(Mark One)/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 29, 2001
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______ to _______
Commission File Number 0-24620
DARLING INTERNATIONAL INC.(Exact name of registrant as specified in its charter)
251 O'CONNOR RIDGE BLVD., SUITE 300, IRVING, TEXAS 75038(Address of principal executive offices)(972) 717-0300(Registrant's telephone number)
Not applicable(Former name, address and fiscal year, if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such report(s)), and (2) has been subject to such filing requirements for the past 90 days.
YES /X/ NO / /
The number of shares outstanding of the Registrant's common stock, $0.01 par value, as of November 13, 2001 was 15,589,077.
DARLING INTERNATIONAL INC. AND SUBSIDIARIESFORM 10-Q FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 29, 2001
TABLE OF CONTENTS
PART I: FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS Consolidated Balance Sheets. . . . . . . . . . . . . . . . . . . 3 September 29, 2001 (unaudited) and December 30, 2000 Consolidated Statements of Operations (unaudited). . . . . . . . . . . . 4 Three Months and Nine Months Ended September 29, 2001 and September 30, 2000 Consolidated Statements of Cash Flows (unaudited). . . . . . . . . . . . 5 Nine Months Ended September 29, 2001 and September 30, 2000 Notes to Consolidated Financial Statements (unaudited). . . . . . . . . . 6 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. . . . . . . . . . . . . 13 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS . . . . . . . . . . . . . . . . . . . . . . 18 PART II: OTHER INFORMATION Item 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . 19 Signatures. . . . . . . . . . . . . . . . . . . . . . . . . 20
DARLING INTERNATIONAL INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETSSeptember 29, 2001 and December 30, 2000(in thousands, except shares and per share data)
September 29, December 30, 2001 2000 ------------- ------------ ASSETS (unaudited) Current assets: Cash and cash equivalents ........................................ $ 3,408 $ 3,509 Accounts receivable .............................................. 25,285 21,837 Inventories ...................................................... 8,937 8,300 Prepaid expenses ................................................. 3,492 3,046 Deferred income tax assets ....................................... 3,081 3,081 Assets held for sale ............................................. 2,678 3,161 Other ............................................................ 291 2,923 --------- --------- Total current assets ......................................... 47,172 45,857 Property, plant and equipment, less accumulated depreciation of $153,912 at September 29, 2001 and $140,944 at December 30, 2000 ..................................... 78,214 88,242 Collection routes and contracts, less accumulated amortization of $21,030 at September 29, 2001 and $18,828 at December 30, 2000 ...................................... 28,560 32,140 Goodwill, less accumulated amortization of $1,026 at September 29, 2001 and $883 at December 30, 2000 ............... 4,479 4,632 Other noncurrent assets .............................................. 6,253 3,634 --------- --------- $ 164,678 $ 174,505 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Current portion of long-term debt ................................ $124,174 $109,528 Accounts payable, principally trade .............................. 13,899 14,341 Accrued expenses ................................................. 20,873 23,160 Accrued interest ................................................. 2,990 3,038 Deferred income .................................................. - 2,599 --------- --------- Total current liabilities .................................... 161,936 152,666 Other non-current liabilities ......................................... 7,539 16,247 Deferred income taxes ................................................. 2,868 2,868 --------- --------- Total liabilities ............................................ 172,343 171,781 --------- --------- Stockholders' equity (deficit): Preferred stock, $0.01 par value; 1,000,000 shares authorized, none issued ....................................... - - Common stock, $0.01 par value; 25,000,000 shares authorized; 15,589,077 shares issued and outstanding ...................... 156 156 Additional paid-in capital ....................................... 35,063 35,063 Accumulated deficit .............................................. (42,884) (32,495) --------- --------- Total stockholders' equity (deficit) ......................... (7,665) 2,724 Contingencies (note 3) $164,678 $174,505 ========= ========= The accompanying notes are an integral part of these consolidated financial statements.
DARLING INTERNATIONAL INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONSThree and Nine Months Ended September 29, 2001 and September 30, 2000(in thousands, except per share data)
Three Months Ended Nine Months Ended ---------------------- ---------------------- Sept. 29, Sept. 30, Sept. 29, Sept. 30, 2001 2000 2001 2000 --------- --------- --------- --------- (unaudited) (unaudited) Net sales ............................................. $ 65,045 $ 57,629 $ 187,293 $ 182,003 --------- --------- --------- --------- Costs and expenses: Cost of sales and operating expenses ............. 51,242 46,065 146,244 144,439 Selling, general and administrative expenses ..... 6,805 6,290 20,588 19,782 Depreciation and amortization .................... 6,056 6,824 19,358 20,338 --------- --------- --------- --------- Total costs and expenses ...................... 64,103 59,179 186,190 184,559 --------- --------- --------- --------- Operating income (loss) ....................... 942 (1,550) 1,103 (2,556) --------- --------- --------- --------- Other income (expense): Interest expense ................................. (3,956) (3,545) (10,450) (10,458) Other, net ....................................... (505) (74) (1,042) 52 --------- --------- --------- --------- Total other expense .......................... (4,461) (3,619) (11,492) (10,406) --------- --------- --------- --------- Loss from continuing operations before income taxes .......................... (3,519) (5,169) (10,389) (12,962) Income taxes .......................................... - - - - --------- --------- --------- --------- Loss from continuing operations ............... (3,519) (5,169) (10,389) (12,962) Discontinued operations: Gain on disposal of discontinued operations, net of tax ................... - - - 121 --------- --------- --------- --------- Net loss ...................................... $ (3,519) $ (5,169) $ (10,389) $ (12,841) ========= ========= ========= ========= Basic and diluted loss per share: Continuing operations ......................... $ (0.23) $ (0.33) $ (0.67) $ (0.83) Discontinued operations: Gain on disposal ............................. - - - 0.01 --------- --------- --------- --------- Total ................................... $ (0.23) $ (0.33) $ (0.67) $ (0.82) ========= ========= ========= ========= The accompanying notes are an integral part of these consolidated financial statements.
DARLING INTERNATIONAL INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWSNine months ended September 29, 2001 and September 30, 2000(in thousands)
Nine Months Ended ---------------------------- September 29, September 30, 2001 2000 ------------- ------------- (unaudited) Cash flows from operating activities: Loss from continuing operations ............................ $ (10,389) $ (12,962) Adjustments to reconcile net loss from continuing operations to net cash provided (used) by operating activities: Depreciation and amortization ........................... 19,358 20,338 Gain on sales of assets ................................. (109) (318) Changes in operating assets and liabilities: Accounts receivable .................................... (3,371) (103) Inventories and prepaid expenses ....................... (1,083) 941 Accounts payable and accrued expenses .................. (5,328) (4,492) Accrued interest ....................................... (48) 2,994 Other .................................................. (4,123) 3,879 --------- --------- Net cash provided (used) by continuing operations ......... (5,093) 10,277 Net cash provided by discontinued operations .............. - 121 --------- --------- Net cash provided (used) by operating activities .......... (5,093) 10,398 --------- --------- Cash flows from investing activities: Capital expenditures ....................................... (6,016) (4,876) Gross proceeds from sale of property, plant and equipment and other assets ........................................ 142 2,620 Additions to intangibles ................................... (310) (67) --------- --------- Net cash used by investing activities ............. (6,184) (2,323) --------- --------- Cash flows from financing activities: Proceeds from long-term debt ............................... 157,021 129,635 Payments on long-term debt ................................. (142,375) (132,613) Contract payments .......................................... (3,470) (1,427) --------- --------- Net cash provided (used) by financing activities .. 11,176 (4,405) --------- --------- Net increase (decrease) in cash and cash equivalents ............ (101) 3,670 Cash and cash equivalents at beginning of period ................ 3,509 1,828 --------- --------- Cash and cash equivalents at end of period ...................... $ 3,408 5,498 ========= ========= Supplemental disclosure of cash flow information: Cash paid during the period for: Interest ............................................... $ 10,498 $ 7,464 ========= ========= Income taxes, net of refunds ........................... $ 41 $ (2,194) ========= ========= The accompanying notes are an integral part of these consolidated financial statements.
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial StatementsSeptember 29, 2001(unaudited)
GOING CONCERN RISK
The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the Consolidated Balance Sheet at September 29, 2001, the Company has $124.2 million of debt due under its bank credit facilities classified as a current liability because the underlying Credit Agreement had an expiration date of June 30, 2001. The Company entered into a four-month forbearance agreement effective June 29, 2001, with the parties to its existing Credit Agreement that extended the existing Credit Agreement to October 31, 2001. On October 31, 2001, the Company entered an amendment to its existing Credit Agreement to extend the forbearance agreement three months to January 31, 2002. The forbearance agreement, among other things, raises the interest rate under the Credit Agreement from 1% over prime to 3% over prime, requires the payment of a fee of $2.6 million to the lenders with respect to the forbearance agreement, the amendment to the forbearance agreement, and related matters, and limits financial covenants to certain minimum cash flows, based upon the Company’s own projected cash flow for certain periods during the forbearance period. If the Company is unable to consummate a new financing arrangement, then, in the absence of another business transaction or debt agreement, the Company cannot make the principal payment due at maturity and, accordingly, the lenders could declare a default, and attempt to realize upon the collateral securing the debt (which comprises substantially all the Company’s assets). As a result of this material uncertainty, there is substantial doubt about the Company’s ability to continue as a going concern. See the Company’s Form 10-K for the fiscal year ended December 30, 2000, for disclosures related to Going Concern Risk contained therein, and Note 6 – Liquidity, Going Concern Risk, and Capital Resources, contained herein.
Business Segment Net Sales (in thousands): Three Months Ended Nine Months Ended -------------------------------------------------------------------- September 29, September 30, September 29, September 30, 2001 2000 2001 2000 -------------------------------------------------------------------- Rendering: Trade $ 48,974 $ 43,683 $142,200 $139,556 Intersegment 9,735 5,586 22,552 19,653 --------- --------- -------- -------- 58,709 49,269 164,752 159,209 -------- -------- ------- ------- Restaurant Services: Trade 16,071 13,946 45,093 42,447 Intersegment 1,650 1,799 5,008 6,286 --------- --------- --------- --------- 17,721 15,745 50,101 48,733 -------- -------- -------- -------- Eliminations (11,385) (7,385) (27,560) (25,939) -------- --------- -------- -------- Total $ 65,045 $ 57,629 $187,293 $182,003 ======== ======== ======= ======= Business Segment Profit (Loss) (in thousands): Three Months Ended Nine Months Ended --------------------------------------------------------------------- September 29, September 30, September 29, September 30, 2001 2000 2001 2000 --------------------------------------------------------------------- Rendering $ 2,595 $ 1,016 $ 7,508 $ 5,733 Restaurant Services 3,095 732 6,334 2,531 Corporate Activities (5,255) (3,372) (13,783) (10,768) Interest expense (3,954) (3,545) (10,448) (10,458) ------- ------- ------- ------- Loss from continuing operations before income taxes $ (3,519) $ (5,169) $(10,389) $(12,962) ======= ======= ======= =======
September 29, December 30, 2001 2000 -------------------------------------- Rendering $ 60,544 $ 64,199 Restaurant Services 16,898 17,290 Combined Rend./Rest. Svcs. 68,981 72,722 Corporate Activities 18,255 20,294 -------- -------- Total $164,678 $174,505 ======= =======
Transition adjustment on December 31, 2000 to accumulated other comprehensive income $ 2,220 Net change arising from current period hedging transactions 376 Reclassifications into earnings (2,596) ----------- Accumulated other comprehensive income at September 29, 2001 $ - =========== A summary of the gains and losses recognized in earnings during the nine months ended September 29, 2001 follows (in thousands): Loss to interest expense related to interest rate swap agreements $ (487) Gain to operating expenses related to natural gas swap agreements (effective portion) 2,568 Gain to other income related to natural gas swap agreements (ineffective portion) 515 ----------- Total reclassifications into earnings for the nine months ended September 29, 2001 $ 2,596 ===========
DARLING INTERNATIONAL INC. AND SUBSIDIARIESFORM 10-Q FOR THE THREE MONTHS AND NINE MONTHSENDED SEPTEMBER 29, 2001
PART I
The following discussion summarizes information with respect to the liquidity and capital resources of the Company at September 29, 2001 and factors affecting its results of operations for the three months and nine months ended September 29, 2001 and September 30, 2000.
Three Months Ended September 29, 2001 Compared to Three Months Ended September 30, 2000
The Company recorded a loss from continuing operations of $3.5 million for the third quarter of the fiscal year ending December 29, 2001 ("Fiscal 2001"), compared to a loss of $5.2 million for the third quarter of the fiscal year ended December 30, 2000 ("Fiscal 2000"), a decreased loss of $1.7 million, primarily due to increases in overall finished goods prices and increases in collection fees, partially offset by higher raw material prices and energy expenses. Interest expense increased from $3.5 million in the third quarter of Fiscal 2000, to $4.0 million in the third quarter of Fiscal 2001, an increase of $0.5 million, primarily due to increased debt and amortization of fees payable to lenders as interest expense under terms of the forbearance agreement.
The Company collects and processes animal by-products (fat, bones and offal) and used restaurant cooking oil to produce finished products of tallow, meat and bone meal, and yellow grease. In addition, the Company provides grease trap services to restaurants. Sales are significantly affected by finished goods prices, quality of raw material, and volume of raw material. Net sales include the sales of produced finished goods, trap grease services, and finished goods purchased for resale, which constitute 11.3% of total sales in the third quarter of Fiscal 2001 and 13.0% of total sales in the third quarter of Fiscal 2000.
During the third quarter of Fiscal 2001, net sales increased by $7.4 million (12.8%), to $65.0 million as compared to $57.6 million during the third quarter of Fiscal 2000, primarily due to the following: 1) Increases in overall finished goods prices resulted in a $5.6 million increase in sales in the third quarter of Fiscal 2001 versus the third quarter of Fiscal 2000. The Company's average yellow grease prices were 34.3% higher, average tallow prices were 32.4% higher, and average meat and bone meal prices were essentially unchanged; 2) Increases in collection fees resulted in a $2.2 million increase in sales (to offset a portion of the cost incurred in collecting raw material); 3) Increases in finished hide sales of $0.4 million, and 4) Other increases of $0.1 million, partially offset by 5) Decreases in the volume of raw materials processed of $0.9 million.
Cost of sales and operating expenses include prices paid to raw material suppliers, the cost of product purchased for resale, and the cost to collect and process raw material. The Company utilizes both fixed and formula pricing methods for the purchase of raw materials. Fixed prices are adjusted where possible as needed for changes in competition and significant changes in finished goods market conditions, while raw materials purchased under formula prices are correlated with specific finished goods prices.
During the third quarter of Fiscal 2001, cost of sales and operating expenses increased $5.1 million (11.1%) to $51.2 million as compared to $46.1 million during the third quarter of Fiscal 2000 primarily as a result of the following: 1) Higher raw material prices paid, correlating to increased prices for fats and oils, resulted in an increase of $2.5 million in cost of sales; 2) Increases of $2.6 million in operating expenses (primarily increases in energy); 3) Increased hide costs of $0.2 million, partially offset by 4) Other decreases of $0.2 million.
Selling, general and administrative expenses were $6.8 million during the third quarter of Fiscal 2001, a $0.5 million increase from $6.3 million for the third quarter of Fiscal 2000.
Depreciation and amortization charges decreased $0.7 million to $6.1 million during the third quarter of Fiscal 2001 as compared to $6.8 million during the third quarter of Fiscal 2000. This is primarily due to older assets becoming fully depreciated.
Interest expense increased $0.5 million from $3.5 million in the third quarter of Fiscal 2000 to $4.0 million in the third quarter of Fiscal 2001, primarily due to amortization of fees payable to lenders as interest expense under terms of the forbearance agreement.
Other income (expense) was $0.5 million net expense in Fiscal 2001, a $0.4 million expense increase from $0.1 million net other expense in Fiscal 2000. The increased expense was primarily due to fair value adjustments of $0.5 million on the interest rate swap agreements that extend beyond the June, 2001, maturity date of the Credit Agreement.
The Company recorded a $1.2 million increase in the valuation allowance to reduce the carrying value of deferred tax assets during the third quarter of Fiscal 2001 with the result that no deferred tax benefit was recorded attributable to the Fiscal 2001 third quarter loss. The Company recorded a $2.0 million valuation allowance in the third quarter of Fiscal 2000.
The Company made capital expenditures of $2.2 million during the third quarter of Fiscal 2001 compared to capital expenditures of $1.4 million during the third quarter of Fiscal 2000.
Nine Months Ended September 29, 2001 Compared to Nine Months Ended September 30, 2000
The Company recorded a loss from continuing operations of $10.4 million for the first nine months of Fiscal 2001, as compared to a loss of $13.0 million for the first nine months of Fiscal 2000, an improvement of $2.6 million. The decrease in the operating loss was primarily due to increases in finished goods prices, collection fees, finished hide prices and reductions in depreciation, partially offset by higher energy expenses in Fiscal 2001. Interest expense was $10.5 million in the first nine months of both Fiscal 2001 and Fiscal 2000.
The Company collects and processes animal by-products (fat, bones and offal) and used restaurant cooking oil to produce finished products of tallow, meat and bone meal, and yellow grease. In addition, the Company provides grease trap collection services to restaurants. Sales are significantly affected by finished goods prices, quality of raw material, and volume of raw material. Net sales include the sales of produced finished goods, trap grease services, and finished goods purchased for resale, which constitutes 9.9% of total sales for the first nine months of Fiscal 2001 and 11.9% of total sales for the first nine months of Fiscal 2000.
During the first nine months of Fiscal 2001, net sales increased $5.3 million (2.9%), to $187.3 million as compared to $182.0 million during the first nine months of Fiscal 2000 primarily due to the following: 1) Increases in overall finished goods prices resulted in a $0.5 million increase in sales in the first nine months of Fiscal 2001 compared to the first nine months of Fiscal 2000. Average market prices for yellow grease were 4.2% higher, tallow prices were 3.1% higher, and meat and bone meal prices were 0.1% lower; 2) Increases in collection fees of $7.7 million, and 3) Increases in finished hides sales of $2.0 million, partially offset by 4) Decreases in products purchased for resale of $3.1 million; 5) Decreases in raw material volumes and yields on production of $1.5 million; and 6) Other decreases of $0.3 million.
Cost of sales and operating expenses include prices paid to raw material suppliers, the cost of product purchased for resale, and the cost to collect and process raw material. The Company utilizes both fixed and formula pricing methods for the purchase of raw materials. Where possible, fixed prices are adjusted as needed for changes in competition and significant changes in finished goods market conditions, while raw materials purchased under formula prices are correlated with specific finished goods prices.
During the first nine months of Fiscal 2001, cost of sales and operating expenses increased $1.8 million (1.2%) to $146.2 million as compared to $144.4 million during the first nine months of Fiscal 2000 primarily as a result of the following: 1) Increased operating expenses of $8.0 million (including primarily energy expense), partially offset by 2) Decreases in products purchased for resale of $3.1 million; 3) Decreases in price of raw materials of $2.8 million; and 4) Other decreases of $0.3 million.
Selling, general and administrative expenses were $20.6 million during the first nine months of Fiscal 2001, a $0.8 million increase from $19.8 million for the first nine months of Fiscal 2000.
Depreciation and amortization charges decreased $1.0 million to $19.4 million during the first nine months of Fiscal 2001 as compared to $20.4 million during the first nine months of Fiscal 2000. This is primarily due to older assets becoming fully depreciated.
Interest expense was basically unchanged at $10.5 million during the first nine months of both Fiscal 2001 and Fiscal 2000, primarily due to higher debt, and amortization of fees payable to lenders as interest expense under terms of the forbearance agreement, partially offset by a decrease in interest rates.
The Company recorded a $3.6 million increase in the valuation allowance to reduce the carrying value of deferred tax assets during the first nine months of Fiscal 2001 with the result that no deferred tax benefit was recorded attributable to the Fiscal 2001 loss for the first nine months. The Company recorded a $4.9 million valuation allowance for the first nine months of Fiscal 2000.
The Company made capital expenditures of $6.0 million during the first nine months of Fiscal 2001 compared to capital expenditures of $4.9 million during the first nine months of Fiscal 2000.
The operations of the Bakery By-Products Recycling segment is classified as discontinued operations. The Company recorded a gain on disposal, net of tax, of $0.1 million during the first nine months of Fiscal 2000 . The sale of this business segment was closed on April 5, 1999.
The Company generated a net loss of $10.4 million for the nine months ended September 29, 2001 compared to a net loss of $12.8 million in the nine months ended September 30, 2000.
Cash used by operating activities was $5.1 million in the nine months ended September 29, 2001, compared to cash provided by operating activities of $10.3 million in the nine months ended September 30, 2000. This decline is primarily due to reductions in accrued liabilities from payments on drawn letters of credit and accrued interest.
Substantially all assets of the Company are either pledged or mortgaged as collateral for borrowings under the Credit Agreement. The Credit Agreement contains certain terms and covenants, which, among other matters, restrict the incurrence of additional indebtedness, the payment of cash dividends, the retention of certain proceeds from sales of assets, and the annual amount of capital expenditures.
On September 29, 2001, the Company had a working capital deficit of $114.8 million and its working capital ratio was 0.29 to 1 compared to a working capital deficit of $106.8 million and a working capital ratio of 0.30 to 1 on December 30, 2000.
In July, 2001, the Financial Accounting Standards Board (FASB) issued Statements of Financial Accounting Standards No. 141 "Business Combinations" and No. 142 "Goodwill and Other Intangible Assets." Statement 141 requires that all business combinations initiated after June 30, 2001, be accounted for under the purchase method and Statement 142 requires that goodwill no longer be amortized to earnings, but instead be reviewed for impairment. Statement No. 142 will be effective for fiscal years beginning after December 15, 2001. Also, the FASB has recently issued Statement No. 143 "Accounting for Asset Retirement Obligations" and Statement No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets." Statement No. 143 establishes requirements for the accounting of removal-type costs associated with asset retirements and Statement 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. Statement No. 143 is effective for fiscal years beginning after June 15, 2002, with earlier application encouraged, and Statement 144 is effective for fiscal years beginning after December 15, 2001, and interim periods within those fiscal years. The Company is currently assessing the impact of these standards on its financial statements.
This Quarterly Report on Form 10-Q includes "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts included in the Quarterly Report on Form 10-Q, including, without limitation, the statements under the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and located elsewhere herein regarding industry prospects and the Company's financial position are forward-looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. In addition to those factors discussed elsewhere in this report, important factors that could cause actual results to differ materially from the Company's expectations include: the Company's ability to refinance its Credit Agreement which expired June 30, 2001, which has been extended to January 31, 2002 by an amendment to the existing Credit Agreement which extended the forbearance period; the Company's continued ability to obtain sources of supply for its rendering operations; general economic conditions in major world markets; and prices in the competing commodity markets which are volatile and are beyond the Company's control. Among other things, future profitability may be affected by the Company's ability to grow its business which faces competition from companies which may have substantially greater resources than the Company.
Market risks affecting the Company are exposures to changes in prices of the finished products the Company sells, interest rates on debt, and the price of natural gas used in the Company's plants. Predominantly all of the Company's finished products are commodities which are generally sold at prices prevailing at the time of sale. The Company uses interest rate and, through March, 2001, natural gas swaps to manage these related risks. Beginning in April, 2001, the Company is using natural gas forward purchase agreements with its suppliers to manage the price risk of natural gas used in its facilities. While the Company does have international operations, and operates in international markets, it considers its market risks in such activities to be immaterial.
At September 29, 2001, the Company was party to two interest rate swap agreements. Under the terms of the swap agreements, the interest obligation on $45 million of Credit Agreement floating-rate debt was exchanged for fixed rate contracts which bear interest, payable quarterly. One swap agreement for $25 million matures June 27, 2002, bears interest at 6.5925% and the Company's receive rate is based on the three-month LIBOR. The second swap agreement for $20 million matures on June 27, 2002, with a one-time option for the bank to cancel at June 27, 2001, which the bank has declined to exercise, bears interest at 9.17% and the Company's receive rate is based on the Base Rate. A third swap agreement for $25 million matured June 27, 2001, bore interest at 9.83% and the Company's receive rate was based on the Base Rate.
As of September 29, 2001, the Company has forward purchase agreements in place for purchases of approximately 272,000 mmbtu's per month of natural gas for October through December, 2001, with an average purchase price of $4.31/mmbtu, and approximately 253,600 mmbtu's per month of natural gas purchases for January through March, 2002, with an average purchase price of $4.24/mmbtu.
DARLING INTERNATIONAL INC. AND SUBSIDIARIESFORM 10-Q FOR THE THREE MONTHS ENDED SEPTEMBER 29, 2000PART II: Other Information
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.