Darling Ingredients Inc (DAR) 2013 Q3 法說會逐字稿

Good morning, everyone. And welcome to the Darling International conference call to discuss the Company's fiscal third-quarter 2013 financial results. With us today are Mr. Randall C. Stuewe, Chairman and Chief Executive Officer of Darling International; and Mr. Colin Stevenson, Executive Vice President and Chief Financial Officer.

(Operator Instructions)

This call is being recorded, and your participation implies consent to our recording this call. If you do not agree to these terms, simply drop off the line. I would now like to turn the call over to Melissa Gaither, Director of Investor Relations, for Darling International. Please go ahead.

Thank you, Denise. Good morning. This conference call will contain forward-looking statements regarding Darling International's business opportunities and anticipated results of operations. Please bear in mind that forward-looking information is subject to many risks and uncertainties. The actual results may differ materially from what is projected.

Many of these risks and uncertainties are described in Darling's annual report on Form 10-K for the year ending December 29, 2012, our recent press release announced yesterday, and other filings with the SEC. Forward-looking statements in this conference call are based on our current expectations and beliefs. And we do not undertake any duty to update any of the forward-looking statements made in this conference call or otherwise.

With that, I would now like to turn the call over to Randy.

Thanks, Melissa. Good morning, everyone. Thanks for joining us. This has been a very busy and exciting quarter for the Company. I would first like to discuss our financial results for the third quarter that ended on September 28. And then I will change my focus to the recent acquisitions that will transform Darling's platform into one that creates sustainable food, feed, and fuel ingredients for a growing population.

Our third-quarter performance remained fluid, but consistent with our second quarter 2013 results amid a major global resetting of commodity values for corn, soybean, and other ingredient alternatives to their lowest levels in nearly four years. Our rendering segment delivered strong results compared to second quarter 2013, with the bakery segment feeling the brunt, as anticipated, with the realization of declining cash corn prices as harvest progressed.

On an adjusted EPS basis, we delivered $0.32 a share. This takes into consideration acquisition-related costs of $8.3 million, and a nonoperating settlement of $2.4 million, as discussed in the press release. Combined, these nonrecurring costs impacted the earnings per share by approximately $0.06 per share.

Additionally, as we made you aware in August, Diamond Green Diesel was still in its shakedown period, and would operate at a reduced rate due to metallurgical failure until new equipment could be fabricated and installed. The impact of this reduced rate lowered EPS by another $0.03 per share.

As we noted in our press release, a decision was made yesterday to shut down the facility temporarily to replace these failed pieces of equipment. The replacement parts are on site, and repairs are now underway. We anticipate being back up, or exceeding nameplate capacity, by mid-November.

During the quarter, and on a sequential basis, rendering raw material volumes remained steady, with poultry and yellow grease volumes more than offsetting declines in beef volumes versus the second quarter. We saw limited beef deadstock due to good weather, and typical breakdown tonnage from beef packers was historically low during the quarter.

Finished product prices were mixed when compared to the second quarter 2013. As the new crop harvest and bumper yields became more certain, and seasonable biodiesel demand lessened for animal fats and waste greases, we watched fat prices rapidly fall off toward the end of the quarter.

On the finished protein side, prices generally remained steady. Meat and bone meal continued to lag other proteins as exports remained soft. Value-added pet-grade proteins felt seasonal sluggishness as demand remained soft for both pet food and the aquaculture markets.

Overall, our pricing formulas worked well, but as always, there is a lag effect related to buying raw material at today's price and selling at a discount tomorrow. We anticipate that, in the fourth quarter, as prices level out, our fixed-margin formulas will catch up and the cooler weather will help increase both feed and pet food demand.

While the bakery segment earnings declined during the third quarter, volumes remained steady. As we outlined on previous calls, our derivatives position helped to offset a portion of the rapidly-declining cash corn price. However, significant corn imports into the southeast United States during the quarter further challenged our finished product pricing.

Now, let's turn to the exciting opportunities we have ahead with us both with the Rothsay acquisition in Canada and the pending acquisition of Vion Ingredients. As announced, we completed the Rothsay acquisition on October 28 and have began to integrate the facilities into our North American network.

While it is very early in the process, our feelings remain strong that there is significant integration opportunity. The opportunities will be accomplished over time, and can be categorized as administrative, marketing, and operational in focus. And we very much look forward to making the Rothsay team a part of our family.

Additionally, as I mentioned during our conference call in early October, we are combining forces with Vion Ingredients, a division of Vion NV, which is a member of the Vion Food Group, which will create a global growth platform for the development and production of sustainable natural ingredients for the pharmaceutical, food, pet food, feed fuel, and fertilizer industries.

This is another transformational step in our global growth strategy, with 58 facilities on five continents, that provides a more diversified revenue and earnings stream, expands our product offerings, and brings added specialty products covering all aspects of the edible and inedible processing, through six very notable brands. Integration with Vion management team is well underway, and we anticipate a closing in early January.

Let's turn our attention to Diamond Green Diesel for a moment. Darling's share of the equity and net income of the Diamond Green Diesel joint venture was $12 million, which represents the first full quarter of operation. Although still in the shakedown mode, Diamond Green Diesel was able to reach nameplate capacity for part of the quarter, prior to the discovery of excessive metallurgical wear in its main heat exchanger in August.

As mentioned in the press release, production rates were expected to remain reduced while we waited for replacement parts and did additional inspections to verify wear on other similar pieces of equipment. During these inspections, we noted two additional heat exchangers with similar wear, and made a decision to remain at reduced rates and have replacements fabricated.

Yesterday, the replacement equipment arrived and we commenced a shutdown to replace all the necessary equipment. It is anticipated that nameplate capacity of 9,300 barrels per day will resume by mid-November. The good news is the pre-treatment facility continues to exceed expectation and has proven capable of processing animal fats and all vegetable oils.

I would now like to turn the call over to Colin. And after Colin concludes, I will come back with some closing comments and then go to Q&A. Colin?

Thanks, Randy. For the 2013 third quarter, the Company reported net sales of $425.8 million, compared to $452.7 million in the year-ago period. The $26.9 million decrease in sales primarily resulted from lower finished product prices for fats and pet-grade proteins, which more than offset increases in finished product prices for meat and bone meal.

The year-over-year decrease in fat prices resulted from several factors. Lower prices in the overall commodity markets in the oil feed complex, reduced corn values, lack of export demand, and decreased biofuels demand. Raw material volumes declined year over year but were partially offset by an increase in other rendering segment sales and higher collection and processing fees resulting from the Terra Renewal Services acquisitions.

Net income for the fiscal 2013 third quarter decreased from $37.2 million, or $0.31 per share, on a fully diluted basis, to net income of $27.2 million (Sic-see press release "$27.7m"), or $0.23 per share, when compared to the 2012 comparable period. As noted in our press release, the $9.5-million decrease in net income for the third quarter resulted primarily from several factors, including lower finished product selling prices, primarily within the bakery segment; nonrecurring costs of $8.3 million in acquisition-related costs; and the $2.4-million payment made pursuant to the purchase agreement relating to the acquisition of Griffin Industries to reimburse former Griffin shareholders for certain state income tax liabilities, resulting from our 338(h)(10) tax to election.

At the segment level, rendering generated net sales of $362.1 million for the third quarter, as compared to $368.2 million in the third quarter 2012. The reduction of $6.1 million resulted from lower fat prices.

Bakery segment sales contributed $63.7 million to the third quarter, as compared to $84.6 million in the year-ago period, or a reduction of $20.9 million. This is primarily related to a significant drop in corn value, which relates to lower finished product pricing in our bakery segment.

Our aggregate expenses for SG&A increased in third quarter compared to the prior year. This increase resulted from planned increases in staff to grow our used cooking oil business, and support our new ERP platform, as well as the rationalization of our benefits and incentive compensation plans for the former Griffin employees. And, as previously mentioned, acquisition-related costs.

The increase in depreciation expense was primarily due to general increases in capital expenditures, and an increase due to current-year acquisition activity. Interest expense was $5.3 million for the third quarter, compared to $5.9 million in the year-ago quarter, a decrease of $0.6 million.

Other expenses were $3.3 million in the third quarter 2013, compared to income of $0.2 million in the third quarter a year ago. The increase is principally due to the $2.4-million payment to reimburse the former Griffin shareholders.

Relative to the Company's investment in our joint venture with Valero, on the balance sheet we reported an investment of $116.3 million at September 28, 2013, as compared to $62.5 million on December 29, 2012. On the statement of operations, we reported net income of $12 million for the third quarter, compared to a net loss of $0.8 million in the year-ago third quarter. This $12.8 million increase in net income is a direct result of the JV's operational commencement and sale of renewable diesel fuel in late June, as compared to non-capitalized expenses during the construction phase in the prior year.

For the nine months ended September 28, 2013, the Company reported net sales of $1.94 billion, compared to $1.276 billion for the 2012 comparable period. The $18-million increase is attributable to several factors -- higher raw material volumes; an increase in other rendering segment sales; higher grease collection and processing fees, primarily from the Terra Renewal Services acquisition; and higher finished-product prices for proteins. These increases were partially offset by lower yields related to product mix within the rendering segment.

For the nine-month ended period, the Company reported net income of $86.5 million, or $0.73 per share, as compared to $102 million, or $0.86 per share for the 2012 comparable period. The $15.5 million decrease in net income resulted primarily from higher SG&A expenses; lower yields related to product mix; acquisition-related costs; and an increase in energy costs. Higher poultry raw volume materials, along with increased protein prices, favorably impacted our operating income.

Let me provide some additional balance sheet detail. On September 28, 2013, the Company had net working capital of $76.1 million, and its working capital ratio was 1.51 to 1, compared to working capital of $158.6 million and a working capital ratio of 2.2 to 1 on December 29. The decrease in working capital is primarily related to the acquisition of Terra Renewal.

At September 28, 2013, the Company had unrestricted cash of $8 million and funds available under the revolving credit facility of $967.3 million, compared to unrestricted cash of $103.2 million and funds available under the revolving credit facility of $384.9 million at December 29, 2012.

For the nine-month period, the Company incurred capital expenditures of $85.7 million, as compared to $84.2 million in the same period a year ago, for a net increase of $1.5 million. Of our capital expenditures, approximately $16.3 million relates to the implementation of our new ERP system, which is progressing well and is expected to be completed in 2015.

I will now turn the call back over to Randy.

Thanks, Colin. We have executed well so far through the global commodity resetting, and ended the first nine months of the year on an upward trajectory while executing on our global long-term growth strategy.

As an international force with a portfolio of global brands, we continue to make our mark as a leader in creating sustainable ingredients for a worldwide marketplace. Our enterprise is solid, with unmatched leadership at all levels. And we are excited about the opportunity to better serve our global suppliers and customers, while creating sustainable long-term shareholder value.

With that, Denise, I would like to go ahead and open this up to questions and answers.

(Operator Instructions)

John Quealy of Canaccord Genuity.

Good morning, folks. Three questions. First, Randy, on Diamond Green, can you talk about the mix of substrate through the plant? Was it a lot of corn oil or animal fat thus far? Can you comment on that?

Secondly, Rothsay just closed. I imagine you've had a chance now to dig a little bit deeper into the books and talk to some people. Can you talk any more about any potential synergy or cost recovery, or what your approach is there, now that you can see some more details?

And then, lastly, as much as you are comfortable with, speculate a little bit about the RFS controversy, what you think it does to corn, and how the Darling model can respond, now that you've got a couple more businesses there? Thanks.

Okay. Let's talk about Diamond Green Diesel, and then we will transition to the RFS, and then I will talk a little bit about Rothsay. Diamond Green Diesel really had a pretty good quarter in third quarter. You always have to keep in perspective that this is serial number 01 of multiple technologies that have been bolted together. And to think that on June 28 we pushed the go button, and within a couple of weeks we were 70% of capacity, and within a couple of weeks after that we were at capacity.

What we found during the process of running the plant is that we are getting some reactions within some of the heat exchangers that are causing corrosion. And, thus, we decided, rather than get up and run it at higher rates for sustained periods of time, and then have a failure, to go ahead at the front end here and replace the heat exchangers with some different alloys that aren't susceptible to the corrosion.

UOP was the technology provider. They have worked hand in hand with the Valero engineering team, and I think we've got some pretty good solutions.

As we talked about yesterday, the plant started to cool down and be pressurized yesterday. The plant is down this morning, with all of the equipment on site to be installed over the weekend. And hopefully, we will begin warming back up early next week such that when we do host an opening down there next week, that the plant will be at full production, with hopes of exceeding full production in the very near future.

To comment about the feedstock supply -- pretty typical, John. I want to say about half of the feedstock came from Darling, half came from the outside, much as our business plan suggested it would be. A portion of that was corn oil. A portion of it was used cooking oil, and waste fats and greases. Along with, believe it or not, some soybean oil. As waste fats and greases ran up in the late summer, as the biodiesel industry ran hard, we did run some degummed bean oil that was available in the Gulf to support the rate we wanted to run during the summer.

I would anticipate us going forward to be a blend of corn oil, used cooking oil and animal fats. The one animal fat that we have not had success running down there yet, because we run through a very extensive both supplier and raw-material qualification, is poultry fats today. The rendering industry that provides poultry fat -- there is a lot of nasty things that they put into those fats. And it is just not conducive to, at least in our opinion today, to a long life for the catalyst.

And so, UOP is doing some more testing on that, and we will see what happens there. But I would anticipate, going forward, that Darling's supply will be about half of it. And then the other portion will come from the corn oil industry, or from the ethanol dry mill corn oil that will feed it.

On the RFS side, I really don't have any additional insight to it, other than what you have read. Obviously, it dates back to a leaked memo while the government was down that suggested that the ethanol mandate would be rolled back to 13 billion gallons. And then the biomass base diesel would be held steady at 1.28.

I think that, obviously, there has been a track record of this Administration of sounding ideas and soliciting feedback. The feedback they got was incredibly negative, and especially from the biodiesel industry that is a very complementary industry which we're in with two plants, along with the renewable diesel side that we're in, along with the agriculture groups.

The unintended consequences of putting that out, to a degree, would be very challenging to an already burgeoning supply of corn and soybeans in this country. I don't think that the OMB had really thought through that. The read I'm getting right now is that the phones of the democratic congressmen are ringing off the hook from the farm states saying -- what are you doing to us? And so, I don't think the last chapter is written there.

So, I think I'm a little more optimistic that there is going to be some modification to that leaked memo. And the marketplace seems to believe that, too, in the sense of where prices are.

Turning to Rothsay, we are very excited. The team was down -- we had our Board meeting this week. We reviewed the operating third quarter, which was at business plan or exceeded where we anticipated them to be at.

And then, most importantly, we began the integration, as I said, that starts administratively. All the accounts are being mapped into the computer system right now. The programs are being transferred to Darling programs. And we should be well set there. The marketing teams are up together this week, trying to figure out best destinations and origins for finished-product customers. And operationally, we are beginning an extensive review of the plants to bring them into our standards as we go forward.

The most important piece of that is -- as we reviewed, it is a different business model than what we use in the lower 48 where there is a forward view of where finished products will be, and then a reverse view of where raw material prices should be set. We have set those for fourth quarter. And given how we have looked at it, the team has nailed it pretty much spot on, and I think earnings are at or above where we thought they would be going through the fourth-quarter reset here. So, we're very pleased, very excited that Todd Moser is going to lead the team up there, and he is going to do a great job for us.

Perfect. Thank you.

Dan Mannes of Avondale Partners.

Thanks. Good morning, everyone. First, a quick follow-up on Green Diesel. And certainly appreciate your comments. This is your first full quarter of operations for a first-of-a-kind plant. And I'd say, given what we've seen maybe from other people, I would say your success rate in the first quarter far exceeds what other people have. So, it looks like it has been a strong performance.

But that said, given maybe some of the pro forma numbers you've given in prior quarters, and given how strong, at least the spreads were, given where RIN prices were during the third quarter, we thought the numbers would be a bit higher. So, can you maybe walk us through what the actual production or sales volumes were? And maybe give us a little bit more color on what spreads were at the plant?

Yes, I will give you some more color, Dan. A decision has been made at this time to not release gallon production because we are still in shakedown period. I think there is a combination of a couple of things that went on down there.

Number one, nominally, the nameplate's capacity is about 9,300 barrels a day. We have assumed, basis, the process, guarantees and everything, a low 90%s type of yield. We came close to that, but we're not there yet. We were still fine tuning the isomerization unit.

For the laymen on the phone, including me, that is the unit that adjusts the cold flow or pour point of the product. And basically, you either make liquid or gas. And so, we were making more gas than we were liquid, as we got to learn to run the unit.

So, initially, in Q1 of operation here, you had the slower startup of the month of July up to full speed. Then you start fine tuning the unit to try to get your split out of isomerization. And then we found that we weren't getting the isomerization splits we wanted, which then said we had a leak somewhere in the system. Which happened to be the main heat exchanger of the unit, at which we then shut down for three days -- opened it up.

It cools down a day, depressurizes a day -- you have to purge it to get everything out, and then you can open it up and go in. And then it takes you another three days to come back up. And we found excessive wear within that heat exchanger on the cool side of it from the corrosion off of the condensate.

So, a decision was made to order an ultra-sophisticated alloy into that. It was a surprise to UOP that that was actually a performance -- default on their part of the design, or a design default. So, that was changed.

As we powered back up, we also never got the yields again, so we detected two more leaks. There's two other banks of heat exchangers -- the cool side -- what they call the CNF side, that both again had leaks in it, or excessive corrosion from the wear. So, then we maintained the lower rate and blanked those off as we continued to run.

So, it was, by and far, not what I would consider a consistent and stable run rate through the quarter. It was yield driven. It was up and down as we balanced to the heat exchanger issues.

As I said, the main heat exchanger has been replaced. It is in. The two smaller ones are on site this morning. They completed cool down yesterday.

We're purging with nitrogen as of late last night, hopefully putting contractors back on site this morning. Gary hopes to be done with the maintenance on the unit, and to commence start-up operations Monday again.

So, when you looked at margins for the quarter, we were doing two things down there. We were margining against a heating oil spread there that got pretty wide. RINs moved around quite a bit during the quarter. The product, as you know, is being sold as against ultra-low sulfur diesel, ULSD, in the Gulf. It really met our expectations there.

I would just tell you, Dan, the biggest issue, as we look forward, was the run rate and the yields, and a little bit of product mix as we began to figure out what works better down there. When you look at the spot market right now, even with RINs in the mid-$0.30s, the replacement margins down there are in the mid -- $1.40, $1.50 type numbers. It is still a very, very good business.

We hope that when we get the heat exchangers back up and fired back up, that the nameplate capacity is consistently then achieved, with anticipation that hopefully we can even learn to run it a little harder than what nameplate is. But it will just take some time.

That is really good color. If I could just ask it just maybe a little bit of a different way? In prior quarters, you have given us a pro forma number of what it would have been had it been running full output with where market spreads were. If you ran that number, would that be the $0.09 or so, which was the real performance plus the $0.03 you were missing? Or would that number have even been higher this quarter on a pro forma basis if it had run the way you had thought it would in prior quarters?

Between yield and margin spread that was out there, it would have been higher. The unit is doing what we thought it would do. Admittedly, as we learned to run it, yes, we impacted feedstock prices down there in third quarter. To a degree, we almost -- we ran low on inventory. Thus, we ran some soybean oil down there that narrowed margins quite a bit on it.

So, when we backed into the adjusted number there, it was what we felt we left on the table at a higher rate, had the yield been right, and the margins been executed properly. The team did a marvelous job, and I don't want anybody to take away that they didn't. It is just, when you look at it, we left an easy $0.03, $0.035 on the table down there.

Understood. And, again, I want to reiterate, given what we have seen at some competing plants in startup, this has been a much cleaner start, at least so far.

Two other quick ones. First, on Rothsay, we did see some data, at least out of Maple Leaf, that showed the stand-alone Rothsay economics. It looked like the margin structure there is dramatically better than what you guys are running here in the States. Can you talk maybe about some of the structural differences that Rothsay carries, and maybe some of the opportunities that may present?

Structurally, it is a location of plants. When you have -- the margins -- and Darling has similar plants with similar margins in the United States. So, collectively, when you mix -- we've got a mix of plants that have different competitions in different regions. So, I never wanted to position that, overall that there is something dramatically different up there.

The biodiesel business up there had, and has, is one of the best operating biodiesel plants I've ever been around. And it is a very successful, both from a margin and an operating plant basis. So, that is a big contributor underneath the business.

When you strip back the core rendering business, it is a location issue. They're dedicated value-added products being made from porcine and chicken. The Dundas plant is a large beef plant. But for the most part, Moorefield and Winnipeg are dedicated to pork, and Hickson is dedicated to chicken. And so, at the end of the day, those are making more specialty products that give us a little bit wider margin, which will be similar to our Newberry Jackson plants that make specialty products.

So, it is really a product mix issue. A little bit by location. But keep in mind, biodiesel up there is a very good business, too, for us.

Okay. And then one last quick one, just on SG&A. First of all, given the number of acquisitions you have been involved with, can we assume you will have some acquisition costs in the fourth quarter?

And, number two, can you talk maybe about the implementation on the ERP? Is the rate of spend there going to carry forward through 2014, or perhaps will we see some step down there?

Dan, this is Colin. Yes, we will have a fairly significant level of acquisition-related costs, frankly, both in Q4 and there will be some carry-over into Q1 of next year as we close Vion early in our first quarter. So, yes, you should expect those.

Secondly, as it relates to the ERP, it is going well. We have rolled out a couple of key modules to date, including general ledger, fixed assets, some of the back office stuff. We have also rolled out HR and payroll, and those went well. We will be on a pretty consistent run rate through 2014. So, I would include that as you think about the SG&A rate.

Thanks so much.

Farha Aslam of Stephens.

Hi, good morning. The first question is on Darling's base business. Your press release highlighted corn hedges. Could you just share with us roughly how those contributed to the quarter, and what we could expect going forward from those hedge positions?

Yes, and I think we have been very consistent about our belief since last February that we had a view that if the American farmer was given normal weather, they would grow an incredibly large crop. And given where we were at with the blend wall and ethanol, the additional bushels would weigh on the market.

So, given that we knew that or believed that, we initiated a program in our bakery division to lock in margins. We buy off of central Illinois corn, most of the product heads to the southeast United States, which trades freight off of central Illinois. And so, we have different purchasing agreements with different raw material suppliers, and sales agreements with different customers, that allowed us to go in and put a derivatives position on, to margin that business.

As we had said in the past, we anticipated that we would lock up the entire year, and deliver earnings somewhere around $55 million in that business. Now, that is down from $68 million last year. But at the end of the day, that was going to be about the best you could do, when we saw the inversion in the corn market.

We started putting on product when we were in the mid-$5s on corn -- $5.50, $5.80 -- but yet, the market was highly inverted down to $4.50. So, we carried that position out throughout the year, all the way to fourth quarter. We called it a rolling 32-week program. We have now carried that program, or did carry that program out during third quarter, all the way out till the end of June next year.

So, in the quarter, it contributed about $2 million of earnings. I think we put up around $12 million within the bakery division for -- segment -- for the quarter. And about $2 million of it came from the hedges that had been put in place.

It is a very easy business to margin if you have a view there. The team did a nice job of executing and lifting the hedges as the sales were fulfilled.

And, Farha, based on where values were at September 28, as we disclosed in the Q, it was about $2.9 million of what is called hedge gain that we would expect to roll through the P&L over the next four quarters.

Four quarter, okay, that is very helpful. Thank you.

And then, when you look at the Terra business that you've now had for a little bit, could you share with us any actions that you have taken that you would get synergies from that business? And then your thoughts on building out that hexane technology over time.

I think the two are related, but let's talk about Terra first. The Terra business was a couple different segments. Their food service business, I think, if I remember, there is about nine locations that collected used cooking oil. Those have all been integrated. In most cases, they were either owned or leased sites that were operated by Terra. We have shut down those sites.

The magic of the Terra acquisition for us was that all nine of those sites actually matched up over top of our sites. And so, it was a very simple route integration -- something we have done consistently and well over the last 10 years. So, that is done.

Volumes are about as anticipated, as we expected. We picked up some very large accounts that Terra was successful at doing business with, that we weren't. We have maintained the Terra management team with Todd Mathes and Mike Brooks. And they're doing just a fabulous job of bringing the relationships to us, and helping us maintain some growth with some big chains that we didn't have before. So, that is the foodservice side.

Keep in mind, we closed, I think, about the end of August -- August 26 or 28, something like that. And so, we had about a full month and a couple of days of operation in the quarter.

The land application business has really been exciting for us to learn. Mike Brooks is managing it for us. The revenue is where we thought it would be. The earnings are as good as we thought it would be, if not a little better.

And the opportunities to connect one more time with each of our suppliers has proven to be a real opportunity. One that I don't think we've got our minds around yet, as to what kind of leverage within the relationship it can bring both parties -- both good and bad. We need each other. And so, it is really an interesting part. So, that is going really well for us.

The Hampton extraction plant -- we have been up and down at the plant, as I said. That is even less than serial number 01; that is a homegrown technology. The plant is up and running, as I understand it, again this week. We have been fighting a few issues within the system of recoveries -- of getting fines out of the oil. But the overall technology of separating proteins and fats from the DAF and SPN streams that we're picking up from the poultry system today is working quite well. I would just categorize us -- we're in the fine-tuning stage of bolting together the technology to get the results we want.

So, the product is sellable. The products are good. Once we're there -- as we said in our press release, we've got about 80,000 opportunities of truckloads of this material we load a year out of different suppliers. As we begin to think through it, and we've got the team working on the business model, we are now in a process of beginning to consider site number two -- what it would look like, and where it would be.

Randy, my final question is -- if you look at the Terra, Rothsay, Vion and Darling businesses, could you just share with us what the EBITDA earnings capability of that business is, and the commodity exposure that that business has?

I think we're going to let the EBITDA side trickle out over time. Obviously, you know what ours is. We have talked about Rothsay in the press release at CAD80 million. We talked about the Vion at EUR200 million. So, if you use a $1.35 euro ratio, you've got $270 million there, and $75 million up at Canada. We've talked about TRS being in the low-$20 millions. So, you can add it all up, and come up with the number.

The most important thing, as we go to the debt and the equity markets, and we start to put the long-term capital structure into this, is explaining to both our investors and our debt holders what the true commodity exposure will be. And as we said, as we took over the company here, and it dates back to 2003 for me, we looked at this thing, and we had about a little less than half of it on some type of fixed margin formula basis. It was very hard to achieve proper financing with that. So, we made a concerted effort to move more and more to some type of predictable margin business.

When we added the Griffin team to our family, we learned the poultry business. And we learned a methodology that was very similar to ours, but one focused on value adding. And at the end of the day, would share with suppliers some of the value addition, and put some of it within our own P&L. And it became a very lucrative way of improving the suppliers' economics, helping them grow, and ensuring us a chance to grow faster than the other participants in the market.

When you put Rothsay on, at the end of the day, you've got a different model, where you forward look to the next quarter, and say -- I think protein prices will be X, I think fat prices will be Y; here is the money that I am traditionally used to making, and here is what I am going to pay for my raw material. A little under half of Rothsay's business is on some type of margin formula that has been very predictable. The other half is in the mechanism that I just described.

Terra, as we've said, other than a small portion being within the foodservice business, used cooking oil collection, and most of that was on some type of matrix pricing arrangement. The industrial residuals business is a fee-for-service business with no commodity exposure.

Now, you transition to Vion. And Vion is comprised, as we've talked in the past, of really four significant segments or brands within the business -- the Rendac, the Sonac, the Rousselot, and the CTH business. And the Rendac business, to speak to it, is a disposal rendering or a waste rendering business, where these are the conversion with typical rendering processes of fallen stock and inedible materials, where they separate the fat and the protein. But those products, because they're C1 and C2 under European classification, can only go to boilers and cement kilns, or be incinerated. And so, that is a fee-for-service business with a VTU value on the back end.

The Sonac business is a classic rendering business like ours. But it prices the way that the Rothsay business does. It forward looks at where the products will be sold, backs into a margin that they want to achieve, and that becomes the raw material cost.

Rousselot is a food ingredient business -- very little, if any, commodity exposure. It is a supply/demand business on functional food ingredients. And then the CTH business is really a supply/demand business off of the sausage demand, and emerging-market economies in the world.

So, if you say from 2003, to Griffin, to the next amalgamation of acquisitions here, we think we've reduced our commodity exposure from what used to be -- we always talked 65/35, 70/30, down to sub-80/20 now. And still a portion, or a major portion, of the 20% comes from the Darling used cooking oil business. But we believe we have put in place the Diamond Green Diesel hedge, which -- give us some time to prove it out, but at least on first blush, it looks like it is working.

Great. Thank you for the added color.

Carla Casella from JPMorgan.

One question on the acquisitions, as well. Just given the number of transactions you have made, has your view towards your target leverage changed going forward? And do you have a target?

Yes, Carla, it is a great question. It is one we have described as we've met with investors, and, as I said, the debt and equity offerings are being prepared. The lead-in question that Farha asked about the EBITDA rollups and the commodity exposures, given that we have reduced the commodity exposures, and we've got a very diversified earnings and revenue streams on five continents around the world, it says to us that we can move our leverage tolerance up quite a bit from what it has been in the past.

I think we have always been very clear to our shareholders that we have always talked -- it was always called the John Muse, or the Muse Rule around here, which said 2, 2.5 times delevered as quick as you can. But really implicit under that analysis was to always have 1 turn of availability under your revolver. Colin has been incredibly successful, with the support of the banks out there, of giving us a $1-billion revolver underneath this. We have announced the term loan B that will be put underneath it. And we will be announcing in the future the debt and equity side that will support the long-term capital structure.

Long term, when we start to look at this thing, I think we start to look at it and say -- we're comfortable at a 3, 3.5 turns number going forward. Obviously, we have to learn the business around the world, and make sure that the assumptions that we have in our models today are correct. But it looks pretty solid there. Always we want to maintain dry powder.

The beauty of putting all these companies together, aside from the great management teams, is that the great management teams have the same vision we do. They want to grow. And so, we've got to make sure that we've got availability as we can see around the world the opportunities. I use the line -- we can see what no one else can see today because we get to see it on all continents from rendering to blood to gelatin to the different businesses -- the opportunities that exist around the world. And we want to make sure we have capacity to participate in those opportunities.

Okay, great. And then just one question on Europe. You mentioned the soft European demand for the fats affecting your business a bit in third quarter. Do you have a sense for how much that may have affected Vion in the recent period?

I didn't mention anything about European softness. The comment I made was -- we saw continued slowness in the pet food and aquaculture markets. And then we saw the fat side be actually very, very strong through the summer here. Exports remain limited.

But, really, the overriding issue underneath the global ingredients business for the commodity-based ingredients was, at any time you are in an inverted market, people delay forward purchasing decisions. And we saw this back in 2012 in the first quarter. As everybody anticipated the markets going lower, they didn't buy. And then they came back when it didn't rain in 2012.

So, we didn't really see much of anything. Vion's third quarter was very, very solid, as predicted, and looks very strong going into fourth quarter here for -- as predicted and communicated fourth quarter here.

Okay. Great, thanks for clarifying. I misunderstood that. That's all I have.

William Bremer of Maxim.

Good morning, Randy. Good morning, Colin. Vion -- can you give us a ballpark of how you are thinking about financing this between the debt revolver, equity -- just in terms of underlying percentages there?

Bill, as we have described and submitted on the 8-K, we are planning on having a term loan B out there at $1.2 billion. And as we have announced, we've got commitments for a bridge at $1.3 billion. We have plans to refinance the bridge, as we have discussed, subject to the equity markets hanging in there. That, plus a high yield, or a public debt instrument.

Okay, good. And then a couple housekeeping questions for you, Colin. As we integrate everything here, what is a good tax rate going forward?

As we have described in the past, our US rate runs in the 37%, a little over 37% is where we structurally come out. Canada has a lower rate, Bill. Their rate is something more in the, call it, the 27% range. And I think for the rollup of Vion, I would think that somewhere in the 29% range would be a reasonable estimate.

Okay, great. All right. That's all I have. Thank you, gentlemen.

Ken Zaslow of Bank of Montreal.

Thanks. Good morning, everyone. A couple of questions. One is -- can you just walk through the financial impact if the dollar biodiesel credit goes away?

I can give you two scenarios. Given even if RINs don't move, and where we are seeing ULSD and feedstock prices today, you can sit there and still say Diamond Green Diesel makes $0.50 to $0.60 a gallon, even with a low-$0.30s RIN. Now, I don't believe that, from the standpoint that I don't believe that the other portion of the biodiesel industry or biomass-based diesel industry, which is a product that is absolutely necessary to fulfill the RFS mandate, that those guys can run at that rate.

And so, I think that you will see RINs come up substantially. I anticipate, and this is just me looking at it -- I anticipate that that plant will run and that margins again for next year, even if we don't get any movement on the mandate, will be in that $0.80 to $1.20 a gallon range going forward next year.

My next question is -- what is your ability to have early detection signs of any issues in the joint venture? It just seems like -- I know you guys excluded the $0.30 this quarter. And I hope that it is an [ex 0] item forever. But how do you regulate -- and you said -- hey, this is serial number 001. How do you regulate that there's no other issues coming? How comfortable are you with that? Can you give some comfort level that we should be thinking about?

The basis for -- and I'm not a petroleum or a chemical engineer. And the guys down -- Gary Steckel and his team down in New Orleans are doing a fabulous job. As you can imagine, the control room on this facility looks like NASA. And basically you regulate plant performance or judge plant performance on the finished product output. Is it in spec? Has something moved?

And when you say -- has something moved -- you're talking between 2 and 4 decimal places on measurement of the finished product. And so, at the end of the day, when we shut down for the initial heat exchanger issue, we did a lot of metallurgical checking. At the end of the day, we made a lot of assumptions in that. Some were good, some probably weren't exactly accurate at the time. But, nonetheless, it was very educated.

The question that I was asked when I was down there for a Board meeting last Thursday -- I asked the question -- are all the demons out of the pipes yet? And the looks across the table was -- we think so.

The good news is, as I said, the facility that we thought we would have the issue with was pre-treatment, and it has absolutely been running at what we have been able to. If you break the plant down, as we look to what it can do today and what we're hoping we can do with it tomorrow, the rail unloading system is first class. It is a Ferrari. It has exceeded our expectations. We have unloaded 45 cars a day down there.

The pre-treatment facility has been able to outrun the plant and run with a higher quality and lower usage of different inputs that we anticipated and modeled. And then the hydrotreater, which is what I would call Valero's fairway -- their expertise -- everything here is pretty normal to what they're used to running with the exception of one thing.

When you look at crude oil, and when you look at vegetable oil or triglycerides, the hydrotreater -- this unit is being constructed to remove oxygen and water. And with water is where we're having the issues. That is the piece that they're working through. And at the end of the day, if we would have known what we know now, those heat exchangers would have been fabricated out of some high-end alloy at the start.

But that looks to be the last bottleneck. Like I said, in early July, we were running 10,000 barrels a day down there. And so, we know the facility can run. These are the two things that are left. But as the lawyers are always telling me -- it is the best I know now, and hopefully it goes that way.

And my other question is -- if I strip out the $2 million of hedge gain, and you said -- we operated fantastically with lower corn prices. Is this quarter a good representation, if I take out the $2 million, of what your earnings power should be in this corn environment going forward?

You're speaking to the bakery segment?

No, the whole company. I was actually -- if I strip out the $10 million for the bakery, keep the rendering where it is, because you said -- the business is not that follow the corn; we have already taken the big hit on corn. And let's say the hedge gain doesn't come back. So, my sense is, as a whole company, is this the right earnings basically of the core legacy business in this corn environment?

I wish it was that simple. Number one, in the bakery side, we've still got a couple million dollars of hedge gains that are still out there. The Diamond Green Diesel business has some margin to business. We're thinking, and believe in the fourth quarter, you always see the pet food business spread start to widen again. Those narrowed substantially in third quarter.

We have seen in October prices fall off a little bit more from third quarter. But, as I said, the formulas are stabilizing.

I don't know that I want to go out in front and say is this a normalized thing, because there is a lot of moving parts here. If Diamond Green Diesel comes up early next week and begins to run hard, it will start pulling hard from the fat markets again here towards the end of the year. And so, I don't know that I want to step forward on any more than that, Ken.

Great. I appreciate it.

Craig Irwin of Wedbush Securities.

Thank you. Good morning, and congratulations on the success with Diamond Green. When I look at the benefit of having biodiesel production for Darling in this countercyclicality of the biodiesel market to the feedstock market, conditions like what we have seen recently where fats' profitability might see a little bit of compression, it is usually a pretty exciting time for the biodiesel producers. And I look at the success that you have had, and the trajectory, and what you have laid out as far as what is possible out of this facility, it seems like it would be ideal if you could maybe build another facility of similar size, or maybe double the facility, as far as being able to really smooth out the longer-term earnings trajectory. I was wondering if you could comment about whether or not that is something that you would consider? And whether or not there was an opportunity to do something similar with the assets of Vion internationally?

I think, to address the first thing is, obviously, we want to get, as we said, the demons out of serial number 01. Once we achieve nameplate capacity, the next question then is -- how much stretch do you have within the system itself, both inbound logistics, outbound, reactor capacity and pre-treatment. That study is underway right now. We run the same spreadsheets you do. We understand the money we left on the table in third quarter, and what we have left on the table so far in fourth quarter. And it certainly says the right investment and incremental decision within the Darling/Valero system is to debottleneck the plant as much as we can, and get as much out of it.

Additionally, as we begin to think about, number two, we are also looking at the low carbon fuel standard, which is just in its infancy out on the West Coast. You're seeing premiums of $70 to $80 a ton for product that can get out there. Unfortunately, the freight to get it out there today is about 80% to 90% of that, if you had the rail cars available to get it there because the pipelines don't run east/west in that direction. So, we're looking at all things.

I would categorize it upfront here as, number one, to get Diamond Green Diesel up to nameplate. Two, see how far the accelerator will go before we hit the pedal to the metal. What capital is required from there, to see if we can make the car go faster. And then once we understand that, and the markets hold, and no one messes anymore with RFS than what has already been discussed, I think number two is clearly an opportunity.

Relative to Vion, the opportunity probably isn't to build one of these outside of the US, because of the RFS. Neste has done that. They're very successful at it, in doing that. For us, it just doesn't look like something we would want to do in Europe today. The European model that the other brand that the Vion team works with is EcoSun, which is a digesting and methane production business. Energy is very expensive on the Continent, and so we probably are going to put our money into further electrical generation, and then digesting technologies for gas to create heat for the plants over there.

Great. And then just a follow-on. Gina McCarthy said in her statement -- I guess the only statement out of the EPA since the supposed draft was leaked -- that EPA's commitment to the growth and development of biofuels. So, if we were to see an RVO consistent with what many of us were thinking after the 2013 RVO affirmation mid-August, something maybe in the range of 1.7 billion to 1.9 billion gallons -- pretty bullish RVO for biodiesel. But if we were to see something in that range, would that increase the probability of an additional plant or an expansion in the near term?

I think it is all great commentary, Craig. And I would tell you, to be honest with you, my gut had said we were in that 1.6 billion to 1.8 billion gallon range before the death memo came out from DC. But you've got to step back and, really, before you can go bullish on veg oil prices globally, even with a change here, you've got to look back now. Like I said, we can see what other people can see.

You've got Europe that is now building walls around it to protect their own biodiesel industry, which your decoder ring says -- that is to protect the rapeseed farmer. So, you have all of this Far East biofuel capacity that has been put in that is palm-based. You've got the Argentine biodiesel business. It has got to find a home.

And so, I don't think it's as simple as coming in and saying -- if it goes to 1.7 billion, 1.8 billion gallons, yes, I'm probably going to have a little party around here because it will be something that makes you feel pretty good but I don't think it's a straight to the bottom line.

As I was looking this morning, as I woke up early and saw the typhoon going over the Philippines, I said -- okay, now what happens to the [lorix] business as that massive storm goes across that region of the world? So, I think there is lots of dynamics here.

We hope that the EPA and that OMB comes out with something favorable that makes sense here shortly. The farmers deserve it. The infrastructure that many of us, REG and us, have put into the biodiesel and the renewable diesel business deserve it.

Great. And then last question, if I may -- the Hampton extraction facility, obviously a great opportunity for you to go out and use what you have learned there over the next handful of years. Can you maybe frame out for us the potential profitability on a facility like that? How should we think about those 80,000 truckloads? Is this really just an opportunity for you to capture what would have been paid for the tipping fee? Or is there significant economic value coming out of the plant, where you could see some pretty material EBITDA from the products generated, not just from the services provided to the customers?

Obviously, the acquisition was made with the tipping fee being the support for the $120-million purchase price, with $20 million, $22 million of EBITDA in there. So, that is -- the way I look at it is -- I now have free raw materials. The challenge that we have underneath it is -- is not all raw material is created equal. Meaning that in order to coagulate or to get the solids out of that product, they use different polymers.

Not every polymer that is used in a food plant is favorable to our technology to separate the fats and proteins. So, it is a learning curve. And not every truckload of raw material will work within the system.

So, of that 80,000, if you said -- what is our vision? Our vision is to get number two built somewhere here in the Midwest over the next year -- year, year and a half -- to get it commenced, under construction. The facility that we think about is one, the Hampton plant today, like I said, was a visionary pilot plant. It was then put into commercial-scale production here that runs about 50 tons a day of output.

At the end of the day, we're looking for numbers out of the next plant somewhere to 100 to 150 tons. The capital hasn't even remotely been worked on there to come up with that number. We will make no investment in a greenfield like this, with any type of economics that are below a four-year payback on it. So, that is the hurdle rate we're looking.

Right now, the spreadsheet looks much better than that. But spreadsheets only get you fire, they don't make you any money here. So, we will just leave it at that.

Thanks again for taking my questions.

JinMing Liu of Ardour Capital.

Good morning. Thanks for taking my questions. Just a couple of follow-up questions. First, related to the repair of heat exchangers, was the problem really to just the water content in the system, not really to the acid content of your feedstock?

That is exactly right. JinMing, given your education level, you've got it figured out here that it wasn't related to free fatty acids in the product. It is related to the process and the dew point of the condensate and the acidity coming off the system.

Okay. That is good. Very good to know.

Secondly, what was the reason -- I may have missed this -- what was the reason you want vegetable oil during the past quarter? Was that really due to shortage of supply in the consistency of your plant, or simply was due to the price?

Three things. One, as Diamond Green Diesel, no one, including myself, believed that serial number 01 would come up and run as fast and as hard as it did. We had a supply chain pipeline of fat inbound to it that didn't arrive on time, as we hit 10,000 barrels a day down there. So, we had to substitute and find the next cheapest feedstock. And your choice of the economics of trucking material out of the Southeast -- as I said, poultry fat doesn't work today.

So, we would have had to come out of the Midwest with material by truck. And it actually brought the Gulf super degummed soybean oil stocks as an economic and viable alternative. And when you look at it, and you say -- I don't have to run it through pre-treatment because it doesn't have the metals or the phosphorous content -- then it became a super viable alternative. With [Bundy Desperhan] being just a few miles away, it became a very nice backstop to the plant.

I don't anticipate it working all the time. And right now it doesn't work. But it will come into play from time to time, and it is good to know you've got a safety net across the street if you need one.

Okay. Lastly, during the past quarter, was the cash processing costs as you projected before for Diamond Green Diesel facility?

The answer was, no, it was a little bit higher in some places; a little bit lower in others. Obviously, during shakedown period, I guess I would prefer to answer that question about 90 days or 100 days from now, when we get some constant processing underneath it. It is a little bit higher than what we had built in, if you will, our spreadsheet, but not materially higher than what we thought. And so, as we line the plant out, I think it will come very close in line to what we thought it would be.

Okay. Good.

Roman Kuznetsov of Gates Capital.

Hi, it is actually Jeff. Can you talk about volume outlook going into next year on the core rendering side? It looks like you have some tough comps in the first half of the year.

As we look at it, Jeff, and we spent some time during our Board meeting talking about it, the poultry side looks pretty darn favorable going forward. And the poultry industry, in spite of itself, is making good money right now. The suppliers, the egg sets and broilers are growing. So, we feel pretty strong there. The beef side we feel pretty neutral to a little bit of a downturn that we think we are going to continue to see there.

So, as we look at it, bakery volume is steady. Used cooking oil -- Brian Griffin's team is doing a fabulous job out there. Our volumes are growing again there.

So, I think you will see a little bit of normal seasonality hit that business, as you always do between the holidays and the first part of the year. Poultry volumes up. Pork volume steady. And beef down probably 1% to 2% for us.

Okay. And then, secondly, can you give an update on the timing of accessing the debt and equity markets?

Jeff, obviously, that is subject to market conditions. Obviously, we're working through that process as we speak. The biggest thing we're trying to get done is the carve-out financials that we need.

Right. But just remind me, you need carve-out financials for the equity deal, correct?

You need them for debt offerings, as well, Jeff. So, as I think we're looking to do, we're working through the carve-outs on both Rothsay and Vion. And we're knee deep in that process, and hope to have it wrapped up here in the near term.

So, if I understand it right, though, it is a lesser requirement for debt than for equity. So, what is the soonest you could be in the debt market, assuming conditions were the same as today?

You're correct in terms of it is a number of years requirement. So, two versus three with respect to Vion. The soonest we would get there would hopefully be before the end of the year.

Okay. And then lastly, can you give us a sales and EBITDA contribution from Terra during the third quarter?

And secondly, is there any capital costs associated with replacement of the heat exchanger at Diamond Green Diesel? Is there any business interruption insurance recovery or warranty recovery or anything like that for the lost production and -- ?

Jeff, this is Randy. No, we're not going to break out Terra on that basis. It is rolled under the rendering segment today, and it has already been fully integrated.

The Diamond Green Diesel, obviously we're in discussions with UOP on warranty and issues there. No business-related interruption here from that perspective. The capital costs for the three heat exchangers that are going back in is not material to the operation. It is just a swap-out of the two bundles within the exchangers themselves to the alloy.

And on an ongoing basis, are you going to disclose the balance sheet of the joint venture on a quarterly basis?

Jeff, we will do some enhanced disclosure related to the joint venture. And as you saw, I think in this quarter's Q, we disclosed some information around assets and total revenue, and net income. So, we will continue to look at the disclosure related to DGB.

For example, what is the cash and the debt at that institute today?

The investment, as we disclosed -- ours is about $116 million. As we have also disclosed in the financials in the past, the debt that resides at that joint venture is about $221 million.

$221 million?

Yes.

And is there cash at that entity also?

There is, but to be honest with you, I can't remember the number.

Okay, thank you.

Tom Lamb of Weybosset Research.

Yes, Fla Lewis sitting in for Tom. You've given us a lot of information on the workings of the Diamond Green plant. While I was up there, and producing at full, how were the markets for the product? As anticipated? If you were at full capacity, you didn't have trouble selling it. But just if you could give us a little bit -- who the customers are and how it is going over with them?

This is Randy. The customers will remain anonymous, but let's just say that it is not a gas station out there. It is going into the pipeline. Most of the products leaving to be injected in our blends that leave the facility today.

The product acceptance by the oil companies is tremendous. To a degree they can't get enough of the product. It has exceeded our expectations on what the value of the product is relative to where we thought it would be.

There's adequate demand to take the plant on up to nameplate capacity. And then anything above nameplate capacity can then be moved into the LCFS market in California, if need be. So, we don't see any bottlenecks as far as a customer acceptance and demand standpoint.

The challenge for us, for Gary and his team down there in Clay, is that they sit adjacent to the St. Charles refinery, which is a very significant asset for the Valero team, and we have to be part of the family and play well in the sandbox. And so, at the end of the day, the outbound logistics always have to be balanced with what they have coming in and going out.

And it is a learning curve for the team down there. But the Valero team has done a fabulous job. And I think they're ready for this thing to run the big numbers and start pushing the product out.

If we make it, they will buy it, huh?

They're not the buyer of it.

No, I mean, they're in the market, too.

They will help us get -- they will put it in the pipeline for us.

Okay, good. Thank you.

DeForest Hinman of Walthausen and Company.

Hi, just two questions. One is building off of some of the questions around the JV. You disclosed the debt. You didn't talk about the cash.

But just thinking mathematically about that plant, it is probably going to begin generating cash flow at some point. How do we think about dividends or cash coming out of that JV going forward? Is that an assessment -- a year-end type of thing? Or could we be seeing some quarterly disbursements from that JV at some point?

The way the joint venture agreement works, there are no cash distributions in 2013. Part of that was related to the fact that as that facility came up, there is a significant bonus depreciation that gets allocated to each of the joint venture partners, that saves us a significant amount of cash tax. And, in effect, that is how the JV thought about cash distributions, if you will, back to the partners.

Starting in 2014, we would anticipate cash distributions. And when you think about the profitability, they do have debt. We have to make sure we maintain a reasonable level of working capital inside the joint venture. And then some funds obviously for CapEx and maintenance and those sorts of things. But we would expect a reasonable level of cash distribution starting in 2014.

Okay. And then, can you just give us an update on the blender funding credit? Is that still something that we are going to be seeing in the fourth quarter running through that JV?

Absolutely. We qualify for that. The paperwork is being filed. They're constantly and consistently filed with the right agency. And you will continue to see that through the end of the year here.

As we discussed earlier in the call, the outlook for that is probably negative to unknown right now, given that Congress can't agree on anything. So, we are operating with the bias to make as much as we can get done this year. And then making sure that RINs will adjust themselves in first quarter, which they already have, to some degree, to help offset any reduction or disappearance of that credit.

And I might add to Randy's comment, if we think back a year-plus ago, when the credit was reinstated, what you basically saw is the RIN value drop $1. So, if the tax credit goes away, we would expect the RIN values to be impacted by that.

But diametrically, the opposite way. So, if RINs are $0.35 today, I think you'll take back 60% to 70% of that number, and your RINs will go above $1 again.

Okay. Thank you.

And ladies and gentlemen, that will conclude our question-and-answer session. I would like to turn the conference back over to Mr. Randall Stuewe for his closing remarks.

Thanks, Denise. Appreciate everyone taking time to join us today. As we said, we will continue to update you as things become available and necessary here. And otherwise, we will talk to you after the end of 2013 here. Appreciate everybody's support. And have a great holiday season. Thanks.

Ladies and gentlemen, the conference has now concluded. We thank you for attending today's presentation. You may now disconnect.