Notes to Consolidated Financial Statements
March 31, 2018
(unaudited)
The accompanying consolidated financial statements for the
three
month periods ended
March 31, 2018
and
April 1, 2017
, have been prepared by Darling Ingredients Inc., a Delaware corporation (“Darling”, and together with its subsidiaries, the “Company”) in accordance with generally accepted accounting principles in the United States (“GAAP”) without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The information furnished herein reflects all adjustments (consisting only of normal recurring accruals) that are, in the opinion of management, necessary to present a fair statement of the financial position and operating results of the Company as of and for the respective periods. However, these operating results are not necessarily indicative of the results expected for a full fiscal year. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been omitted pursuant to such rules and regulations. However, management of the Company believes, to the best of their knowledge, that the disclosures herein are adequate to make the information presented not misleading. The accompanying consolidated financial statements should be read in conjunction with the audited consolidated financial statements contained in the Company’s Form 10-K for the fiscal year ended
December 30, 2017
.
|
|
(2)
|
Summary of Significant Accounting Policies
|
|
|
(a)
|
Basis of Presentation
|
The consolidated financial statements include the accounts of Darling and its consolidated subsidiaries. Noncontrolling interests represent the outstanding ownership interest in the Company's consolidated subsidiaries that are not owned by the Company. In the accompanying Consolidated Statements of Operations, the noncontrolling interest in net income of the consolidated subsidiaries is shown as an allocation of the Company's net income and is presented separately as “Net income attributable to noncontrolling interests.” In the Company's Consolidated Balance Sheets, noncontrolling interests represent the ownership interests in the Company consolidated subsidiaries' net assets held by parties other than the Company. These ownership interests are presented separately as “Noncontrolling interests” within “Stockholders' Equity.” All significant intercompany balances and transactions have been eliminated in consolidation.
The Company has a
52
/
53
week fiscal year ending on the Saturday nearest
December 31
. Fiscal periods for the consolidated financial statements included herein are as of
March 31, 2018
, and include the
13
weeks ended
March 31, 2018
, and the
13
weeks ended
April 1, 2017
.
|
|
(c)
|
Cash, Cash Equivalents and Restricted Cash
|
The Company considers all short-term highly liquid instruments, with an original maturity of three months or less, to be cash equivalents. Cash balances are recorded net of book overdrafts when a bank right-of-offset exists. All other book overdrafts are recorded in accounts payable and the change in the related balance is reflected in operating activities on the Consolidated Statement of Cash Flows. In addition, the Company has bank overdrafts, which are considered a form of short-term financing with changes in the related balance reflected in financing activities in the Consolidated Statement of Cash Flows. In November 2016, the Financial Accounting Standards Board (“FASB”) issued
Accounting Standards Update (
“
ASU
”
)
No. 2016-18, Restricted Cash. This ASU amends Topic 230,
Statement of Cash Flows
, which includes new guidance on the classification and presentation of restricted cash in the statement of cash flows in order to eliminate the discrepancies that currently exist in how companies present these changes. This ASU requires restricted cash to be included with cash and cash equivalents when explaining the changes in cash in the statement of cash flows. The Company adopted this on December 31, 2017 and it did not have a material impact on the Company's consolidated financial statements.
Restricted cash represents amounts required to be set aside to cover self-insurance claims and collateral for environmental claims. The following table provides a reconciliation of cash, cash equivalents and restricted
cash on the consolidated balance sheet that sum to the total of the same amounts shown in the consolidated statement of cash flows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
December 30, 2017
|
Cash and cash equivalents
|
|
$
|
122,869
|
|
$
|
106,774
|
|
Restricted cash
|
|
142
|
|
142
|
|
Total cash, cash equivalents and restricted cash shown in the consolidated statements of cash flow
|
|
$
|
123,011
|
|
$
|
106,916
|
|
|
|
(d)
|
Accounts Receivable and Allowance for Doubtful Accounts
|
The Company maintains allowances for doubtful accounts for estimated losses resulting from customers’ non-payment of trade accounts receivable owed to the Company. These trade receivables arise in the ordinary course of business from sales of raw material, finished product or services to the Company’s customers. The estimate of allowance for doubtful accounts is based upon the Company’s bad debt experience, prevailing market conditions, and aging of trade accounts receivable, among other factors. If the financial condition of the Company’s customers deteriorates, resulting in the customers’ inability to pay the Company’s receivables as they come due, additional allowances for doubtful accounts may be required. The Company has entered into agreements with third party banks to factor certain of the Company's trade receivables in order to enhance working capital by turning trade receivables into cash faster. Under these agreements, the Company will sell certain selected customers trade receivables to the third party banks without recourse for cash less a nominal fee. For the three months ended March 31, 2018, the Company sold approximately $
18.8 million
of its trade receivables and incurred less than approximately $
0.1 million
in fees, which are recorded as interest expense. For the three month ended April 1, 2017,
no
receivables were factored.
The Company recognizes revenue on sales when control of the promised finished product is transferred to the Company's customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for the finished product. Service revenues are recognized in the fiscal month the service occurs. Certain customers may be required to prepay prior to shipment in order to maintain payment protection related to certain foreign and domestic sales. These amounts are recorded as unearned revenue and recognized when control of the promised finished product is transferred to the Company's customer. See Note 18 to the consolidated financial statements.
|
|
(f)
|
Foreign Currency Translation and Remeasurement
|
Foreign currency translation is included as a component of accumulated other comprehensive loss and reflects the adjustments resulting from translating the foreign currency denominated financial statements of foreign subsidiaries into U.S. dollars. The functional currency of the Company's foreign subsidiaries is the currency of the primary economic environment in which the entity operates, which is generally the local currency of the country. Accordingly, assets and liabilities of the foreign subsidiaries are translated into U.S. dollars at fiscal period end exchange rates, including intercompany foreign currency transactions that are of long-term investment nature. Income and expense items are translated at average exchange rates occurring during the period. Changes in exchange rates that affect cash flows and the related receivables or payables are recognized as transaction gains and losses in determining net income. The Company incurred net foreign currency translation gains of approximately $
16.8 million
and approximately $
16.0 million
for the
three
months ended
March 31, 2018
and
April 1, 2017
, respectively.
Certain prior year amounts have been reclassified to conform to the current year presentation. In the consolidated statements of operations, previously reported amounts have been adjusted to reflect the correction of an immaterial classification error in net sales and cost of sales as disclosed in Company’s Form 10-K for the fiscal year ended
December 30, 2017
. In addition, previous reported net periodic pension costs have been reclassified in the consolidated statements of operations to conform to current year presentation, as described in Note 13
and previously reported amounts in the consolidated statements of cash flows have been adjusted to reflect the adoption of the presentation of restricted cash.
Basic income per common share is computed by dividing net income attributable to Darling by the weighted average number of common shares including non-vested and restricted shares outstanding during the period. Diluted income per common share is computed by dividing net income attributable to Darling by the weighted average number of common shares outstanding during the period increased by dilutive common equivalent shares determined using the treasury stock method.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income per Common Share (in thousands, except per share data)
|
|
Three Months Ended
|
|
|
|
March 31, 2018
|
|
|
|
|
|
April 1, 2017
|
|
|
|
Income
|
|
Shares
|
|
Per Share
|
|
Income
|
|
Shares
|
|
Per Share
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
Net Income attributable to Darling
|
$
|
97,305
|
|
|
164,772
|
|
|
$
|
0.59
|
|
|
$
|
5,829
|
|
|
164,738
|
|
|
$
|
0.04
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add: Option shares in the money and dilutive effect of non-vested stock awards
|
|
|
|
5,071
|
|
|
|
|
|
|
|
|
2,012
|
|
|
|
|
Less: Pro forma treasury shares
|
|
|
|
(2,101
|
)
|
|
|
|
|
|
|
|
(886
|
)
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Darling
|
$
|
97,305
|
|
|
167,742
|
|
|
$
|
0.58
|
|
|
$
|
5,829
|
|
|
165,864
|
|
|
$
|
0.04
|
|
For the
three months ended
March 31, 2018
and
April 1, 2017
, respectively,
749,550
and
1,812,518
outstanding stock options were excluded from diluted income per common share as the effect was antidilutive. For the
three months ended
March 31, 2018
and
April 1, 2017
, respectively,
385,216
and
636,445
shares of non-vested stock and stock equivalents were excluded from diluted income per common share as the effect was antidilutive.
|
|
(3)
|
Acquisitions and Dispositions
|
In January 2018, the Company through a wholly-owned international subsidiary, sold a portion of its interest in a majority owned consolidated subsidiary for approximately $
2.8 million
. This transaction resulted in the foreign subsidiary being deconsolidated and accounted for using the equity method of accounting, effective January 2018.
A summary of inventories follows (in thousands):
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
December 30, 2017
|
Finished product
|
$
|
176,932
|
|
|
$
|
171,277
|
|
Work in process
|
107,910
|
|
|
101,540
|
|
Raw material
|
32,648
|
|
|
33,173
|
|
Supplies and other
|
55,631
|
|
|
52,193
|
|
|
$
|
373,121
|
|
|
$
|
358,183
|
|
The gross carrying amount of intangible assets not subject to amortization and intangible assets subject to amortization is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
December 30, 2017
|
Indefinite Lived Intangible Assets
|
|
|
|
Trade names
|
$
|
55,473
|
|
|
$
|
54,682
|
|
|
55,473
|
|
|
54,682
|
|
Finite Lived Intangible Assets:
|
|
|
|
|
|
Routes
|
392,477
|
|
|
397,808
|
|
Permits
|
515,830
|
|
|
512,659
|
|
Non-compete agreements
|
3,890
|
|
|
3,963
|
|
Trade names
|
76,354
|
|
|
76,558
|
|
Royalty, consulting, land use rights and leasehold
|
15,162
|
|
|
14,666
|
|
|
1,003,713
|
|
|
1,005,654
|
|
Accumulated Amortization:
|
|
|
|
Routes
|
(140,001
|
)
|
|
(136,592
|
)
|
Permits
|
(221,317
|
)
|
|
(211,264
|
)
|
Non-compete agreements
|
(2,497
|
)
|
|
(2,387
|
)
|
Trade names
|
(31,839
|
)
|
|
(30,235
|
)
|
Royalty, consulting, land use rights and leasehold
|
(3,677
|
)
|
|
(3,358
|
)
|
|
(399,331
|
)
|
|
(383,836
|
)
|
Total Intangible assets, less accumulated amortization
|
$
|
659,855
|
|
|
$
|
676,500
|
|
Gross intangible routes, permits, trade names, non-compete agreements and other intangibles partially decreased in fiscal 2018 as a result of approximately $
5.5 million
of asset retirements and increased due to foreign currency translation. Amortization expense for the
three
months ended
March 31, 2018
and
April 1, 2017
, was approximately $
19.5 million
and $
19.1 million
.
Changes in the carrying amount of goodwill (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Feed Ingredients
|
Food Ingredients
|
Fuel Ingredients
|
Total
|
Balance at December 30, 2017
|
|
|
|
|
Goodwill
|
$
|
848,167
|
|
$
|
344,471
|
|
$
|
124,369
|
|
$
|
1,317,007
|
|
Accumulated impairment losses
|
(15,914
|
)
|
—
|
|
—
|
|
(15,914
|
)
|
|
832,253
|
|
344,471
|
|
124,369
|
|
1,301,093
|
|
Goodwill acquired during year
|
—
|
|
—
|
|
—
|
|
—
|
|
Foreign currency translation
|
201
|
|
6,560
|
|
1,754
|
|
8,515
|
|
Balance at March 31, 2018
|
|
|
|
|
|
|
|
Goodwill
|
848,368
|
|
351,031
|
|
126,123
|
|
1,325,522
|
|
Accumulated impairment losses
|
(15,914
|
)
|
—
|
|
—
|
|
(15,914
|
)
|
|
$
|
832,454
|
|
$
|
351,031
|
|
$
|
126,123
|
|
$
|
1,309,608
|
|
|
|
(7)
|
Investment in Unconsolidated Subsidiaries
|
On
January 21, 2011
, a wholly-owned subsidiary of Darling entered into a limited liability company agreement with a wholly-owned subsidiary of Valero Energy Corporation (“Valero”) to form Diamond Green Diesel Holdings LLC (the “DGD Joint Venture”). The DGD Joint Venture is owned
50% / 50%
with Valero and was formed to design, engineer, construct and operate a renewable diesel plant (the “DGD Facility”), which is capable of processing approximately
12,000
barrels per day of input feedstock to produce renewable diesel fuel and certain other co-products, and is located adjacent to Valero's refinery in Norco, Louisiana. The DGD Joint Venture reached mechanical completion and began the production of renewable diesel in late June 2013.
On
May 31, 2011
, the DGD Joint Venture and Diamond Green Diesel LLC, a wholly-owned subsidiary of the DGD Joint Venture (“Opco”), entered into (i) a facility agreement (the “Facility Agreement”) with Diamond Alternative Energy, LLC, a wholly-owned subsidiary of Valero (the “Lender”), and (ii) a loan agreement (the “Loan Agreement”) with the Lender, which provided the DGD Joint Venture with a
14
year multiple advance term loan facility of approximately $
221.3 million
(the “JV Loan”) to support the design, engineering and construction of the DGD Facility, which is now
in production. During the three months ended March 31, 2018, the DGD Joint Venture repaid all remaining outstanding amounts under the Facility Agreement and the Loan Agreement.
In addition to the DGD Joint Venture, the Company has investments in other unconsolidated subsidiaries that are insignificant to the Company. Selected financial information for the Company's DGD Joint Venture is as follows (in thousands):
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
March 31, 2018
|
December 31, 2017
|
Assets:
|
|
|
|
Total current assets
|
|
$
|
295,775
|
|
$
|
202,778
|
|
Property, plant and equipment, net
|
|
475,218
|
|
435,328
|
|
Other assets
|
|
11,959
|
|
4,655
|
|
Total assets
|
|
$
|
782,952
|
|
$
|
642,761
|
|
Liabilities and members' equity:
|
|
|
|
Total current portion of long term debt
|
|
$
|
—
|
|
$
|
17,023
|
|
Total other current liabilities
|
|
40,242
|
|
40,705
|
|
Total long term debt
|
|
—
|
|
36,730
|
|
Total other long term liabilities
|
|
458
|
|
450
|
|
Total members' equity
|
|
742,252
|
|
547,853
|
|
Total liabilities and member's equity
|
|
$
|
782,952
|
|
$
|
642,761
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
(in thousands)
|
|
March 31, 2018
|
March 31, 2017
|
Revenues:
|
|
|
|
Operating revenues
|
|
$
|
150,321
|
|
$
|
125,397
|
|
Expenses:
|
|
|
|
Total costs and expenses less depreciation, amortization and accretion expense
|
|
(49,821
|
)
|
115,322
|
|
Depreciation, amortization and accretion expense
|
|
6,120
|
|
8,113
|
|
Total costs and expenses
|
|
(43,701
|
)
|
123,435
|
|
Operating income
|
|
194,022
|
|
1,962
|
|
Other income
|
|
377
|
|
223
|
|
Interest and debt expense, net
|
|
—
|
|
(990
|
)
|
Net income
|
|
$
|
194,399
|
|
$
|
1,195
|
|
As of
March 31, 2018
under the equity method of accounting, the Company has an investment in the DGD Joint Venture of approximately $
371.1 million
on the consolidated balance sheet and has recorded an equity net gain of approximately $
97.2 million
and
$0.6 million
for the
three
months ended
March 31, 2018
and
April 1, 2017
, respectively. In February 2018, the blender tax credits for calendar year 2017 were retroactively reinstated by the U.S. Congress. Fiscal 2017 results do not include any blenders tax credits, while in the first quarter of fiscal 2018, the DGD Joint Venture recorded approximately $
160.4 million
for the 2017 reinstated blenders tax credits. The DGD Joint Venture recorded the blenders tax credits in the first quarter of fiscal 2018 as a reduction of total costs and expenses in the above table. The biodiesel blenders tax credit have not been reinstated for fiscal 2018.
Accrued expenses consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
December 30, 2017
|
Compensation and benefits
|
$
|
80,714
|
|
|
$
|
102,474
|
|
Accrued income, ad valorem, and franchise taxes
|
36,081
|
|
|
30,546
|
|
Accrued operating expenses
|
67,878
|
|
|
61,230
|
|
Other accrued expense
|
106,136
|
|
|
119,373
|
|
|
$
|
290,809
|
|
|
$
|
313,623
|
|
Debt consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
December 30, 2017
|
Amended Credit Agreement:
|
|
|
|
Revolving Credit Facility ($3.9 million denominated in CAD and $18.5 million denominated in euro at March 31, 2018)
|
$
|
55,374
|
|
|
$
|
—
|
|
Term Loan A ($51.7 million and $53.1 million denominated in CAD at March 31, 2018 and December 30, 2017, respectively)
|
94,924
|
|
|
96,365
|
|
Less unamortized deferred loan costs
|
(623
|
)
|
|
(671
|
)
|
Carrying value Term Loan A
|
94,301
|
|
|
95,694
|
|
|
|
|
|
Term Loan B
|
505,000
|
|
|
505,000
|
|
Less unamortized deferred loan costs
|
(10,238
|
)
|
|
(10,578
|
)
|
Carrying value Term Loan B
|
494,762
|
|
|
494,422
|
|
|
|
|
|
5.375% Senior Notes due 2022 with effective interest of 5.72%
|
500,000
|
|
|
500,000
|
|
Less unamortized deferred loan costs
|
(5,957
|
)
|
|
(6,638
|
)
|
Carrying value 5.375% Senior Notes due 2022
|
494,043
|
|
|
493,362
|
|
|
|
|
|
4.75% Senior Notes due 2022 - Denominated in euro with effective interest of 5.10%
|
634,918
|
|
|
617,356
|
|
Less unamortized deferred loan costs - Denominated in euro
|
(8,529
|
)
|
|
(8,675
|
)
|
Carrying value 4.75% Senior Notes due 2022
|
626,389
|
|
|
608,681
|
|
|
|
|
|
Other Notes and Obligations
|
16,276
|
|
|
22,034
|
|
|
1,781,145
|
|
|
1,714,193
|
|
Less Current Maturities
|
16,722
|
|
|
16,143
|
|
|
$
|
1,764,423
|
|
|
$
|
1,698,050
|
|
As of
March 31, 2018
, the Company had outstanding debt under a term loan facility and revolving credit facility denominated in Canadian dollars of CAD$
66.6 million
and CAD$
5.0 million
, respectively. See below for discussion relating to the Company's debt agreements. In addition, as of
March 31, 2018
, the Company had capital lease obligations denominated in Canadian dollars included in debt. The current and long-term capital lease obligation was approximately CAD$
0.7 million
and CAD$
0.4 million
, respectively.
As of
March 31, 2018
, the Company had outstanding debt under a revolving credit facility and the Company's
4.75%
Senior Notes due 2022 denominated in euros of €
15.0 million
and €
515.0 million
, respectively. See below for discussion relating to the Company's debt agreements. In addition, at
March 31, 2018
, the Company had capital lease obligations denominated in euros included in debt. The current and long-term capital lease obligation was approximately €
0.1 million
and €
0.1 million
, respectively.
Senior Secured Credit Facilities
. On
January 6, 2014
, Darling, Darling International Canada Inc. (“Darling Canada”) and Darling International NL Holdings B.V. (“Darling NL”) entered into a Second Amended and Restated Credit Agreement (as subsequently amended, the “Amended Credit Agreement”), restating its then existing Amended and Restated Credit Agreement dated
September 27, 2013
(the Former Credit Agreement), with the lenders from time to time party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, and the other agents from time to time party thereto.
Effective
December 18, 2017
, the Company, and certain of its subsidiaries entered into an amendment (the “Fifth Amendment”) with its lenders to the Amended Credit Agreement. Among other things, the Fifth Amendment (i) refinanced the term B loans under the Amended Credit Agreement with new term B loans in an aggregate principal amount of $
525.0 million
with a maturity date of
December 18, 2024
; (ii) adjusted the applicable margin pricing on borrowings under the term B loan; (iii) modified certain of the negative covenants to increase the allowances for certain actions, including debt and investments; and (iv) made other updates and changes.
Effective
December 16, 2016
, the Company, and certain of its subsidiaries entered into an amendment (the “Fourth Amendment”) with its lenders to the Amended Credit Agreement. Among other things, the Fourth Amendment (i) extended the maturity date of the term A loans and revolving credit facility loans under the Amended Credit Agreement from September 27, 2018 to December 16, 2021, subject to a
91
-day “springing” adjustment if the term B loans are outstanding
91
days prior to the maturity date of the term B loans; (ii) reset the amortization schedule of the term A loans to their original schedule; (iii) adjusted the applicable margin pricing grid on borrowings under the term A Loan and revolving credit facility which adjusts based on the Company's total leverage ratio as set forth in the Amended Credit Agreement; (iv) eliminated the secured leverage ratio financial maintenance covenant so that from and after the effective date of the Fourth Amendment the Company’s financial covenants consist of maintaining of total leverage ratio not to exceed
5.50
to
1.00
and maintaining an interest coverage ratio of not less than
3.00
to
1.00
; (v) modified certain of the negative covenants to include a senior leverage ratio incurrence-based test and to increase the allowances for certain actions, including debt, investments and restricted payments; and (vi) made other updates and changes.
The Company's Amended Credit Agreement provides for senior secured credit facilities in the aggregate principal amount of $
1.88 billion
comprised of (i) the Company's $
350.0 million
term loan A facility, (ii) the Company's $
525.0 million
term loan B facility and (iii) the Company's $
1.0 billion
five
-year revolving loan facility (approximately $
150.0 million
of which is available for a letter of credit sub-facility and $
50.0 million
of which is available for a swingline sub-facility) (collectively, the “Senior Secured Credit Facilities”). The Amended Credit Agreement also permits Darling and the other borrowers thereunder to incur ancillary facilities provided by any revolving lender party to the Senior Secured Credit Facilities (with certain restrictions). Up to $
948.3 million
of the revolving loan facility is available to be borrowed by (x) Darling in U.S. dollars, Canadian dollars, euros and other currencies to be agreed and available to each applicable lender, (y) Darling Canada in Canadian dollars and (z) Darling NL, Darling Ingredients International Holding B.V. (“Darling BV”) and CTH Germany GmbH (“CTH”) in U.S. dollars, Canadian dollars, euros and other currencies to be agreed and available to each applicable lender. The revolving loan facility and term loan A facility will mature on December 16, 2021. The revolving loan facility will be used for working capital needs, general corporate purposes and other purposes not prohibited by the Amended Credit Agreement.
The interest rate applicable to any borrowings under the term loan A facility and the revolving loan facility will equal either LIBOR/euro interbank offered rate/CDOR plus
2.00%
per annum or base rate/Canadian prime rate plus
1.00%
per annum, subject to certain step-ups or step-downs based on the Company's total leverage ratio. The interest rate applicable to any borrowings under the term loan B facility will equal the base rate plus
1.00%
or LIBOR plus
2.00%
.
As of
March 31, 2018
, the Company had $
43.3 million
outstanding under the term loan A facility and $
10.0 million
outstanding under the revolver at LIBOR plus a margin of
2.00%
per annum for a total of
3.88%
per annum. The Company had $
23.0 million
outstanding under the revolver at base rate plus a margin of
1.00%
per annum for a total of
5.75%
per annum. The Company had $
500.0 million
outstanding under the term loan B facility at LIBOR plus a margin of
2.00%
per annum for a total of
3.88%
per annum and $
5.0 million
outstanding under the term loan B facility at base rate plus a margin of
1.00%
per annum for a total of
5.75%
per annum. The Company had CAD$
66.6 million
outstanding under the term loan A facility at CDOR plus a margin of
2.00%
per annum for a total of
3.7047%
per annum and CAD$
5.0 million
outstanding under the revolver at CDOR plus a margin of
2.00%
per annum for a total of
3.6691%
per annum. The Company had €
15.0 million
at LIBOR plus a margin of
2.00%
per annum for a total of
2.00%
per annum. As of
March 31, 2018
, the Company had unused capacity of $
921.8 million
under the Amended Credit Agreement taking into account amounts borrowed and letters of credit issued of $
22.9 million
. The Company also has foreign bank guarantees that are not part of the Company's Amended Credit Agreement in the amount of approximately $
19.2 million
at
March 31, 2018
.
5.375 % Senior Notes due 2022.
On January 2, 2014, Darling Escrow Corporation, a wholly-owned subsidiary of Darling, issued and sold $
500.0 million
aggregate principal amount of its
5.375%
Notes due 2022 (the “
5.375%
Notes”). The
5.375%
Notes, which were offered in a private offering in connection with the Company's acquisition in January 2014 of its Darling Ingredients International business from VION Holding, N.V. (the “VION Acquisition”), were issued pursuant to a
5.375%
Notes Indenture, dated as of
January 2, 2014
(the “Original
5.375%
Indenture”) (as supplemented, the
“5.375% Indenture”), among Darling Escrow Corporation, the subsidiary guarantors party thereto from time to time, and U.S. Bank National Association, as trustee (the “
5.375%
Trustee”).
4.75 % Senior Notes due 2022.
On June 3, 2015, Darling Global Finance B.V. (the “
4.75%
Issuer”), a wholly-owned subsidiary of Darling, issued and sold €
515.0 million
aggregate principal amount of the
4.75%
Senior Notes due 2022 (the “
4.75%
Notes”). The
4.75%
Notes, which were offered in a private offering, were issued pursuant to a Senior Notes Indenture, dated as of
June 3, 2015
(the “
4.75%
Indenture”), among the
4.75%
Issuer, Darling, the subsidiary guarantors party thereto from time to time, Citibank, N.A., London Branch, as trustee (the “
4.75%
Trustee”) and principal paying agent, and Citigroup Global Markets Deutschland AG, as principal registrar.
As of
March 31, 2018
, the Company believes it is in compliance with all of the financial covenants under the Amended Credit Agreement, as well as all of the other covenants contained in the Amended Credit Agreement, the
5.375%
Indenture and the
4.75%
Indenture.
3.625% Senior Notes due 2026.
On May 2, 2018, Darling Global Finance B.V. issued and sold €
515.0 million
aggregate principal amount of
3.625%
Senior Notes due 2026 (the “
3.625%
Notes”). The
3.625%
Notes, which were offered in a private offering, were issued pursuant to a Senior Notes Indenture, dated as of May 2, 2018, among Darling Global Finance B.V., Darling, the subsidiary guarantors party thereto from time to time, Citibank, N.A., London Branch, as trustee and principal paying agent, and Citigroup Global Markets Deutschland AG, as principal registrar. The gross proceeds of the offering, together with borrowings under the Company’s revolving credit facility, are being used to refinance all of the
4.75%
Notes by cash tender offer and redemption of those notes and to pay any applicable premiums for the refinancing, to pay the commission of the initial purchasers of the
3.625%
Notes and to pay the other fees and expenses related to the offering. The refinancing of the
4.75%
Notes is expected to be completed during the second quarter of 2018.
The Company has provided income taxes for the three month periods ended
March 31, 2018
and
April 1, 2017
, based on its estimate of the effective tax rate for the entire
2018
and
2017
fiscal years. The Company’s estimated annual effective tax rate is based on forecasts of income by jurisdiction, permanent differences between book and tax income, the relative proportion of income and losses by jurisdiction, and statutory income tax rates. Discrete events such as the assessment of the ultimate outcome of tax audits, audit settlements, recognizing previously unrecognized tax benefits due to the lapsing of statutes of limitation, recognizing or derecognizing deferred tax assets due to projections of income or loss and changes in tax laws are recognized in the period in which they occur.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company expects to have access to its offshore earnings with no material U.S. tax impact. Therefore, the Company does not consider earnings from its foreign subsidiaries to be permanently reinvested offshore.
The Company periodically assesses whether it is more likely than not that it will generate sufficient taxable income to realize its deferred income tax assets. In making this determination, the Company considers all available positive and negative evidence and makes certain assumptions. The Company considers, among other things, its deferred tax liabilities, the overall business environment, its historical earnings and losses, current industry trends and its outlook for future years.
Unrecognized tax benefits represent the difference between tax positions taken or expected to be taken in a tax return and the benefits recognized for financial statement purposes. As of
March 31, 2018
, the Company had $
2.4 million
of gross unrecognized tax benefits and $
1.3 million
of related accrued interest and penalties. It is reasonably possible within the next twelve months that the Company’s gross unrecognized tax benefits may decrease by up to $
2.1 million
, excluding interest and penalties, primarily due to potential settlements and expiration of certain statutes of limitations.
On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act” or “U.S. tax reform”) was signed into law, effective January 1, 2018, that, among other things, lowered the corporate income tax rate from
35%
to
21%
, moved the country towards a territorial tax system with a one-time mandatory tax on previously deferred earnings of foreign subsidiaries, and introduced new provisions regarding the taxation of Global Intangible Low-Taxed Income (“GILTI”) of foreign subsidiaries. The Company is subject to the GILTI provisions beginning January 1, 2018. The FASB allows companies to adopt an accounting policy to either recognize deferred taxes for GILTI or treat such as a tax cost in the year incurred.
The Company’s accounting policy election is to account for GILTI as incurred. The Company has reasonably estimated GILTI with no material impact to the estimated annual effective tax rate.
Accounting Standards Codification 740, Accounting for Income Taxes, requires companies to recognize the effects of changes in tax laws and tax rates on deferred tax assets and liabilities in the period in which the new legislation is enacted. Due to the timing of the Tax Act and the substantial changes it brings, the SEC staff issued Staff Accounting Bulletin No. 118,
Income Tax Accounting Implications of the Tax Cuts and Jobs Act
(SAB 118), which provides registrants a measurement period to report the impact of the new U.S. tax law. During the measurement period, provisional amounts for the effects of the tax law are recorded to the extent a reasonable estimate can be made. To the extent that all information necessary is not available, prepared or analyzed, companies may recognize provisional estimated amounts for a period of up to one year following enactment of the Tax Act.
As a result of U.S. Tax Reform, the Company recorded a provisional tax benefit at
December 30, 2017
of $
12.1 million
related to the mandatory deemed repatriation including an adjustment to the U.S. deferred tax liability associated with foreign earnings that were not permanently reinvested outside the U.S. and $
62.9 million
for the re-measurement of deferred taxes at the reduced
21%
federal tax rate. The Company recorded provisional amounts for the mandatory repatriation including its impact on the Company’s deferred taxes because certain information related to the computation of earnings and profits is not readily available and there is limited information from federal and state taxing authorities regarding the application and interpretation of the recently enacted legislation. The Company has not revised any of its 2017 provisional estimates under SAB No. 118, but the Company is continuing to gather information and is waiting on further guidance from the IRS and other standard-setting bodies on the Tax Act.
The Company’s major taxing jurisdictions include the United States (federal and state), Canada, the Netherlands, Belgium, Brazil, Germany, France and China. The Company is subject to regular examination by various tax authorities and although the final outcome of these examinations is not yet determinable, the Company does not anticipate that any of the examinations will have a significant impact on the Company's results of operations or financial position. The statute of limitations for the Company’s major tax jurisdictions is open for varying periods, but is generally closed through the 2010 tax year.
|
|
(11)
|
Other Comprehensive Income
|
The Company follows FASB authoritative guidance for reporting and presentation of comprehensive income and its components. Other comprehensive income (loss) is derived from adjustments that reflect pension adjustments, natural gas swap adjustments, corn option adjustments and foreign currency translation adjustments.
In February 2018, the FASB issued ASU No. 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This ASU amends Topic 220,
Income Statement - Reporting Comprehensive Income
, which will allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. The ASU is effective for fiscal years beginning after December 15, 2018; however, the Company elected to early adopt ASU No. 2018-02 during the quarter ended March 31, 2018. The adoption resulted in a $
4.8 million
reclassification from accumulated other comprehensive income (loss) to retained earnings resulting from the Tax Cuts and Jobs Act.
The components of other comprehensive income (loss) and the related tax impacts for the
three
months ended
March 31, 2018
and
April 1, 2017
are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Before-Tax
|
Tax (Expense)
|
Net-of-Tax
|
|
Amount
|
or Benefit
|
Amount
|
|
March 31, 2018
|
April 1, 2017
|
March 31, 2018
|
April 1, 2017
|
March 31, 2018
|
April 1, 2017
|
Defined benefit pension plans
|
|
|
|
|
|
|
Amortization of prior service cost/(benefit)
|
$
|
9
|
|
$
|
9
|
|
$
|
(3
|
)
|
$
|
(3
|
)
|
$
|
6
|
|
$
|
6
|
|
Amortization of actuarial loss
|
888
|
|
1,203
|
|
(227
|
)
|
(450
|
)
|
661
|
|
753
|
|
Total defined benefit pension plans
|
897
|
|
1,212
|
|
(230
|
)
|
(453
|
)
|
667
|
|
759
|
|
Natural gas swap derivatives
|
|
|
|
|
|
|
Loss/(gain) reclassified to net income
|
14
|
|
—
|
|
(4
|
)
|
—
|
|
10
|
|
—
|
|
Gain/(loss) activity recognized in other comprehensive income (loss)
|
16
|
|
—
|
|
(4
|
)
|
—
|
|
12
|
|
—
|
|
Total natural gas swap derivatives
|
30
|
|
—
|
|
(8
|
)
|
—
|
|
22
|
|
—
|
|
Corn option derivatives
|
|
|
|
|
|
|
Loss/(gain) reclassified to net income
|
(668
|
)
|
(1,185
|
)
|
173
|
|
460
|
|
(495
|
)
|
(725
|
)
|
Gain/(loss) activity recognized in other comprehensive income (loss)
|
(1,497
|
)
|
(615
|
)
|
387
|
|
238
|
|
(1,110
|
)
|
(377
|
)
|
Total corn option derivatives
|
(2,165
|
)
|
(1,800
|
)
|
560
|
|
698
|
|
(1,605
|
)
|
(1,102
|
)
|
|
|
|
|
|
|
|
Foreign currency translation
|
17,295
|
|
15,679
|
|
—
|
|
—
|
|
17,295
|
|
15,679
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
$
|
16,057
|
|
$
|
15,091
|
|
$
|
322
|
|
$
|
245
|
|
$
|
16,379
|
|
$
|
15,336
|
|
The following table presents the amounts reclassified out of each component of other comprehensive income (loss), net of tax for the
three
months ended
March 31, 2018
and
April 1, 2017
as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31, 2018
|
April 1, 2017
|
Statement of Operations Classification
|
Derivative instruments
|
|
|
|
Natural gas swap derivatives
|
$
|
(14
|
)
|
$
|
—
|
|
Cost of sales and operating expenses
|
Corn option derivatives
|
668
|
|
1,185
|
|
Cost of sales and operating expenses
|
|
654
|
|
1,185
|
|
Total before tax
|
|
(169
|
)
|
(460
|
)
|
Income taxes
|
|
485
|
|
725
|
|
Net of tax
|
Defined benefit pension plans
|
|
|
|
Amortization of prior service cost
|
$
|
(9
|
)
|
$
|
(9
|
)
|
(a)
|
Amortization of actuarial loss
|
(888
|
)
|
(1,203
|
)
|
(a)
|
|
(897
|
)
|
(1,212
|
)
|
Total before tax
|
|
230
|
|
453
|
|
Income taxes
|
|
(667
|
)
|
(759
|
)
|
Net of tax
|
Total reclassifications
|
$
|
(182
|
)
|
$
|
(34
|
)
|
Net of tax
|
|
|
(a)
|
These items are included in the computation of net periodic pension cost. See Note 13 Employee Benefit Plans for additional information.
|
The following table presents changes in each component of accumulated comprehensive income (loss) as of
March 31, 2018
as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2018
|
|
|
Foreign Currency
|
Derivative
|
Defined Benefit
|
|
|
|
Translation
|
Instruments
|
Pension Plans
|
Total
|
Accumulated Other Comprehensive Income (loss) December 30, 2017, attributable to Darling, net of tax
|
|
$
|
(183,161
|
)
|
$
|
1,372
|
|
$
|
(27,735
|
)
|
$
|
(209,524
|
)
|
Other comprehensive gain (loss) before reclassifications
|
|
17,295
|
|
(1,098
|
)
|
—
|
|
16,197
|
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
|
—
|
|
(485
|
)
|
667
|
|
182
|
|
Reclassification of tax effect (a)
|
|
—
|
|
291
|
|
(5,073
|
)
|
(4,782
|
)
|
Net current-period other comprehensive income
|
|
17,295
|
|
(1,292
|
)
|
(4,406
|
)
|
11,597
|
|
Noncontrolling interest
|
|
517
|
|
—
|
|
—
|
|
517
|
|
Accumulated Other Comprehensive Income (loss) March 31, 2018, attributable to Darling, net of tax
|
|
(166,383
|
)
|
$
|
80
|
|
$
|
(32,141
|
)
|
$
|
(198,444
|
)
|
|
|
(a)
|
Stranded tax effects reclassified from accumulated other comprehensive income (loss) to retained earnings from the adoption of ASU 2018-02.
|
(12)
Stockholders' Equity
Fiscal 2018 Long-Term Incentive Opportunity Awards (2018 LTIP)
. On January 29, 2018, the Compensation Committee (the “Committee”) of the Company's Board of Directors adopted the 2018 LTIP pursuant to which they awarded certain of the Company's key employees,
637,115
stock options and
295,514
performance share units (the “PSUs”) under the Company's 2017 Omnibus Incentive Plan. The stock options vest
33.33%
on the first, second and third anniversaries of the grant date. The PSUs are tied to a
three
-year forward-looking performance period and will be earned based on the Company's average return on capital employed (ROCE), as calculated in accordance with the terms of the award agreement, relative to the average ROCE of the Company's performance peer group companies, with the earned award to be determined in the first quarter of fiscal 2021, after the final results for the relevant performance period are determined. The PSUs were granted at a target of
100%
, but each PSU will reduce or increase depending on the Company's ROCE relative to that of the performance peer group companies and is also subject to the application of a total shareholder return (TSR) cap/collar modifier depending on the Company's TSR during the performance period relative to that of the performance peer group companies.
On August 7, 2017, the Company's Board of Directors, approved the extension for an additional
two
years of its previously announced share repurchase program of up to an aggregate of $
100.0 million
of the Company's common stock depending on market conditions. As of
March 31, 2018
, the Company has approximately $
100.0 million
remaining under the share repurchase program approved in August 2017.
(13)
Employee Benefit Plans
The Company has retirement and pension plans covering a substantial number of its domestic and foreign employees. Most retirement benefits are provided by the Company under separate final-pay noncontributory and contributory defined benefit and defined contribution plans for all salaried and hourly employees (excluding those covered by union-sponsored plans) who meet service and age requirements. Although various defined benefit formulas exist for employees, generally these are based on length of service and earnings patterns during employment. Effective January 1, 2012, the Company's Board of Directors authorized the Company to proceed with the restructuring of its domestic retirement benefit program to include the closing of Darling's salaried and hourly defined benefit plans to new participants as well as the freezing of service and wage accruals thereunder effective December 31, 2011 (a curtailment of these plans for financial reporting purposes) and the enhancing of benefits under the Company's domestic defined contribution plans. The Company-sponsored domestic hourly union plan has not been curtailed; however, several locations of the Company-sponsored domestic hourly union plan have been curtailed as a result of collective bargaining renewals for those sites.
In March 2017, the FASB issued ASU No. 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. This ASU amends Topic 715,
Compensation - Retirement Benefits
, which requires that an employer report the service cost component of net benefit costs to be disaggregated from all other components and reported in the same line item or items as other compensation costs. The other components of net benefit cost are required to be presented in the income statement separately from the service cost. The Company adopted this ASU effective December 31, 2017. The Company used the practical expedient to retrospectively present the prior year amounts.
The components of net period pension cost other than the service cost component are included in the line item “Other expense, net” in the Company's Consolidated Statements of Operations.
Net pension cost for the
three
months ended
March 31, 2018
and
April 1, 2017
includes the following components (in thousands):
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Three Months Ended
|
|
March 31,
2018
|
April 1,
2017
|
Service cost
|
$
|
799
|
|
$
|
735
|
|
Interest cost
|
1,625
|
|
1,669
|
|
Expected return on plan assets
|
(2,064
|
)
|
(1,788
|
)
|
Amortization of prior service cost
|
9
|
|
9
|
|
Amortization of net loss
|
888
|
|
1,203
|
|
Net pension cost
|
$
|
1,257
|
|
$
|
1,828
|
|
The Company's funding policy for employee benefit pension plans is to contribute annually not less than the minimum amount required nor more than the maximum amount that can be deducted for federal and foreign income tax purposes. Contributions are intended to provide not only for benefits attributed to service to date, but also for those expected to be earned in the future. Based on actuarial estimates at
March 31, 2018
, the Company expects to contribute approximately $
5.0 million
to its pension plans to meet funding requirements during the next twelve months. Additionally, the Company has made tax deductible discretionary and required contributions to its pension plans for the
three
months ended
March 31, 2018
and
April 1, 2017
of approximately $
0.8 million
and $
0.7 million
, respectively.
The Company participates in various multiemployer pension plans which provide defined benefits to certain employees covered by labor contracts. These plans are not administered by the Company and contributions are determined in accordance with provisions of negotiated labor contracts to meet their pension benefit obligations to their participants. The Company's contributions to each multiemployer plan represent less than
5%
of the total contributions to each such plan. Based on the most currently available information, the Company has determined that, if a withdrawal were to occur, withdrawal liabilities on
two
of the plans in which the Company currently participates could be material to the Company, with
one
of these material plans certified as critical or red zone. With respect to the other multiemployer pension plans in which the Company participates and which are not individually significant,
six
plans have certified as critical or red zone,
one
plan has certified as endangered or yellow zone as defined by the Pension Protection Act of 2006.
The Company has received notices of withdrawal liability from
two
U.S. multiemployer plans in which it participated. As of
March 31, 2018
, the Company has an aggregate accrued liability of approximately $
1.7 million
representing the present value of scheduled withdrawal liability payments under these multiemployer plans. While the Company has no ability to calculate a possible current liability for under-funded multiemployer plans that could terminate or could require
additional funding under the Pension Protection Act of 2006, the amounts could be material.
The Company’s operations are exposed to market risks relating to commodity prices that affect the Company’s cost of raw materials, finished product prices and energy costs and the risk of changes in interest rates and foreign currency exchange rates.
The Company makes limited use of derivative instruments to manage cash flow risks related to natural gas usage, diesel fuel usage, inventory, forecasted sales and foreign currency exchange rates. The Company does not use derivative instruments for trading purposes. Natural gas swaps and options are entered into with the intent of managing the overall cost of natural gas usage by reducing the potential impact of seasonal weather demands on natural gas that increases natural gas prices. Heating oil swaps and options are entered into with the intent of managing the overall cost of diesel fuel usage by reducing the potential impact of seasonal weather demands on diesel fuel that increases diesel fuel prices. Soybean meal options are entered into with the intent of managing the impact of changing prices for poultry meal sales. Corn options and future contracts are entered into with the intent of managing U.S. forecasted sales of bakery by-products (“BBP”) by reducing the impact of changing prices. Foreign currency forward contracts are entered into to mitigate the foreign exchange rate risk for transactions designated in a currency other than the local functional currency. At
March 31, 2018
, the Company had corn option contracts and soybean meal option contracts outstanding that qualified
and were designated for hedge accounting as well as corn option and forward contracts, foreign currency forward contracts that did not qualify and were not designated for hedge accounting.
Entities are required to report all derivative instruments in the statement of financial position at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and, if so, on the reason for holding the instrument. If certain conditions are met, entities may elect to designate a derivative instrument as a hedge of exposures to changes in fair value, cash flows or foreign currencies. If the hedged exposure is a cash flow exposure, the effective portion of the gain or loss on the derivative instrument is reported initially as a component of other comprehensive income (outside of earnings) and is subsequently reclassified into earnings when the forecasted transaction affects earnings. Any amounts excluded from the assessment of hedge effectiveness, as well as the ineffective portion of the gain or loss, are reported in earnings immediately. If the derivative instrument is not designated as a hedge, the gain or loss is recognized in earnings in the period of change.
Cash Flow Hedges
In the first three months of fiscal 2018, the Company entered into soybean meal option contracts that are considered cash flow hedges. Under the terms of the soybean meal option contracts, the Company hedged a portion of its forecasted poultry meal sales into the fourth quarter of fiscal 2018. As of
March 31, 2018
, the contract positions and activity are disclosed below.
In fiscal 2017, the Company entered into natural gas swap contracts that are considered cash flow hedges. Under the terms of the natural gas swap contracts, the Company fixed the expected purchase cost of a portion of its U.S. plants' forecasted natural gas usage into the first quarter of fiscal 2018. As of
March 31, 2018
, the contracts have expired and settled according to the contracts.
In fiscal 2017 and the first three months of
fiscal 2018
, the Company entered into corn option contracts on the Chicago Board of Trade that are designated as cash flow hedges. Under the terms of the corn option contracts, the Company hedged a portion of its U.S. forecasted sales of BBP into the fourth quarter of fiscal 2018. As of
March 31, 2018
, some of the contracts have been settled while the remaining contract positions and activity are disclosed below. From time to time, the Company may enter into corn option contracts in the future.
As of
March 31, 2018
, the Company had the following outstanding forward contract amounts that were entered into to hedge the future payments of intercompany note transactions, foreign currency transactions in currencies other than the functional currency and forecasted transactions in currencies other than the functional currency. All of these transactions are currently not designated for hedge accounting (in thousands):
|
|
|
|
|
|
|
|
Functional Currency
|
|
Contract Currency
|
Type
|
Amount
|
|
Type
|
Amount
|
Brazilian real
|
45,094
|
|
|
Euro
|
11,210
|
|
Brazilian real
|
74,534
|
|
|
U.S. dollar
|
22,735
|
|
Euro
|
76,963
|
|
|
U.S. dollar
|
95,421
|
|
Euro
|
7,627
|
|
|
Polish zloty
|
32,280
|
|
Euro
|
5,772
|
|
|
Japanese yen
|
763,515
|
|
Euro
|
86,745
|
|
|
Chinese renminbi
|
680,847
|
|
Euro
|
11,573
|
|
|
Australian dollar
|
18,600
|
|
Euro
|
3,001
|
|
|
British pound
|
2,642
|
|
Polish zloty
|
70,770
|
|
|
Euro
|
16,740
|
|
British pound
|
184
|
|
|
Euro
|
161
|
|
British pound
|
49
|
|
|
U.S. dollar
|
70
|
|
Japanese yen
|
371,342
|
|
|
U.S. dollar
|
3,375
|
|
The Company estimates the amount that will be reclassified from accumulated other comprehensive gain at
March 31, 2018
into earnings over the next 12 months will be approximately $
0.1 million
. As of
March 31, 2018
,
no
amounts have been reclassified into earnings as a result of the discontinuance of cash flow hedges.
The following table presents the fair value of the Company’s derivative instruments under FASB authoritative guidance as of
March 31, 2018
and
December 30, 2017
(in thousands):
|
|
|
|
|
|
|
|
|
Derivatives Designated
|
Balance Sheet
|
Asset Derivatives Fair Value
|
as Hedges
|
Location
|
March 31, 2018
|
December 30, 2017
|
Corn options
|
Other current assets
|
$
|
282
|
|
$
|
3,418
|
|
|
|
|
|
Total asset derivatives designated as hedges
|
$
|
282
|
|
$
|
3,418
|
|
|
|
|
|
Derivatives Not
Designated as
Hedges
|
|
|
|
|
|
Foreign currency contracts
|
Other current assets
|
$
|
585
|
|
$
|
332
|
|
Corn options and futures
|
Other current assets
|
185
|
|
596
|
|
|
|
|
|
Total asset derivatives not designated as hedges
|
$
|
770
|
|
$
|
928
|
|
|
|
|
|
Total asset derivatives
|
|
$
|
1,052
|
|
$
|
4,346
|
|
|
|
|
|
|
|
|
|
|
Derivatives Designated
|
Balance Sheet
|
Liability Derivatives Fair Value
|
as Hedges
|
Location
|
March 31, 2018
|
December 30, 2017
|
Corn options
|
Accrued expenses
|
$
|
278
|
|
$
|
—
|
|
Natural gas swaps
|
Accrued expenses
|
—
|
|
24
|
|
Soybean meal options
|
Accrued expenses
|
194
|
|
—
|
|
|
|
|
|
Total liability derivatives designated as hedges
|
$
|
472
|
|
$
|
24
|
|
|
|
|
|
Derivatives Not
Designated as
Hedges
|
|
|
|
|
|
Foreign currency contracts
|
Accrued expenses
|
$
|
1,977
|
|
$
|
2,288
|
|
Corn options and futures
|
Accrued expenses
|
316
|
|
14
|
|
|
|
|
|
Total liability derivatives not designated as hedges
|
$
|
2,293
|
|
$
|
2,302
|
|
|
|
|
|
Total liability derivatives
|
$
|
2,765
|
|
$
|
2,326
|
|
The effect of the Company’s derivative instruments on the consolidated financial statements as of and for the
three
months ended
March 31, 2018
and
April 1, 2017
is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
Designated as
Cash Flow Hedges
|
Gain or (Loss)
Recognized in Other Comprehensive Income (“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)
|
|
2018
|
2017
|
2018
|
2017
|
2018
|
2017
|
Corn options
|
$
|
(1,497
|
)
|
$
|
(615
|
)
|
$
|
668
|
|
$
|
1,185
|
|
$
|
(1,123
|
)
|
$
|
88
|
|
Natural gas swaps
|
16
|
|
—
|
|
(14
|
)
|
—
|
|
25
|
|
—
|
|
Soybean meal options
|
—
|
|
—
|
|
—
|
|
—
|
|
(648
|
)
|
—
|
|
|
|
|
|
|
|
|
Total
|
$
|
(1,481
|
)
|
$
|
(615
|
)
|
$
|
654
|
|
$
|
1,185
|
|
$
|
(1,746
|
)
|
$
|
88
|
|
|
|
(a)
|
Amount recognized in accumulated OCI (effective portion) is reported as accumulated other comprehensive income/(loss) of approximately $
(1.5) million
and $
(0.6) million
recorded net of taxes of approximately $
0.4 million
and $
0.2 million
as of
March 31, 2018
and
April 1, 2017
, respectively.
|
|
|
(b)
|
Gains and (losses) reclassified from accumulated OCI into income (effective portion) for corn options and natural gas swaps are included in cost of sales, respectively, in the Company’s consolidated statements of operations.
|
|
|
(c)
|
Gains and (losses) recognized in income on derivatives (ineffective portion) for corn options, natural gas swaps and soybean meal options are included in other income/ (expense), net in the Company’s consolidated statements of operations.
|
The table below summarizes the effect of derivatives not designated as hedges on the Company's consolidated statements of operations for the
three
months ended
March 31, 2018
and
April 1, 2017
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss or (Gain) Recognized in Income on Derivatives Not Designated as Hedges
|
|
|
|
|
Three Months Ended
|
Derivatives not designated as hedging instruments
|
|
Location
|
|
March 31, 2018
|
April 1, 2017
|
|
|
|
|
|
|
Foreign Exchange
|
|
Foreign currency loss/(gain)
|
|
$
|
1,654
|
|
$
|
3,146
|
|
Foreign Exchange
|
|
Selling, general and administrative expense
|
|
489
|
|
(1,481
|
)
|
Corn options and futures
|
|
Net sales
|
|
(309
|
)
|
(22
|
)
|
Corn options and futures
|
|
Cost of sales and operating expenses
|
|
512
|
|
270
|
|
Soybean Meal
|
|
Net sales
|
|
—
|
|
(272
|
)
|
Soybean Oil
|
|
Net sales
|
|
—
|
|
45
|
|
Total
|
|
|
|
$
|
2,346
|
|
$
|
1,686
|
|
At
March 31, 2018
, the Company had forward purchase agreements in place for purchases of approximately $
31.6 million
of natural gas and diesel fuel. These forward purchase agreements have no net settlement provisions and the Company intends to take physical delivery of the underlying product. Accordingly, the forward purchase agreements are not subject to the requirements of fair value accounting because they qualify and the Company has elected to account for these as normal purchases as defined in the FASB authoritative guidance.
(15)
Fair Value Measurements
FASB authoritative guidance defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The following table presents the Company’s financial instruments that are measured at fair value on a recurring and nonrecurring basis as of
March 31, 2018
and are categorized using the fair value hierarchy under FASB authoritative guidance. The fair value hierarchy has three levels based on the reliability of the inputs used to determine the fair value.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at March 31, 2018 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
|
$
|
1,052
|
|
$
|
—
|
|
$
|
1,052
|
|
$
|
—
|
|
Total Assets
|
$
|
1,052
|
|
$
|
—
|
|
$
|
1,052
|
|
$
|
—
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
Derivative instruments
|
$
|
2,765
|
|
$
|
—
|
|
$
|
2,765
|
|
$
|
—
|
|
5.375% Senior notes
|
508,750
|
|
—
|
|
508,750
|
|
—
|
|
4.75% Senior notes
|
665,076
|
|
—
|
|
665,076
|
|
—
|
|
Term loan A
|
94,450
|
|
—
|
|
94,450
|
|
—
|
|
Term loan B
|
510,353
|
|
—
|
|
510,353
|
|
—
|
|
Revolver debt
|
54,544
|
|
—
|
|
54,544
|
|
—
|
|
Total Liabilities
|
$
|
1,835,938
|
|
$
|
—
|
|
$
|
1,835,938
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 30, 2017 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
|
$
|
4,346
|
|
$
|
—
|
|
$
|
4,346
|
|
$
|
—
|
|
Total Assets
|
$
|
4,346
|
|
$
|
—
|
|
$
|
4,346
|
|
$
|
—
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
Derivative instruments
|
$
|
2,326
|
|
$
|
—
|
|
$
|
2,326
|
|
$
|
—
|
|
5.375% Senior notes
|
513,100
|
|
—
|
|
513,100
|
|
—
|
|
4.75% Senior notes
|
646,681
|
|
—
|
|
646,681
|
|
—
|
|
Term loan A
|
95,883
|
|
—
|
|
95,883
|
|
—
|
|
Term loan B
|
511,616
|
|
—
|
|
511,616
|
|
—
|
|
Total Liabilities
|
$
|
1,769,606
|
|
$
|
—
|
|
$
|
1,769,606
|
|
$
|
—
|
|
Derivative assets and liabilities consist of the Company’s soybean meal contracts, natural gas contracts, corn option and future contracts and foreign currency contracts, which represents the difference between observable market rates of commonly quoted intervals for similar assets and liabilities in active markets and the fixed swap rate considering the instruments term, notional amount and credit risk. See Note 14 (Derivatives) for breakdown by instrument type.
The carrying amount of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximates fair value due to the short maturity of these instruments and as such have been excluded from the table above. The carrying amount of the Company's other debt is not deemed to be significantly different from the fair value and all other instruments have been recorded at fair value.
The fair value of the senior notes, term loan A, term loan B and revolver debt is based on market quotation from third-party banks.
The Company is a party to various lawsuits, claims and loss contingencies arising in the ordinary course of its business, including insured worker's compensation, auto, and general liability claims, assertions by certain regulatory and governmental agencies related to permitting requirements and/or air, wastewater and storm water discharges from the Company’s processing facilities, litigation involving tort, contract, statutory, labor, employment, and other claims, and tax matters.
The Company’s workers compensation, auto and general liability policies contain significant deductibles or self-insured retentions. The Company estimates and accrues its expected ultimate claim costs related to accidents occurring during each fiscal year under these insurance policies and carries this accrual as a reserve until these claims are paid by the Company.
As a result of the matters discussed above, the Company has established loss reserves for insurance, environmental, litigation and tax contingencies. At
March 31, 2018
and
December 30, 2017
, the reserves for insurance, environmental, litigation and tax contingencies reflected on the balance sheet in accrued expenses and other non-current liabilities were approximately $
62.4 million
and $
61.4 million
, respectively. The Company has insurance recovery receivables of approximately $
25.0 million
as of
March 31, 2018
and
December 30, 2017
, related to the insurance contingencies. The Company's management believes these reserves for contingencies are reasonable and sufficient based upon present governmental regulations and information currently available to management; however, there can be no assurance that final costs related to these contingencies will not exceed current estimates. The Company believes that the likelihood is remote that any additional liability from the lawsuits and claims that may not be covered by insurance would have a material effect on the Company's financial position, results of operations or cash flows.
Lower Passaic River Area
. In
December 2009
, the Company, along with numerous other entities, received notice from the United States Environmental Protection Agency (“EPA”) that the Company (as successor-in-interest to Standard Tallow Company) is considered a potentially responsible party (a “PRP”) with respect to alleged contamination in the lower Passaic River area which is part of the Diamond Alkali Superfund Site located in Newark, New Jersey. The
Company’s designation as a PRP is based upon the operation of a former plant site located in Newark, New Jersey by Standard Tallow Company, an entity that the Company acquired in 1996. In the letter, EPA requested that the Company join a group of other parties in funding a remedial investigation and feasibility study at the site. As of the date of this report, the Company has not agreed to participate in the funding group. In March 2016, the Company received another letter from EPA notifying the Company that it had issued a Record of Decision selecting a remedy for the lower
8.3
miles of the lower Passaic River area at an estimated cost of $
1.38 billion
. The EPA letter makes no demand on the Company and lays out a framework for remedial design/remedial action implementation in which the EPA will first seek funding from major PRPs. The letter indicates that the EPA has sent the letter to over
100
parties, which include large chemical and refining companies, manufacturing companies, foundries, plastic companies, pharmaceutical companies and food and consumer product companies. The Company's ultimate liability, if any, for investigatory costs, remedial costs and/or natural resource damages in connection with the lower Passaic River area cannot be determined at this time; however, as of the date of this report, the Company has found no evidence that the former Standard Tallow Company plant site contributed any of the primary contaminants of concern to the Passaic River and, therefore, there is nothing that leads the Company to believe that this matter will have a material effect on the Company's financial position, results of operations or cash flows.
Fresno Facility Permit Issue.
The Company has been named as a defendant and a real party in interest in a lawsuit filed on April 9, 2012 in the Superior Court of the State of California, Fresno County, styled
Concerned Citizens of West Fresno vs. Darling International Inc.
The complaint, as subsequently amended, alleges that the Company's Fresno facility is operating without a proper use permit and seeks, among other things, injunctive relief. The complaint had at one time also alleged that the Company's Fresno facility constitutes a continuing private and public nuisance, but the plaintiff has since amended the complaint to drop these allegations. The City of Fresno was also named as a defendant in the original complaint but has since had a judgment entered in its favor and is no longer a defendant in the lawsuit; however, in December 2013 the City of Fresno filed a motion to intervene as a plaintiff in this matter. The Superior Court heard the motion on February 4, 2014, and entered an order on February 18, 2014 denying the motion. Rendering operations have been conducted on the site since 1955, and the Company believes that it possesses all of the required federal, state and local permits to continue to operate the facility in the manner currently conducted and that its operations do not constitute a private or public nuisance. Accordingly, the Company intends to defend itself vigorously in this matter. Discovery has begun and this matter was scheduled for trial in July 2014; however, the parties have agreed to stay the litigation while they participate in a mediation process, which remains ongoing. In January 2017, the Company entered into a non-binding letter of intent with the City of Fresno pursuant to which the City and the Company will work toward the execution of a definitive agreement to relocate the facility to a different location in Fresno. Whether an agreement to relocate the facility ultimately gets executed is subject to the Company’s receipt of certain incentives and an agreement by the Concerned Citizens of West Fresno to settle and dismiss the aforementioned litigation. While management cannot predict the ultimate outcome of this matter, management does not believe the outcome will have a material effect on the Company's financial condition, results of operations or cash flows.
The Company sells its products domestically and internationally, operating within
three
industry segments: Feed Ingredients, Food Ingredients and Fuel Ingredients. The measure of segment profit (loss) includes all revenues, operating expenses (excluding certain amortization of intangibles), and selling, general and administrative expenses incurred at all operating locations and excludes corporate activities.
Included in corporate activities are general corporate expenses and the amortization of certain intangibles. Assets of corporate activities include cash, unallocated prepaid expenses, deferred tax assets, prepaid pension, and miscellaneous other assets.
Feed Ingredients
Feed Ingredients consists principally of (i) the Company's U.S. ingredients business, including the Company's fats and proteins, used cooking oil, trap grease and food residuals collection businesses, the Rothsay ingredients business, the ingredients and specialty products businesses conducted by Darling Ingredients International under the Sonac name (proteins, fats, and plasma products) and (ii) the Company's bakery residuals business. Feed Ingredients operations process animal by-products and used cooking oil into fats, proteins and hides.
Food Ingredients
Food Ingredients consists principally of (i) the gelatin and collagen hydrolysates business conducted by Darling Ingredients International under the Rousselot name, (ii) the natural casings and meat-by-products business conducted by Darling
Ingredients International under the CTH name and (iii) certain specialty products businesses conducted by Darling Ingredients International under the Sonac name.
Fuel Ingredients
The Company's Fuel Ingredients segment consists of (i) the Company's biofuel business conducted under the Dar Pro® and Rothsay names (ii) the bioenergy business conducted by Darling Ingredients International under the Ecoson and Rendac names and (iii) the Company's investment in the DGD Joint Venture.
Business Segments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Feed Ingredients
|
Food Ingredients
|
Fuel Ingredients
|
Corporate
|
Total
|
Three Months Ended March 31, 2018
|
|
|
|
|
|
Net Sales
|
$
|
485,798
|
|
$
|
305,520
|
|
$
|
84,056
|
|
$
|
—
|
|
$
|
875,374
|
|
Cost of sales and operating expenses
|
369,088
|
|
249,185
|
|
59,826
|
|
—
|
|
678,099
|
|
Gross Margin
|
116,710
|
|
56,335
|
|
24,230
|
|
—
|
|
197,275
|
|
|
|
|
|
|
|
Selling, general and administrative expense
|
48,265
|
|
23,861
|
|
(1,398
|
)
|
16,174
|
|
86,902
|
|
Depreciation and amortization
|
46,789
|
|
20,640
|
|
8,471
|
|
2,719
|
|
78,619
|
|
Segment operating income/(loss)
|
21,656
|
|
11,834
|
|
17,157
|
|
(18,893
|
)
|
31,754
|
|
|
|
|
|
|
|
Equity in net income of unconsolidated subsidiaries
|
(45
|
)
|
—
|
|
97,199
|
|
—
|
|
97,154
|
|
Segment income/(loss)
|
21,611
|
|
11,834
|
|
114,356
|
|
(18,893
|
)
|
128,908
|
|
|
|
|
|
|
|
Total other expense
|
|
|
|
|
(27,121
|
)
|
Income before income taxes
|
|
|
|
|
$
|
101,787
|
|
|
|
|
|
|
|
Segment assets at March 31, 2018
|
$
|
2,589,281
|
|
$
|
1,525,149
|
|
$
|
809,895
|
|
$
|
161,185
|
|
$
|
5,085,510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Feed Ingredients
|
Food Ingredients
|
Fuel Ingredients
|
Corporate
|
Total
|
Three Months Ended April 1, 2017
|
|
|
|
|
|
Net Sales
|
$
|
552,624
|
|
$
|
266,226
|
|
$
|
59,660
|
|
$
|
—
|
|
$
|
878,510
|
|
Cost of sales and operating expenses
|
432,576
|
|
209,392
|
|
45,998
|
|
—
|
|
687,966
|
|
Gross Margin
|
120,048
|
|
56,834
|
|
13,662
|
|
—
|
|
190,544
|
|
|
|
|
|
|
|
Selling, general and administrative expense
|
44,837
|
|
24,977
|
|
3,263
|
|
13,846
|
|
86,923
|
|
Depreciation and amortization
|
43,719
|
|
17,601
|
|
6,845
|
|
2,949
|
|
71,114
|
|
Segment operating income/(loss)
|
31,492
|
|
14,256
|
|
3,554
|
|
(16,795
|
)
|
32,507
|
|
|
|
|
|
|
|
Equity in net income of unconsolidated subsidiaries
|
109
|
|
—
|
|
597
|
|
—
|
|
706
|
|
Segment income/(loss)
|
31,601
|
|
14,256
|
|
4,151
|
|
(16,795
|
)
|
33,213
|
|
|
|
|
|
|
|
Total other expense
|
|
|
|
|
(23,997
|
)
|
Income before income taxes
|
|
|
|
|
$
|
9,216
|
|
|
|
|
|
|
|
Segment assets at December 30, 2017
|
$
|
2,614,545
|
|
$
|
1,499,027
|
|
$
|
688,890
|
|
$
|
155,763
|
|
$
|
4,958,225
|
|
On December 31, 2017, the Company adopted ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), using the modified retrospective basis. Results for reporting periods beginning December 31, 2017 are presented under Topic 606, while prior periods are not adjusted and continue to be reported in accordance with the Company's historic accounting under Topic 605. The adoption did not change the timing of revenue recognition as the Company's revenues have been determined to be recognized at a point in time and not over time. The Company elected not to capitalize
contract fulfillment costs as the recovery of such costs are for a period of less than one year's time and are not material to the Company. At March 31, 2018, there were no contract assets recorded on the Consolidated Balance sheets. Also, the Company elected to treat shipping and handling as fulfillment costs under Topic 606, which will result in billed freight recorded in cost of sales and netted against freight costs. Sales, value-add, and other taxes collected concurrently with revenue-producing activities are excluded from revenue and booked on a net basis.
The Company extends payment terms to its customers based on commercially acceptable practices. The term between invoicing and payment due date is not significant. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring finished products or performing services, which is generally based on executed agreement or purchase order.
Most of the Company's products are shipped based on the customer specifications. Customer returns are infrequent and not material to the Company. Adjustments to net sales for sales deductions are generally recognized in the same period as the sale or when known. Customers in certain industries or countries may be required to prepay prior to shipment in order to maintain payment protection. These represent short-term prepayment from customers and are not material to the Company.
The following table summarizes the impact of adopting Topic 606 on the Company's consolidated financial statements for the three months ended March 31, 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of changes in accounting policies
|
|
As reported
|
|
Adjustments
|
|
Balances without adoption of Topic 606
|
|
|
|
|
|
|
Net sales
|
$
|
875,374
|
|
|
46,187
|
|
|
$
|
921,561
|
|
|
|
|
|
|
|
Cost of sales and operating expenses
|
$
|
678,099
|
|
|
46,187
|
|
|
$
|
724,286
|
|
The following table presents the Company revenues disaggregated by geographic area and major product types by reportable segment for the three months ended
March 31, 2018
and
April 1, 2017
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2018
|
|
Feed Ingredients
|
Food Ingredients
|
Fuel Ingredients
|
Total
|
Geographic Area
|
|
|
|
|
North America
|
$
|
390,376
|
|
$
|
44,277
|
|
$
|
21,540
|
|
$
|
456,193
|
|
Europe
|
87,790
|
|
183,639
|
|
62,516
|
|
333,945
|
|
China
|
5,678
|
|
43,912
|
|
—
|
|
49,590
|
|
South America
|
—
|
|
14,344
|
|
—
|
|
14,344
|
|
Other
|
1,954
|
|
19,348
|
|
—
|
|
21,302
|
|
Net sales
|
$
|
485,798
|
|
$
|
305,520
|
|
$
|
84,056
|
|
$
|
875,374
|
|
|
|
|
|
|
Major product types
|
|
|
|
|
Fats
|
$
|
143,552
|
|
$
|
44,819
|
|
$
|
—
|
|
$
|
188,371
|
|
Used cooking oil
|
36,608
|
|
—
|
|
—
|
|
36,608
|
|
Proteins
|
203,395
|
|
—
|
|
—
|
|
203,395
|
|
Bakery
|
46,751
|
|
—
|
|
—
|
|
46,751
|
|
Other rendering
|
31,362
|
|
—
|
|
—
|
|
31,362
|
|
Food ingredients
|
—
|
|
233,923
|
|
—
|
|
233,923
|
|
Bioenergy
|
—
|
|
—
|
|
62,516
|
|
62,516
|
|
Biofuels
|
—
|
|
—
|
|
21,540
|
|
21,540
|
|
Other
|
24,130
|
|
26,778
|
|
—
|
|
50,908
|
|
Net sales
|
$
|
485,798
|
|
$
|
305,520
|
|
$
|
84,056
|
|
$
|
875,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended April 1, 2017 (a)
|
|
Feed Ingredients
|
Food Ingredients
|
Fuel Ingredients
|
Total
|
Geographic Area Revenues
|
|
|
|
|
North America
|
$
|
422,935
|
|
$
|
45,725
|
|
$
|
8,083
|
|
$
|
476,743
|
|
Europe
|
122,927
|
|
149,701
|
|
51,577
|
|
324,205
|
|
China
|
4,734
|
|
41,660
|
|
—
|
|
46,394
|
|
South America
|
—
|
|
12,974
|
|
—
|
|
12,974
|
|
Other
|
2,028
|
|
16,166
|
|
—
|
|
18,194
|
|
Net sales
|
$
|
552,624
|
|
$
|
266,226
|
|
$
|
59,660
|
|
$
|
878,510
|
|
|
|
|
|
|
Major product types
|
|
|
|
|
Fats
|
$
|
158,005
|
|
$
|
40,893
|
|
$
|
—
|
|
$
|
198,898
|
|
Used cooking oil
|
44,046
|
|
—
|
|
—
|
|
44,046
|
|
Proteins
|
198,151
|
|
—
|
|
—
|
|
198,151
|
|
Bakery
|
56,097
|
|
—
|
|
—
|
|
56,097
|
|
Other rendering
|
73,600
|
|
—
|
|
—
|
|
73,600
|
|
Food ingredients
|
—
|
|
206,279
|
|
—
|
|
206,279
|
|
Bioenergy
|
—
|
|
—
|
|
51,577
|
|
51,577
|
|
Biofuels
|
—
|
|
—
|
|
8,083
|
|
8,083
|
|
Other
|
22,725
|
|
19,054
|
|
—
|
|
41,779
|
|
Net sales
|
$
|
552,624
|
|
$
|
266,226
|
|
$
|
59,660
|
|
$
|
878,510
|
|
(a) As noted above prior year amounts have not been adjusted under the modified retrospective method for billed freight of approximately $
38.2 million
that is included in net sales in the three months ended
April 1, 2017
.
Revenue from Contracts with Customers
The Company has
two
primary revenue streams. Finished product revenues are recognized when control of the promised finished product is transferred to the Company's customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for the finished product. Service revenues are recognized in the fiscal month the service occurs.
Fats and Proteins
. Fats and Proteins include the Company's global activities related to the collection and processing of beef, poultry and pork animal by-products into finished products of non-food grade oils, food grade fats and protein meal. Fats and proteins net sales are recognized when the Company ships the finished product to the customer and control has been transferred.
Used Cooking Oil
. Used cooking oil includes collection and processing of used cooking oil into finished products of non-food grade fats. Used cooking oil net sales are recognized when the Company ships the finished product to the customer and control has been transferred.
Bakery
. Bakery includes collection and processing of bakery residuals into finished product including Cookie Meal®, an animal feed ingredient primarily used in poultry and swine rations. Bakery net sales are recognized when the Company ships the finished product to the customer and control has been transferred.
Other Rendering
. Other rendering include hides, pet food products, and service charges. Hides and pet food net sales are recognized when the Company ships the finished product to the customer and control has been transferred. Service revenues are recognized when the service has occurred.
Food Ingredients.
Food ingredients includes collection and processing of pigskin, hide, bone and fish into finished product. Also includes harvesting, sorting and selling of hog and sheep casings as well as harvesting, purchasing and processing of hog, sheep and beef meat for pet food industry. Gelatin and CTH meat and casings net sales are recognized when the Company ships the finished product to the customer and control has been transferred.
Bioenergy
. Bioenergy includes Ecoson, which converts organic sludge and food waste into biogas and Rendac, which collects fallen stock and animal waste for a fee and processes these materials into fats and meals that can only be used as low grade energy or fuel for boilers and cement kilns. Net sales are recognized when the finished product is shipped
to the customer and control has been transferred. Service revenues are recognized in net sales when the service has occurred.
Biofuels
. Biofuels includes the North American processing of rendered animal fats, recycled cooking oils and third party additives to produce diesel fuel. Biofuel net sales are recognized when the finished product is shipped to the customer and control has been transferred.
Other
. Other includes grease trap collection and environmental services to food processors in the Feed Ingredients segment and Sonac Bone and Sonac Heparin in the Food Ingredients segment. Net sales are recognized when the Company ships the finished product to the customer. Service revenues are recognized when the service has occurred.
|
|
(19)
|
Related Party Transactions
|
Raw Material Agreement
The Company entered into a Raw Material Agreement with the DGD Joint Venture in May 2011 pursuant to which the Company will offer to supply certain animal fats and used cooking oil at market prices, up to the DGD Joint Venture's full operational requirement of feedstock, but the DGD Joint Venture is not obligated to purchase the raw material offered by the Company. Additionally, the Company may offer other feedstocks to the DGD Joint Venture, such as inedible corn oil, purchased on a resale basis. For the three months ended
March 31, 2018
and
April 1, 2017
, the Company has recorded sales to the DGD Joint Venture of approximately $
33.1 million
and $
35.7 million
, respectively. At
March 31, 2018
and
December 30, 2017
, the Company has $
8.8 million
and $
5.6 million
in outstanding receivables due from the DGD Joint Venture, respectively. In addition, the Company has eliminated approximately $
7.1 million
of additional sales for the three months ended
March 31, 2018
to defer the Company's portion of profit of approximately $
2.0 million
on those sales relating to inventory assets remaining on the DGD Joint Venture's balance sheet at
March 31, 2018
.
Revolving Loan Agreement
On February 23, 2015, Darling through its wholly owned subsidiary Darling Green Energy LLC, (“Darling Green”) and a third party Diamond Alternative Energy, LLC (“Diamond Alternative” and together with Darling Green, the “DGD Lenders”) entered into a revolving loan agreement (the “DGD Loan Agreement”) with the DGD Joint Venture Opco. The DGD Lenders have committed to making loans available to Opco in the total amount of $
10.0 million
with each lender committed to $
5.0 million
of the total commitment. Any borrowings by Opco under the DGD Loan Agreement are at the applicable annum rate equal to the sum of (a) the LIBO Rate (meaning Reuters BBA Libor Rates Page 3750) on such day plus (b)
2.50%
. The DGD Loan Agreement matures on December 31, 2018, unless extended by agreement of the parties. As of
March 31, 2018
,
no
amounts are owed to Darling Green under the DGD Loan Agreement.
(20)
New Accounting Pronouncements
In August 2017, the FASB issued ASU No. 2017-12, Targeted Improvement to Accounting for Hedging Activities. This ASU amends Topic 815,
Derivatives and Hedging
, which is intended to more closely align hedge accounting with companies' risk management strategies and simplify the application of hedge accounting. The guidance includes certain targeted improvements to ease the operational burden of applying hedge accounting. The ASU is effective for fiscal years beginning after December 15, 2018 and for interim periods therein with early adoption permitted. The Company will be required to apply the guidance on a cumulative-effect basis with adjustment to retained earnings as of the beginning of the fiscal year of adoption. The Company is currently evaluating the impact of this standard.
In January 2017, the
FASB
issued
ASU No. 2017-04 Simplifying the Test for Goodwill Impairment. This ASU amends Topic 350,
Intangibles-Goodwill and Other
, which will simplify the goodwill impairment calculation by eliminating Step 2 from the current goodwill impairment test. Under the new guidance, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The ASU eliminates existing guidance that requires an entity to determine goodwill impairment by calculating the implied fair value of goodwill by hypothetically assigning the fair value of a reporting unit to all of the assets and liabilities as if that reporting unit had been acquired in a business combination. This ASU is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years.
The initial adoption of this ASU is not expected to have a material impact on the Company's consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). Under the new ASU, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (1) a lease liability, which is a lessee‘s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance lessor accounting is largely unchanged. The new lease guidance simplified the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. This ASU is effective for public companies for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. The Company is assessing the impact of this new standard, specifically on its consolidated balance sheets and disclosures, and does not expect adoption to significantly change the recognition, measurement or presentation of lease expense within the consolidated statements of operations or cash flows.
(21)
Guarantor Financial Information
The Company's 5.375% Notes and 4.75% Notes (see Note 9) are guaranteed on a senior unsecured basis by the following Notes Guarantors, each of which is a
100%
directly or indirectly owned subsidiary of Darling and which constitute all of Darling's existing restricted subsidiaries that are Credit Agreement Guarantors (other than Darling's foreign subsidiaries, Darling Global Finance B.V., which issued the 4.75% Notes and is discussed further below, or any receivables entity): Darling National, Griffin and its subsidiary Craig Protein, Darling AWS LLC, Terra Holding Company, Darling Global Holdings Inc., Darling Northstar LLC, TRS, EV Acquisition, Inc., Rousselot Inc., Rousselot Dubuque Inc., Sonac USA LLC and Rousselot Peabody Inc. In addition, the 4.75% Notes, which were issued by Darling Global Finance B.V., a wholly-owned indirect subsidiary of Darling, are guaranteed on a senior unsecured basis by Darling. The Notes Guarantors, and Darling in the case of the 4.75% Notes, fully and unconditionally guaranteed the 5.375% Notes and 4.75% Notes on a joint and several basis. The following financial statements present condensed consolidated financial data for (i) Darling, (ii) the combined Notes Guarantors, (iii) the combined other subsidiaries of the Company that did not guarantee the 5.375% Notes or the 4.75% Notes (the “Non-guarantors”), and (iv) eliminations necessary to arrive at the Company's consolidated financial statements, which include condensed consolidated balance sheets as of
March 31, 2018
and
December 30, 2017
, and the condensed consolidated statements of operations, the condensed consolidated statements of comprehensive income/(loss) and the condensed consolidated statements of cash flows for the
three
months ended
March 31, 2018
and
April 1, 2017
. Separate financial information is not presented for Darling Global Finance B.V. since it was formed as a special purpose finance subsidiary for the purpose of issuing the 4.75% Notes and therefore does not have any substantial operations or assets.
Condensed Consolidated Balance Sheet
As of
March 31, 2018
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
Guarantors
|
Non-guarantors
|
Eliminations
|
Consolidated
|
ASSETS
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
899
|
|
$
|
1,436
|
|
$
|
120,534
|
|
$
|
—
|
|
$
|
122,869
|
|
Restricted cash
|
103
|
|
—
|
|
39
|
|
—
|
|
142
|
|
Accounts receivable
|
37,894
|
|
513,155
|
|
455,774
|
|
(593,164
|
)
|
413,659
|
|
Inventories
|
12,547
|
|
84,727
|
|
275,847
|
|
—
|
|
373,121
|
|
Income taxes refundable
|
2,270
|
|
—
|
|
2,424
|
|
—
|
|
4,694
|
|
Prepaid expenses
|
11,188
|
|
2,636
|
|
26,883
|
|
—
|
|
40,707
|
|
Other current assets
|
3,066
|
|
71
|
|
12,751
|
|
—
|
|
15,888
|
|
Total current assets
|
67,967
|
|
602,025
|
|
894,252
|
|
(593,164
|
)
|
971,080
|
|
Investment in subsidiaries
|
4,879,498
|
|
1,167,246
|
|
844,044
|
|
(6,890,788
|
)
|
—
|
|
Property, plant and equipment, net
|
282,431
|
|
503,200
|
|
871,978
|
|
—
|
|
1,657,609
|
|
Intangible assets, net
|
16,041
|
|
250,400
|
|
393,414
|
|
—
|
|
659,855
|
|
Goodwill
|
21,860
|
|
551,837
|
|
735,911
|
|
—
|
|
1,309,608
|
|
Investment in unconsolidated subsidiaries
|
7,344
|
|
—
|
|
401,791
|
|
—
|
|
409,135
|
|
Other assets
|
41,953
|
|
314,159
|
|
199,755
|
|
(492,830
|
)
|
63,037
|
|
Deferred taxes
|
—
|
|
—
|
|
15,186
|
|
—
|
|
15,186
|
|
|
$
|
5,317,094
|
|
$
|
3,388,867
|
|
$
|
4,356,331
|
|
$
|
(7,976,782
|
)
|
$
|
5,085,510
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
$
|
4,093
|
|
$
|
—
|
|
$
|
12,629
|
|
$
|
—
|
|
$
|
16,722
|
|
Accounts payable
|
593,331
|
|
44,043
|
|
139,193
|
|
(588,519
|
)
|
188,048
|
|
Income taxes payable
|
(383
|
)
|
373
|
|
11,300
|
|
—
|
|
11,290
|
|
Accrued expenses
|
75,308
|
|
25,988
|
|
194,158
|
|
(4,645
|
)
|
290,809
|
|
Total current liabilities
|
672,349
|
|
70,404
|
|
357,280
|
|
(593,164
|
)
|
506,869
|
|
Long-term debt, net of current portion
|
1,060,777
|
|
—
|
|
1,196,476
|
|
(492,830
|
)
|
1,764,423
|
|
Other noncurrent liabilities
|
69,169
|
|
—
|
|
37,434
|
|
—
|
|
106,603
|
|
Deferred income taxes
|
105,029
|
|
—
|
|
163,347
|
|
—
|
|
268,376
|
|
Total liabilities
|
1,907,324
|
|
70,404
|
|
1,754,537
|
|
(1,085,994
|
)
|
2,646,271
|
|
Total stockholders’ equity
|
3,409,770
|
|
3,318,463
|
|
2,601,794
|
|
(6,890,788
|
)
|
2,439,239
|
|
|
$
|
5,317,094
|
|
$
|
3,388,867
|
|
$
|
4,356,331
|
|
$
|
(7,976,782
|
)
|
$
|
5,085,510
|
|
Condensed Consolidated Balance Sheet
As of
December 30, 2017
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
Guarantors
|
Non-guarantors
|
Eliminations
|
Consolidated
|
ASSETS
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
1,724
|
|
$
|
2,993
|
|
$
|
102,057
|
|
$
|
—
|
|
$
|
106,774
|
|
Restricted cash
|
103
|
|
—
|
|
39
|
|
—
|
|
142
|
|
Accounts receivable
|
37,453
|
|
465,653
|
|
436,874
|
|
(548,133
|
)
|
391,847
|
|
Inventories
|
18,049
|
|
84,805
|
|
255,329
|
|
—
|
|
358,183
|
|
Income taxes refundable
|
1,591
|
|
—
|
|
2,918
|
|
—
|
|
4,509
|
|
Prepaid expenses
|
10,787
|
|
3,141
|
|
24,398
|
|
—
|
|
38,326
|
|
Other current assets
|
7,117
|
|
923
|
|
48,624
|
|
—
|
|
56,664
|
|
Total current assets
|
76,824
|
|
557,515
|
|
870,239
|
|
(548,133
|
)
|
956,445
|
|
Investment in subsidiaries
|
4,734,618
|
|
1,167,246
|
|
844,044
|
|
(6,745,908
|
)
|
—
|
|
Property, plant and equipment, net
|
278,121
|
|
501,842
|
|
865,859
|
|
—
|
|
1,645,822
|
|
Intangible assets, net
|
17,034
|
|
258,970
|
|
400,496
|
|
—
|
|
676,500
|
|
Goodwill
|
21,860
|
|
551,837
|
|
727,396
|
|
—
|
|
1,301,093
|
|
Investment in unconsolidated subsidiary
|
4,341
|
|
—
|
|
297,697
|
|
—
|
|
302,038
|
|
Other assets
|
42,078
|
|
314,166
|
|
193,923
|
|
(487,883
|
)
|
62,284
|
|
Deferred income taxes
|
—
|
|
—
|
|
14,043
|
|
—
|
|
14,043
|
|
|
$
|
5,174,876
|
|
$
|
3,351,576
|
|
$
|
4,213,697
|
|
$
|
(7,781,924
|
)
|
$
|
4,958,225
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
$
|
115
|
|
$
|
—
|
|
$
|
16,028
|
|
$
|
—
|
|
$
|
16,143
|
|
Accounts payable
|
555,894
|
|
37,466
|
|
169,033
|
|
(544,976
|
)
|
217,417
|
|
Income taxes payable
|
32
|
|
373
|
|
11,895
|
|
—
|
|
12,300
|
|
Accrued expenses
|
105,625
|
|
30,542
|
|
180,613
|
|
(3,157
|
)
|
313,623
|
|
Total current liabilities
|
661,666
|
|
68,381
|
|
377,569
|
|
(548,133
|
)
|
559,483
|
|
Long-term debt, net of current portion
|
1,030,736
|
|
—
|
|
1,155,197
|
|
(487,883
|
)
|
1,698,050
|
|
Other noncurrent liabilities
|
69,711
|
|
—
|
|
36,576
|
|
—
|
|
106,287
|
|
Deferred income taxes
|
106,543
|
|
—
|
|
160,165
|
|
—
|
|
266,708
|
|
Total liabilities
|
1,868,656
|
|
68,381
|
|
1,729,507
|
|
(1,036,016
|
)
|
2,630,528
|
|
Total stockholders’ equity
|
3,306,220
|
|
3,283,195
|
|
2,484,190
|
|
(6,745,908
|
)
|
2,327,697
|
|
|
$
|
5,174,876
|
|
$
|
3,351,576
|
|
$
|
4,213,697
|
|
$
|
(7,781,924
|
)
|
$
|
4,958,225
|
|
Condensed Consolidated Statements of Operations
For the three months ended
March 31, 2018
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
Guarantors
|
Non-guarantors
|
Eliminations
|
Consolidated
|
Net sales
|
$
|
119,625
|
|
$
|
344,603
|
|
$
|
467,808
|
|
$
|
(56,662
|
)
|
$
|
875,374
|
|
Cost and expenses:
|
|
|
|
|
|
Cost of sales and operating expenses
|
95,868
|
|
271,237
|
|
367,656
|
|
(56,662
|
)
|
678,099
|
|
Selling, general and administrative expenses
|
43,778
|
|
12,837
|
|
30,287
|
|
—
|
|
86,902
|
|
Depreciation and amortization
|
11,059
|
|
26,291
|
|
41,269
|
|
—
|
|
78,619
|
|
Total costs and expenses
|
150,705
|
|
310,365
|
|
439,212
|
|
(56,662
|
)
|
843,620
|
|
Operating income/(loss)
|
(31,080
|
)
|
34,238
|
|
28,596
|
|
—
|
|
31,754
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
(14,364
|
)
|
3,763
|
|
(12,523
|
)
|
—
|
|
(23,124
|
)
|
Foreign currency gains/(losses)
|
(23
|
)
|
(63
|
)
|
(1,395
|
)
|
—
|
|
(1,481
|
)
|
Other income/(expense), net
|
(3,410
|
)
|
(1,326
|
)
|
2,220
|
|
—
|
|
(2,516
|
)
|
Equity in net income/(loss) of unconsolidated subsidiaries
|
(498
|
)
|
—
|
|
97,652
|
|
—
|
|
97,154
|
|
Earnings in investments in subsidiaries
|
144,880
|
|
—
|
|
—
|
|
(144,880
|
)
|
—
|
|
Income/(loss) before taxes
|
95,505
|
|
36,612
|
|
114,550
|
|
(144,880
|
)
|
101,787
|
|
Income taxes (benefit)
|
(1,800
|
)
|
1,335
|
|
4,177
|
|
—
|
|
3,712
|
|
Net income attributable to noncontrolling interests
|
—
|
|
—
|
|
(770
|
)
|
—
|
|
(770
|
)
|
Net income/(loss) attributable to Darling
|
$
|
97,305
|
|
$
|
35,277
|
|
$
|
109,603
|
|
$
|
(144,880
|
)
|
$
|
97,305
|
|
Condensed Consolidated Statements of Operations
For the three months ended
April 1, 2017
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
Guarantors
|
Non-guarantors
|
Eliminations
|
Consolidated
|
Net sales
|
$
|
136,157
|
|
$
|
360,184
|
|
$
|
439,788
|
|
$
|
(57,619
|
)
|
$
|
878,510
|
|
Cost and expenses:
|
|
|
|
|
|
Cost of sales and operating expenses
|
109,663
|
|
292,771
|
|
343,151
|
|
(57,619
|
)
|
687,966
|
|
Selling, general and administrative expenses
|
38,969
|
|
14,177
|
|
33,777
|
|
—
|
|
86,923
|
|
Depreciation and amortization
|
10,285
|
|
25,436
|
|
35,393
|
|
—
|
|
71,114
|
|
Total costs and expenses
|
158,917
|
|
332,384
|
|
412,321
|
|
(57,619
|
)
|
846,003
|
|
Operating income/(loss)
|
(22,760
|
)
|
27,800
|
|
27,467
|
|
—
|
|
32,507
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
(13,586
|
)
|
4,023
|
|
(12,117
|
)
|
—
|
|
(21,680
|
)
|
Foreign currency gains/(losses)
|
(6
|
)
|
(25
|
)
|
(233
|
)
|
—
|
|
(264
|
)
|
Other income/(expense), net
|
(3,748
|
)
|
32
|
|
1,663
|
|
—
|
|
(2,053
|
)
|
Equity in net income/(loss) of unconsolidated subsidiaries
|
(373
|
)
|
—
|
|
1,079
|
|
—
|
|
706
|
|
Earnings in investments in subsidiaries
|
38,318
|
|
—
|
|
—
|
|
(38,318
|
)
|
—
|
|
Income/(loss) before taxes
|
(2,155
|
)
|
31,830
|
|
17,859
|
|
(38,318
|
)
|
9,216
|
|
Income taxes
|
(7,984
|
)
|
6,279
|
|
3,523
|
|
—
|
|
1,818
|
|
Net income attributable to noncontrolling interests
|
—
|
|
—
|
|
(1,569
|
)
|
—
|
|
(1,569
|
)
|
Net income/(loss) attributable to Darling
|
$
|
5,829
|
|
$
|
25,551
|
|
$
|
12,767
|
|
$
|
(38,318
|
)
|
$
|
5,829
|
|
Condensed Consolidated Statements of Comprehensive Income/(Loss)
For the three months ended
March 31, 2018
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
Guarantors
|
Non-guarantors
|
Eliminations
|
Consolidated
|
Net income/(loss)
|
$
|
98,075
|
|
$
|
35,277
|
|
$
|
109,603
|
|
$
|
(144,880
|
)
|
$
|
98,075
|
|
Other comprehensive income/(loss), net of tax:
|
|
|
|
|
|
Foreign currency translation
|
—
|
|
—
|
|
17,295
|
|
—
|
|
17,295
|
|
Pension adjustments
|
566
|
|
—
|
|
101
|
|
—
|
|
667
|
|
Natural gas swap derivative adjustments
|
22
|
|
—
|
|
—
|
|
—
|
|
22
|
|
Corn option derivative adjustments
|
(1,605
|
)
|
—
|
|
—
|
|
—
|
|
(1,605
|
)
|
Total other comprehensive income/(loss), net of tax
|
(1,017
|
)
|
—
|
|
17,396
|
|
—
|
|
16,379
|
|
Total comprehensive income/(loss)
|
97,058
|
|
35,277
|
|
126,999
|
|
(144,880
|
)
|
114,454
|
|
Total comprehensive loss attributable to noncontrolling interest
|
—
|
|
—
|
|
1,287
|
|
—
|
|
1,287
|
|
Total comprehensive income/(loss) attributable to Darling
|
$
|
97,058
|
|
$
|
35,277
|
|
$
|
125,712
|
|
$
|
(144,880
|
)
|
$
|
113,167
|
|
Condensed Consolidated Statements of Comprehensive Income/(Loss)
For the three months ended
April 1, 2017
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
Guarantors
|
Non-guarantors
|
Eliminations
|
Consolidated
|
Net income/(loss)
|
$
|
7,398
|
|
$
|
25,551
|
|
$
|
12,767
|
|
$
|
(38,318
|
)
|
$
|
7,398
|
|
Other comprehensive income/(loss), net of tax:
|
|
|
|
|
|
Foreign currency translation
|
—
|
|
—
|
|
15,679
|
|
—
|
|
15,679
|
|
Pension adjustments
|
641
|
|
—
|
|
118
|
|
—
|
|
759
|
|
Corn option derivative adjustments
|
(1,102
|
)
|
—
|
|
—
|
|
—
|
|
(1,102
|
)
|
Total other comprehensive income/(loss), net of tax
|
(461
|
)
|
—
|
|
15,797
|
|
—
|
|
15,336
|
|
Total comprehensive income/(loss)
|
6,937
|
|
25,551
|
|
28,564
|
|
(38,318
|
)
|
22,734
|
|
Total comprehensive income attributable to noncontrolling interest
|
—
|
|
—
|
|
1,247
|
|
—
|
|
1,247
|
|
Total comprehensive income/(loss) attributable to Darling
|
$
|
6,937
|
|
$
|
25,551
|
|
$
|
27,317
|
|
$
|
(38,318
|
)
|
$
|
21,487
|
|
Condensed Consolidated Statements of Cash Flows
For the
three
months ended
March 31, 2018
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
Guarantors
|
Non-guarantors
|
Eliminations
|
Consolidated
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss)
|
$
|
98,075
|
|
$
|
35,277
|
|
$
|
109,603
|
|
$
|
(144,880
|
)
|
$
|
98,075
|
|
Earnings in investments in subsidiaries
|
(144,880
|
)
|
—
|
|
—
|
|
144,880
|
|
—
|
|
Other operating cash flows
|
30,782
|
|
(24,262
|
)
|
(77,671
|
)
|
—
|
|
(71,151
|
)
|
Net cash provided by operating activities
|
(16,023
|
)
|
11,015
|
|
31,932
|
|
—
|
|
26,924
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
Capital expenditures
|
(12,183
|
)
|
(13,396
|
)
|
(31,008
|
)
|
—
|
|
(56,587
|
)
|
Investment in subsidiaries and affiliates
|
(3,500
|
)
|
—
|
|
—
|
|
—
|
|
(3,500
|
)
|
Proceeds from sale of investment in subsidiary
|
—
|
|
—
|
|
2,805
|
|
—
|
|
2,805
|
|
Gross proceeds from sale of property, plant and equipment and other assets
|
828
|
|
321
|
|
330
|
|
—
|
|
1,479
|
|
Proceeds from insurance settlements
|
—
|
|
503
|
|
—
|
|
—
|
|
503
|
|
Payments related to routes and other intangibles
|
—
|
|
—
|
|
(15
|
)
|
—
|
|
(15
|
)
|
Net cash used in investing activities
|
(14,855
|
)
|
(12,572
|
)
|
(27,888
|
)
|
—
|
|
(55,315
|
)
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
Proceeds for long-term debt
|
—
|
|
—
|
|
3,876
|
|
—
|
|
3,876
|
|
Payments on long-term debt
|
(22
|
)
|
—
|
|
(9,600
|
)
|
—
|
|
(9,622
|
)
|
Borrowings from revolving facilities
|
62,000
|
|
—
|
|
73,184
|
|
—
|
|
135,184
|
|
Payments on revolving facilities
|
(29,000
|
)
|
—
|
|
(51,019
|
)
|
—
|
|
(80,019
|
)
|
Net cash overdraft financing
|
—
|
|
—
|
|
(331
|
)
|
—
|
|
(331
|
)
|
Deferred loan costs
|
(1,094
|
)
|
—
|
|
—
|
|
—
|
|
(1,094
|
)
|
Issuances of common stock
|
182
|
|
—
|
|
—
|
|
—
|
|
182
|
|
Minimum withholding taxes paid on stock awards
|
(2,013
|
)
|
—
|
|
(5
|
)
|
—
|
|
(2,018
|
)
|
Net cash used in financing activities
|
30,053
|
|
—
|
|
16,105
|
|
—
|
|
46,158
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
—
|
|
—
|
|
(1,672
|
)
|
—
|
|
(1,672
|
)
|
|
|
|
|
|
|
Net increase/(decrease) in cash, cash equivalents and restricted cash
|
(825
|
)
|
(1,557
|
)
|
18,477
|
|
—
|
|
16,095
|
|
Cash, cash equivalents and restricted cash at beginning of period
|
1,827
|
|
2,993
|
|
102,096
|
|
—
|
|
106,916
|
|
Cash, cash equivalents and restricted cash at end of period
|
$
|
1,002
|
|
$
|
1,436
|
|
$
|
120,573
|
|
$
|
—
|
|
$
|
123,011
|
|
Condensed Consolidated Statements of Cash Flows
For the
three
months ended
April 1, 2017
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
Guarantors
|
Non-guarantors
|
Eliminations
|
Consolidated
|
Cash flows from operating activities:
|
|
|
|
|
|
Net income/(loss)
|
$
|
7,398
|
|
$
|
25,551
|
|
$
|
12,767
|
|
$
|
(38,318
|
)
|
$
|
7,398
|
|
Earnings in investments in subsidiaries
|
(38,318
|
)
|
—
|
|
—
|
|
38,318
|
|
—
|
|
Other operating cash flows
|
56,236
|
|
(9,676
|
)
|
40,500
|
|
—
|
|
87,060
|
|
Net cash provided by operating activities
|
25,316
|
|
15,875
|
|
53,267
|
|
—
|
|
94,458
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
Capital expenditures
|
(18,732
|
)
|
(19,689
|
)
|
(23,871
|
)
|
—
|
|
(62,292
|
)
|
Investment in subsidiaries and affiliates
|
(2,250
|
)
|
—
|
|
—
|
|
—
|
|
(2,250
|
)
|
Gross proceeds from sale of property, plant and equipment and other assets
|
304
|
|
608
|
|
428
|
|
—
|
|
1,340
|
|
Proceeds from insurance settlements
|
—
|
|
—
|
|
3,301
|
|
—
|
|
3,301
|
|
Net cash used in investing activities
|
(20,678
|
)
|
(19,081
|
)
|
(20,142
|
)
|
—
|
|
(59,901
|
)
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
Proceeds for long-term debt
|
—
|
|
—
|
|
8,649
|
|
—
|
|
8,649
|
|
Payments on long-term debt
|
(1,522
|
)
|
—
|
|
(7,743
|
)
|
—
|
|
(9,265
|
)
|
Borrowings from revolving credit facility
|
47,000
|
|
—
|
|
—
|
|
—
|
|
47,000
|
|
Payments on revolving credit facility
|
(47,000
|
)
|
—
|
|
(5,327
|
)
|
—
|
|
(52,327
|
)
|
Net cash overdraft financing
|
—
|
|
—
|
|
(1,077
|
)
|
—
|
|
(1,077
|
)
|
Deferred loan costs
|
(1,135
|
)
|
—
|
|
—
|
|
—
|
|
(1,135
|
)
|
Issuances of common stock
|
22
|
|
—
|
|
—
|
|
—
|
|
22
|
|
Minimum withholding taxes paid on stock awards
|
(1,981
|
)
|
—
|
|
(14
|
)
|
—
|
|
(1,995
|
)
|
Distributions to noncontrolling interests
|
—
|
|
—
|
|
(433
|
)
|
—
|
|
(433
|
)
|
Net cash used in financing activities
|
(4,616
|
)
|
—
|
|
(5,945
|
)
|
—
|
|
(10,561
|
)
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
—
|
|
—
|
|
309
|
|
—
|
|
309
|
|
|
|
|
|
|
|
Net increase/(decrease) in cash, cash equivalents and restricted cash
|
22
|
|
(3,206
|
)
|
27,489
|
|
—
|
|
24,305
|
|
Cash, cash equivalents and restricted cash at beginning of period
|
1,573
|
|
5,754
|
|
107,530
|
|
—
|
|
114,857
|
|
Cash, cash equivalents and restricted cash at end of period
|
$
|
1,595
|
|
$
|
2,548
|
|
$
|
135,019
|
|
$
|
—
|
|
$
|
139,162
|
|