
in Item 8.
Pages
Independent Auditors' Report 20
Consolidated Balance Sheets-
January 3, 1998 and December 28, 1996 21
Consolidated Statements of Operations -
Three years ended January 3, 1998 22
Consolidated Statements of Stockholders' Equity -
Three years ended January 3, 1998 23
Consolidated Statements of Cash Flows -
Three years ended January 3, 19998 24
Notes to Consolidated Financial Statements -
January 3, 1998 and December 28, 1996 25
Quarterly Data 40
(2) The following financial statement schedule is included
in Item 8.
Schedule II - Valuation and Qualifying Accounts 41
All other schedules are omitted since the required information
is not present or is not present in amounts sufficient to
require submission of the schedule, or because the information
required is included in the consolidated financial statements
and notes thereto.
(3) (a) Exhibits
Exhibit No. Description
2 * Settlement Agreement, dated December 29, 1993,
relating to the settlement of class action
litigation styled IDS Life Insurance Company, Inc.,
et al. v. Darling-Delaware Company, Inc., et al.,
Case No. 91 C 5166, in the United States District
Court for the Northern District of Illinois.
2.1***** Stock Purchase Agreement dated as of August 30,
1996, among Darling International Inc.,
International Processing Corporation,
International Transportation Service, Inc., and
the stockholders of International Processing
Corporation and International Transportation
Service, Inc.
3.1 * Restated Certificate of Incorporation of the
Company.
3.2 * Amended and Restated Bylaws of the Company.
4.1 * Specimen Common Stock Certificate.
10.1 **** Credit Agreement, dated as of June 5, 1997,
among Darling International Inc., BankBoston,
N.A., Comerica Bank, Credit Lyonnais New York
Branch, and Wells Fargo Bank (Texas), National
Association as Co-agents, and other banks as
named therein.
10.2 * Registration Rights Agreement, as amended.
10.3 * Form of Indemnification Agreement.
10.4 * Lease, dated November 30, 1993, between the Company
and the Port of Tacoma.
10.5 P Leases, dated July 1, 1996, between the Company and
the City and County of San Francisco.
10.6 * 1993 Flexible Stock Option Plan.
10.7 *** International Swap Dealers Association, Inc.
(ISDA) Master Agreement and Schedule between
Credit Lyonnais and Darling International Inc.
dated as of June 6, 1997, related to interest
rate swap transaction.
10.7(a)*** International Swap Dealers Association, Inc. (ISDA)
Master Agreement and Schedule between Credit
Lyonnais and Darling International Inc. dated as of
June 6, 1997, related to interest rate swap
transaction.
10.7(b)*** International Swap Dealers Association, Inc. (ISDA)
Master Agreement and Schedule between Credit
Lyonnais and Darling International Inc. dated as of
June 6, 1997, related to interest rate swap
transaction.
10.8 * Form of Executive Severance Agreement.
10.9 * 1994 Employee Flexible Stock Option Plan.
10.10* Non-Employee Directors Stock Option Plan.
10.11** Employment Agreement, dated as of March 31, 1995,
between Darling International Inc. and Dennis B.
Longmire.
10.12****** Separation Agreement dated as of September 24,
1996, by and between Kenneth A. Ghazey and Darling
International Inc.
11 Statement re computation of per share earnings.
21 Subsidiaries of the Registrant.
23 Consent of KPMG Peat Marwick LLP.
27 Financial Data Schedule
* Incorporated by reference from the Registrant's
Registration Statement on Form S-1 filed July 15,
1994 (Registration No. 33-79478).
** Incorporated by reference to Form 10-Q filed May 8,
1995.
*** Incorporated by reference to Form 10-Q filed August
7, 1997.
**** Incorporated by reference to Form 8-K filed June 5,
1997.
***** Incorporated by reference to Form 8-K filed
September 13, 1996.
P Filed pursuant to temporary hardship exemption under
cover of Form SE.
****** Incorporated by reference to Form 10-K filed March
25, 1997.
(b) Reports on Form 8-K:
None.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Form 10-K for the Fiscal Year Ended January 3, 1998 on its
behalf by the undersigned, thereunto duly authorized, in the city of Irving,
State of Texas, on the 31st day of March, 1998.
DARLING INTERNATIONAL INC.
By: /s/ Dennis B. Longmire
---------------------------------
Dennis B. Longmire
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
the report has been signed by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
Signature Title Date
/s/ Dennis B. Longmire Chairman of the Board and March 31, 1998
------------------ Chief Executive Officer
Dennis B. Longmire (Principal Executive Officer)
/s/ John O. Muse Vice President, March 31, 1998
------------------ Chief Financial Officer
John O. Muse (Principal Financial Officer)
/s/ Mark C. Levy Vice President and Controller March 31, 1998
------------------ (Principal Accounting Officer)
Mark C. Levy
/s/ Bruce Waterfall Director March 31, 1998
-----------------
Bruce Waterfall
/s/ Fredric J. Klink Director March 31, 1998
-----------------
Fredric J. Klink
/s/ William Westerman Director March 31, 1998
-----------------
William Westerman
/s/ Denis J. Taura Director March 31, 1998
-----------------
Denis J. Taura
INDEX TO EXHIBITS
Exhibit
No. Description Page
------- --------------- ----
2 * Settlement Agreement, dated December 29, 1993, relating
to the settlement of class action litigation styled IDS
Life Insurance Company, Inc., et al. v. Darling-Delaware
Company, Inc., et al., Case No. 91 C 5166, in the United
States District Court for the Northern District of
Illinois.
2.1***** Stock Purchase Agreement dated as of August 30, 1996, among
Darling International Inc., International Processing
Corporation, International Transportation Service, Inc.,
and the stockholders of International Processing
Corporation and International Transportation Service, Inc.
3.1 * Restated Certificate of Incorporation of the Company.
3.2 * Amended and Restated Bylaws of the Company.
4.1 * Specimen Common Stock Certificate.
10.1 **** Credit Agreement, dated as of June 5, 1997, among
Darling International Inc., BankBoston, N.A., Comerica
Bank, Credit Lyonnais New York Branch, and Wells Fargo Bank
(Texas), National Association as Co-agents, and other banks
as named therein.
10.2 * Registration Rights Agreement, as amended.
10.3 * Form of Indemnification Agreement.
10.4 * Lease, dated November 30, 1993, between the Company and the
Port of Tacoma.
10.5 P Leases, dated July 1, 1996, between the Company and the City
and County of San Francisco.
10.6 * 1993 Flexible Stock Option Plan.
10.7 *** International Swap Dealers Association, Inc. (ISDA)
Master Agreement and Schedule between Credit Lyonnais and
Darling International Inc. dated as of June 6, 1997, related
to interest rate swap transaction.
10.7(a)*** International Swap Dealers Association, Inc. (ISDA) Master
Agreement and Schedule between Credit Lyonnais and Darling
International Inc. dated as of June 6, 1997, related to
interest rate swap transaction.
10.7(b)*** International Swap Dealers Association, Inc. (ISDA) Master
Agreement and Schedule between Credit Lyonnais and Darling
International Inc. dated as of June 6, 1997, related to
interest rate swap transaction.
10.8 * Form of Executive Severance Agreement.
10.9 * 1994 Employee Flexible Stock Option Plan.
10.10* Non-Employee Directors Stock Option Plan.
10.13 ** Employment Agreement, dated as of March 31, 1995, between
Darling International Inc. and Dennis B. Longmire.
10.14****** Separation Agreement dated as of September 24, 1996, by and
between Kenneth A. Ghazey and Darling International Inc.
11 Statement re computation of per share earnings. 49
21 Subsidiaries of the Registrant. 50
23 Consent of KPMG Peat Marwick LLP. 51
27 Financial Data Schedule 52
* Incorporated by reference from the Registrant's Registration Statement
on Form S-1 filed July 15, 1994(Registration No. 33-79478).
** Incorporated by reference to Form 10-Q filed May 8, 1995.
*** Incorporated by reference to Form 10-Q filed August 7, 1997.
**** Incorporated by reference to Form 8-K filed June 5, 1997.
***** Incorporated by reference to Form 8-K filed September 13, 1996.
P Filed pursuant to temporary hardship exemption under cover of Form SE.
******Incorporated by reference to Form 10-K filed March 25, 1997.
DARLING INTERNATIONAL INC.
EXHIBIT 11
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
The following table details the computation of basic and diluted earnings per
common share, in thousands except per share data:
January 3, December 28, December 30,
1998 1996 1995
- - ---------------------------------------------------- ---------- ----------- ---------
Net earnings available to common stock $ 5,409 $ 7,674 $ 14,380
======= ======= ========
Shares (Basic):
Weighted average number of common shares outstanding 15,519 15,375 15,138
======= ======= ========
Basic earnings per share $ 0.35 $ 0.50 $ 0.95
======= ======= ========
Shares (Diluted):
Weighted average number of common shares outstanding 15,519 15,375 15,138
Additional shares assuming exercise of stock options 942 1,299 828
------- ------- --------
Average common shares outstanding and equivalents 16,461 16,674 15,966
======= ======= ========
Diluted earnings per share $ 0.33 $ 0.46 $ 0.90
======= ======= ========
DARLING INTERNATIONAL INC.
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Subsidiary State of Incorporation
International Processing Corporation Georgia
DARLING INTERNATIONAL INC.
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Darling International Inc.:
We consent to incorporation by reference in the registration statements on
Form S-3 (No. 33-79478) and Form S-8 (Nos. 33-99868 and 33-99866) of Darling
International Inc. of our report dated February 20, 1998, relating to the
consolidating balance sheets of Darling International Inc. and subsidiaries as
of January 3, 1998 and December 28, 1996, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
years in the three-year period ended January 3, 1998, and the related schedule,
which report appears in the January 3, 1998 annual report on Form 10-K of
Darling International Inc.
KPMG Peat Marwick LLP
Dallas, Texas
March 30, 1998