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) | |
Page
No.
|
||
PART
I: FINANCIAL INFORMATION
|
||
Item
1.
|
FINANCIAL
STATEMENTS
|
|
Consolidated
Balance Sheets
|
3
|
|
June
30, 2007 (unaudited) and December 30, 2006
|
||
Consolidated
Statements of Operations (unaudited)
|
4
|
|
Three
and Six Months Ended June 30, 2007 and July 1, 2006
|
||
Consolidated
Statements of Cash Flows (unaudited)
|
5
|
|
Six
Months Ended June 30, 2007 and July 1, 2006
|
||
Notes
to Consolidated Financial Statements (unaudited)
|
6
|
|
Item
2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF
|
|
FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
|
16
|
|
Item
3.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
|
33
|
Item
4.
|
CONTROLS
AND PROCEDURES
|
34
|
PART
II: OTHER INFORMATION
|
||
Item
4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY
HOLDERS
|
36
|
|
||
Item
6.
|
EXHIBITS
|
37
|
Signatures
|
38
|
June
30,
2007
|
December
30,
2006
|
||||||
ASSETS
|
(unaudited)
|
||||||
Current
assets:
|
|||||||
Cash
and cash equivalents
|
$
|
6,161
|
$
|
5,281
|
|||
Restricted
cash
|
448
|
480
|
|||||
Accounts
receivable, net
|
49,323
|
42,381
|
|||||
Inventories
|
19,552
|
14,562
|
|||||
Other
current assets
|
5,859
|
5,036
|
|||||
Deferred
income taxes
|
8,464
|
6,921
|
|||||
Total
current assets
|
89,807
|
74,661
|
|||||
Property,
plant and equipment, less accumulated depreciation
of
$191,248 at June 30, 2007 and $184,061 at December 30,
2006
|
128,724
|
132,149
|
|||||
Intangible
assets, less accumulated amortization of
$40,033
at June 30, 2007 and $37,599 at December 30, 2006
|
31,223
|
33,657
|
|||||
Goodwill
|
71,856
|
71,856
|
|||||
Other
assets
|
6,642
|
6,683
|
|||||
Deferred
income taxes
|
1,251
|
1,800
|
|||||
$
|
329,503
|
$
|
320,806
|
||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|||||||
Current
liabilities:
|
|||||||
Current
portion of long-term debt
|
$
|
5,000
|
$
|
5,004
|
|||
Accounts
payable, principally trade
|
21,739
|
17,473
|
|||||
Accrued
expenses
|
35,998
|
34,319
|
|||||
Total
current liabilities
|
62,737
|
56,796
|
|||||
Long-term
debt, net
|
58,500
|
78,000
|
|||||
Other
non-current liabilities
|
36,171
|
34,685
|
|||||
Total
liabilities
|
157,408
|
169,481
|
|||||
Commitments
and contingencies
|
|||||||
Stockholders’
equity:
|
|||||||
Common
stock, $0.01 par value; 100,000,000 shares authorized;
81,131,565
and 80,875,453 shares issued and outstanding
at June 30, 2007 and at December 30, 2006,
respectively
|
811 |
809 |
|||||
Additional
paid-in capital
|
151,337
|
150,045
|
|||||
Treasury
stock, at cost; 90,483 and 21,000 shares at
June 30, 2007 and December 30, 2006, respectively
|
(629 |
) |
(172 |
) |
|||
Accumulated
other comprehensive loss
|
(11,002
|
)
|
(11,733
|
)
|
|||
Retained
earnings
|
31,578
|
12,376
|
|||||
Total
stockholders’ equity
|
172,095
|
151,325
|
|||||
$
|
329,503
|
$
|
320,806
|
||||
Three
Months Ended
|
Six
Months Ended
|
||||||||||||
June
30,
2007
|
July
1,
2006
|
June
30,
2007
|
July
1,
2006
|
||||||||||
Net
sales
|
$
|
159,425
|
$
|
87,231
|
$
|
298,037
|
$
|
163,631
|
|||||
Costs
and expenses:
|
|||||||||||||
Cost
of sales and operating expenses
|
121,925
|
68,831
|
225,169
|
129,512
|
|||||||||
Selling,
general and administrative expenses
|
14,295
|
11,817
|
26,876
|
21,504
|
|||||||||
Depreciation
and amortization
|
5,795
|
5,049
|
11,539
|
9,182
|
|||||||||
Total
costs and expenses
|
142,015
|
85,697
|
263,584
|
160,198
|
|||||||||
Operating
income
|
17,410
|
1,534
|
34,453
|
3,433
|
|||||||||
Other
income/(expense):
|
|||||||||||||
Interest
expense
|
(1,326
|
)
|
(1,760
|
)
|
(2,959
|
)
|
(3,302
|
)
|
|||||
Other,
net
|
(102
|
)
|
(4,760
|
)
|
(531
|
)
|
(4,529
|
)
|
|||||
Total
other income/(expense)
|
(1,428
|
)
|
(6,520
|
)
|
(3,490
|
)
|
(7,831
|
)
|
|||||
Income/(loss)
from operations before income
taxes
|
15,982
|
(4,986
|
)
|
30,963
|
(4,398
|
)
|
|||||||
Income
taxes expense/(benefit)
|
6,500
|
(1,837
|
)
|
11,901
|
(1,615
|
)
|
|||||||
Net
income/(loss)
|
$
|
9,482
|
$
|
(3,149
|
)
|
$
|
19,062
|
$
|
(2,783
|
)
|
|||
Basic
income/(loss) per share:
|
$
|
0.12
|
$
|
(0.04
|
)
|
$
|
0.24
|
$
|
(0.04
|
)
|
|||
Diluted
income/(loss) per share:
|
$
|
0.12
|
$
|
(0.04
|
)
|
$
|
0.23
|
$
|
(0.04
|
)
|
June
30,
2007
|
July
1,
2006
|
|||||
Cash
flows from operating activities:
|
||||||
Net
income/(loss)
|
$
|
19,062
|
$
|
(2,783
|
)
|
|
Adjustments
to reconcile net income/(loss) to net cash provided by
operating activities:
|
||||||
Depreciation
and amortization
|
11,539
|
9,182
|
||||
Gain
on disposal of property, plant, equipment and other assets
|
(16
|
)
|
(120
|
)
|
||
Write-off
deferred loan costs
|
–
|
2,569
|
||||
Deferred
taxes
|
(994
|
)
|
(1,754
|
)
|
||
Stock-based
compensation expense
|
1,005
|
818
|
||||
Changes
in operating assets and liabilities, net of effect of
acquisition:
|
||||||
Restricted
cash
|
32
|
1,858
|
||||
Accounts
receivable
|
(6,942
|
)
|
3,967
|
|||
Inventories
and prepaid expenses
|
(5,757
|
)
|
(1,750
|
)
|
||
Accounts
payable and accrued expenses
|
5,634
|
(6,403
|
)
|
|||
Other
|
2,419
|
1,543
|
||||
Net
cash provided by operating activities
|
25,982
|
7,127
|
||||
Cash
flows from investing activities:
|
||||||
Capital
expenditures
|
(5,742
|
)
|
(5,596
|
)
|
||
Acquisition
of NBP, net of cash acquired
|
–
|
(79,924
|
)
|
|||
Gross
proceeds from disposal of property, plant and equipment
and other assets
|
103
|
219
|
||||
Net
cash used by investing activities
|
(5,639
|
)
|
(85,301
|
)
|
||
Cash
flows from financing activities:
|
||||||
Proceeds
from debt
|
19,000
|
111,000
|
||||
Payments
on debt
|
(38,504
|
)
|
(61,513
|
)
|
||
Deferred
loan costs
|
(18
|
)
|
(1,558
|
)
|
||
Contract
payments
|
(84
|
)
|
(77
|
)
|
||
Issuance
of common stock
|
242
|
21
|
||||
Minimum
withholding taxes paid on stock awards
|
(457
|
)
|
–
|
|||
Excess
tax benefits from stock-based compensation
|
358
|
32
|
||||
Net
cash provided/(used) by financing activities
|
(19,463
|
)
|
47,905
|
|||
Net
increase/(decrease) in cash and cash equivalents
|
880
|
(30,269
|
)
|
|||
Cash
and cash equivalents at beginning of period
|
5,281
|
36,000
|
||||
Cash
and cash equivalents at end of period
|
$
|
6,161
|
$
|
5,731
|
||
Supplemental
disclosure of cash flow information:
|
||||||
Cash
paid during the period for:
|
||||||
Interest
|
$
|
3,181
|
$
|
2,682
|
||
Income
taxes, net of refunds
|
$
|
15,157
|
$
|
2,182
|
(1)
|
General
|
|
The
accompanying consolidated financial statements for the three and
six month
periods ended June 30, 2007 and July 1, 2006 have been prepared in
accordance with generally accepted accounting principles in the United
States by Darling International Inc. (“Darling”) and its subsidiaries
(Darling and its subsidiaries are collectively referred to herein
as the
“Company”) without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission (“SEC”). The information
furnished herein reflects all adjustments (consisting only of normal
recurring accruals) that are, in the opinion of management, necessary
to
present a fair statement of the financial position and operating
results
of the Company as of and for the respective periods. However, these
operating results are not necessarily indicative of the results expected
for a full fiscal year. Certain information and footnote disclosures
normally included in annual financial statements prepared in accordance
with generally accepted accounting principles have been omitted pursuant
to such rules and regulations. However, management of the
Company believes, to the best of their knowledge, that the disclosures
herein are adequate to make the information presented not misleading.
The
accompanying consolidated financial statements should be read in
conjunction with the audited consolidated financial statements contained
in the Company’s Form 10-K for the fiscal year ended December 30,
2006.
|
(2)
|
Summary
of Significant Accounting
Policies
|
(a)
|
Basis
of Presentation
|
|
The
consolidated financial statements include the accounts of Darling
and its
subsidiaries. All significant intercompany balances and transactions
have
been eliminated in
consolidation.
|
(b)
|
Fiscal
Periods
|
|
The
Company has a 52/53 week fiscal year ending on the Saturday nearest
December 31. Fiscal periods for the consolidated financial statements
included herein are as of June 30, 2007, and include the 13 weeks
and 26
weeks ended June 30, 2007, and the 13 weeks and 26 weeks ended July
1, 2006.
|
(c)
|
Earnings
per Share
|
|
Basic
income per common share is computed by dividing net income/(loss)
by the
weighted average number of common shares outstanding during the
period. Diluted income/(loss) per common share is computed by
dividing net income/(loss) by the weighted average number of common
shares
outstanding during the period increased by dilutive common equivalent
shares determined using the treasury stock
method.
|
Net
Income/(Loss) per Common Share (in thousands, except per share
data)
|
|||||||||||
Three
Months Ended
|
|||||||||||
June
30,
|
July
1,
|
||||||||||
2007
|
2006
|
||||||||||
Income
/(loss)
|
Shares
|
Per
Share
|
Income
/(loss)
|
Shares
|
Per
Share
|
||||||
Basic:
|
|||||||||||
Net
Income/(loss)
|
$
9,482
|
80,610
|
$ 0.12
|
$
(3,149)
|
72,603
|
$
(0.04)
|
|||||
Diluted:
|
|||||||||||
Effect
of dilutive securities:
|
|||||||||||
Add:
Option shares in the money
|
1,941
|
–
|
|||||||||
Less:
Pro forma treasury shares
|
(655
|
)
|
–
|
||||||||
Diluted:
|
|||||||||||
Net
income/(loss)
|
$
9,482
|
81,896
|
$ 0.12
|
$
(3,149)
|
72,603
|
$
(0.04)
|
Six
Months Ended
|
|||||||||||
June
30,
|
July
1,
|
||||||||||
2007
|
2006
|
||||||||||
Income
/(loss)
|
Shares
|
Per
Share
|
Income
/(loss)
|
Shares
|
Per
Share
|
||||||
Basic:
|
|||||||||||
Net
Income/(loss)
|
$
19,062
|
80,519
|
$ 0.24
|
$ (2,783)
|
68,278
|
$
(0.04)
|
|||||
Diluted:
|
|||||||||||
Effect
of dilutive securities:
|
|||||||||||
Add:
Option shares in the money
|
2,002
|
–
|
|||||||||
Less:
Pro forma treasury shares
|
(723
|
)
|
–
|
||||||||
Diluted:
|
|||||||||||
Net
income/(loss)
|
$
19,062
|
81,798
|
$ 0.23
|
$ (2,783)
|
68,278
|
$
(0.04)
|
(3)
|
Acquisition
of National By-Products, LLC
|
Three
Months Ended
|
Six
Months Ended
|
||
July
1, 2006
|
July
1, 2006
|
||
Net
sales
|
$
109,864
|
$
236,988
|
|
Income/(loss)
from continuing operations
|
(2,272)
|
1,304
|
|
Net
income/(loss)
|
(2,272)
|
1,304
|
|
Earnings
per
share
|
|||
Basic and diluted
|
$
(0.03)
|
$ 0.02
|
(4)
|
Contingencies
|
(5)
|
Business
Segments
|
Three
Months Ended
|
Six
Months Ended
|
||||||||||
June
30,
2007
|
July
1,
2006
|
June
30,
2007
|
July
1,
2006
|
||||||||
Rendering:
|
|||||||||||
Trade
|
$
112,185
|
$
60,413
|
$
213,850
|
$
105,915
|
|||||||
Intersegment
|
9,547
|
7,004
|
18,378
|
14,256
|
|||||||
121,732
|
67,417
|
232,228
|
120,171
|
||||||||
Restaurant
Services:
|
|||||||||||
Trade
|
47,240
|
26,818
|
84,187
|
57,716
|
|||||||
Intersegment
|
1,220
|
663
|
2,280
|
1,700
|
|||||||
48,460
|
27,481
|
86,467
|
59,416
|
||||||||
Eliminations
|
(10,767
|
)
|
(7,667
|
)
|
(20,658
|
)
|
(15,956
|
)
|
|||
Total
|
$
159,425
|
$
87,231
|
$
298,037
|
$
163,631
|
Three
Months Ended
|
Six
Months Ended
|
||||||||||
|
June
30,
2007
|
July
1,
2006
|
June
30,
2007
|
July
1,
2006
|
|||||||
Rendering
|
$ 17,661
|
$ 6,235
|
$ 35,569
|
$
10,623
|
|||||||
Restaurant
Services
|
9,846
|
2,920
|
17,209
|
6,018
|
|||||||
Corporate
|
(16,699
|
)
|
(10,544
|
)
|
(30,757
|
)
|
(16,122
|
)
|
|||
Interest
expense
|
(1,326
|
)
|
(1,760
|
)
|
(2,959
|
)
|
(3,302
|
)
|
|||
Income/(loss)
from
continuing
operations
|
$
9,482
|
$ (3,149
|
)
|
$ 19,062
|
$ (2,783
|
)
|
June
30,
2007
|
December
30,
2006
|
||
Rendering
|
$
157,695
|
$
153,798
|
|
Restaurant
Services
|
39,285
|
36,359
|
|
Combined
Rendering/Restaurant Services
|
102,866
|
105,402
|
|
Corporate
|
29,657
|
25,247
|
|
Total
|
$
329,503
|
$
320,806
|
(6)
|
Income
Taxes
|
(7)
|
Financing
|
|
June
30,
2007
|
December
30,
2006
|
|||
Term
Loan
|
$
|
45,000
|
$
|
47,500
|
|
Revolving
Credit Facility:
|
|||||
Maximum
availability
|
$
|
125,000
|
$
|
125,000
|
|
Borrowings
outstanding
|
18,500
|
35,500
|
|||
Letters
of credit issued
|
18,891
|
18,391
|
|||
Availability
|
$
|
87,609
|
$
|
71,109
|
(8)
|
Derivative
Instruments
|
Three
Months Ended
|
Six
Months Ended
|
||||||
June 30,
|
July
1,
|
June 30,
|
July
1,
|
||||
2007
|
2006
|
2007
|
2006
|
||||
Derivative
adjustment included in accumulated
other comprehensive loss at beginning of period
|
$ 505
|
$ –
|
$ 408
|
$ –
|
|||
Net
change arising from current period hedging
transactions (a)
|
(431
|
) |
(130
|
) |
(328
|
)
|
(130)
|
Reclassifications
into earnings
|
(8
|
)
|
–
|
(14
|
) |
–
|
|
Accumulated
other comprehensive loss/(gain)
|
$ 66
|
$ (130
|
) |
$ 66
|
$ (130)
|
(a)
|
Reported
as other comprehensive gain of approximately $0.7 million and $0.6
million
recorded net of taxes of approximately $0.3 million for the three
and six
months ended June 30, 2007,
respectively.
|
Three
Months Ended
|
Six
Months Ended
|
||||||
June
30,
|
July
1,
|
June
30,
|
July
1,
|
||||
2007
|
2006
|
2007
|
2006
|
||||
Loss to interest expense related to interest rate swap
agreements
(effective portion) |
$ 8
|
$ –
|
$ 14
|
$ –
|
|||
Loss/(gain)
to other expenses related to net
change
arising from current period hedging transactions
|
–
|
–
|
–
|
–
|
|||
Total reclassifications into earnings
|
$ 8
|
$ –
|
$ 14
|
$ –
|
(9)
|
Comprehensive
Income/(Loss)
|
(10)
|
Revenue
Recognition
|
(11)
|
Employee
Benefit Plans
|
Three
Months Ended
|
Six
Months Ended
|
||||||||||||||
June
30, 2007
|
July
1, 2006
|
June
30, 2007
|
July
1, 2006
|
||||||||||||
Service
cost
|
$
|
582
|
$
|
601
|
$
|
1,164
|
$
|
1,165
|
|||||||
Interest
cost
|
1,253
|
1,161
|
2,506
|
2,275
|
|||||||||||
Expected
return
on plan assets
|
(1,409
|
)
|
(1,289
|
)
|
(2,818
|
)
|
(2,531
|
)
|
|||||||
Amortization
of
prior service cost
|
29
|
35
|
58
|
70
|
|||||||||||
Amortization
of
net loss
|
288
|
413
|
576
|
826
|
|||||||||||
Net
pension cost
|
$
|
743
|
$
|
921
|
$
|
1,486
|
$
|
1,805
|
(12)
|
New
Accounting
Pronouncements
|
·
|
Higher
finished product commodity prices were experienced in the second
quarter
of fiscal 2007 as a result of a continuing global tightening of feed
grains and oils from a growing global demand for
bio-fuels. Higher finished product prices were favorable to the
Company’s sales revenue, but this favorable result was partially offset by
the negative impact on raw material cost due to the Company’s formula
pricing arrangements with raw material suppliers, which index raw
material
cost to the prices of finished product derived from the raw
material. The financial impact of finished goods prices on
sales revenue and raw material cost is summarized below in “Results of
Operations.” Comparative sales price information from the
Jacobsen index, an established trading exchange publisher used by
management, is listed below in “Summary of Key
Indicators.”
|
·
|
The
Company has the ability to burn alternative fuels, including its
fats and
greases, at a majority of its plants as a way to help manage the
Company’s
exposure to high natural gas prices. Beginning October 1, 2006,
the federal government effected a program which will provide Federal
tax
credits under certain circumstances for commercial use of alternative
fuels in lieu of fossil-based fuels. Beginning in the fourth
quarter of 2006, the Company filed documentation with the Internal
Revenue
Service (“IRS”) to recover these Alternative Fuel Mixture Credits as a
result of its use of fats and greases to fuel boilers at its
plants. The Company has received approval from the IRS to apply
for these credits. However, the federal regulations relating to
the Alternative Fuel Mixture Credits are complex and further clarification
is needed by the Company prior to recognition of any tax credits
received. The Company has not recorded these credits as income
due to pending clarification of the federal regulations. The
Company is in the process of pursuing clarification and eligibility
to
receive the Alternative Fuel Mixture Credits. As of June
30, 2007, the Company has applied for approximately $1.4 million
in
Alternative Fuel Mixture Credits and has received approximately $1.0
million from the IRS relating to these credits, which are included
in
current liabilities on the balance sheet as deferred
income. The Company expects to continue to burn alternative
fuels at its plants in future periods as long as the price of natural
gas
remains high.
|
·
|
Energy
prices for natural gas and diesel fuel are expected to remain volatile
in
fiscal 2007. The Company consumes significant volumes of natural
gas to
operate boilers in its plants, which generate steam to heat raw
material. High natural gas prices represent a significant cost
of factory operation included in cost of sales. The Company
also consumes significant volumes of diesel fuel to operate its fleet
of
tractors and trucks used to collect raw material. High diesel
fuel prices represent a significant component of cost of collection
expenses included in cost of sales. Though the Company will
continue to manage these costs and attempt to minimize these expenses,
prices remained volatile in the first six months of 2007 and represent
an
ongoing challenge to the Company’s operating results for future
periods.
|
·
|
Avian
influenza (“H5N1”), or Bird Flu, a highly contagious disease that affects
chickens and other poultry species, has spread throughout Asia and
Europe. The H5N1 strain is highly pathogenic, which has caused
concern that a pandemic could occur if the disease migrates from
birds to
humans. This highly pathogenic strain has not been detected in
North or South America as of July 27, 2007, but low pathogenic strains
that are not a threat to human health have been reported in the
U.S. The USDA has developed safeguards to protect the U.S.
poultry industry from H5N1. These safeguards are based on
import restrictions, disease surveillance and a response plan for
isolating and depopulating infected flocks if the disease is
detected. Notwithstanding these safeguards, any significant
outbreak of Bird Flu in the U.S. could have a negative impact on
the
Company’s business by reducing demand for
MBM.
|
·
|
Expenses
related to compliance with requirements of Section 404 of the
Sarbanes-Oxley Act of 2002 (the “Sarbanes Act”) are expected to continue
throughout 2007 and thereafter. The Company expects recurring
compliance costs related to the required updating of documentation
and the
testing and auditing of the Company’s system of internal control over
financial reporting, as required by the Sarbanes
Act. Additionally, the Company expects to incur higher costs
related to the Sarbanes Act in fiscal 2007 over the previous year
due to
the inclusion of NBP for the first time in the internal control
documentation and testing process.
|
·
|
Canada
banned specified risk materials (“SRM”) from all animal feed, pet food and
fertilizers on July 12, 2007. Banned materials include the
skull, brain, trigeminal ganglia, eyes, tonsils, spinal cord and
dorsal
root ganglia of cattle aged 30 months or older and the distal ileum
of
cattle of all ages.
|
·
|
The
World Organization for Animal Health (“OIE”) formally classified the U.S.
as a “controlled risk” country for bovine spongiform encephalopathy
(“BSE”) in a report released May 22, 2007. In the same report,
the OIE recommended tightening feed rules in the U.S. and eliminating
SRM
from the feed chain as Canada has done. The OIE advised that
proper implementation of an SRM ban in the U.S. will be a key factor
in
its maintaining the controlled risk status for
BSE.
|
·
|
In
March 2007, U.S. federal and state regulatory authorities put increased
emphasis on pet and livestock food safety as a result of the discovery
of
adulterated imported pet and livestock food additives. It is
unclear whether, or to what extent, any increased regulatory attention
on
animal food safety will impact the
Company.
|
·
|
As
a result of the first case of BSE, on October 6, 2005, the FDA proposed
to
amend the agency’s regulations to prohibit certain cattle origin materials
in the food or feed of all animals (the “Proposed Rule”). The
materials that were proposed to be banned include: 1) the brain
and spinal cord from cattle 30 months and older that are inspected
and
passed for human consumption; 2) the brain and spinal cord from
cattle of any age not inspected and passed for human consumption;
and 3) the entire carcass of cattle not inspected and passed
for human consumption if the brains and spinal cords have not been
removed. In addition, the Proposed Rule provides that tallow
containing more than 0.15% insoluble impurities also be banned from
all
animal food and feed if this tallow is derived from the proposed
prohibited materials. As of July 27, 2007, the FDA has not
finalized the Proposed Rule and no new regulations affecting animal
feed
or modifying the Proposed Rule have been issued, despite a prohibition
on
SRM from all animal feed in Canada and recommendations by the OIE
that a
similar ban be instituted in the U.S. The Company’s management
will continue to monitor this and other regulatory
issues.
|
·
|
The inclusion of the operations of NBP, and
|
·
|
Higher finished product prices.
|
·
|
Higher raw material prices,
|
·
|
Higher energy costs, primarily related to natural gas and diesel fuel, and |
·
|
A multi-employer pension plan mass withdrawal termination
liability.
|
·
|
Finished product commodity prices (quoted on the Jacobsen
index),
|
·
|
Raw material volume,
|
·
|
Production volume and related yield of finished product,
and
|
·
|
Collection fees and collection operating
expense.
|
Avg.
Price
2nd
Quarter
2007
|
Avg.
Price
2nd
Quarter
2006
|
Increase |
% Increase
|
||
MBM
(Illinois)
|
$217.27
/ton
|
$146.86
/ton
|
$70.41
/ton
|
47.9%
|
|
MBM
(California)
|
$222.72
/ton
|
$124.17
/ton
|
$98.55
/ton
|
79.4%
|
|
BFT
(Chicago)
|
$
29.28 /cwt
|
$ 14.57
/cwt
|
$14.71
/cwt
|
101.0%
|
|
YG
(Illinois)
|
$
23.13 /cwt
|
$ 10.77
/cwt
|
$12.36
/cwt
|
114.8%
|
Rendering
|
Restaurant
Services
|
Corporate
|
Total
|
|||||||||
Net
sales due to
contribution from NBP assets
|
$ 32.0
|
$ 3.6
|
$ —
|
$ 35.6
|
||||||||
Higher
finished
goods prices
|
20.6
|
12.1
|
—
|
32.7
|
||||||||
Purchase
of
finished product for resale
|
0.9
|
1.6
|
—
|
2.5
|
||||||||
Other
sales
increases
|
1.2
|
0.2
|
—
|
1.4
|
||||||||
Product
transfers
|
(2.5
|
)
|
2.5
|
—
|
—
|
|||||||
$ 52.2
|
$ 20.0
|
$ —
|
$ 72.2
|
Rendering
|
Restaurant
Services
|
Corporate
|
Total
|
|||||||||
Cost
of sales and
operating expense related to NBP
assets
|
$ 24.8
|
$ 2.1
|
$ –
|
$
26.9
|
||||||||
Higher
raw material prices
|
11.5
|
7.1
|
–
|
18.6
|
||||||||
Other
expenses
|
2.2
|
0.2
|
0.2
|
2.6
|
||||||||
Purchases
of finished product for resale
|
0.9
|
1.6
|
–
|
2.5
|
||||||||
Higher
energy costs, primarily natural gas and
diesel fuel
|
1.2
|
0.1
|
–
|
1.3
|
||||||||
Multi-employer pension plan mass withdrawal termination
liability
|
1.2 | – | – | 1.2 | ||||||||
Product
transfers
|
(2.5
|
)
|
2.5
|
–
|
–
|
|||||||
$ 39.3
|
$ 13.6
|
$ 0.2
|
$
53.1
|
|
Rendering
|
Restaurant
Services
|
Corporate
|
Total
|
||||||||
Payroll
and related
benefits
|
$ (0.1
|
)
|
$ (0.1
|
)
|
$ 1.2
|
$ 1.0
|
||||||
Selling,
general and
administrative expense related
to NBP
assets
|
0.5
|
0.1
|
0.1
|
0.7
|
||||||||
Other
expense
increases
|
–
|
(0.1
|
)
|
0.6
|
0.5
|
|||||||
Higher
legal
expense
|
–
|
–
|
0.3
|
0.3
|
||||||||
$ 0.4
|
$ (0.1
|
)
|
$ 2.2
|
$ 2.5
|
Rendering
|
Restaurant
Services
|
Corporate
|
Total
|
|||||||||
Write
off deferred
loan costs
|
$ —
|
$ —
|
$ (2.6
|
)
|
$ (2.6
|
)
|
||||||
Subordinated
debt
prepayment fees
|
—
|
—
|
(1.9
|
)
|
(1.9
|
)
|
||||||
Decrease
in other
expense
|
—
|
—
|
(0.2
|
)
|
(0.2
|
)
|
||||||
$ —
|
$ —
|
$ (4.7
|
)
|
$ (4.7
|
)
|
·
|
The inclusion of the operations of NBP,
|
·
|
Higher finished product prices, and
|
·
|
$2.2 million received for sale of
judgment.
|
·
|
Higher raw material prices,
|
·
|
Higher payroll and related benefits,
|
·
|
Multi-employer pension plan mass withdrawal termination liability, and |
·
|
Higher energy costs, primarily related to natural gas and diesel
fuel.
|
·
|
Finished product commodity prices (quoted on the Jacobsen
index),
|
·
|
Raw material volume,
|
·
|
Production volume and related yield of finished product,
and
|
·
|
Collection fees and collection operating
expense.
|
Avg.
Price
Six
Months
2007
|
Avg.
Price
Six
Months
2006
|
Increase |
% Increase
|
||
MBM
(Illinois)
|
$210.50
/ton
|
$158.13
/ton
|
$52.37
/ton
|
33.1%
|
|
MBM
(California)
|
$212.10
/ton
|
$119.45
/ton
|
$92.65
/ton
|
77.6%
|
|
BFT
(Chicago)
|
$
25.40 /cwt
|
$
15.50 /cwt
|
$
9.90 /cwt
|
63.9%
|
|
YG
(Illinois)
|
$
20.89 /cwt
|
$
11.74 /cwt
|
$
9.15 /cwt
|
77.9%
|
|
Rendering
|
Restaurant
Services
|
Corporate
|
Total
|
||||||||
Net
sales due to
contribution from NBP assets
|
$ 84.8
|
$ 6.7
|
$ —
|
$ 91.5
|
||||||||
Higher
finished goods
prices
|
27.4
|
14.8
|
—
|
42.2
|
||||||||
Other
sales
increases
|
2.8
|
(0.7
|
)
|
—
|
2.1
|
|||||||
Purchase
of finished
product for resale
|
(1.8
|
)
|
0.4
|
—
|
(1.4
|
)
|
||||||
Product
transfers
|
(4.1
|
)
|
4.1
|
—
|
—
|
|||||||
$
109.1
|
$ 25.3
|
$ —
|
$
134.4
|
Rendering
|
Restaurant
Services
|
Corporate
|
Total
|
|||||||||
Cost
of sales
and operating expense related to
NBP assets
|
$ 65.6
|
$
3.6
|
$
–
|
$ 69.2
|
||||||||
Higher
raw
material prices
|
15.6
|
7.5
|
–
|
23.1
|
||||||||
Other
expenses
|
3.3
|
–
|
0.7
|
4.0
|
||||||||
Multi-employer pension plan mass withdrawal termination liability | 1.2 | – | – | 1.2 | ||||||||
Higher
energy
costs, primarily natural gas and
diesel fuel
|
1.0
|
(0.2
|
)
|
–
|
0.8
|
|||||||
Sale
of
judgment
|
(1.2
|
)
|
–
|
–
|
(1.2
|
)
|
||||||
Purchases
of
finished product for resale
|
(1.8
|
)
|
0.4
|
–
|
(1.4
|
)
|
||||||
Product
transfers
|
(4.1
|
)
|
4.1
|
–
|
–
|
|||||||
$ 79.6
|
$ 15.4
|
$ 0.7
|
$ 95.7
|
Rendering
|
Restaurant
Services
|
Corporate
|
Total
|
|||||||||
Selling,
general and administrative expense related
to NBP assets
|
$ 1.8
|
$ 0.2
|
$ 0.9
|
$ 2.9
|
||||||||
Payroll
and related
benefits
|
(0.2
|
)
|
(0.1
|
)
|
2.9
|
2.6
|
||||||
Other expense
increases
|
–
|
(0.2
|
)
|
1.1
|
0.9
|
|||||||
Sale
of
judgment
|
–
|
–
|
(1.0
|
)
|
(1.0
|
)
|
||||||
$ 1.6
|
$ (0.1
|
)
|
$ 3.9
|
$ 5.4
|
Rendering
|
Restaurant
Services
|
Corporate
|
Total
|
|||||||||
Write
off of
deferred loan costs
|
$ —
|
$ —
|
$ (2.6
|
)
|
$ (2.6
|
)
|
||||||
Subordinated
debt
prepayment fees
|
—
|
—
|
(1.9
|
)
|
(1.9
|
)
|
||||||
Decrease
in
interest income
|
—
|
—
|
0.4
|
0.4
|
||||||||
Increase
in other
expense
|
—
|
—
|
0.1
|
0.1
|
||||||||
$ —
|
$ —
|
$ (4.0
|
) |
$ (4.0
|
) |
·
|
The
Credit Agreement provides for a total of $175.0 million in financing
facilities, consisting of a $50.0 million term loan facility and
a $125.0
million revolving credit facility, which includes a $35.0 million
letter of credit sub-facility.
|
·
|
The
$125.0 million revolving credit facility has a term of five years
and
matures on April 7, 2011.
|
·
|
As
of June 30, 2007, the Company has borrowed all $50.0 million under
the
term loan facility, which provides for scheduled quarterly amortization
payments of $1.25 million over a six-year term ending April 7,
2012. The Company has reduced the term loan facility by
quarterly payments totaling $5.0 million, for an aggregate of $45.0
million principal outstanding under the term loan facility at June
30,
2007.
|
·
|
Alternative
base rate loans under the Credit Agreement bear interest at a rate
per
annum based on the greater of (a) the prime rate and (b) the federal
funds
effective rate (as defined in the Credit Agreement) plus ½ of 1%, plus, in
each case, a margin determined by reference to a pricing grid and
adjusted
according to the Company’s adjusted leverage ratio. Eurodollar
loans bear interest at a rate per annum based on the then-applicable
LIBOR
multiplied by the statutory reserve rate plus a margin determined
by
reference to a pricing grid and adjusted according to the Company’s
adjusted leverage ratio.
|
·
|
The
Credit Agreement provided sufficient liquidity to complete the Transaction
and to retire the Company’s senior subordinated notes in the aggregate
amount of $37.6 million in principal, accrued interest and fees on
June 1,
2006. Additionally, the Credit Agreement has an extended term,
lower interest rates, fewer restrictions on investments, and improved
flexibility for paying dividends or repurchasing Company stock (all
of
which are subject to the terms of the Credit Agreement) than the
Company’s
prior credit facility.
|
·
|
The
Credit Agreement contains restrictive covenants that are customary
for
similar credit arrangements and requires the maintenance of certain
minimum financial ratios. The Credit Agreement also requires
the Company to make certain mandatory prepayments of outstanding
indebtedness using the net cash proceeds received from certain
dispositions of property, casualty or condemnation, any sale or issuance
of equity interests in a public offering or in a private placement,
unpermitted additional indebtedness incurred by the Company and excess
cash flow under certain
circumstances.
|
Credit
Agreement:
|
||
Term
Loan
|
$ 45,000
|
|
Revolving
Credit Facility:
|
||
Maximum
availability
|
$ 125,000
|
|
Borrowings
outstanding
|
18,500
|
|
Letters
of credit issued
|
18,891
|
|
Availability
|
$ 87,609
|
|
PART
II: Other
Information
|
Randall
C.
Stuewe
|
|||
For:
|
71,858,121
|
Against/Withheld:
|
3,146,425
|
O.
Thomas Albrecht
|
|
||
For:
|
71,854,668
|
Against/Withheld:
|
3,149,878
|
C.
Dean Carlson
|
|||
For:
|
66,305,275
|
Against/Withheld:
|
8,699,271
|
Marlyn
Jorgensen
|
|||
For:
|
73,897,344
|
Against/Withheld:
|
1,107,202
|
Fredric
J.
Klink
|
|||
For:
|
68,819,080
|
Against/Withheld:
|
6,185,466
|
Charles
Macaluso
|
|||
For:
|
71,737,962
|
Against/Withheld:
|
3,266,584
|
Michael
Urbut
|
|||
For:
|
70,758,924
|
Against/Withheld:
|
4,245,622
|
(a)
|
Exhibits
|
|
31.1
|
Certification
pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange
Act of 1934, of Randall C. Stuewe, the Chief Executive Officer of
the
Company.
|
|
31.2
|
Certification
pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange
Act of 1934, of John O. Muse, the Chief Financial Officer of the
Company.
|
|
32
|
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002, of Randall C. Stuewe, the Chief Executive
Officer of the Company, and of John O. Muse, the Chief Financial
Officer
of the Company.
|
DARLING
INTERNATIONAL INC.
|
|||
Date: August
9, 2007
|
By:
|
/s/ Randall
C. Stuewe
|
|
Randall
C. Stuewe
|
|||
Chairman
and
|
|||
Chief
Executive Officer
|
Date: August
9, 2007
|
By:
|
/s/ John
O. Muse
|
|
John
O. Muse
|
|||
Executive
Vice President
|
|||
Administration
and Finance
|
|||
(Principal
Financial Officer)
|