(Mark One)
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/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
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SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended July 2, 2011
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OR
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/ / TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
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SECURITIES EXCHANGE ACT OF 1934
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For the transition period from _______ to _______
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Delaware
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36-2495346
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(State or other jurisdiction
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(I.R.S. Employer
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of incorporation or organization)
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Identification Number)
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251 O'Connor Ridge Blvd., Suite 300
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Irving, Texas
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75038
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(Address of principal executive offices)
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(Zip Code)
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Large accelerated filer
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X
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Accelerated filer
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Non-accelerated filer
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Smaller reporting company
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(Do not check if a smaller reporting company)
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Page No.
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July 2,
2011 |
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January 1,
2011 |
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ASSETS
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(unaudited)
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Current assets:
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Cash and cash equivalents
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$
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12,444
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$
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19,202
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Restricted cash
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376
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373
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Accounts receivable, net
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109,257
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87,455
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Escrow receivable
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—
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16,267
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Inventories
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63,137
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45,606
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Income taxes refundable
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9,383
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1,474
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Other current assets
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12,353
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8,833
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Deferred income taxes
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5,356
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6,376
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Total current assets
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212,306
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185,586
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Property, plant and equipment, less accumulated depreciation of
$257,567 at July 2, 2011 and $238,265 at January 1, 2011
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396,004
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393,420
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Intangible assets, less accumulated amortization of
$70,290 at July 2, 2011 and $56,689 at January 1, 2011
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376,881
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390,954
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Goodwill
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378,050
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376,263
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Investment in unconsolidated subsidiary
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9,567
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—
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Other assets
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31,014
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36,035
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$
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1,403,822
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$
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1,382,258
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LIABILITIES AND STOCKHOLDERS’ EQUITY
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Current liabilities:
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Current portion of long-term debt
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$
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161
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$
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3,009
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Accounts payable, principally trade
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88,021
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70,123
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Accrued expenses
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63,371
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81,698
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Total current liabilities
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151,553
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154,830
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Long-term debt, net of current portion
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329,873
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707,030
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Other non-current liabilities
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46,512
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50,760
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Deferred income taxes
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15,154
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5,342
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Total liabilities
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543,092
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917,962
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Commitments and contingencies
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Stockholders’ equity:
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Common stock, $0.01 par value; 150,000,000 shares authorized;
117,579,944 and 93,014,691 shares issued at July 2, 2011
and at January 1, 2011, respectively
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1,176
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930
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Additional paid-in capital
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587,500
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290,106
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Treasury stock, at cost; 533,738 and 455,020 shares at
July 2, 2011 and at January 1, 2011, respectively
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(5,464
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)
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(4,340
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)
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Accumulated other comprehensive loss
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(19,859
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)
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(20,988
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)
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Retained earnings
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297,377
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198,588
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Total stockholders’ equity
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860,730
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464,296
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$
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1,403,822
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$
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1,382,258
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Three Months Ended
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Six Months Ended
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July 2,
2011 |
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July 3,
2010 |
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July 2,
2011 |
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July 3,
2010 |
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Net sales
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$
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470,610
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$
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166,210
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$
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910,508
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$
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328,992
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Costs and expenses:
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Cost of sales and operating expenses
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325,228
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123,853
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626,619
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244,263
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Selling, general and administrative expenses
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34,092
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16,237
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64,785
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32,002
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Depreciation and amortization
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19,055
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7,206
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38,736
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14,230
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Total costs and expenses
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378,375
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147,296
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730,140
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290,495
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Operating income
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92,235
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18,914
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180,368
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38,497
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Other income/(expense):
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Interest expense
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(7,745
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)
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(889
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)
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(21,973
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)
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(1,799
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)
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Other, net
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(830
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)
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(448
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)
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(1,396
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)
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(982
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)
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Total other income/(expense)
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(8,575
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)
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(1,337
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)
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(23,369
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)
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(2,781
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)
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Equity in net loss of unconsolidated subsidiary
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(1,174
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)
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—
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(1,174
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)
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—
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Income from operations before income taxes
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82,486
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17,577
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155,825
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35,716
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Income taxes
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30,259
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6,206
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57,036
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12,867
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Net income
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$
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52,227
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$
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11,371
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$
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98,789
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$
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22,849
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Basic income per share
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$
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0.45
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$
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0.14
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$
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0.88
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$
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0.28
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Diluted income per share
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$
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0.44
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$
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0.14
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$
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0.87
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$
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0.28
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July 2,
2011 |
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July 3,
2010 |
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Cash flows from operating activities:
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Net income
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$
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98,789
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$
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22,849
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Adjustments to reconcile net income to net cash provided by
operating activities:
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Depreciation and amortization
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38,736
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14,230
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Gain on disposal of property, plant, equipment and other assets
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(64
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)
|
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(28
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)
|
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Deferred taxes
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10,832
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(309
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)
|
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Increase in long-term pension liability
|
415
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|
|
877
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|
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Stock-based compensation expense
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2,204
|
|
|
842
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|
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Write-off deferred loan costs
|
4,184
|
|
|
—
|
|
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Deferred loan cost amortization
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1,697
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|
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296
|
|
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Equity in net loss of unconsolidated subsidiary
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1,174
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—
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Changes in operating assets and liabilities, net of effects
from acquisitions:
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|
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Restricted cash
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(3
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)
|
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22
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|
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Accounts receivable
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(23,536
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)
|
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(641
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)
|
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Escrow receivable
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16,267
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|
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—
|
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Income taxes refundable/payable
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(7,909
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)
|
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(2,769
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)
|
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Inventories and prepaid expenses
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(21,037
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)
|
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(7,990
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)
|
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Accounts payable and accrued expenses
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(1,957
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)
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(2,412
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)
|
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Other
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(1,288
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)
|
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1,623
|
|
||
Net cash provided by operating activities
|
118,504
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|
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26,590
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|
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Cash flows from investing activities:
|
|
|
|
||||
Capital expenditures
|
(27,870
|
)
|
|
(9,400
|
)
|
||
Acquisition
|
(164
|
)
|
|
(15,284
|
)
|
||
Investment in unconsolidated subsidiary
|
(10,741
|
)
|
|
—
|
|
||
Gross proceeds from disposal of property, plant and equipment
and other assets
|
665
|
|
|
144
|
|
||
Payments related to routes and other intangibles
|
—
|
|
|
(991
|
)
|
||
Net cash used by investing activities
|
(38,110
|
)
|
|
(25,531
|
)
|
||
Cash flows from financing activities:
|
|
|
|
||||
Payments on long-term debt
|
(240,005
|
)
|
|
(2,504
|
)
|
||
Net payments on revolver
|
(140,000
|
)
|
|
—
|
|
||
Deferred loan costs
|
(267
|
)
|
|
—
|
|
||
Issuance of common stock
|
293,189
|
|
|
7
|
|
||
Minimum withholding taxes paid on stock awards
|
(1,205
|
)
|
|
(442
|
)
|
||
Excess tax benefits from stock-based compensation
|
1,136
|
|
|
184
|
|
||
Net cash used by financing activities
|
(87,152
|
)
|
|
(2,755
|
)
|
||
Net decrease in cash and cash equivalents
|
(6,758
|
)
|
|
(1,696
|
)
|
||
Cash and cash equivalents at beginning of period
|
19,202
|
|
|
68,182
|
|
||
Cash and cash equivalents at end of period
|
$
|
12,444
|
|
|
$
|
66,486
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
||||
Cash paid during the period for:
|
|
|
|
||||
Interest
|
$
|
16,023
|
|
|
$
|
1,512
|
|
Income taxes, net of refunds
|
$
|
53,780
|
|
|
$
|
16,379
|
|
(1)
|
General
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(2)
|
Summary of Significant Accounting Policies
|
(a)
|
Basis of Presentation
|
(b)
|
Fiscal Periods
|
(c)
|
Reclassifications
|
(d)
|
Earnings Per Share
|
|
Net Income per Common Share (in thousands, except per share data)
|
||||||||||||||||||||
|
Three Months Ended
|
||||||||||||||||||||
|
|
|
July 2, 2011
|
|
|
|
|
|
July 3, 2010
|
|
|
||||||||||
|
Income
|
|
Shares
|
|
Per Share
|
|
Income
|
|
Shares
|
|
Per Share
|
||||||||||
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Net Income
|
$
|
52,227
|
|
|
117,064
|
|
|
$
|
0.45
|
|
|
$
|
11,371
|
|
|
82,444
|
|
|
$
|
0.14
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Add: Option shares in the money and dilutive effect of non-vested stock
|
|
|
|
973
|
|
|
|
|
|
|
|
|
784
|
|
|
|
|
||||
Less: Pro forma treasury shares
|
|
|
|
(365
|
)
|
|
|
|
|
|
|
|
(401
|
)
|
|
|
|
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Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income
|
$
|
52,227
|
|
|
117,672
|
|
|
$
|
0.44
|
|
|
$
|
11,371
|
|
|
82,827
|
|
|
$
|
0.14
|
|
|
Six Months Ended
|
||||||||||||||||||||
|
|
|
July 2, 2011
|
|
|
|
|
|
July 3, 2010
|
|
|
||||||||||
|
Income
|
|
Shares
|
|
Per Share
|
|
Income
|
|
Shares
|
|
Per Share
|
||||||||||
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Net Income
|
$
|
98,789
|
|
|
112,795
|
|
|
$
|
0.88
|
|
|
$
|
22,849
|
|
|
82,366
|
|
|
$
|
0.28
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Add: Option shares in the money and dilutive effect of non-vested stock
|
|
|
|
986
|
|
|
|
|
|
|
|
|
785
|
|
|
|
|
||||
Less: Pro forma treasury shares
|
|
|
|
(381
|
)
|
|
|
|
|
|
|
|
(403
|
)
|
|
|
|
||||
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income
|
$
|
98,789
|
|
|
113,400
|
|
|
$
|
0.87
|
|
|
$
|
22,849
|
|
|
82,748
|
|
|
$
|
0.28
|
|
(3)
|
Acquisitions
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||
|
|
July 3, 2010
|
|
July 3, 2010
|
||||
Net sales
|
|
$
|
322,295
|
|
|
$
|
627,633
|
|
Income from continuing operations
|
|
37,719
|
|
|
71,725
|
|
||
Net income
|
|
24,356
|
|
|
45,883
|
|
||
Earnings per share
|
|
|
|
|
||||
Basic
|
|
$
|
0.26
|
|
|
$
|
0.50
|
|
Diluted
|
|
$
|
0.26
|
|
|
$
|
0.49
|
|
(5)
|
Contingencies
|
|
Three Months Ended
|
Six Months Ended
|
||||||||||
|
July 2,
2011 |
July 3,
2010 |
July 2,
2011 |
July 3,
2010 |
||||||||
Rendering
|
$
|
392,675
|
|
$
|
166,210
|
|
$
|
764,245
|
|
$
|
328,992
|
|
Bakery
|
77,935
|
|
—
|
|
146,263
|
|
—
|
|
||||
Total
|
$
|
470,610
|
|
$
|
166,210
|
|
$
|
910,508
|
|
$
|
328,992
|
|
|
Three Months Ended
|
Six Months Ended
|
||||||||||
|
July 2, 2011
|
July 3, 2010
|
July 2, 2011
|
July 3, 2010
|
||||||||
Rendering
|
$
|
93,398
|
|
$
|
28,647
|
|
$
|
182,354
|
|
$
|
57,950
|
|
Bakery
|
18,541
|
|
—
|
|
33,509
|
|
—
|
|
||||
Corporate Activities
|
(51,967
|
)
|
(16,387
|
)
|
(95,101
|
)
|
(33,302
|
)
|
||||
Interest expense
|
(7,745
|
)
|
(889
|
)
|
(21,973
|
)
|
(1,799
|
)
|
||||
Net Income
|
$
|
52,227
|
|
$
|
11,371
|
|
$
|
98,789
|
|
$
|
22,849
|
|
|
July 2,
2011 |
January 1,
2011 |
||||
Rendering
|
$
|
1,117,568
|
|
$
|
1,102,719
|
|
Bakery
|
169,205
|
|
166,658
|
|
||
Corporate Activities
|
117,049
|
|
112,881
|
|
||
Total
|
$
|
1,403,822
|
|
$
|
1,382,258
|
|
|
July 2,
2011 |
January 1,
2011 |
||||
Senior Notes:
|
|
|
||||
8.5% Senior Notes due 2018
|
$
|
250,000
|
|
$
|
250,000
|
|
Senior Secured Credit Facilities:
|
|
|
||||
Term Loan
|
$
|
60,000
|
|
$
|
300,000
|
|
Revolving Credit Facility:
|
|
|
|
|
||
Maximum availability
|
$
|
415,000
|
|
$
|
325,000
|
|
Borrowings outstanding
|
20,000
|
|
160,000
|
|
||
Letters of credit issued
|
23,383
|
|
23,383
|
|
||
Availability
|
$
|
371,617
|
|
$
|
141,617
|
|
Derivatives
Designated as
Cash Flow Hedges
|
Gain or (Loss)
Recognized in OCI
on Derivatives
(Effective Portion) (a)
|
Gain or (Loss)
Reclassified From
Accumulated OCI
into Income
(Effective Portion) (b)
|
Gain or (Loss)
Recognized in Income
on Derivatives
(Ineffective Portion and
Amount Excluded from
Effectiveness Testing) (c)
|
|||||||||||||||
|
2011
|
2010
|
2011
|
2010
|
2011
|
2010
|
||||||||||||
Interest rate swaps
|
$
|
—
|
|
$
|
(196
|
)
|
$
|
(303
|
)
|
$
|
(407
|
)
|
$
|
—
|
|
$
|
24
|
|
Natural gas swaps
|
18
|
|
150
|
|
105
|
|
27
|
|
(9
|
)
|
92
|
|
||||||
|
|
|
|
|
|
|
||||||||||||
Total
|
$
|
18
|
|
$
|
(46
|
)
|
$
|
(198
|
)
|
$
|
(380
|
)
|
$
|
(9
|
)
|
$
|
116
|
|
(a)
|
Amount recognized in accumulated OCI (effective portion) is reported as accumulated other comprehensive gain/(loss) of less than $
0.1 million
recorded net of taxes of less than $
0.1 million
as of
July 2, 2011
and
July 3, 2010
, respectively.
|
(b)
|
Gains and (losses) reclassified from accumulated OCI into income (effective portion) for interest rate swaps and natural gas swaps is included in interest expense and cost of sales, respectively, in the Company’s consolidated statements of operations.
|
(c)
|
Gains and (losses) recognized in income on derivatives (ineffective portion) for interest rate swaps and natural gas swaps is included in other, net in the Company’s consolidated statements of operations.
|
Derivatives
Designated as
Cash Flow Hedges
|
Gain or (Loss)
Recognized in OCI
on Derivatives
(Effective Portion) (a)
|
Gain or (Loss)
Reclassified From
Accumulated OCI
into Income
(Effective Portion) (b)
|
Gain or (Loss)
Recognized in Income
on Derivatives
(Ineffective Portion and
Amount Excluded from
Effectiveness Testing) (c)
|
|||||||||||||||
|
2011
|
2010
|
2011
|
2010
|
2011
|
2010
|
||||||||||||
Interest rate swaps
|
$
|
—
|
|
$
|
(516
|
)
|
$
|
(622
|
)
|
$
|
(827
|
)
|
$
|
—
|
|
$
|
26
|
|
Natural gas swaps
|
231
|
|
67
|
|
(45
|
)
|
248
|
|
(1
|
)
|
87
|
|
||||||
|
|
|
|
|
|
|
||||||||||||
Total
|
$
|
231
|
|
$
|
(449
|
)
|
$
|
(667
|
)
|
$
|
(579
|
)
|
$
|
(1
|
)
|
$
|
113
|
|
(a)
|
Amount recognized in accumulated OCI (effective portion) is reported as accumulated other comprehensive gain/(loss) of approximately $
0.2 million
and approximately $
0.4 million
recorded net of taxes of approximately $
0.1 million
and $
0.2 million
as of
July 2, 2011
and
July 3, 2010
, respectively.
|
(b)
|
Gains and (losses) reclassified from accumulated OCI into income (effective portion) for interest rate swaps and natural gas swaps is included in interest expense and cost of sales, respectively, in the Company’s consolidated statements of operations.
|
(c)
|
Gains and (losses) recognized in income on derivatives (ineffective portion) for interest rate swaps and natural gas swaps is included in other, net in the Company’s consolidated statements of operations.
|
|
Three Months Ended
|
Six Months Ended
|
||||||||||
|
July 2,
2011 |
July 3,
2010 |
July 2,
2011 |
July 3,
2010 |
||||||||
Service cost
|
$
|
295
|
|
$
|
264
|
|
$
|
590
|
|
$
|
528
|
|
Interest cost
|
1,513
|
|
1,489
|
|
3,026
|
|
2,978
|
|
||||
Expected return on plan assets
|
(1,722
|
)
|
(1,597
|
)
|
(3,444
|
)
|
(3,194
|
)
|
||||
Amortization of prior service cost
|
22
|
|
28
|
|
44
|
|
56
|
|
||||
Amortization of net loss
|
681
|
|
783
|
|
1,362
|
|
1,566
|
|
||||
Net pension cost
|
$
|
789
|
|
$
|
967
|
|
$
|
1,578
|
|
$
|
1,934
|
|
|
|
Fair Value Measurements at July 2, 2011 Using
|
||||||||||
|
|
Quoted Prices in
Active Markets for
Identical Assets
|
Significant Other
Observable
Inputs
|
Significant
Unobservable
Inputs
|
||||||||
(In thousands of dollars)
|
Total
|
(Level 1)
|
(Level 2)
|
(Level 3)
|
||||||||
Assets:
|
|
|
|
|
||||||||
Derivative instruments
|
$
|
88
|
|
$
|
—
|
|
$
|
88
|
|
$
|
—
|
|
Total Assets
|
$
|
88
|
|
$
|
—
|
|
$
|
88
|
|
$
|
—
|
|
|
|
|
|
|
||||||||
Liabilities:
|
|
|
|
|
||||||||
Derivative instruments
|
$
|
203
|
|
$
|
—
|
|
$
|
203
|
|
$
|
—
|
|
Total Liabilities
|
$
|
203
|
|
$
|
—
|
|
$
|
203
|
|
$
|
—
|
|
|
Issuer
|
Guarantors
|
Non-guarantors
|
Eliminations
|
Consolidated
|
||||||||||
ASSETS
|
|
|
|
|
|
||||||||||
Total current assets
|
$
|
95,852
|
|
$
|
310,077
|
|
$
|
3,344
|
|
$
|
(196,967
|
)
|
$
|
212,306
|
|
Investment in subsidiaries
|
1,211,650
|
|
—
|
|
—
|
|
(1,211,650
|
)
|
—
|
|
|||||
Property, plant and equipment, net
|
118,733
|
|
277,271
|
|
—
|
|
—
|
|
396,004
|
|
|||||
Intangible assets, net
|
19,833
|
|
356,744
|
|
304
|
|
—
|
|
376,881
|
|
|||||
Goodwill
|
32,441
|
|
345,343
|
|
266
|
|
—
|
|
378,050
|
|
|||||
Investment in unconsolidated subsidiary
|
—
|
|
—
|
|
9,567
|
|
—
|
|
9,567
|
|
|||||
Other assets
|
27,652
|
|
3,362
|
|
—
|
|
—
|
|
31,014
|
|
|||||
|
$
|
1,506,161
|
|
$
|
1,292,797
|
|
$
|
13,481
|
|
$
|
(1,408,617
|
)
|
$
|
1,403,822
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|||||||
Total current liabilities
|
$
|
265,108
|
|
$
|
80,896
|
|
$
|
2,516
|
|
$
|
(196,967
|
)
|
$
|
151,553
|
|
Long-term debt, net of current portion
|
329,848
|
|
25
|
|
—
|
|
—
|
|
329,873
|
|
|||||
Other noncurrent liabilities
|
35,321
|
|
11,004
|
|
187
|
|
—
|
|
46,512
|
|
|||||
Deferred income taxes
|
15,154
|
|
—
|
|
—
|
|
—
|
|
15,154
|
|
|||||
Total liabilities
|
645,431
|
|
91,925
|
|
2,703
|
|
(196,967
|
)
|
543,092
|
|
|||||
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
|||||||
Common stock, additional paid-in capital and treasury stock
|
583,212
|
|
1,022,544
|
|
15,412
|
|
(1,037,956
|
)
|
583,212
|
|
|||||
Retained earnings and accumulated other comprehensive loss
|
277,518
|
|
178,328
|
|
(4,634
|
)
|
(173,694
|
)
|
277,518
|
|
|||||
Total stockholders’ equity
|
860,730
|
|
1,200,872
|
|
10,778
|
|
(1,211,650
|
)
|
860,730
|
|
|||||
|
$
|
1,506,161
|
|
$
|
1,292,797
|
|
$
|
13,481
|
|
$
|
(1,408,617
|
)
|
$
|
1,403,822
|
|
|
Issuer
|
Guarantors
|
Non-guarantors
|
Eliminations
|
Consolidated
|
||||||||||
ASSETS
|
|
|
|
|
|
||||||||||
Total current assets
|
$
|
95,679
|
|
$
|
196,383
|
|
$
|
4,669
|
|
$
|
(111,145
|
)
|
$
|
185,586
|
|
Investment in subsidiaries
|
1,118,467
|
|
—
|
|
—
|
|
(1,118,467
|
)
|
—
|
|
|||||
Property, plant and equipment, net
|
119,511
|
|
273,909
|
|
—
|
|
—
|
|
393,420
|
|
|||||
Intangible assets, net
|
21,569
|
|
369,385
|
|
—
|
|
—
|
|
390,954
|
|
|||||
Goodwill
|
32,441
|
|
343,822
|
|
—
|
|
—
|
|
376,263
|
|
|||||
Other assets
|
31,136
|
|
3,321
|
|
1,578
|
|
—
|
|
36,035
|
|
|||||
|
$
|
1,418,803
|
|
$
|
1,186,820
|
|
$
|
6,247
|
|
$
|
(1,229,612
|
)
|
$
|
1,382,258
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|||||||
Total current liabilities
|
$
|
202,705
|
|
$
|
59,343
|
|
$
|
3,927
|
|
$
|
(111,145
|
)
|
$
|
154,830
|
|
Long-term debt, net of current portion
|
707,000
|
|
30
|
|
—
|
|
—
|
|
707,030
|
|
|||||
Other noncurrent liabilities
|
39,460
|
|
11,004
|
|
296
|
|
—
|
|
50,760
|
|
|||||
Deferred income taxes
|
5,342
|
|
—
|
|
—
|
|
—
|
|
5,342
|
|
|||||
Total liabilities
|
954,507
|
|
70,377
|
|
4,223
|
|
(111,145
|
)
|
917,962
|
|
|||||
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
|||||||
Common stock, additional paid-in capital and treasury stock
|
286,696
|
|
1,022,544
|
|
6,224
|
|
(1,028,768
|
)
|
286,696
|
|
|||||
Retained earnings and accumulated other comprehensive loss
|
177,600
|
|
93,899
|
|
(4,200
|
)
|
(89,699
|
)
|
177,600
|
|
|||||
Total stockholders’ equity
|
464,296
|
|
1,116,443
|
|
2,024
|
|
(1,118,467
|
)
|
464,296
|
|
|||||
|
$
|
1,418,803
|
|
$
|
1,186,820
|
|
$
|
6,247
|
|
$
|
(1,229,612
|
)
|
$
|
1,382,258
|
|
|
Issuer
|
Guarantors
|
Non-guarantors
|
Eliminations
|
Consolidated
|
||||||||||
Net sales
|
$
|
183,604
|
|
$
|
327,243
|
|
$
|
4,683
|
|
$
|
(44,920
|
)
|
$
|
470,610
|
|
Cost and expenses:
|
|
|
|
|
|
||||||||||
Cost of sales and operating expenses
|
135,325
|
|
230,335
|
|
4,489
|
|
(44,921
|
)
|
325,228
|
|
|||||
Selling, general and administrative expenses
|
17,524
|
|
16,527
|
|
41
|
|
—
|
|
34,092
|
|
|||||
Depreciation and amortization
|
5,571
|
|
13,473
|
|
11
|
|
—
|
|
19,055
|
|
|||||
Total costs and expenses
|
158,420
|
|
260,335
|
|
4,541
|
|
(44,921
|
)
|
378,375
|
|
|||||
Operating income
|
25,184
|
|
66,908
|
|
142
|
|
1
|
|
92,235
|
|
|||||
|
|
|
|
|
|
|
|
|
|||||||
Interest expense
|
(7,745
|
)
|
—
|
|
—
|
|
—
|
|
(7,745
|
)
|
|||||
Other, net
|
(648
|
)
|
(283
|
)
|
102
|
|
(1
|
)
|
(830
|
)
|
|||||
Equity in net loss of unconsolidated subsidiary
|
—
|
|
—
|
|
(1,174
|
)
|
—
|
|
(1,174
|
)
|
|||||
Earnings in investments in subsidiaries
|
41,588
|
|
—
|
|
—
|
|
(41,588
|
)
|
—
|
|
|||||
Income from operations before taxes
|
58,379
|
|
66,625
|
|
(930
|
)
|
(41,588
|
)
|
82,486
|
|
|||||
Income taxes
|
6,152
|
|
24,448
|
|
(341
|
)
|
—
|
|
30,259
|
|
|||||
Net income
|
$
|
52,227
|
|
$
|
42,177
|
|
$
|
(589
|
)
|
$
|
(41,588
|
)
|
$
|
52,227
|
|
|
Issuer
|
Guarantors
|
Non-guarantors
|
Eliminations
|
Consolidated
|
||||||||||
Net sales
|
$
|
358,259
|
|
$
|
634,357
|
|
$
|
11,232
|
|
$
|
(93,340
|
)
|
$
|
910,508
|
|
Cost and expenses:
|
|
|
|
|
|
||||||||||
Cost of sales and operating expenses
|
267,379
|
|
441,834
|
|
10,746
|
|
(93,340
|
)
|
626,619
|
|
|||||
Selling, general and administrative expenses
|
32,711
|
|
31,993
|
|
81
|
|
—
|
|
64,785
|
|
|||||
Depreciation and amortization
|
11,755
|
|
26,970
|
|
11
|
|
—
|
|
38,736
|
|
|||||
Total costs and expenses
|
311,845
|
|
500,797
|
|
10,838
|
|
(93,340
|
)
|
730,140
|
|
|||||
Operating income
|
46,414
|
|
133,560
|
|
394
|
|
—
|
|
180,368
|
|
|||||
|
|
|
|
|
|
|
|
|
|||||||
Interest expense
|
(21,972
|
)
|
(1
|
)
|
—
|
|
—
|
|
(21,973
|
)
|
|||||
Other, net
|
(1,106
|
)
|
(385
|
)
|
95
|
|
—
|
|
(1,396
|
)
|
|||||
Equity in net loss of unconsolidated subsidiary
|
—
|
|
—
|
|
(1,174
|
)
|
—
|
|
(1,174
|
)
|
|||||
Earnings in investments in subsidiaries
|
83,995
|
|
—
|
|
—
|
|
(83,995
|
)
|
—
|
|
|||||
Income from operations before taxes
|
107,331
|
|
133,174
|
|
(685
|
)
|
(83,995
|
)
|
155,825
|
|
|||||
Income taxes
|
8,542
|
|
48,745
|
|
(251
|
)
|
—
|
|
57,036
|
|
|||||
Net income
|
$
|
98,789
|
|
$
|
84,429
|
|
$
|
(434
|
)
|
$
|
(83,995
|
)
|
$
|
98,789
|
|
|
Issuer
|
Guarantors
|
Non-guarantors
|
Eliminations
|
Consolidated
|
||||||||||
Net sales
|
$
|
132,470
|
|
$
|
64,650
|
|
$
|
—
|
|
$
|
(30,910
|
)
|
$
|
166,210
|
|
Cost and expenses:
|
|
|
|
|
|
||||||||||
Cost of sales and operating expenses
|
99,717
|
|
55,046
|
|
—
|
|
(30,910
|
)
|
123,853
|
|
|||||
Selling, general and administrative expenses
|
14,873
|
|
1,364
|
|
—
|
|
—
|
|
16,237
|
|
|||||
Depreciation and amortization
|
5,336
|
|
1,870
|
|
—
|
|
—
|
|
7,206
|
|
|||||
Total costs and expenses
|
119,926
|
|
58,280
|
|
—
|
|
(30,910
|
)
|
147,296
|
|
|||||
Operating income
|
12,544
|
|
6,370
|
|
—
|
|
—
|
|
18,914
|
|
|||||
|
|
|
|
|
|
|
|
|
|||||||
Interest expense
|
(888
|
)
|
(1
|
)
|
—
|
|
—
|
|
(889
|
)
|
|||||
Other, net
|
(120
|
)
|
6
|
|
(334
|
)
|
—
|
|
(448
|
)
|
|||||
Earnings in investments in subsidiaries
|
3,930
|
|
—
|
|
—
|
|
(3,930
|
)
|
—
|
|
|||||
Income from operations before taxes
|
15,466
|
|
6,375
|
|
(334
|
)
|
(3,930
|
)
|
17,577
|
|
|||||
Income taxes (benefit)
|
4,095
|
|
2,229
|
|
(118
|
)
|
—
|
|
6,206
|
|
|||||
Net income
|
$
|
11,371
|
|
$
|
4,146
|
|
$
|
(216
|
)
|
$
|
(3,930
|
)
|
$
|
11,371
|
|
|
Issuer
|
Guarantors
|
Non-guarantors
|
Eliminations
|
Consolidated
|
||||||||||
Net sales
|
$
|
257,385
|
|
$
|
135,512
|
|
$
|
—
|
|
$
|
(63,905
|
)
|
$
|
328,992
|
|
Cost and expenses:
|
|
|
|
|
|
||||||||||
Cost of sales and operating expenses
|
195,358
|
|
112,810
|
|
—
|
|
(63,905
|
)
|
244,263
|
|
|||||
Selling, general and administrative expenses
|
29,264
|
|
2,738
|
|
—
|
|
—
|
|
32,002
|
|
|||||
Depreciation and amortization
|
10,458
|
|
3,772
|
|
—
|
|
—
|
|
14,230
|
|
|||||
Total costs and expenses
|
235,080
|
|
119,320
|
|
—
|
|
(63,905
|
)
|
290,495
|
|
|||||
Operating income
|
22,305
|
|
16,192
|
|
—
|
|
—
|
|
38,497
|
|
|||||
|
|
|
|
|
|
|
|
|
|||||||
Interest expense
|
(1,797
|
)
|
(2
|
)
|
—
|
|
—
|
|
(1,799
|
)
|
|||||
Other, net
|
(313
|
)
|
8
|
|
(677
|
)
|
—
|
|
(982
|
)
|
|||||
Earnings in investments in subsidiaries
|
9,929
|
|
—
|
|
—
|
|
(9,929
|
)
|
—
|
|
|||||
Income from operations before taxes
|
30,124
|
|
16,198
|
|
(677
|
)
|
(9,929
|
)
|
35,716
|
|
|||||
Income taxes (benefit)
|
7,275
|
|
5,836
|
|
(244
|
)
|
—
|
|
12,867
|
|
|||||
Net income
|
$
|
22,849
|
|
$
|
10,362
|
|
$
|
(433
|
)
|
$
|
(9,929
|
)
|
$
|
22,849
|
|
|
Issuer
|
Guarantors
|
Non-guarantors
|
Eliminations
|
Consolidated
|
||||||||||
Cash flows from operating activities:
|
|
|
|
|
|
||||||||||
Net income
|
$
|
98,789
|
|
$
|
84,429
|
|
$
|
(434
|
)
|
$
|
(83,995
|
)
|
$
|
98,789
|
|
Earnings in investments in subsidiaries
|
(83,995
|
)
|
—
|
|
—
|
|
83,995
|
|
—
|
|
|||||
Other operating cash flows
|
79,603
|
|
(70,755
|
)
|
10,867
|
|
—
|
|
19,715
|
|
|||||
Net cash provided by operating activities
|
94,397
|
|
13,674
|
|
10,433
|
|
—
|
|
118,504
|
|
|||||
|
|
|
|
|
|
||||||||||
Cash flows from investng activities:
|
|
|
|
|
|
||||||||||
Capital expenditures
|
(10,770
|
)
|
(17,100
|
)
|
—
|
|
—
|
|
(27,870
|
)
|
|||||
Acquisitions
|
(164
|
)
|
—
|
|
—
|
|
—
|
|
(164
|
)
|
|||||
Investment in unconsolidated subsidiary
|
—
|
|
—
|
|
(10,741
|
)
|
—
|
|
(10,741
|
)
|
|||||
Gross proceeds from sale of property, plant and equipment and other assets
|
457
|
|
208
|
|
—
|
|
—
|
|
665
|
|
|||||
Net cash used in investing activities
|
(10,477
|
)
|
(16,892
|
)
|
(10,741
|
)
|
—
|
|
(38,110
|
)
|
|||||
|
|
|
|
|
|
||||||||||
Cash flows from financing activities:
|
|
|
|
|
|
||||||||||
Payments on long-term debt
|
(240,000
|
)
|
(5
|
)
|
—
|
|
—
|
|
(240,005
|
)
|
|||||
Net payments on revolver
|
(140,000
|
)
|
—
|
|
—
|
|
—
|
|
(140,000
|
)
|
|||||
Deferred loan costs
|
(267
|
)
|
—
|
|
—
|
|
—
|
|
(267
|
)
|
|||||
Issuances of common stock
|
293,189
|
|
—
|
|
—
|
|
—
|
|
293,189
|
|
|||||
Minimum withholding taxes paid on stock awards
|
(1,205
|
)
|
—
|
|
—
|
|
—
|
|
(1,205
|
)
|
|||||
Excess tax benefits from stock-based compensation
|
1,136
|
|
—
|
|
—
|
|
—
|
|
1,136
|
|
|||||
Net cash used in financing activities
|
(87,147
|
)
|
(5
|
)
|
—
|
|
—
|
|
(87,152
|
)
|
|||||
|
|
|
|
|
|
||||||||||
Net decrease in cash and cash equivalents
|
(3,227
|
)
|
(3,223
|
)
|
(308
|
)
|
—
|
|
(6,758
|
)
|
|||||
Cash and cash equivalents at beginning of year
|
13,108
|
|
5,480
|
|
614
|
|
—
|
|
19,202
|
|
|||||
Cash and cash equivalents at end of year
|
$
|
9,881
|
|
$
|
2,257
|
|
$
|
306
|
|
$
|
—
|
|
$
|
12,444
|
|
|
Issuer
|
Guarantors
|
Non-guarantors
|
Eliminations
|
Consolidated
|
||||||||||
Cash flows from operating activities:
|
|
|
|
|
|
||||||||||
Net income
|
$
|
22,849
|
|
$
|
10,362
|
|
$
|
(433
|
)
|
$
|
(9,929
|
)
|
$
|
22,849
|
|
Earnings in investments in subsidiaries
|
(9,929
|
)
|
—
|
|
—
|
|
9,929
|
|
—
|
|
|||||
Other operating cash flows
|
11,882
|
|
(8,574
|
)
|
433
|
|
—
|
|
3,741
|
|
|||||
Net cash provided by operating activities
|
24,802
|
|
1,788
|
|
—
|
|
—
|
|
26,590
|
|
|||||
|
|
|
|
|
|
||||||||||
Cash flows from investng activities:
|
|
|
|
|
|
||||||||||
Capital expenditures
|
(7,593
|
)
|
(1,807
|
)
|
—
|
|
—
|
|
(9,400
|
)
|
|||||
Acquisitions
|
(15,284
|
)
|
—
|
|
—
|
|
—
|
|
(15,284
|
)
|
|||||
Gross proceeds from sale of property, plant and equipment and other assets
|
135
|
|
9
|
|
—
|
|
—
|
|
144
|
|
|||||
Payments related to routes and other intangibles
|
(991
|
)
|
—
|
|
—
|
|
—
|
|
(991
|
)
|
|||||
Net cash used in investing activities
|
(23,733
|
)
|
(1,798
|
)
|
—
|
|
—
|
|
(25,531
|
)
|
|||||
|
|
|
|
|
|
||||||||||
Cash flows from financing activities:
|
|
|
|
|
|
||||||||||
Payments on long-term debt
|
(2,500
|
)
|
(4
|
)
|
—
|
|
—
|
|
(2,504
|
)
|
|||||
Issuances of common stock
|
7
|
|
—
|
|
—
|
|
—
|
|
7
|
|
|||||
Minimum withholding taxes paid on stock awards
|
(442
|
)
|
—
|
|
—
|
|
—
|
|
(442
|
)
|
|||||
Excess tax benefits from stock-based compensation
|
184
|
|
—
|
|
—
|
|
—
|
|
184
|
|
|||||
Net cash used in financing activities
|
(2,751
|
)
|
(4
|
)
|
—
|
|
—
|
|
(2,755
|
)
|
|||||
|
|
|
|
|
|
||||||||||
Net decrease in cash and cash equivalents
|
(1,682
|
)
|
(14
|
)
|
—
|
|
—
|
|
(1,696
|
)
|
|||||
Cash and cash equivalents at beginning of year
|
68,126
|
|
56
|
|
—
|
|
—
|
|
68,182
|
|
|||||
Cash and cash equivalents at end of year
|
$
|
66,444
|
|
$
|
42
|
|
$
|
—
|
|
$
|
—
|
|
$
|
66,486
|
|
•
|
The acquisition of Griffin has contributed a significant amount to the Company's operations during the current quarter. The financial impact of the acquisition of Griffin is summarized below in Results of Operations.
|
•
|
Significantly higher finished product prices for fats and proteins as compared to second quarter of fiscal 2010 are a sign of improving U.S. and world economies, increased global demand for BFT and YG for use in bio-fuels, tightening global grain supplies and increased Asian demand for protein. Finished product prices were favorable to the Company's sales revenue, but this favorable result was partially offset by the negative impact on raw material cost, due to the Company's formula pricing arrangements with raw material suppliers, which index raw material cost to the prices of finished product derived from the raw material. The financial impact of finished goods prices on sales revenue and raw material cost is summarized below in Results of Operations. Comparative sales price information from the Jacobsen index, an established trading exchange publisher used by management, is provided below in Summary of Key Indicators.
|
•
|
Higher raw material volumes were collected from suppliers during the second quarter of fiscal 2011 as compared to the second quarter of fiscal 2010. Management believes the positive effect of the integration of prior year acquisition activity, excluding the effects of the acquisition of Griffin, and improving conditions in the U.S. economy contributed to the increase in raw material volumes collected by the Company during the second quarter of fiscal 2011 as compared to fiscal 2010. The financial impact of higher raw material volumes is summarized below in Results of Operations.
|
•
|
The acquisition of Griffin is the largest and most significant acquisition Darling has undertaken. Although Darling expects that Griffin's business will operate to a significant extent on an independent basis and that it will not require significant integration going forward for the Company to continue the operations of Griffin's business, this may not prove to be the case. The Company's management will continue to be required to devote a significant amount of time and attention to the process of integrating the operations of Darling's business and the business of Griffin.
|
•
|
Finished product prices for MBM, PM (both feed grade and pet food grade), BFT, PG, YG and BBP commodities have increased during the second quarter of fiscal 2011 as compared to the same period of fiscal 2010. No assurance can be given that this increase in commodity prices for various proteins, fats and bakery products will continue in the future, as commodity prices are volatile by their nature. A future decrease in commodity prices could have a significant impact on the Company’s earnings for the remainder of fiscal 2011 and into future periods.
|
•
|
The Company's overall raw material volumes increased during the first six months of fiscal 2011 as compared to the same period in fiscal 2010 as beef volumes were higher. However, poultry volumes were down in the Southeast as higher corn ingredient costs impacted poultry processing rates. No assurance can be given that beef volumes will continue to increase and there is no assurance that poultry volumes will not decrease further in the future. A future decrease in beef volumes or further decreases in poultry volumes could have a significant impact on the Company's earnings for the remainder of fiscal 2011 and into future periods.
|
•
|
The Company consumes significant volumes of natural gas to operate boilers in its plants, which generate steam to heat raw material. Natural gas prices represent a significant cost of factory operation included in cost of sales. The Company also consumes significant volumes of diesel fuel to operate its fleet of tractors and trucks used to collect raw material. Diesel fuel prices represent a significant component of cost of collection expenses included in cost of sales. Lower natural gas prices were offset by higher diesel fuel prices during the first six months of fiscal 2011 as compared to the same period of fiscal 2010. These prices can be volatile and there can be no assurance that these prices will not increase in the near future, thereby representing an ongoing challenge to the Company’s operating results for future periods. A material increase in energy prices for natural gas and/or diesel fuel over a sustained period of time could materially adversely affect the Company’s business, financial condition and results of operations.
|
•
|
Pursuant to the requirements established by the Energy Independence and Security Act of 2007, on February 3, 2010 the EPA finalized regulations for the National Renewable Fuel Standard Program (“RFS2”). The regulation mandates the domestic use of biomass-based diesel (biodiesel or renewable diesel) of 0.8 billion gallons in 2011 and 1.0 billion
|
•
|
The Company’s exports are subject to the imposition of tariffs, quotas, trade barriers and other trade protection measures imposed by foreign countries regarding the import of the Company’s MBM, BFT and YG. General economic and political conditions as well as the closing of borders by foreign countries to the import of the Company’s products due to animal disease or other perceived health or safety issues impact the Company. As a result trade policies by foreign countries could have a negative impact on the Company’s business and results of operations.
|
•
|
Effective August 1997, the FDA promulgated a rule prohibiting the use of mammalian proteins, with some exceptions, in feeds for cattle, sheep and other ruminant animals (referred to herein as the “BSE Feed Rule”) to prevent further spread of BSE, commonly referred to as “mad cow disease.” Detection of the first case of BSE in the United States in December 2003 resulted in additional U.S. government regulations, finished product export restrictions by foreign governments, market price fluctuations for the Company's finished products and reduced demand for beef and beef products by consumers. Even though the export markets for U.S. beef have rebounded and 2011 export volumes may exceed pre-BSE levels, most export markets remain closed to MBM derived from U.S. beef. Continued concern about BSE in the United States may result in additional regulatory and market related challenges that may affect the Company's operations or increase the Company's operating costs.
|
•
|
With respect to BSE in the United States, on October 26, 2009, the FDA began enforcing new regulations intended to further reduce the risk of spreading BSE (“Enhanced BSE Rule”). These new regulations included amending the BSE Feed Rule to prohibit the use of tallow having more than 0.15% insoluble impurities in feed for cattle or other ruminant animals. In addition, the FDA implemented rules that prohibit the use of brain and spinal cord material from cattle aged 30 months and older or the carcasses of such cattle, if the brain and spinal cord are not removed, in the feed or food for all animals (“Prohibited Cattle Materials”). Tallow derived from Prohibited Cattle Materials that also contains more than 0.15% insoluble impurities cannot be fed to any animal. The Company has followed the Enhanced BSE Rule since it was first published in 2008 and has made capital expenditures and implemented new processes and procedures to be compliant with the Enhanced BSE Rule at all of the Company's operations. Based on the foregoing, while the Company acknowledges that unanticipated issues may arise as the FDA continues to implement the Enhanced BSE Rule and conducts compliance inspections, the Company does not currently anticipate that the Enhanced BSE Rule will have a significant impact on the Company operations or financial performance. Notwithstanding the foregoing, the Company can provide no assurance that unanticipated costs and/or reductions in raw material volumes related to the Company's implementation of and compliance with the Enhanced BSE Rule will not negatively impact the Company's operations and financial performance.
|
•
|
With respect to human food, pet food and animal feed safety, the Food and Drug Administration Amendments Act of 2007 (the “Act”) was signed into law on September 27, 2007 as a result of Congressional concern for pet and livestock food safety, following the discovery in March 2007 of pet and livestock food that contained adulterated imported ingredients. The Act directs the Secretary of Health and Human Services and the FDA to promulgate significant new requirements for the pet food and animal feed industries. As a prerequisite to new requirements specified by the Act, the FDA was directed to establish a Reportable Food Registry, which was implemented on September 8, 2009. On June 11, 2009, the FDA issued “Guidance for Industry: Questions and Answers Regarding the Reportable Food Registry as Established by the Food and Drug Administration Amendments Act of 2007: Draft Guidance.” Stakeholder comments and questions about the Reportable Food Registry that were submitted to the docket or during public meetings were incorporated into a second draft guidance (“RFR Draft Guidance”), which was published on September 8, 2009. In the RFR Draft Guidance, the FDA defined a reportable food, which the manufacturer or distributor would be required to report in the Reportable Food Registry, to include materials used as ingredients in animal feeds and pet foods, if there is reasonable probability that the use of such materials will cause serious adverse health consequences or death to humans or animals. The FDA issued a second version of its
|
•
|
In addition, on January 4, 2011, President Barack Obama signed the Food Safety Modernization Act (“FSMA”) into law. As enacted, the FSMA gave the FDA new authorities, which became effective immediately. Included among these is mandatory recall authority for adulterated foods that are likely to cause serious adverse health consequences or death to humans or animals, if the responsible party fails to cease distribution and recall such adulterated foods voluntarily. The FSMA further instructed the FDA to amend existing regulations that define its administrative detention authority so that the criteria needed for detaining human or animal food are lowered. Prior to the FSMA becoming law, FDA had authority to order that an article of food be detained only if there was credible evidence or information indicating that the article of food presented a threat of serious adverse health consequences or death to humans or animals. On May 5, 2011, FDA issued an interim final rule amending its administrative detention authority and lowering both the level of proof and the degree of risk required for detaining an article of food. This interim final rule, which became effective on July 3, 2011, gives the FDA authority to detain an article of food if there is reason to believe the food is adulterated or misbranded. In addition to amending existing regulations, the FSMA requires the FDA to develop new regulations that, among other provisions, places additional registration requirements on food and feed producing firms; requires registered facilities to perform hazard analysis and to implement preventive plans to control those hazards identified to be reasonably likely to occur; increases the length of time that records are required to be retained; and regulates the sanitary transportation of food. Such new food safety provisions will require new FDA rule making. The Company has followed the FSMA throughout its legislative history and implemented hazard prevention controls and other procedures that the Company believes will be needed to comply with the FSMA. Such rule-making could, among other things, require the Company to amend certain of the Company's other operational policies and procedures. While unforeseen issues and requirements may arise as the FDA promulgates the new regulations provided for by the FSMA, the Company does not anticipate that the costs of compliance with the FSMA will materially impact the Company's business or operations.
|
•
|
The emergence of diseases such as 2009 H1N1 flu (initially know as “Swine Flu”) and H5N1 avian influenza (“Bird Flu”) that are in or associated with animals and have the potential to also threaten humans has created concern that such diseases could spread and cause a global pandemic. Even though such a pandemic has not occurred, governments may be pressured to address these concerns and prohibit imports of animals, meat and animal by-products from countries or regions where the disease is detected. The occurrence of Swine Flu, Bird Flu or any other disease in the United States that is correctly or incorrectly linked to animals and has a negative impact on meat or poultry consumption or animal production could have a material negative impact on the volume of raw materials available to the Company or the demand for the Company's finished products.
|
•
|
Finished product commodity prices,
|
•
|
Raw material volume,
|
•
|
Production volume and related yield of finished product,
|
•
|
Energy prices for natural gas quoted on the NYMEX index and diesel fuel,
|
•
|
Collection fees and collection operating expense, and
|
•
|
Factory operating expenses.
|
|
Avg. Price
2nd Quarter
2011
|
Avg. Price
2nd Quarter
2010
|
Increase
|
%
Increase
|
|
Rendering Segment:
|
|
|
|
|
|
MBM (Illinois)
|
$420.07/ton
|
$285.62/ton
|
$ 134.45/ton
|
47.1
|
%
|
Feed Grade PM (Carolina)
|
$439.32/ton
|
$359.77/ton
|
$ 79.55/ton
|
22.1
|
%
|
Pet Food PM (Southeast)
|
$716.11/ton
|
$676.50/ton
|
$ 39.61/ton
|
5.9
|
%
|
BFT (Chicago)
|
$ 52.72/cwt
|
$ 32.84/cwt
|
$ 19.88/cwt
|
60.5
|
%
|
PG (Southeast)
|
$ 48.71/cwt
|
$ 28.61/cwt
|
$ 20.10/cwt
|
70.3
|
%
|
YG (Illinois)
|
$ 46.64/cwt
|
$ 26.31/cwt
|
$ 20.33/cwt
|
77.3
|
%
|
Bakery Segment:
|
|
|
|
|
|
BBP (Chicago)
|
$237.44/ton
|
$123.37/ton
|
$ 114.07/ton
|
92.5
|
%
|
|
Rendering
|
Bakery
|
Corporate
|
Total
|
||||||||
Increase in sales due to acquisition of Griffin
|
$
|
158.5
|
|
$
|
78.0
|
|
$
|
—
|
|
$
|
236.5
|
|
Increase in finished product prices
|
67.7
|
|
—
|
|
—
|
|
67.7
|
|
||||
Increase in other sales
|
2.3
|
|
—
|
|
—
|
|
2.3
|
|
||||
Increase in raw material volume
|
1.3
|
|
—
|
|
—
|
|
1.3
|
|
||||
Decrease in yield
|
(3.4
|
)
|
—
|
|
—
|
|
(3.4
|
)
|
||||
|
$
|
226.4
|
|
$
|
78.0
|
|
$
|
—
|
|
$
|
304.4
|
|
|
Rendering
|
Bakery
|
Corporate
|
Total
|
||||||||
Increase in cost of sales and operating expense due to acquisition of Griffin
|
$
|
100.8
|
|
$
|
54.5
|
|
$
|
—
|
|
$
|
155.3
|
|
Increase in raw material costs
|
40.6
|
|
—
|
|
—
|
|
40.6
|
|
||||
Increase in other costs of sales
|
4.1
|
|
—
|
|
—
|
|
4.1
|
|
||||
Increase in energy costs, primarily natural gas and diesel fuel
|
1.3
|
|
—
|
|
—
|
|
1.3
|
|
||||
|
$
|
146.8
|
|
$
|
54.5
|
|
$
|
—
|
|
$
|
201.3
|
|
|
Rendering
|
Bakery
|
Corporate
|
Total
|
||||||||
Increases in selling, general and administrative expense from 13 weeks of contribution related to Griffin
|
$
|
7.1
|
|
$
|
2.7
|
|
$
|
5.3
|
|
$
|
15.1
|
|
Increase in payroll and incentive-related benefits
|
(0.2
|
)
|
—
|
|
2.1
|
|
1.9
|
|
||||
Increase in other expense
|
—
|
|
—
|
|
1.8
|
|
1.8
|
|
||||
Decrease in purchase accounting contingency
|
(0.8
|
)
|
(0.1
|
)
|
—
|
|
(0.9
|
)
|
||||
|
$
|
6.1
|
|
$
|
2.6
|
|
$
|
9.2
|
|
$
|
17.9
|
|
•
|
Finished product commodity prices,
|
•
|
Raw material volume,
|
•
|
Production volume and related yield of finished product,
|
•
|
Energy prices for natural gas quoted on the NYMEX index and diesel fuel,
|
•
|
Collection fees and collection operating expense, and
|
•
|
Factory operating expenses.
|
|
Avg. Price
First Six Months
2011
|
Avg. Price
First Six Months 2010
|
Increase/
(Decrease)
|
%
Increase/
(Decrease)
|
|
Rendering Segment:
|
|
|
|
|
|
MBM (Illinois)
|
$377.94/ton
|
$291.09/ton
|
$ 86.85/ton
|
29.8
|
%
|
Feed Grade PM (Carolina)
|
$399.78/ton
|
$366.01/ton
|
$ 33.77/ton
|
9.2
|
%
|
Pet Food PM (Southeast)
|
$640.02/ton
|
$691.94/ton
|
$ (51.92)/ton
|
(7.5
|
)%
|
BFT (Chicago)
|
$ 50.43/cwt
|
$ 31.08/cwt
|
$ 19.35/cwt
|
62.3
|
%
|
PG (Southeast)
|
$ 46.80/cwt
|
$ 28.27/cwt
|
$ 18.53/cwt
|
65.5
|
%
|
YG (Illinois)
|
$ 44.52/cwt
|
$ 25.60/cwt
|
$ 18.92/cwt
|
73.9
|
%
|
Bakery Segment:
|
|
|
|
|
|
BBP (Chicago)
|
$228.68/ton
|
$130.19/ton
|
$ 98.49/ton
|
75.7
|
%
|
|
Rendering
|
Bakery
|
Corporate
|
Total
|
||||||||
Increase in sales due to acquisition of Griffin
|
$
|
309.5
|
|
$
|
146.3
|
|
$
|
—
|
|
$
|
455.8
|
|
Increase in finished product prices
|
126.4
|
|
—
|
|
—
|
|
126.4
|
|
||||
Increase in raw material volume
|
2.2
|
|
—
|
|
—
|
|
2.2
|
|
||||
Other sales increases
|
1.5
|
|
—
|
|
—
|
|
1.5
|
|
||||
Decrease in yield
|
(4.4
|
)
|
—
|
|
—
|
|
(4.4
|
)
|
||||
|
$
|
435.2
|
|
$
|
146.3
|
|
$
|
—
|
|
$
|
581.5
|
|
|
Rendering
|
Bakery
|
Corporate
|
Total
|
||||||||
Increase in cost of sales and operating expense due to acquisition of Griffin
|
$
|
195.7
|
|
$
|
103.5
|
|
$
|
—
|
|
$
|
299.2
|
|
Increase in raw material costs
|
76.1
|
|
—
|
|
—
|
|
76.1
|
|
||||
Increase in other
|
5.7
|
|
—
|
|
—
|
|
5.7
|
|
||||
Increase in energy costs, primarily natural gas and diesel fuel
|
1.3
|
|
—
|
|
—
|
|
1.3
|
|
||||
|
$
|
278.8
|
|
$
|
103.5
|
|
$
|
—
|
|
$
|
382.3
|
|
|
Rendering
|
Bakery
|
Corporate
|
Total
|
||||||||
Increases in selling, general and administrative expense from 26 weeks of contribution related to Griffin
|
$
|
13.9
|
|
$
|
5.5
|
|
$
|
9.8
|
|
$
|
29.2
|
|
Increase in payroll and incentive-related benefits
|
(0.2
|
)
|
—
|
|
3.9
|
|
3.7
|
|
||||
Increase in other expense
|
—
|
|
—
|
|
3.4
|
|
3.4
|
|
||||
Decrease in purchase accounting contingency
|
(2.9
|
)
|
(0.6
|
)
|
—
|
|
(3.5
|
)
|
||||
|
$
|
10.8
|
|
$
|
4.9
|
|
$
|
17.1
|
|
$
|
32.8
|
|
•
|
As of
July 2, 2011
, the Company had availability of $
371.6 million
under the revolving loan facility, taking into account outstanding borrowings of $
20.0 million
and letters of credit issued of $
23.4 million
.
|
•
|
As of
July 2, 2011
, the Company had repaid approximately $
240.0 million
of the original $
300.0 million
term loan issued under the credit agreement, and had an outstanding remaining balance of approximately $
60.0 million
on its term loan facility. The amounts that have been repaid on the term loan may not be reborrowed. Quarterly amortization payments on the term loan of $
0.15 million
will begin on June 30, 2012, with the final installment due December 17, 2016.
|
•
|
The obligations under the Company's credit agreement are guaranteed by Darling National, Griffin, and its subsidiary, Craig Protein Division, Inc. and are secured by substantially all of the property of the Company.
|
•
|
The Notes are guaranteed on an unsecured basis by Darling's existing restricted subsidiaries, including Darling National, Griffin and all of its subsidiaries, other than Darling's foreign subsidiaries, its captive insurance subsidiary and any inactive subsidiary with nominal assets. The Notes rank equally in right of payment to any existing and future senior debt of Darling. The Notes will be effectively junior to existing and future secured debt of Darling and the guarantors, including debt under the Credit Agreement, to the extent of the value of assets securing such debt. The Notes will be structurally subordinated to all of the existing and future liabilities (including trade payables) of each of the subsidiaries of Darling that do not guarantee the Notes. The guarantees by the guarantors (the “Guarantees”) rank equally in right of payment to any existing and future senior indebtedness of the guarantors. The Guarantees will be effectively junior to existing and future secured debt of the guarantors including debt under the Credit Agreement, to the extent the value of the assets securing such debt. The Guarantees will be structurally subordinated to all of the existing and future liabilities (including trade payables) of each of the subsidiaries of each Guarantor that do not guarantee the Notes.
|
Senior Notes:
|
|
||
8.5% Senior Notes Due 2018
|
$
|
250,000
|
|
|
|
||
Senior Secured Credit Facilities:
|
|
||
Term Loan
|
$
|
60,000
|
|
Revolving Credit Facility:
|
|
||
Maximum availability
|
$
|
415,000
|
|
Borrowings outstanding
|
20,000
|
|
|
Letters of credit issued
|
23,383
|
|
|
Availability
|
$
|
371,617
|
|
|
10
|
Raw Material Supply Agreement, dated as of May 31, 2011, by and between Diamond Green Diesel LLC and Darling International Inc. (Asterisks located within the exhibit denote information which has been deleted pursuant to a confidential treatment filing with the Securities and Exchange Commission).
|
||
|
31.1
|
Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, of Randall C. Stuewe, the Chief Executive Officer of the Company.
|
||
|
31.2
|
Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, of John O. Muse, the Chief Financial Officer of the Company.
|
||
|
32
|
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of Randall C. Stuewe, the Chief Executive Officer of the Company, and of John O. Muse, the Chief Financial Officer of the Company.
|
||
|
101
|
Interactive Data Files Pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets as of July 2, 2011 and January 1, 2011; (ii) Consolidated Statements of Operations for the three and six months ended July 2, 2011 and July 3, 2010; (iii) Consolidated Statements of Cash Flows for the six months ended July 2, 2011 and July 3, 2010; (iv) Notes to the Consolidated Financial Statements
|
|
|
DARLING INTERNATIONAL INC.
|
|
|
|
|
|
|
|
|
|
Date:
|
August 11, 2011
|
By:
|
/s/ Randall C. Stuewe
|
|
|
|
Randall C. Stuewe
|
|
|
|
Chairman and
|
|
|
|
Chief Executive Officer
|
Date:
|
August 11, 2011
|
By:
|
/s/ John O. Muse
|
|
|
|
John O. Muse
|
|
|
|
Executive Vice President
|
|
|
|
Administration and Finance
|
|
|
|
(Principal Financial Officer)
|
1.
|
Sale of Raw Material
.
|
a.
|
Supply of Raw Material
. Subject to the terms and conditions contained in this Agreement, following the Commencement Date (as defined below) Darling shall offer to supply to the Company animal fats and used cooking oils and other renewable fats and oils of the quantity, quality and on delivery terms as specified and accepted by the Company up to (i) 100% of the Company's full operational requirement of feedstock (“
Raw Material
”) necessary to process up to 10,000 BPD of Raw Material (the “
Capacity Requirement
”), so long as Darling and its direct and indirect affiliates as a whole hold 20% or more of the outstanding units of Holdings, (ii) 75% of the Capacity Requirement so long as Darling and its direct and indirect affiliates as a whole hold at least 10% but less than 20% of the outstanding units of Holdings, or (iii) subject to Darling's right to terminate this Agreement pursuant to
Section 4(b)(ii)
, 50% of the Capacity Requirement if Darling and its direct and indirect affiliates as a whole hold less than 10% of the outstanding units of Holdings.
|
b.
|
Non-Exclusivity
. Nothing in this Agreement is intended to create any exclusive purchase and sale arrangements between Darling and the Company. Notwithstanding anything to the contrary herein, the Company may at any time seek offers from third-party suppliers other than Darling and in its sole discretion purchase Raw Material from third parties. Darling, subject to
Sections 1(d)
[***], may sell Raw Material to third parties.
|
c.
|
Scheduling
. Upon the Commencement Date (as defined below) and on the 15th day of each calendar month thereafter, the Company shall provide Darling with a non-binding forecast of its monthly requirement of each lot of Raw Material for the following month on a weekly basis and for any subsequent three months on a monthly basis. However, (i) if the Company has purchased all or a significant portion of its requirements of Raw Material, using a supplier other than Darling, for a period longer than three months, or (ii) if the Company otherwise knows that it will not require any Raw Material from Darling for a period longer than the next three months, then it shall provide notification thereof to Darling. For purposes of this Agreement, the “
Commencement Date
” shall mean the first day of the first calendar month following the date the Company notifies Darling in writing that (i) the Company has completed all necessary construction and testing of the Plant and (ii) the Plant is ready to commence commercial service with respect to the production of biomass-based diesel.
|
d.
|
Right of First Offer
. Darling shall make commercially reasonable efforts to make a daily offer to the Company on each business day (but notwithstanding the foregoing, such daily offer is to cover all days of Plant operation including weekends and holidays) of the available supply of Raw Material that Darling is offering for sale on such day (the “
Daily Offer
”) for delivery on a spot, 30-day, 60-day and 90-day basis, or on another basis (such as long term fixed price or index priced offers, provided that Darling may at its option decline to provide such long term fixed price or index priced offers) as may be requested by the Company. It is the goal of the Company to purchase Raw Material having the desired quality at the lowest cost delivered to the Plant. While the Company specifically acknowledges that it will be making its own decisions about when to purchase Raw Material and, therefore, is responsible for the ultimate cost of its Raw Material, the Company shall rely on Darling to provide competitive pricing based on the various possible terms (spot, 30-day, 60-day and 90‑day basis, or on another basis) and at prices no greater than Darling's other sales
|
e.
|
[***]
|
f.
|
Pre-Commencement Date Sales
. Prior to the Commencement Date, Darling shall make Raw Material available for purchase by the Company on an as-needed basis for purposes of Plant testing and other uses at prices and on terms to be negotiated by Darling and the Company, such prices to be substantially equivalent to the price Darling is or would be quoting on the date of the applicable purchase to its other similarly situated customers for each lot of such Raw Material, taking into account required shipment periods and acceptable range of date of receipt, Raw Material specifications and quantity, available transportation and transportation cost.
|
g.
|
Quality
. Darling has surveyed the quality of Raw Material available from its rendering system and, using that information, has worked with the Company and Desmet Ballestra in the design of the Plant's Raw Material receiving, storage, blending and pretreatment systems. Darling confirms that the quality specifications in
Exhibit A
will be attainable after appropriate blending of the Raw Material prior to pretreatment.
|
2.
|
Terms of Customer Contracts, Contract Performance and Payment
.
|
a.
|
Customer Contracts and Shipment Period
. Once a verbal acceptance of a Darling offer has occurred for the sale of Raw Material from Darling to the Company pursuant to
Sections 1(d)
[***] or
1(f)
, Darling shall issue a sales order (a “
Sales Order
”) which shall include the mutually agreed quantity, pricing delivery point, mode of transportation (rail, truck, or barge), type of Raw Material, quality specifications and the range of dates within which the Raw Material will be shipped (the “
Shipment Period
”). Each Sales Order shall be electronically transmitted to the Company within 24 hours of such verbal agreement. The Company shall electronically confirm (a “
Confirmation
”) acceptance of each Sales Order within 24 hours of electronic receipt of such Sales Order. Any additional term that is included in either a Sales Order or a Confirmation shall be of no force or effect unless both
|
b.
|
Shipment by Rail or Barge
. If a shipment of Raw Material hereunder is to be made by rail car or barge, then when Darling ships each such rail car or barge to the Company it shall specify the applicable Sales Order for such rail car or barge on the bill of lading. For each such shipment Darling shall provide a certificate of analysis (“
COA
”) that shall include specifications for free fatty acid, level of impurities, and water or other quality specifications as agreed by the Parties. Each COA will be electronically submitted to the Company within five calendar days of the date on which Darling tendered such shipment to the Company, but in any event no later than the date of receipt of such shipment by the Company. The Plant is not currently intended to have barge receiving facilities;
however
, if such facilities become available, the Parties may ship via barge hereunder.
|
c.
|
Shipment by Truck
. If a shipment of Raw Material hereunder is to be made by truck, then Darling will have the Sales Order to which each shipment is to be applied specified on the bill of lading which will be carried by such truck. However, if for any reason the Sales Order has not been so specified, then the Parties shall timely reconcile the applicable bill of lading to the appropriate Sales Order. For each such shipment Darling shall provide a COA that shall include specifications for free fatty acid, level of impurities, and water or other quality specifications as agreed by the Parties. Each COA will be electronically submitted to the Company within five calendar days of the date on which Darling tendered such shipment to the Company, but in any event no later than the date of receipt of such shipment by the Company.
|
d.
|
Sampling
. For each shipment hereunder, Darling shall retain a representative sample of the Raw Material loaded into the rail car, barge or truck for 90 days following the date of shipment. If a question arises regarding the accuracy of the applicable COA or any other quality aspect of the Raw Material, Darling shall submit the retained sample to an independent laboratory mutually agreed to by the Parties for purposes of retesting of the quality specifications listed in the original COA. The results of the independent laboratory shall be used as the definitive COA for purposes of this Agreement. The cost of the independent laboratory will be equally divided between Darling and the Company.
|
e.
|
Title and Risk of Loss
. Title and risk of loss or damage to Raw Material will pass to the Company when constructive delivery is made to the pricing delivery point.
|
f.
|
Invoicing/Payment
. Darling will create a document referencing the bill of lading pursuant to generally accepted industry standards specific to each shipment (the “
Sales Order Acknowledgement
”) upon the shipment of any Raw Material pursuant to
Sections 2(b)
and
2(c)
, an example of which is attached hereto as
Exhibit B
. Such Sales Order Acknowledgement shall be issued electronically to the Company within 24 hours of shipment. The Sales Order Acknowledgment shall include the identification marker of the shipment vehicle (rail car number for rail car, license number for truck, and barge number for barge), the estimated weight and weight determination method. Payments for invoiced quantities shall be due 10 calendar days from receipt of the Sales Order Acknowledgement. The Parties shall implement payment by EFT as soon as practicable. The final shipment weight will be reconciled by a weight measurement method acceptable to both Parties, either at origin or destination as agreed by the Parties. If the applicable shipment has been unloaded prior to payment of the related invoiced amount, then the Company may adjust such invoiced amount to the reconciled weight or, if the Company does not have the appropriate destination weights at the time an invoiced amount is paid, then the Company and Darling will, as necessary, adjust such payment to reflect actual weights.
|
g.
|
Taxes and Governmental Charges
. Raw Material prices do not include any taxes or other governmental charges, including, without limitation, sales or use taxes or excise taxes levied by any government or governmental authority, now or hereafter enacted. In Darling's discretion, any such mandatory taxes or charges may be added to the price for any Raw Material or may be billed separately. The Company will, in any event, pay all such taxes and charges on or before their due dates. In the event Darling is required at any time to pay any such tax or charge, the Company will reimburse Darling therefor promptly on demand. Darling will work with the Company to minimize any such taxes, including, without limitation, by the issuance, acceptance and, if necessary, filing of exemption certificates(s).
|
h.
|
Right of Rejection
. Any shipment of Raw Material made pursuant to
Sections 2(b)
and
2(c)
failing to meet the quality specified in the Sales Order is subject to rejection by the Company. In the event any such shipment has not been unloaded at destination, the Company may (i) elect to accept such shipment without discount, (ii) propose a discount for the acceptance of the material or (iii) reject the shipment. In the event the Company offers to accept the shipment at a discount, Darling may choose to (i) accept the discount, in which case the shipment will be applied to the Sales Order at the agreed upon discount, or (ii) refuse the discount, deem the shipment to have been rejected by the Company, and reroute the shipment to an alternative destination with all costs associated with the shipment and reroute (including demurrage and switching charges) for the account of Darling. In the event the shipment is rejected or deemed rejected, Darling may replace the quantity with another shipment if time remains in the Shipment Period. If time has expired for the applicable Shipment Period, the Company may elect to have Darling promptly replace the shipment or may cancel the portion of the Sales Order represented by the
|
i.
|
Darling Performance Standard
. In the event that Darling consistently fails to provide timely shipment of Raw Material at the quality specified in the Sales Orders, the Company shall have the right to demand a performance review with Darling. The review must include the active involvement of the President of Darling and must be completed within 30 days of such request. Upon completion of the performance review, Darling must present the findings of its performance review to the Company and develop specific actions to be undertaken within 30 days to enable Darling to substantially comply with commitments made in the Sales Orders. In the event Darling consistently fails to provide timely shipment of Raw Material at the quality specified in the Sales Orders for a period of 6 months after completion of the performance review, the Company shall have the right to terminate this Agreement.
|
3.
|
Confidentiality Obligations
.
|
a.
|
The provisions of this Agreement and all oral and written proprietary information of each Party, including information pertaining to the business, financial condition, strategies, plans, policies, inventions, trade secrets, intellectual property, computer programs, suppliers, customers, projections, pricing or processes of each Party provided or disclosed by the disclosing Party to the receiving Party or to the receiving Party's, or by the receiving Party to its affiliates, members, managers, directors, officers, employees, counsel, auditors, consultants, lenders, insurance providers, brokers or other advisors or agents, shall be confidential, and shall not be disclosed or otherwise released to any other person without the prior written consent of the disclosing Party;
provided
,
however
, that the receiving Party may disclose any such information, on a “need to know” basis, to the affiliates, members, managers, directors, officers, employees, counsel, auditors, consultants, lenders, insurance providers, brokers and other advisors or agents of the receiving Party so long as the recipient is informed of this provision and agrees to be bound hereby;
provided
,
further
, that the Company may disclose any such information, on a “need to know” basis, to its unit holders.
|
b.
|
The obligations of the receiving Party under
Section 3(a)
hereof shall not apply to confidential information (i) that is received by the receiving Party from a person who has the right to give the information to the receiving Party and who does not require that the receiving Party keep such information confidential, (ii) that is or becomes public knowledge through no fault of the receiving Party, (iii) the disclosure of which is required by applicable law or (iv) the disclosure of which is required by the rules and regulations of the Securities and Exchange Commission;
provided
, that prior to disclosing confidential information pursuant to clause (iii) or (iv) of this
Section 3(b)
, the receiving Party shall give notice (provided no applicable law, rule or regulation would be violated hereby) to the disclosing Party, which shall describe the
|
c.
|
The covenants and undertakings contained in this
Section 3
relate to matters which are of a special, unique and extraordinary character and a violation of any of the terms of this
Section 3
will cause irreparable injury to Darling or the Company, as the case may be, the amount of which will be impossible to estimate or determine and which cannot be adequately compensated. Accordingly, the remedy at law for any breach of this
Section 3
will be inadequate. Therefore, the applicable Party will be entitled to entry of an injunction, a restraining order or other equitable relief from any court of competent jurisdiction in the event of any breach of this
Section 3
without the necessity of proving actual damages or posting any bond whatsoever. The rights and remedies provided by this
Section 3
are cumulative and in addition to any other rights and remedies which the applicable Party may have hereunder or at law or in equity.
|
4.
|
Term and Termination
.
|
a.
|
This Agreement shall be effective as of the Effective Date, but the initial term (the “
Initial Term
”) shall begin on the Commencement Date and continue for 20 years from the Commencement Date. Following the Initial Term, this Agreement shall automatically renew for 5 years (each, a “
Renewal Term
”) on an evergreen basis, unless terminated by either Party upon 365 days written notice prior to the end of the Initial Term or then current Renewal Term, whichever is applicable. The period from the Effective Date until the expiration or termination of this Agreement shall be referred to herein as the “
Term
”.
|
b.
|
Notwithstanding
Section 4(a)
hereof, this Agreement may be terminated and abandoned at any time as follows:
|
i.
|
by mutual written consent of the Parties;
|
ii.
|
by Darling if it and its direct and indirect affiliates as a whole cease to hold at least 10% of the outstanding equity units of Holdings;
|
iii.
|
by either Party if the other Party materially defaults in the observance or in the due and timely performance of any of the material covenants of such Party
|
iv.
|
by either Party in the event the other Party, (A) makes an assignment or any general arrangement for the benefit of creditors, (B) files a petition or otherwise commences, authorizes, or acquiesces in the commencing of a proceeding or cause under any bankruptcy or similar law for the protection from creditors or have such petition filed or proceeding commenced against it, (C) otherwise becomes bankrupt or insolvent (however evidenced), or (D) has a receiver, provisional liquidator, conservator, custodian trustee or other similar official appointed with respect to it or substantially all of its assets;
|
v.
|
by Darling if that certain Product Offtake Agreement (the “
Offtake Agreement
”), dated as of the date hereof, by and between the Company and Valero Marketing and Supply Company (“
VMSC
”), expires in accordance with its terms, is terminated by mutual consent pursuant to
Section 6.1A
thereof, is terminated by VMSC pursuant to
Section 6.1B
thereof, is terminated by the Company pursuant to
Section 6.1C
,
Section 6.1D
or
Section 6.1E
thereof, or is terminated by Darling pursuant to
Section 6.2
thereof;
|
vi.
|
by the Company in accordance with
Section 2(i)
; or
|
vii.
|
by either Party in accordance with
Section 6
.
|
c.
|
Failure by the Company to remit payment as provided in
Section 2(f)
hereof will constitute a material breach of this Agreement by the Company. Such material breach will entitle Darling to, at its sole option, (i) immediately suspend shipment under any outstanding Sales Order until such breach is cured or advance payment or other reasonable security is provided, and (ii) terminate this Agreement in accordance with
Section 4(b)(iii)
. The Parties agree that a suspension of shipment by Darling pursuant to this
Section 4(c)
shall not constitute a breach of this Agreement by Darling.
|
d.
|
Subject to
Section 6
and the notice and cure provisions set forth in
Section 4(b)(iii)
, failure by Darling to provide Raw Material pursuant to this Agreement will constitute a material breach of this Agreement by Darling;
provided
,
however
, that periodic, de minimis failures by Darling to provide Raw Material pursuant to this Agreement shall not constitute a breach of this Agreement by Darling.
|
5.
|
Indemnification
.
|
a.
|
The Company shall indemnify and hold harmless Darling and its stockholders, affiliates (excluding the Company), directors, officers and employees, to the fullest
|
b.
|
Darling shall indemnify and hold harmless the Company and its members, affiliates (excluding Darling), managers, officers and employees, to the fullest extent permitted by applicable law, from and against any and all actual Losses to the extent caused by, resulting from or arising out of Losses incurred as a result of the violation, default or breach by Darling or any of its affiliates (excluding the Company) of this Agreement. Notwithstanding the foregoing, Darling shall not be required to indemnify the Company under this
Section 5(b)
for an aggregate amount of Losses exceeding the larger of (i) actual amounts paid to Darling under and pursuant to this Agreement during the prior consecutive twelve-month period, or (ii) the forecast budget for expenditures to be paid to Darling for the succeeding consecutive twelve-month period.
|
6.
|
Force Majeure
. In the event either Party is rendered unable, wholly or in material part, to perform its obligations under this Agreement (other than to make payments due hereunder) for reasons beyond its reasonable control, including, without limitation, those due to: acts of God, floods, fires, explosions, extreme heat or cold, earthquake or storm; strikes, lockouts or other similar industrial disturbances; wars, acts of terrorism or sabotage; accident or breakage of equipment, machinery, or transportation facilities; failure of suppliers to furnish supplies; or any law, rules, order or action of any court or instrumentality of the federal or any state government; or for any other similar cause or causes beyond its reasonable control, it is agreed that on such Party's giving notice in reasonable detail of such force majeure to the other Party, the obligations of the Party giving such notice shall be suspended from the date of receipt of such notice and for the continuance of any inability so caused, but for no longer period as may reasonably be required to remedy such cause, and such cause shall, so far as possible, be remedied with all reasonable dispatch;
provided
,
however
, that neither Party will be obligated to settle a strike or other labor disturbance in order to comply with such obligation. Notwithstanding the foregoing, if either Party is rendered unable, wholly or in material part, to perform its obligations under this Agreement for a period of 30 days due to the occurrence of a force majeure event, then the other Party may request that the non-performing Party provide a good faith estimate of the duration of the force majeure event, such estimate not to exceed 365 days. If the non-performing Party does not resume performance prior to or at the expiration of such period, then the other Party shall have the
|
7.
|
Liquidation and Close-Out
. The Parties acknowledge that this Agreement is a forward contract as defined in the Bankruptcy Code, 11 U.S.C. Sec. 101(25). If one Party (the “
Defaulting Party
”) shall voluntarily file a petition in bankruptcy, reorganization, or receivership, shall be forced by its creditors into bankruptcy, reorganization, or receivership, shall become insolvent, shall fail to pay its debts as they become due, or shall fail to give adequate assurance or security of its ability to perform its obligations hereunder within 5 business days after receipt of a request therefor, the non-Defaulting Party shall have the right to liquidate and close out this Agreement within 48 hours of written notice delivered to the Defaulting Party by calculating the difference in price for the Raw Material hereunder and the prevailing market price for the Raw Material or the commercially reasonable equivalent price for the Raw Material as published in an industry publication multiplied by the remaining quantities of the Raw Material to be delivered hereunder. The Defaulting Party shall pay the non-Defaulting Party in U.S. dollars by wire transfer in immediately available funds within 24 hours after receiving the results of the calculation. The liquidation and close-out of this Agreement is in addition to any other rights and remedies which the non-Defaulting Party may have.
|
8.
|
Entire Agreement
. This Agreement, together with all schedules and exhibits hereto, contains the entire agreement between the Parties and supersedes all prior writings or agreements with respect to the subject matter hereof.
|
9.
|
Governing Law
. This Agreement and any disputes arising out of or relating to this Agreement shall be construed exclusively according to and governed by the laws of the State of Texas.
|
10.
|
Compliance with Laws
. Each Party agrees to comply with all applicable laws relating to its performance hereunder.
|
11.
|
Notices
. All notices and other communications under this Agreement shall be in writing and shall be deemed given (i) when delivered personally by hand (with written confirmation of receipt), (ii) when sent by facsimile (with written confirmation of transmission) or (iii) one business day following the day sent by overnight courier (with written confirmation of receipt), in each case at the following addresses and facsimile numbers (or to such other address or facsimile number as a Party may have specified by notice given to the other Party pursuant to this provision):
|
12.
|
Audit Rights
. The Company shall have the right, through its employees or representatives or through an independent third party auditor retained under a suitable written provision of confidentiality, to audit the following records (the “
Records
”) to confirm Darling's compliance with the terms of this Agreement:
|
a.
|
records pertaining to weights of shipped Raw Material;
|
b.
|
the data and calculations used by Darling in performing its obligations under this Agreement with respect to pricing, including, without limitation, requirements pursuant to
Sections 1(a)
,
1(d)
[***] or any tax calculations;
|
c.
|
invoices issued for the sale of Raw Material;
|
d.
|
records pertaining to Raw Material order flow, lead time, and shipping arrangements and details;
|
e.
|
records pertaining to the specifications set forth under this Agreement; and
|
f.
|
records substantiating the occurrence of a force majeure event under and Darling's compliance with the provisions of
Section 6
;
|
13.
|
Binding Effect; Assignment
. The provisions of this Agreement shall be binding upon, and inure to the benefit of, the Parties hereto and their respective permitted successors and assigns. No Party may assign, transfer or pledge this Agreement, in whole or in part, without the prior written consent of the other Party, except that a Party may (i) assign this Agreement in connection with its merger or the sale of all or substantially all of its business relating to the subject matter of this Agreement, (ii) pledge this Agreement to its senior secured lenders in connection with a pledge of substantially all of its assets or (iii) assign to (or otherwise cause the performance by) any of its wholly-owned subsidiaries or affiliates any of such Party's rights and obligations under this Agreement;
provided
,
however
, that an assignment pursuant to clause (i) or (iii) shall not relieve the assigning Party of its obligations under this Agreement without the prior written consent of the other Party.
|
14.
|
Severability
. In the event any provision of this Agreement is held to be illegal, invalid or unenforceable by a court of competent jurisdiction to any extent, the legality, validity and enforceability of the remainder of this Agreement shall not be affected thereby and shall remain in full force and effect and shall be enforced to the greatest extent permitted by law.
|
15.
|
Amendments
. This Agreement shall not be altered, modified or changed except by an amendment approved in writing by the Parties.
|
16.
|
Waivers
. No consent or waiver, express or implied, by the Parties with respect to any breach or default by another Party hereunder shall be deemed or construed to be a consent or waiver with respect to any other breach or default by any Party of the same provision or any other provision of this Agreement. Failure on the part of a Party to complain of any act or failure to act of another Party or to declare such other Party in default shall not be deemed or constitute a waiver by any Party of any rights hereunder.
|
17.
|
Independent Contractors
. Each Party hereto is an independent contractor under this Agreement. Except as expressly set forth herein, neither Darling nor the Company, as the case may be, has the authority to, and each of Darling and the Company agrees that it shall not, directly or indirectly, contract any obligations of any kind in the name of or chargeable against the other Party, without such other Party's express written consent.
|
18.
|
Survival of Provisions
. Notwithstanding
Section 4
, each of (i) any and all owed and unpaid
|
19.
|
Counterparts
. This Agreement may be executed in several counterparts (any of which may be delivered by facsimile or other electronic transmission followed promptly by an executed original), all of which together shall constitute one agreement binding on all Parties hereto, notwithstanding that all the Parties have not signed the same counterpart.
|
20.
|
Descriptive Headings
. The headings of the sections of this Agreement are for convenience only and shall not be considered in construing or interpreting any of the terms or provisions hereof.
|
21.
|
No Setoff
. Neither Darling nor the Company may set off amounts owed to it by the other against amounts owed by the first Party to such other Party pursuant to this Agreement, and all amounts due and owing hereunder shall be paid in full without regard to any amounts actually due and owing, or claimed to be due and owing, by the other Party hereto. Notwithstanding the foregoing, nothing in this
Section 21
shall act to limit the Company's rights pursuant to
Section 2(h)
.
|
22.
|
Arbitration
. Except as provided in
Section 4(c)
, any dispute arising out of or relating to this Agreement shall be resolved in accordance with the dispute resolution provisions of Exhibit C of that certain Diamond Green Diesel Holdings LLC Amended and Restated Limited Liability Company Agreement, dated as of May 31, 2011, by and among Holdings, Darling Green Energy LLC and Diamond. Notwithstanding the foregoing, this
Section 22
shall not prohibit any person from pursuing equitable relief to which it may be entitled in any court of competent jurisdiction in order to preserve the status quo pending resolution of the dispute at issue or the enforcement of
Section 4(c)
.
|
23.
|
RFS2 Reporting Requirements
. Darling shall furnish to the Company (i) all information in its possession and (ii) all information that can be obtained by it using commercially reasonable efforts, in each case that is necessary for any application or other filing to be made by the Company pursuant to the Renewable Fuels Standard (RFS2) program or any similar program or law, including, without limitation, information that will assist the Company in fulfilling its obligations under Section 2.8 of the Offtake Agreement.
|
1.
|
I have reviewed this quarterly report on Form 10-Q of Darling International Inc.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstance under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
(b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
(c)
|
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
(d)
|
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
|
5.
|
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
|
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
|
Date:
|
August 11, 2011
|
1.
|
I have reviewed this quarterly report on Form 10-Q of Darling International Inc.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstance under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
(b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
(c)
|
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
(d)
|
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
|
5.
|
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
|
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
|
Date:
|
August 11, 2011
|
|
/s/ Randall C. Stuewe
|
|
/s/ John O. Muse
|
|
Randall C. Stuewe
|
|
John O. Muse
|
|
Chief Executive Officer
|
|
Chief Financial Officer
|
|
Date: August 11, 2011
|
|
Date: August 11, 2011
|