Darling Ingredients Inc (DAR) 2010 Q4 法說會逐字稿

Good morning, everyone, and welcome to the Darling International conference call to discuss the Company's fiscal fourth-quarter and full-year 2010 financial results.

With us today are Mr. Randall Stuewe, Chairman and Chief Executive Officer of Darling International, and Mr. John Muse, Executive Vice President, Finance and Administration. After the speakers' opening remarks, there will be a question-and-answer period. Instructions to ask questions will be given at that time.

This conference call is being recorded, and your participation implies consent to our recording of this call. If you do not agree to these terms, please simply drop off the line. I would now like to turn the conference call over to Mr. Brad Phillips, Treasurer of Darling International. Please go ahead, sir.

Good morning, ladies and gentlemen. Thank you for joining us to review Darling's fourth-quarter and fiscal 2010 earnings results.

Randy Stuewe, our Chairman and CEO, will begin today's call with an overview of our fourth-quarter and full-year financial performance and discuss some of the trends that impacted our results. John Muse, Executive Vice President, Finance and Administration, will then provide you with additional details about our financial results. Randy will conclude the prepared portion of the call with some general remarks about the business, after which time we will be happy to answer any questions you may have.

Before we began, I need to remind everyone that this conference call will contain certain forward-looking statements regarding the business operations of Darling and the industry in which it operates. These statements are identified by words such as may, will, begin, look forward, expect, believe, intend, anticipate, should, estimate, continue, momentum, and other words referring to events that occur in the future.

These statements reflect Darling's current view of future events and are based on its assessments of and are subject to a variety of risks and uncertainties beyond its control, including continued turmoil existing in world financial, credit, commodities, and stock markets; a decline in consumer confidence and discretionary spending; the general performance of the U.S. economy; global demands for biofuels and grain and oilseed commodities, which have exhibited volatility; and future expenditures relating to Darling's joint venture with Valero Energy Corporation to construct and complete a renewable diesel plant in Norco, Louisiana; each of which could cause actual results to differ materially from those projected in such forward-looking statements.

Other risks and uncertainties regarding Darling, its business, and the industry in which it operates are referenced from time to time in the Company's filings with the Securities and Exchange Commission.

Darling is under no obligation to and expressly disclaims any such obligations to update or alter its forward-looking statements, whether as a result of new information, future events, or otherwise. With that, I would now like to turn the call over to Randy.

Thanks, Brad. Good morning, everyone, and thanks for joining us. It's my pleasure to welcome you to the Darling International earnings call to discuss our financial results for the Company's fourth quarter and our fiscal year ended on January 1, 2011.

2010 is now in the record books, and it will be remembered as a transformational year with a solid underlying financial performance. Not only did we deliver exceptional results, we did this while integrating a large regional acquisition located in the Great Lakes, as well as the largest deadstock service provider in Nebraska, and only to be topped off with our recently announced merger with Griffin Industries.

We are America's leading provider of rendering, recycling, and recovery solutions to the nation's food industry.

The Griffin Industries merger, completed on December 17, 2010, is the largest and most significant acquisition we have made in our 128-year history. As we indicated in our last call, our combined companies will collectively operate more than 125 facilities in 42 states, employing over 3,300 people and operating one of America's top trucking fleets. Joining forces with this high-caliber company creates a platform second to no one in the United States. Griffin brings a well-managed rendering business, a leading bakery waste recycling system, and a mindset for creating value for both the customer and supplier. Griffin's legacy is one we are proud to bring to Darling shareholders.

Now let me turn to some highlights that impacted our results for the quarter. With finished product prices rapidly rising during the quarter, coupled with strong raw material volumes, plus a two-week contribution from Griffin, we reported an adjusted EBITDA of $45.4 million. This included $5.6 million of EBITDA from Griffin's operations, plus an add back of $10.6 million in transaction expenses related to the merger. For Darling's operation, this nets to a $39.8 million operating EBITDA for the quarter.

Overall, our fourth quarter and December were extremely strong by all historical standards.

Now let me provide some color on the underlying drivers of our performance. Escalating finished product prices for our fats and greases were the primary driver of our performance in Q4, as we saw the dramatic run-up, starting in October, driven by increasing corn prices and strong export demand. Protein prices remained relatively flat and came under some pressure as slaughter volumes increased and the increased supply had to be absorbed.

From a raw materials perspective, we experienced our strongest quarter for the year throughout our system. Red meat, pork, and poultry inputs were all up solidly. The Southeast, Midwest, and West Coast raw material volumes were all regionally strong.

Restaurant services also had a strong quarter, due to a significant increase in finished product prices, driven by global biofuel demand and aided by higher raw material volumes as compared to last year and the prior quarter. Improving general economic conditions led to the higher input volumes and translated into a nice performance for this segment.

On the bakery waste recycling front, we saw improving raw material tonnage throughout our system. Our new North Baltimore, Ohio, facility continues to make progress and is the primary driver for our increased volumes. Finished product pricing tracks corn closely, so we continue to benefit from a tightening U.S. corn crop. We plan to report more detail on this segment when we release first-quarter earnings.

In addition to our solid financial performance and the successful closing of the Griffin merger, we achieved a significant milestone with regard to our joint venture project with Valero. As we stated in our press release dated January 20, 2011, the U.S. Department of Energy formally offered a $241 million conditional loan commitment to build this renewable diesel facility to be located in Norco, Louisiana, on a site adjacent to Valero's St. Charles refinery.

Diamond Green Diesel is expected to convert grease, primarily animal fats and used cooking oil supplied by Darling, into renewable diesel. The facility is expected to produce 9,300 barrels per day, or around 137 million gallons annually. We are currently negotiating the final loan documents and will share more information as it becomes available.

On the integration front, we are in the infancy stage of combining the two companies and capturing synergies. Our philosophy is simple. Proceed slowly and steady while focusing on maximizing earnings, protecting our supplier relationships, and providing great service that our customers have grown to expect.

To date, we have integrated our forward operations with the announced closing of two former Darling locations by combining our routes and tonnage into the larger, more efficient Griffin facilities. Next up will be our Georgia operations, followed by our Great Lakes region and Texas. Administratively, we are proceeding as planned.

Finally, our initiative in San Francisco to construct a 10 million gallon biodiesel plant finally received approval by the Port Commission. We are now working with the city and port officials to develop the business model to support this investment.

I'd now like to turn the call over to John to review our financials. After John concludes, I'll come back with some final comments, and we will move to Q&A. John?

Thanks, Randy. For the fourth quarter, the Company reported net sales of $227.2 million, compared to $149.6 million in the year-ago period. The $77.6 million increase in sales primarily resulted from higher raw material volume, higher finished product prices, and a two-week sales contribution of $27.7 million from the Griffin acquisition.

Net income for the 2010 fourth quarter was $10 million, or $0.12 per share on a fully diluted basis, as compared to a net income of $9.2 million, or $0.11 per share, for the 2009 comparable period.

As noted in the press release, the $0.8 million increase in net sales for the fourth quarter resulted primarily from higher finished product prices, increased raw material volume, and increased earnings from Griffin, which was partially offset by increased transaction expenses of $13.7 million related to the Griffin acquisition. The $13.7 million in transaction expenses reduced the fourth-quarter net income by $8.1 million, or $0.10 per share. Therefore, net income adjusted for transaction costs for the fourth quarter was $18.1 million, or $0.22 per share.

At the segment level, rendering generated net sales of $163.9 million for the fourth quarter, as compared to $114.3 million in the fourth quarter of 2009. The restaurant services segment generated net sales of $53.1 million, as compared to $35.2 million in the fourth quarter of 2009. Additionally, bakery byproducts sales contributed $10.2 million in the fourth quarter of 2010.

Now, turning to our results for the full year ended January 1, 2011, Darling reported net sales of $724.9 million, as compared to $597.8 million during 2009. The $127.1 million increase primarily resulted from higher finished product prices, increased raw material volume, and increased sales from the acquisition of Griffin.

Net income for 2010 was $44.2 million, or $0.53 per share, as compared to $41.8 million, or $0.51 per share, for the 2009 comparable period. The $2.4 million increase in net sales for 2010 resulted primarily from increases in both finished product prices, increased raw material volume, which was partially offset again by the increased transaction costs related to the Griffin acquisition.

Interest expense was $8.7 million during fiscal 2010, compared to $3.1 million last year, an increase of eight -- of $5.6 million, primarily due to a $3.1 million increase in transaction fees and an increase in interest due to our increased debt resulting from the acquisition.

Other expenses was $3.4 million in 2010, a $2.5 million increase from $1 million reported a year ago. The increase is primarily due to the losses resulted from fires at two of our locations and the write-off of deferred loan costs with the refinance.

At this segment level, rendering generated net sales of $536.9 million in 2010, as compared to $458.6 million in 2009. And restaurant services generated net sales of $177.8 million for 2010, as compared to $139.2 million in 2009. Bakery segment sales were the $10.2 million as reported earlier.

Moving on to the balance sheet, as of January 1, Darling's cash and cash equivalents totaled $19.2 million, versus $68.2 million at the end of 2009. On January 1, 2011, the Company had working capital of $24.6 million, and our working capital ratio was 1.17 to 1, compared to working capital of $75.1 million and a working capital ratio of 2.051 to 1 in 2000 -- at the end of 2009. The decrease in working capital is primarily due to the decrease in cash and cash equivalents.

At January 1, 2011, our debt was $710 million, as compared to $32.5 million at the end of 2009. The debt increase of $677 million was primarily due to the acquisition of Griffin Industries. The debt consists of $160 million in a revolving credit facility, a $30 million Term B loan, and $250 million of senior unsecured facility.

Our capital expenditures were $24.7 million during 2010, as compared to $23.6 million in 2009, an increase of $1.1 million. Also, acquisitions in 2010 totaled $855 million, as compared to $34 million in 2009, primarily due to the Griffin acquisition.

Now I'll turn the call back over to Randy.

Thanks, John. In wrapping up, let me reiterate that fiscal 2010 was a transformational year for Darling, and we are all proud of our results.

We are excited about our long-term prospects for growth and realizing the combined value Darling and Griffin can deliver. We have fortified our capital structure with our recent secondary offer to provide more flexibility to achieve our long-term growth objectives, and we are well positioned as we move forward into 2011. I'd like to thank our management teams from both Darling and Griffin for helping to make 2010 a record year.

With that, I'd like to now open it up to questions. Operator?

(Operator Instructions). Farha Aslam, Stephens Inc..

Good morning. Congratulations on a great quarter. A couple questions. The first one, Randy, could you give us some color about forward-read on volumes, particularly in rendering and restaurant services?

Yes. And what I can comment on is -- obviously, we've now, or on Saturday, will complete the first two months of the first quarter here.

I'll comment a little bit on January. We saw December incredibly strong on all fronts. We were a little concerned if it was going to carry over into January. Traditionally, you see a little bit of a slowdown, but from the rendering side, we saw January as strong, if not stronger, than December, and that was pretty much on all fronts. Traditionally on the bakery side, you get a little bit of seasonality as the commercial bakeries slow down after the holidays, and then they ramp up in the spring again. But rendering inputs were strong in January.

February, we got hit pretty hard. The last two weeks of January into February, and we lost a number of days of running time at a whole bunch of plants because of weather. So, I'll see how those translate in.

On the restaurant side, grease volumes were very, very strong across the country for January, except in the areas where we were unable to run routes because of snowstorms and ice. So, other than that, we think that the first quarter is off to a really nice start from a volume side, Farha.

I think it allows me, then, to trend into a question here that will probably be asked, and we'll just take it here, is what do you see for the balance of the quarter on through the year? We see red meat and pork really doing pretty well for the first half of the year here. The chicken side, as you know, and you're the expert in that area, clearly is under some pressure here at the earnings level. But the volumes, at least in the short term here, appear to be really stable and the inputs are strong for us.

Thank you. And then, in terms of pricing, could you just highlight why yellow grease pricing has been so strong, even in some cases stronger than corn prices?

One word. Exports. And exports to two markets. Animal feed exports into South America, the PacRim, and then European biofuel imports. Waste cooking oil works very well, or at least did, into the European biofuel formulas.

Great. And then my final question, and then I will pass it along, is regarding the DOE loans. Recently, you've seen some consternations regarding the budget in Washington. Do you anticipate that having any impact in terms of timing of that green diesel facility?

Well, I think it's a great question. Let me comment and give you our views on that, and then, number one, we are proceeding down the same path we were to get conditional loan commitment, working with the same DOE teams to finalize the promissory notes and all the credit facility documents that are having to be created.

It's a monumental task, and as you can expect, borrowing money from the government involves paperwork, a lot of paperwork. So we're proceeding down that path. It's working very well. The teams continue on both sides, Valero, Darling, and the DOE, continue to meet two and three times a week to get the documents done. Anticipating here sometimes towards the end of first quarter to early second quarter to have that completed.

Whether or not there's some change in Washington as to the program being defunded under some type of resolution, we are proceeding as if that's not going to happen. I think you can, from a commonsense standpoint, pretty much get comfortable that that's probably not going to happen, but I'll also handicap it and say everything is up in the air in Washington right now. But all signals to us are that there's not an issue at this time.

Great. Very helpful. Thank you for your comments.

Ken Zaslow, BMO Capital Markets.

Good morning, everyone. Just a couple questions on the integration. Have you guys started talking to your suppliers to see how they are feeling about the integration? And have you started to see there may be some more synergies on the revenue side? And can you talk about that?

Yes, a little bit, Ken. Number one, I think we went through the holidays here and kind of let everybody take a little breather. Came out of the block starting hard and fast on January 1.

We knocked off the low-hanging fruit, which was the Florida operations and have ceased operations there. We're moving into our Georgia locations now. We have four or five or six or seven locations there, and I want to say there's 12,000, 13,000, 14,000 customers that we're trying to properly route into the right locations. So, we're moving forward there, as we said.

And then after we get Georgia completed, we will move over to the Ohio, Indiana, Illinois, and then Texas locations, and try to get the tonnage in the right locations.

From a customer perspective, all feedback has been positive. From our large accounts, McDonald's, the Costcos of the world, the feedback is very, very positive from a perspective that they're excited about having the chance to work with us more on a national level and make sure that we pull the services in-house.

So, at this time, we're not -- we haven't lost any customers that I'm aware of, we're under no threat from any suppliers, and everything feels pretty darn good.

And any early wins?

I wouldn't say there's any early wins at this time, either.

All right. No, that's fair. And then, my other question, just going a little bit into the rendering side, on the volume side, that seemed like it picked up pretty strong, more than I even expected, and it seems like -- I'm trying to figure out, because you said that the volumes seem still very strong and you're very happy with them, but you put a couple caveats. Net net, are you looking for volumes to continue to increase? Or is the challenges with the weather something that could take volumes down for the quarter? I just didn't understand the type of commentary you're trying to do.

And then, beyond that, I'm assuming you're not -- all the weather issues are purely temporary. Is that fair?

Yes, that's fair. I guess, let's try it one more time.

First quarter is always a bizarre quarter here because of weather, and when you're running that many trucks, if you get ice or snow, you don't get to make the routes. A lot of the slaughterhouses still run, but we had such extreme weather in some of the locations that they didn't -- weren't able to run because they weren't able to get labor there in February.

I have not seen the February volume numbers. January was extremely strong. It was across-the-board strong and also highlighted by the amount of deadstock that we were able to bring in in the Midwest.

What I'm trying to telegraph in the second -- or the first half of the year is I anticipate volumes in the red meat and pork being very, very strong and remaining very positive to us. In the chicken side, it's remaining strong right now, but I think the poultry industry is printing some pretty serious red ink that's out there right now.

On the back half of the year, the question for -- that I see out there on the red meat side is, is there enough animals to support the slaughter rates that are underway right now? I think you will see a little bit of tempering there. Pork-side, it feels pretty good, and the chicken side, just really is a question of how strong their balance sheets are. Their freezers are full, at least as the trade publications I read, so if we get the continued strong meat exports, I think the meat industry will be pretty good.

But I guess the way I'd handicap it here is you got a really strong first half that looks to be set up both on price and volume. The back half of the year, lots of unknowns out there, how the world adjusts to the higher prices.

And then, my next question is on the bakery side. Can you give us the same rundown on the volume? Because it seems like that volume seems like they could be improving with sustainability and -- it just seems like there's more volume growth to be had there. There shouldn't be any of the similar issues. Is that fair?

I think that's fair, Ken. I mean, obviously, after you come off the holidays, the eating of the cookies and crackers and snacks dies off a little as we all try our resolutions again, New Year's resolutions, and then in the spring it starts to pick up a little bit of seasonality there.

January was really strong, stronger than year over year, because of the startup of the North Baltimore, Ohio. February, a little bit down, once again driven by weather. And then March, it typically starts to pick up.

Overall, that business tracks general economic optimism, so if you're feeling pretty good, you're eating out, just like the restaurant side, and you're also buying those types of products for home. So I think, overall, we're fairly optimistic that that business is going to have increasing volumes throughout the year also.

I appreciate it. Thank you.

Lindsay Drucker Mann, Goldman Sachs.

First question I had was, are you seeing any impact on your fat and grease prices based on the initial ramp of the Dynamic Fuels plant?

The answer is no, we're not, in the sense of we're not -- that plant, I have very little knowledge of as to what they're actually running or capable of running right now. I believe it is underway.

But very little of our material, if any of it, is headed down there. And I don't know that I would say it's having a major impact on the industry today.

We are seeing from the biofuel side, the whole industry is chasing restaurant grease and what I'd call choice white grease, a cleaner animal fat, to run as at least a blend. And I think what you're seeing, Lindsay, at least what our read on the [SMB] here is, is given the mandates for this year, they came out of the blocks fairly slowly here in January and February, but to make the 800 million gallons, there's going to be a pretty significant ramp up here as we get warmer into the spring and summer.

So we're anticipating a pretty good demand on our fats that come on, whether it's from Dynamic or whether it's from the other biodiesel producers out there for the summer.

Okay, thanks. And then, just on the synergy that you discussed with the Florida closures and then tackling Georgia and Texas. For those three projects alone, can you quantify how much in annualized synergy you expect that to deliver?

I really can't today, Lindsay. I mean, I guess we would characterize Florida as having -- initially, we went in and didn't think it was a whole bunch of opportunity there, and we were taking the easy one first, if you will.

And we think there's just a lot more opportunity, both on the routing and then the product trading side of it, then also on the procurement side. And so, I think -- give me the first quarter, and we'll see if we can take a better shot at it, but right now, it feels pretty good for us.

Okay. And then, just thinking about in the event we do get a scenario where very high grain prices lead to some liquidation on the cattle side, can you just describe the cadence of how that would impact your P&L? So would you have very robust volume and good operating leverage initially, and then that -- as the liquidation occurs, and how long would that stand? And then, deal with some scarcity and supply?

It's something that we look at over years and years and years, and if they're, quote -- there's never really a liquidation that goes on.

That's a business that it takes 18 to 24 months to grow an animal out. You've got the mix of feedlots. You've got the mix of pasture-grown animals. And the feedlots are full in the West right now. The profitability at the processor and the feedlot are there. So it doesn't feel like there's a lot of risk there, at least in the near term.

But long term, long term being the second half of the year, how much corn is available, how much do we grow? There's lots of ingredient substitutes from BDGs to other products that are now available at a lower cost and different nutritional value that the feedlots and the custom feeders are now adjusting to.

So, I just don't want to -- there's not a light switch on and a light switch off. I think, overall, the beef side looks pretty solid. It may be down 1% or 2% driven by the higher grain costs, but right now, it feels stronger than 2009.

Okay. And then, just following on that, my last question. Given some of the scarcity concerns abroad about availability of grains and oilseeds, do you think there's any chance that some markets that have closed to meat and bone meal will reopen?

Not really in the short term, but I think there's continuing to look for other ingredients out there, but I don't see anything happening there in the short term.

I wish it would. Meat and bone meal, as the cattle slaughter, it's a very -- it's a domestic and export balanced business. If a slaughter plant decides to run on Saturday, it ends up coming in Monday morning and selling its meat and bone meal and pressuring the market. So we've seen the pressure from the increased slaughter here, and now we've got exports starting to rebound a little bit in that area, and we're starting to pick up at least -- not as much of a discount to soybean meal that we were, so I feel pretty good about it going forward. But I'm not sure that I would be ready to handicap that any additional markets are going to open.

Okay. Thanks very much.

Stephen Share, Morgan Joseph.

Good morning. Say, I wanted to ask you a question concerning renewable diesel versus crude diesel. Was sort of a premium do you think it's realistic to expect that renewable diesel can get over crude -- crude base?

Steve, I'm not sure. There's not enough of that product made today to have defined that market. That's part of our challenge.

When we've done our financial modeling and what we've shared with the Street on the -- on a look back of the green diesel plant for the last 10 years, we just assumed even money to alter low-sulfur diesel, plus a tax credit or RIN value of $1 a gallon. And so at the end of the day, we have not really assigned a premium to it.

Now, what you can see is what we call -- we are starting to watch what we are calling the green premium out there, and from a -- if we were to model this facility in January and February, even with that prices at $0.42 to $0.46 delivered down to Norco, Louisiana, the EBITDA of that facility annualized would have been somewhere between $180 million and $250 million. So, there's a pretty significant green premium out here right now for a product that's pipeline ready and can make the mandate standards.

What you have to remember is, is that there is a premium for the RINs generated off this facility because of the carbon value or the greenhouse gas reduction. So, that becomes the green premium that's in there.

I see. And then, kind of just on a housekeeping note, I was surprised how low SG&A as a percent of sales was. Is that a function of sales being so high? Or was there something unique in the quarter? Historically, both you and Griffin have run between 9% and 9.5% as far as a percent of sales. Could you just maybe talk about that and how we should think about that number going forward?

Well, in reviewing the pro formas that we put out on the combination of the businesses, we're going to see some benefit, not immediately, as we've have indicated, on the SG&A, but we only had Griffin in for two weeks, remember, in the fourth quarter.

And in comparison to a year ago, we've got Griffin in there, SG&A for about $2.3 million is outlined in the MD&A. We've also -- a lot of people, we -- in looking at these comparisons, we also forget that we made the Sanimax acquisition at the very last day of 2009. So those increased costs are in there, as well as the Lexington, Nebraska, byproducts acquisition that we made during the summer.

So, if you look back historically, our SG&A, we've tried to keep that fairly level. I think we will have to kind of wait and see through the end of the first quarter and the review of that, and then we can, at that point in time, kind of give you a much better feel for where our SG&A is going to come out going forward.

Okay. And then, just the last one for me, given how high tallow and yellow grease prices are right now, is there anything you can to in terms of contracting to kind of lock in some of that higher price? Or is it just -- just as on the market, you're just not able to do it. I'm curious if there would be any way. It seems like, if possible, you would want to lock in that high price. Is there anything you can do there?

Well, to lock in a price means that you can sell something and you can buy something.

We can certainly go out and sell some yellow grease and some tallow, and we have here pretty much for first quarter, is taken care of, but at the end of the day, we want to stay close to home because we don't own the raw material. The raw material comes in and is priced every week in almost 60% to 70% of the cases. So, you want to be careful not to speculate and take a position against that.

The -- I don't know that I share the feeling with you yet that these are high prices. So, I think there's a -- the market's now adjusting to corn at $7, at least. We're starting to see exports pick up, and I think the -- we have sold some stuff in first quarter out here at $0.50. So, I'm not sure we're done with the run here yet if there's any type of weather issue, Steve, in the summer relative to corn or soybeans.

Great quarter. I'll pass it along.

Dan Mannes, Avondale Partners.

This is Brian Shore for Dan Mannes. How are you? Just real quickly on the Griffin business, can you kind of talk about the seasonality, both on their rendering and the bakery business, relative to your existing legacy-based business, if there is any difference there?

The rendering side for them is relatively -- it's identical to ours, or very close.

At the end of the day, there's very little seasonality there. It's a 1%, 2%, 3% swing. Their fourth quarter and their, at least, January was very, very strong and right on target of where we anticipated it to be and where they told us it would be.

On the bakery side, or let's talk about the restaurant side for them, or the grease collection side. The grease collection side is predominantly in the Southeast. It had limited weather impact, so theirs was pretty much on plan, while our Northern plants have a little problem getting the trucks out, although we did have a few days in Atlanta that were struggling for all trucks.

From a bakery standpoint, traditionally that follows the -- what I would say very similar to the restaurant grease seasonality, in that the commercial bakeries start to ramp up in the spring and run hard through Thanksgiving to early December, and then they back off in first quarter, and then come back up. So I think for us on a year-over-year comparison, we're going to be up because of the North Baltimore facility, but on a general seasonality, it's pretty similar to the grease business.

Okay. And still on Griffin, I know you touched on one of the questions previously about synergies and it being early. But going back to when you originally made the acquisition, I think your expectations from synergies were relatively modest. Has that outlook changed since you've gotten a better look at fitting the pieces of the puzzle together, and is the outlook there better, maybe, than you had initially thought?

Yes, let me comment a little bit there. First off, as we said, our philosophy is very simple. As a management teams, neither company was in triage or broken here. So it's not like we need to make immediate cuts in order to capture value and keep the balance sheet strong.

Given where the markets are and the outlook for our businesses, we universally want to make sure that we're maximizing earnings right now in the current environment, make as much as we can right now while going slow and steady on bringing home the synergies.

We prioritize the synergies. Obviously, Florida was very easy. Georgia is a little more complex. There is clearly some opportunities up in the Great Lakes region and in Texas, and we're slowly going after all of those.

I think from a management perspective, our optimism has probably increased on relative opportunity for synergies. I think the management teams of Darling and Griffin, as we start to look at them, I think the comments range from, gee, it looks like there's more there than we originally thought to, oh, this is going to be a little more complicated. So, I guess at the end of the day is I believe there's probably more there than I originally thought, but I also think it's -- we've got to be cautious on how long it's going to take us to bring them home.

I think, long term, we've got a great platform to build off of, and I think everybody will be pleased with what we're able to deliver, both from the customer and the supplier side.

That certainly makes sense.

Just real quickly on the JV with Valero, and you touched on this a little bit earlier. In the past, you've kind of hinted or at least alluded to the fact that the loan guarantee was almost a gating item to moving forward. Again, dealing with hypotheticals here, if for some reason the funding to that program is cut, would you guys still -- is the plan still to move forward, but maybe access traditional capital markets, debt markets for financing?

I think, you know, I want to maintain our position that we remain cautiously optimistic that everything is going to go forward as is.

So we're under -- we're working under that premise, as is the DOE right now. We always want to make sure that we give the disclaimer that says we don't control what Washington does, but right now we feel pretty good about that.

From the standpoint of what's our Plan B, I think the telegraphing to you guys was, well, we went out and did the secondary offering to clean up the balance sheet. It was a little more than people had anticipated. The rationale there was to get the balance sheet in a position to give us a Plan B here in case something did change or there became another growth opportunity that we wanted to pursue.

So, I think all options are on the table. I can't speak for Valero, but I would characterize their interest in the project as very, very high. When we saw, as you guys follow, RINs out there, we've seen RINs go from $0.03 a gallon to $1.80 a gallon. So, clearly, there's a financial impact that says you probably want to build one of these facilities and operate it.

That make sense. Thank you very much.

Joe Farricielli, Cantor Fitzgerald.

Just quickly, can you go through the balance sheet again? What the breakout was?

The breakout as far as the acquisition of Griffin?

Yes. The 710 -- I mean, obviously, I know the 30 is the old term loan B.

Well, the old term loan A was paid off prior to the acquisition. We had cash on the balance sheet and then we used cash for the acquisition.

But we ended up at the close with $160 million borrowed against the revolver. The revolver facility is $325 million. And then, we had a $300 million term B.

Oh, okay. All right, that's what I misunderstood. That's where -- okay. I've got it now. (Multiple speakers). And then --

$300 million term B.

Okay. Question for you. How do we look at leverage -- when you release your K, are you going to have a pro forma as if you had acquired Griffin at the beginning of the year?

Yes, there will be pro forma information in there on Griffin. That's correct. (Multiple speakers).

Okay. Good enough. Thanks, guys.

JinMing Liu, Ardour Capital.

First question is on the cost side. Diesel price is high and -- but net gas price is relatively low. Have you any new strategy in place to handle that situation?

Yes, I think -- JinMing, this is Randy. I think -- I don't know that there's any change in strategy.

We still look at natural gas from an opportunistic standpoint and from a risk perspective, meaning that if we look at our formulas, both in our processing relationships and agreements, both on the Darling and Griffin side, as to where we have passthroughs and where we don't have passthrough exposure.

I would tell you from a corporate perspective, when we're -- we own most of our gas, if not all of it, for first quarter. We're starting to own a lot more out into second quarter now as we also have some protection in the diesel side. The spread between natural gas and crude oil right now is getting about as wide as it gets, and it just feels like that there's probably a good reason to own it versus staying shorted here as we bring home the earnings to you guys.

Okay. My second question is related to the San Francisco biodiesel facility. What is the timetable for that facility?

Sorry for the laugh here. It feels like it's been a lifetime for me so far.

The -- you know the good news is we've executed our lease with the port that defines the conditions for constructing the facility along with operating it, and some other conditions relative to beautification of the existing operation we have there.

We now have to go back to the port and into the city and now construct the business plan with them, which was originally founded about 2.5 years ago, which said they want us to convert the waste greases collected in the city of San Francisco into biofuel to fuel their ambulances, fire trucks, and marine ferries, and so, what we're trying to do now is to go back and construct that business model.

What we feel favorable about right now is, by bringing Griffin into the family here, Griffin has operated a small biodiesel plant since the late 1990s that has very solid technology in converting the fats and greases to ASTM quality biodiesel. So we now possess technology that's proven, with people that know how to operate it and deliver it. And we know what it costs to build it. So we've got the operational piece.

We've now got to go develop the marketing piece. Essentially from a perspective of priorities, we're trying to get the Valero deal done first, and get the DOE wrapped up here in -- this spring, and then we will turn our energy back to bringing that opportunity home.

Okay, thanks a lot.

John Quealy, Canaccord Genuity.

It's Mark Sigal for John. First, just a question on the non-formula business. Can you talk a little bit about your outlook there set against the backdrop of the strong pricing environment? And how has pricing held up from a feedstock standpoint for you guys into Q1 so far?

The yellow grease side of the business, Griffin and Darling had almost nearly similar-sized grease collection businesses that spanned 42 states. Very similar procurement models in the way that we did this business with customers.

We're trying to now put those models together with one voice and one approach to common customers.

The volumes have held very nicely. I want to say that, overall, around the entity, Mark, around 60% of the new company is on some type of pricing formula, with 40% upside or free exposure on the commodity lift. So, volumes remain good. The price of that product, if it wasn't liquid gold at $0.25, it's liquid gold now at $0.45.

Okay. And then, not to put the cart before the horse here, but when looking at the green diesel facility, assuming you pass the DOE gating requirement here in the near future, can you talk about cash outlay or cash requirements over the next one to two years as you look to get into the preconstruction and construction phases?

Yes, we outlined some of those needs when we were doing the equity offering.

The -- Darling's portion of the debt would be approximately $120 million. And that would be during -- about $60 million to $70 million of that would be in the first year. Our [equity] is around 93, and about 45 to 50 of that would be in the first year, then the remainder in the second year on both cases.

So, the ramp-up would hope to be targeting that early -- or late 2012 or early 2013 period. So, that's when the funding would be going out.

Okay, great. Thanks guys.

Tyson Bauer, Wealth Monitors.

Good morning, gentlemen. John, how does it feel to be on the right side of hedging for once?

No, that's me this time, Tyson. (Multiple speakers).

Only when it's good, Randy does it. When we make a bad decision, it's mine. So, that's the way it goes.

Okay. Any unusual benefits? Usually there's a week delay between -- even on your formula contracts. With the sharp movements in your end prices, had you seen some benefit because of the quick movements?

I think it's safe to say that with the sharp run-up in fourth quarter that we saw happen, we were always lagging it because we have pretty good export book on. So we probably took it in the shorts a little bit there. I can't quantify it for you. I didn't do that, but it only makes sense to know that we lagged it.

We've seen prices stabilize at the higher values, and January volumes and those prices make for a pretty favorable operating environment.

Okay. Have you seen any new opportunities open up on the [tolling] side with the rendering? And also, can you give us a sense of how renegotiations of those formulas are going with your existing customers?

Well, number one, I don't know that there's any renegotiating going on. It's actually easier to renew a lot of the agreements when you're paying your suppliers as much as we are right now, given that it's a straight passthrough in a lot of cases.

A lot of our relationships have a sharing opportunity in it, and we are taking a chance to take a bigger piece of that, if we can. From the standpoint of all formulas out there, everything is going pretty well, Tyson.

And on the restaurant side, are we seeing a pickup in what I call the brokerage business there, a.k.a. grease thieves selling it back to you? Anything on that side that you are seeing with these prices going up?

No. The theft is really an issue to us. Although I wouldn't call it material to volume or earnings, it clearly gets our attention.

The West Coast theft is huge. The New York theft is huge. We continue to chase the thieves, if you will. We've been successful in getting several of them, an injunction granted to several thrown in jail. It is one that we are working diligently at multiple levels to knock down the finished product markets for those thieves.

The interesting thing is, is that some of these biofuel plants aren't asking where the material is coming from. They are just buying it, and in fact, in a lot of cases, they are buying stolen goods.

We're working with the local law enforcement authorities. It's an interesting issue that's out there. When you go to a law enforcement, and he believes or she believes that grease is garbage and there's no law against stealing garbage, so we're having to educate folks that this is really our material. That's our bin, that's our $500, $600, $700 investment behind the store. So what goes in it is truly ours.

We've accented it by putting on big, big stickers on those bins now offering $500 rewards. We've actually been giving out some rewards to folks. The obvious, the restaurants, are now waking up and saying they're being paid for the grease. They need to make sure the grease is there because when we stop paying for it and tell them their bin was empty, they finally get a little bit of energy to protect it.

So, things are going pretty well there as far as brokers and the peddlers that are out there. Clearly, we're doing less and less business with those people as we're trying to use our footprint and our brands to do business directly with the restaurants.

Okay, and last topic from me. You had expressed interest in rendering assets for a company in bankruptcy that you were not awarded with the judge -- another company was awarded the entire company. They have been in the market looking to raise capital unsuccessfully for an acquisition. Do you still have interest in those assets, in that there may be a motivated seller?

You know, that's a very complicated situation and one I'm probably not prepared to talk about today. Obviously, we're an opportunistic company. If there is a chance to serve anybody out there, we will take a shot at.

All right. Thank you.

Due to time constraints, our last and final question comes from Lindsay Drucker Mann from Goldman Sachs.

Thanks for the follow-up. I actually just had a quick -- two quick accounting questions. First of all, so when you allocated Griffin to your segment reporting, you didn't -- did you slice the data up by your traditional view of restaurant services and rendering? Or did you just lump the whole thing in rendering?

It's all lumped into rendering. That is how they managed the business and that's how we've reported it.

And the only thing that they manage separately out is the bakery, other than the rendering. So that's how we layered those in, Lindsay, as you can see in the MD&A. So, that's why you don't see anything coming in under the restaurant services segment.

And if you were to recast your finance segment reporting to be similarly viewed, when did that happen?

That is something we're going to be looking at because, as you are aware, the business segment portion of the 10-Ks and 10-Qs basically is how you manage the business, and as we go forward, that is one of the first areas that we are looking at in our integration activity. Florida and Georgia and those areas were entirely restaurant services.

So, we will be reviewing how we're going to be managing that, and that will impact how we report those segments going forward.

Okay. And then, lastly, just to talk about the weather impact on the first quarter, we had a cold winter last year as well and we had some snow storms. Was this year materially worse, so the year-over-year comps, we should see as much of an impact as it seems like you're hinting at?

Yes, Lindsay. I mean, how much snow did Central Park get this year? 30 inches in Newark in December and January. It was pretty brutal up there.

The ice, and I think when we looked at so far the running days in January and February, I want to say as of about two weeks ago, we had lost 35 total plant days to date in the quarter. It doesn't mean the tonnage isn't there and it doesn't mean we don't have the capacity to catch up, but clearly there's a little bit of an impact I expect to see in February.

January is in the books. We didn't see it. February, I think we'll see a little bit of impact from the weather, and hopefully it's past now and we've moved onto a strong March.

Okay, thanks.

At this time, I would like to turn the conference call back over to Mr. Stuewe for any closing remarks.

I just want to thank everybody, and we look to talking to you here at the end of first quarter. Have a great day.

That concludes today's conference call. We thank you for attending. You may now disconnect your telephone lines.