Notes to Consolidated Financial Statements
NOTE 1. GENERAL
(a) NATURE OF OPERATIONS
Darling Ingredients Inc., a Delaware corporation (“Darling”, and together with its subsidiaries, the “Company”), is a global developer and producer of sustainable natural ingredients from edible and inedible bio-nutrients, creating a wide range of ingredients and customized specialty solutions for customers in the pharmaceutical, food, pet food, feed, industrial, fuel, bioenergy and fertilizer industries. The Company’s business operations is conducted through a global network of over 200 locations across five continents within three business segments, Feed Ingredients, Food Ingredients and Fuel Ingredients. Comparative segment revenues and related financial information are presented in Note 21 to the consolidated financial statements.
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(b)
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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(1)
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Basis of Presentation
|
The consolidated financial statements include the accounts of Darling and its consolidated subsidiaries. Noncontrolling interests represents 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 represents 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 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 years for the consolidated financial statements included herein are for the 52 weeks ended December 28, 2019, the 52 weeks ended December 29, 2018, and the 52 weeks ended December 30, 2017.
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(3)
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Cash and Cash Equivalents
|
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.
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 Statements of Cash Flows (in thousands):
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December 28, 2019
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December 29, 2018
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Cash and cash equivalents
|
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$
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72,935
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$
|
107,262
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Restricted cash
|
|
110
|
|
107
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|
Total cash, cash equivalents and restricted cash shown in the Consolidated Statements of Cash Flows
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$
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73,045
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$
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107,369
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(4)
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Accounts Receivable and Allowance for Doubtful Accounts
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DARLING INGREDIENTS INC.
Notes to Consolidated Financial Statements (continued)
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 year ended December 28, 2019 and December 29, 2018, the Company sold approximately $204.1 million and $113.5 million of its trade receivables and incurred approximately $1.2 million and $0.6 million in fees, which are recorded as interest expense, respectively. For the year ended December 30, 2017, no receivables were factored.
Inventories are stated at the lower of cost or net realizable value. Cost is primarily determined using the first-in, first-out (FIFO) method for the Feed Ingredients and Fuel Ingredients segments. In the Food Ingredients segment cost is primarily determined based on the weighted average cost.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Depreciation is computed by the straight-line method over the estimated useful lives of assets: 1) Buildings and improvements, 15 to 30 years; 2) Machinery and equipment, 3 to 10 years; 3) Vehicles, 3 to 8 years; and 4) Aircraft, 7 to 10 years.
Maintenance and repairs are charged to expense as incurred and expenditures for major renewals and improvements are capitalized.
Intangible Assets
Intangible assets with indefinite lives, and therefore, not subject to amortization, consist of trade names acquired in the acquisition of Griffin Industries Inc. on December 17, 2010 (which was subsequently converted to a limited liability company) and its subsidiaries (“Griffin”) and trade names acquired in the acquisition of its Darling Ingredients International business. Intangible assets subject to amortization consist of: 1) collection routes which are made up of groups of suppliers of raw materials in similar geographic areas from which the Company derives collection fees and a dependable source of raw materials for processing into finished products; 2) permits that represent licensing of operating plants that have been acquired, giving those plants the ability to operate; 3) non-compete agreements that represent contractual arrangements with former competitors whose businesses were acquired; 4) trade names; and 5) royalty, product development, consulting, land use rights and leasehold agreements. Amortization expense is calculated using the straight-line method over the estimated useful lives of the assets ranging from: 5 to 21 years for collection routes; 10 to 20 years for permits; 3 to 7 years for non-compete covenants; and 4 to 15 years for trade names. Royalty, product development, consulting, land use rights and leasehold agreements are generally amortized over the term of the agreement.
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(7)
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Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed of
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The Company reviews the carrying value of long-lived assets for impairment when events or changes in circumstances indicate that the carrying amount of an asset, or related asset group, may not be recoverable from estimated future undiscounted cash flows. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset or asset group to estimated undiscounted future cash flows expected to be generated by the asset or asset group. If the carrying amount of the asset exceeds its estimated
DARLING INGREDIENTS INC.
Notes to Consolidated Financial Statements (continued)
future cash flows, an impairment charge is recognized by the amount for which the carrying amount of the asset exceeds the fair value of the asset.
The Company performed the annual goodwill and indefinite-lived intangible assets impairment assessments at October 26, 2019 and concluded that the Company's goodwill for all reporting units and all recorded indefinite-lived intangible assets were not impaired as of that date. Goodwill and indefinite lived assets are tested annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. The Company follows a two-step process for testing impairment. First, the fair value of each reporting unit is compared to its carrying value to determine whether an indication of impairment exists. If impairment is indicated, then the fair value of the reporting unit’s goodwill is determined by allocating the unit’s fair value of its assets and liabilities (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination. The amount of impairment for goodwill is measured as the excess of its carrying value over its implied fair value.
In fiscal 2019, 2018 and 2017, the fair values of the Company’s reporting units containing goodwill exceeded the related carrying values. Goodwill was approximately $1,223.3 million and $1,229.2 million at December 28, 2019 and December 29, 2018, respectively. See Note 7 for further information on the Company’s goodwill.
The Company accounts for leases in accordance with Accounting Standard Codification (“ASC”) Topic 842, leases. The Company determines if an arrangement is a lease at inception for which the Company recognizes the right-of-use (“ROU”) asset and a lease liability at the lease commencement date. For operating leases, the lease liability is initially and subsequently measured at the present value of the unpaid lease payments at the lease commencement date. In determining the lease liability, the Company applies a discount rate to the minimum lease payments within each lease. ASC 842 requires the Company to use the rate of interest that a lessee would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. To estimate the Company's incremental borrowing rate over various terms, a comparable market yield curve consistent with the Company's credit quality is determined. The lease term for all of the Company's leases include the noncancellable period of the lease plus any additional periods covered by either a Company option to extend the lease that the Company is reasonably certain to exercise or when a triggering event occurs. The Company has elected to not recognize a ROU asset and lease liability with an initial term of 12 months or less at lease commencement. Current operating leases are included on the Company's balance sheet as a ROU asset, current operating lease liabilities and long-term operating lease liabilities. For finance leases, the lease liability is initially measured in the same manner and date as for the operating leases, and is subsequently measured at amortized cost using the effective interest method. Finance leases are included in property, plant and equipment, current portion of long-term debt and long-term debt, net of current portion, but are not significant to the Company.
The ROU asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for lease payments made at or before the lease commencement date, plus any direct costs incurred less any lease incentives received. For operating leases, the ROU asset is subsequently measured throughout the lease term at the carrying amount of the lease liability, plus initial direct costs, plus (minus) any prepaid (accrued) lease payments, less the unamortized balance of the lease incentives received. Some leases payments contain rent escalation clauses (including index-based escalations), initially measured using the index at the lease commencement date. The Company recognizes minimum rental expense on a straight-line basis based on the fixed components of the lease arrangement.
The Company uses the long-lived assets impairment guidance in ASC subtopic 360-10, Property, Plant and Equipment - Overall, to determine whether the ROU asset is impaired, and if so, the amount of the impairment loss to recognize. The Company monitors for events or changes in circumstances that require a reassessment of one of its leases. When a reassessment results in the remeasurement of a lease liability, a corresponding adjustment is made to the carrying amount of the corresponding ROU asset unless doing so would reduce the carrying amount of the ROU asset to an amount less than zero. In that case, the amount of the adjustment that would result in a negative ROU asset balance is recorded in the Consolidated Statement of Operations.
DARLING INGREDIENTS INC.
Notes to Consolidated Financial Statements (continued)
As a result of adopting the new lease standard, the Company recognized additional operating liabilities of approximately $134.4 million with a corresponding ROU asset of approximately $135.7 million as of December 30, 2018.
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(10)
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Environmental Expenditures
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Environmental expenditures incurred to mitigate or prevent environmental impacts that have yet to occur and that otherwise may result from future operations are capitalized. Expenditures that relate to an existing condition caused by past operations and that do not contribute to current or future revenues are expensed or charged against established environmental reserves. Reserves are established when environmental impacts have been identified which are probable to require mitigation and/or remediation and the costs are reasonably estimable.
The Company accounts for income taxes using the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. 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 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 taxable income in future years.
The Company recognizes tax benefits from uncertain tax positions only if it is more likely than not that the tax position will be sustained upon examination by the relevant taxing authority. Adjustments are made to the reserves for uncertain tax positions when facts and circumstances change or additional information is available. Judgment is required to assess the impact of ongoing audits conducted by tax authorities in determining the Company’s consolidated income tax provision. The Company recognizes accrued interest and penalties on tax related matters as a component of income tax expense.
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 with participation rights 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.
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Net Income per Common Share (in thousands, except per share data)
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December 28,
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December 29,
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December 30,
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2019
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2018
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2017
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Income
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Shares
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Per-Share
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Income
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Shares
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Per-Share
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Income
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Shares
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Per-Share
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Basic:
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Net income attributable to Darling
|
$
|
312,600
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164,633
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$
|
1.90
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$
|
101,496
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164,789
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$
|
0.62
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|
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$
|
128,468
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|
164,752
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$
|
0.78
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Diluted:
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Effect of dilutive securities
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Add: Option shares in the money and dilutive effect of nonvested stock
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—
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5,983
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—
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—
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5,234
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—
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|
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—
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3,865
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—
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Less: Pro-forma treasury shares
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—
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(2,238)
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—
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|
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—
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(2,113)
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—
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|
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—
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(1,887)
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—
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Diluted:
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Net income attributable to Darling
|
$
|
312,600
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|
168,378
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$
|
1.86
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|
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$
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101,496
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|
167,910
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$
|
0.60
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|
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$
|
128,468
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|
166,730
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$
|
0.77
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DARLING INGREDIENTS INC.
Notes to Consolidated Financial Statements (continued)
For fiscal 2019, 2018 and 2017, respectively, 638,146, 693,172 and 340,504 outstanding stock options were excluded from diluted income per common share as the effect was antidilutive. For fiscal 2019, 2018 and 2017, respectively, 611,187, 502,292 and 288,616 non-vested stock were excluded from diluted income per common share as the effect was antidilutive.
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(13)
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Stock Based Compensation
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The Company recognizes compensation expense ratably over the vesting period in an amount equal to the fair value of the share-based payments (e.g., stock options and non-vested and restricted stock) granted to employees and non-employee directors or by incurring liabilities to an employee or other supplier (a) in amounts based, at least in part, on the price of the entity’s shares or other equity instruments, or (b) that require or may require settlement by issuing the entity’s equity shares or other equity instruments. The Company's policy is to account for forfeitures in the period they occur, rather than estimating a forfeiture rate. The Company does not reclassify excess tax benefits from operating activities to financing activities in the Consolidated Statements of Cash Flows. Additionally, the Company excludes the excess tax benefits from the assumed proceeds available to repurchase shares of common stock in the computation of the Company's diluted earnings per share. The Company records tax benefit or expense within income tax expense for the year ended December 28, 2019 and December 29, 2018 related to the excess tax expense on stock options, nonvested stock, director restricted stock units and performance units. Prior to fiscal 2017, the Company recorded excess tax benefit or expense as reduction of additional paid-in capital.
Total stock-based compensation recognized in the Consolidated Statements of Operations for the years ended December 28, 2019, December 29, 2018 and December 30, 2017 was approximately $21.0 million, $18.8 million and $17.6 million, respectively, which is included in selling, general and administrative expenses, and the related income tax benefit recognized was approximately $4.3 million, $3.9 million and $3.7 million, respectively. See Note 13 for further information on the Company’s stock-based compensation plans.
The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
If it is at least reasonably possible that the estimate of the effect on the financial statements of a condition, situation, or set of circumstances that exist at the date of the financial statements will change in the near term due to one or more future confirming events, and the effect of the change would be material to the financial statements, the Company will disclose the nature of the uncertainty and include an indication that it is at least reasonably possible that a change in the estimate will occur in the near term. If the estimate involves certain loss contingencies, the disclosure will also include an estimate of the probable loss or range of loss or state that an estimate cannot be made.
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(15)
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Financial Instruments
|
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. The Company's 5.25% Senior Notes due 2027, 3.625% Senior Notes due 2026, term loans and revolver borrowings outstanding at December 28, 2019, as described in Note 10 have a fair value based on market valuation from a third-party banks. The carrying amount for the Company’s other debt is not deemed to be significantly different than the carrying value. See Note 17 for financial instruments' fair values.
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(16)
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Derivative Instruments
|
The Company makes limited use of derivative instruments to manage cash flow risks related to natural gas 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
DARLING INGREDIENTS INC.
Notes to Consolidated Financial Statements (continued)
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 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.
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 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 is 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. Hedge accounting treatment ceases if or when the hedge transaction is no longer probable of occurring or the hedge relationship correlation no longer qualifies for hedge accounting.
At December 28, 2019, the Company had foreign currency option and forward contracts and corn option contracts outstanding that qualified and were designated for hedge accounting as well as corn forward contracts and foreign currency forward contracts that did not qualify and were not designated for hedge accounting.
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 when the service occurs. Certain customers may be required to prepay prior to shipment in order to maintain payment protection against 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 22 to the consolidated financial statements.
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(18)
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Related Party Transactions
|
The Company announced in January 2011 that 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 Company has related party sale transactions and loan transactions with the DGD Joint Venture. See Note 24 for further information on the Company's related party transactions.
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(19)
|
Foreign Currency Translation and Remeasurement
|
Foreign currency translation is included as a component of accumulated other comprehensive income 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 year 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 losses of approximately $12.3 million and $86.9 million in fiscal 2019 and fiscal 2018, respectively. The Company incurred net foreign currency translation gain of approximately $125.7 million in fiscal 2017.
Certain prior year amounts have been reclassified to conform to the current year presentation including reclassification of the Company's equity in net income of Diamond Green Diesel to operating income. See Note 2 for further discussion.
DARLING INGREDIENTS INC.
Notes to Consolidated Financial Statements (continued)
The Company evaluates subsequent events from the end of the most recent fiscal year through the date the consolidated financial statements are issued.
NOTE 2. INVESTMENT IN UNCONSOLIDATED SUBSIDIARIES
The Company announced on January 21, 2011 that a wholly-owned subsidiary of Darling entered into a limited liability company agreement with Valero to form 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 as result of its recently expanded capacity is now capable of processing approximately 20,000 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.
In 2019, the Company continued to evaluate operational developments and the impact of anticipated significant expansion of the DGD Joint Venture. This evaluation was impactful to the consideration of how the Company most appropriately reflects its share of equity income from the DGD Joint Venture. Based on the Company's analysis, it was determined that the DGD Joint Venture has evolved into an integral and integrated part of the Company's ongoing operations. The Company determined this justifies a more meaningful and transparent presentation of equity in net income of the DGD Joint Venture as a component of the Company's operating income. As a result, the Company has reclassified its equity in net income of the DGD Joint Venture to operating income for all periods presented.
Selected financial information for the Company's DGD Joint Venture is as follows:
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|
|
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|
|
|
|
|
|
(in thousands)
|
|
December 31, 2019
|
December 31, 2018
|
|
Assets:
|
|
|
|
|
Total current assets
|
|
$
|
668,026
|
|
$
|
186,258
|
|
|
Property, plant and equipment, net
|
|
713,489
|
|
576,384
|
|
|
Other assets
|
|
30,710
|
|
24,601
|
|
|
Total assets
|
|
$
|
1,412,225
|
|
$
|
787,243
|
|
|
Liabilities and members' equity:
|
|
|
|
|
Total current portion of long term debt
|
|
$
|
341
|
|
$
|
189
|
|
|
Total other current liabilities
|
|
75,802
|
|
40,619
|
|
|
Total long term debt
|
|
8,742
|
|
8,485
|
|
|
Total other long term liabilities
|
|
4,422
|
|
539
|
|
|
Total members' equity
|
|
1,322,918
|
|
737,411
|
|
|
Total liabilities and member's equity
|
|
$
|
1,412,225
|
|
$
|
787,243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
(in thousands)
|
|
2019
|
2018
|
2017
|
|
Revenues:
|
|
|
|
|
|
Operating revenues
|
|
$
|
1,217,504
|
|
$
|
677,663
|
|
$
|
633,908
|
|
|
Expenses:
|
|
|
|
|
|
Total costs and expenses less depreciation, amortization and accretion expense
|
|
438,672
|
|
329,636
|
|
547,512
|
|
|
Depreciation, amortization and accretion expense
|
|
50,767
|
|
29,434
|
|
28,955
|
|
|
Operating income
|
|
728,065
|
|
318,593
|
|
57,441
|
|
|
Other income
|
|
2,121
|
|
1,919
|
|
1,343
|
|
|
Interest and debt expense, net
|
|
(1,282
|
)
|
(955
|
)
|
(2,306
|
)
|
|
Net income
|
|
$
|
728,904
|
|
$
|
319,557
|
|
$
|
56,478
|
|
As of December 28, 2019, under the equity method of accounting, the Company has an investment in the DGD Joint Venture of approximately $661.5 million on the consolidated balance sheet and has recorded approximately $364.5
DARLING INGREDIENTS INC.
Notes to Consolidated Financial Statements (continued)
million, $159.8 million and $28.2 million in equity net income of Diamond Green Diesel for the years ended December 28, 2019, December 29, 2018 and December 30, 2017, respectively. Biodiesel blenders registered with the Internal Revenue Service were eligible for a tax incentive in the amount of $1.00 per gallon of renewable diesel blended with petroleum diesel to produce a mixture containing at least 0.1% diesel fuel. The blenders tax credit for calendar year 2019 and 2018 was approved by the U.S. Congress in December 2019. In February 2018, the blenders 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 fiscal 2019, the DGD Joint Venture recorded approximately $274.7 million for 2019 blenders tax credits and approximately $155.9 million for 2018 blenders tax credits. In fiscal 2018, the DGD Joint Venture recorded approximately $160.4 million for the 2017 reinstated blenders tax credits. In addition, the Company received $67.5 million, $65.0 million and $25.0 million for each of the years ended December 28, 2019, December 29, 2018 and December 30, 2017, in dividend distributions from the DGD Joint Venture.
In addition to the DGD Joint Venture, the Company has investments in other unconsolidated subsidiaries that are insignificant to the Company.
NOTE 3. ACQUISITIONS AND DISPOSITIONS
In December 2019, the Company began to consolidate EnviroFlight, LLC due to a loan issued by the Company, which resulted in more control by the Company based on variable interest entity literature. In January 2020, the Company acquired the other 50% minority interest in EnviroFlight, LLC from the other joint venture partner for approximately $12.2 million, thereby increasing the Company's ownership interest in EnviroFlight, LLC to 100%.
In October 2018, the Company acquired substantially all of the assets of Triple - T Foods - Arkansas, Inc. including a wet pet food ingredient operation in Springdale, Arkansas and a cold storage operation in Rogers, Arkansas. The Company paid approximately $50.4 million in cash for assets and assumed liabilities consisting of property, plant and equipment of approximately $11.2 million, intangible assets of approximately $21.8 million, consisting of routes, permits and non-compete agreements, goodwill of approximately $8.4 million, and other including working capital of approximately $9.0 million. The Company finalized the working capital amount and paid holdback amounts in fiscal year 2019, which resulted in insignificant adjustments to previously disclosed amounts. The identifiable intangible assets have a weighted average life of 15 years.
In September 2018, the Company liquidated a consolidated joint venture that was part of the Company's international operations. The transaction resulted in the Company recording a gain of approximately $3.0 million.
In May 2018, the Company acquired substantially all of the assets of Kruger Commodities, Inc. (the “Kruger Acquisition”) including protein conversion facilities in Hamilton, MI and Tama, IA, along with a protein blending operation and used cooking oil collection business in Omaha, NE. The Company paid approximately $51.3 million in cash for assets and assumed liabilities consisting of property, plant and equipment of approximately $15.2 million, intangible assets of approximately $15.9 million, consisting of routes, permits and non-compete agreements, goodwill of approximately $19.6 million, and other of approximately $0.6 million. The identifiable intangible assets have a weighted average life of 15 years.
In May 2018, the Company sold its Terra Renewal Services (“TRS”) industrial residuals business to American Residuals Group, LLC. TRS is a provider of environmental services focused on the collection, hauling, and disposal of non-hazardous, liquid and semi-solid waste streams from the food processing industry. All of the used cooking oil business originally acquired as part of TRS was retained by the Company. The transaction price for the industrial residuals business sold for approximately $80.0 million in cash and resulted in the Company recording a loss on the TRS sale of approximately $15.6 million, due to a substantial portion of the original purchase price of TRS being allocated to the industrial residuals business.
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. In fiscal 2017, as part of this transaction, the Company recorded $37.8 million of assets held for sale and $19.2 million of liabilities held for sale, which are included in other current assets and accrued liabilities, respectively. In addition, the Company recorded a loss of approximately $0.9 million in fiscal 2017 from this transaction.
DARLING INGREDIENTS INC.
Notes to Consolidated Financial Statements (continued)
In fiscal 2017, the Company, through a wholly-owned international subsidiary, acquired the minority interest in one of its international subsidiaries for approximately $19.1 million, including transaction costs.
Additionally, the Company made other immaterial acquisitions and disposition in fiscal 2019, fiscal 2018 and fiscal 2017.
NOTE 4. INVENTORIES
A summary of inventories follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 28, 2019
|
|
December 29, 2018
|
|
Finished product
|
$
|
199,799
|
|
|
$
|
176,184
|
|
|
Work in process
|
81,841
|
|
|
78,501
|
|
|
Raw material
|
41,964
|
|
|
32,502
|
|
|
Supplies and other
|
39,353
|
|
|
53,841
|
|
|
|
$
|
362,957
|
|
|
$
|
341,028
|
|
The Company's work in process inventory represents inventory in the Food Ingredients segment that is in various stages of processing.
NOTE 5. PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 28, 2019
|
|
December 29, 2018
|
|
Land
|
$
|
157,721
|
|
|
$
|
159,981
|
|
|
Buildings and improvements
|
619,212
|
|
|
548,394
|
|
|
Machinery and equipment
|
2,002,237
|
|
|
1,757,314
|
|
|
Vehicles
|
269,529
|
|
|
236,465
|
|
|
Aircraft
|
9,708
|
|
|
18,146
|
|
|
Construction in process
|
182,392
|
|
|
213,653
|
|
|
|
3,240,799
|
|
|
2,933,953
|
|
|
Accumulated depreciation
|
(1,438,388
|
)
|
|
(1,246,095
|
)
|
|
|
$
|
1,802,411
|
|
|
$
|
1,687,858
|
|
NOTE 6. INTANGIBLE ASSETS
The gross carrying amount of intangible assets not subject to amortization and intangible assets subject to amortization is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 28, 2019
|
|
December 29, 2018
|
|
Indefinite Lived Intangible Assets
|
|
|
|
|
Trade names
|
$
|
52,733
|
|
|
$
|
53,472
|
|
|
|
52,733
|
|
|
53,472
|
|
|
Finite Lived Intangible Assets:
|
|
|
|
|
|
|
Routes
|
382,263
|
|
|
386,724
|
|
|
Permits
|
483,593
|
|
|
486,359
|
|
|
Non-compete agreements
|
3,840
|
|
|
3,784
|
|
|
Trade names
|
65,670
|
|
|
72,570
|
|
|
Royalty, consulting, land use rights and leasehold
|
20,737
|
|
|
16,528
|
|
|
|
956,103
|
|
|
965,965
|
|
|
Accumulated Amortization:
|
|
|
|
|
Routes
|
(169,050
|
)
|
|
(145,702
|
)
|
|
Permits
|
(272,213
|
)
|
|
(238,123
|
)
|
|
Non-compete agreements
|
(3,111
|
)
|
|
(2,501
|
)
|
|
Trade names
|
(32,890
|
)
|
|
(33,242
|
)
|
|
Royalty, consulting, land use rights and leasehold
|
(5,178
|
)
|
|
(4,007
|
)
|
|
|
(482,442
|
)
|
|
(423,575
|
)
|
|
Total Intangible assets, less accumulated amortization
|
$
|
526,394
|
|
|
$
|
595,862
|
|
Gross intangible routes, permits, trade names, non-compete agreements and other intangibles partially decreased in fiscal 2019 and fiscal 2018 by approximately $13.4 million and $5.5 million, respectively as a result of asset retirements
DARLING INGREDIENTS INC.
Notes to Consolidated Financial Statements (continued)
and decreased in fiscal 2019 and fiscal 2018 by approximately $0.5 million and $44.6 million from the sale of certain subsidiaries. In addition, gross intangible routes, permits, trade names, non-compete agreements and other intangibles partially increased in fiscal 2019 and fiscal 2018 due to acquired intangibles of approximately $5.7 million and $44.1 million, respectively. Amortization expense for the three years ended December 28, 2019, December 29, 2018 and December 30, 2017, was approximately $73.6 million, $75.2 million and $78.0 million, respectively. Amortization expense for the next five fiscal years is estimated to be $73.5 million, $66.3 million, $64.5 million, $63.0 million and $43.4 million.
NOTE 7. GOODWILL
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
|
27,645
|
|
1,608
|
|
—
|
|
29,253
|
|
|
Goodwill impairment during year
|
—
|
|
(461
|
)
|
—
|
|
(461
|
)
|
|
Goodwill disposed of during year
|
(61,088
|
)
|
(371
|
)
|
—
|
|
(61,459
|
)
|
|
Foreign currency translation
|
(22,758
|
)
|
(10,007
|
)
|
(6,502
|
)
|
(39,267
|
)
|
|
Balance at December 29, 2018
|
|
|
|
|
|
Goodwill
|
791,966
|
|
335,701
|
|
117,867
|
|
1,245,534
|
|
|
Accumulated impairment losses
|
(15,914
|
)
|
(461
|
)
|
—
|
|
(16,375
|
)
|
|
|
776,052
|
|
335,240
|
|
117,867
|
|
1,229,159
|
|
|
Goodwill acquired during year
|
396
|
|
91
|
|
—
|
|
487
|
|
|
Goodwill disposed of during year
|
(636
|
)
|
—
|
|
—
|
|
(636
|
)
|
|
Foreign currency translation
|
1,731
|
|
(6,138
|
)
|
(1,312
|
)
|
(5,719
|
)
|
|
Balance at December 28, 2019
|
|
|
|
|
|
|
|
|
Goodwill
|
793,457
|
|
329,654
|
|
116,555
|
|
1,239,666
|
|
|
Accumulated impairment losses
|
(15,914
|
)
|
(461
|
)
|
—
|
|
(16,375
|
)
|
|
|
$
|
777,543
|
|
$
|
329,193
|
|
$
|
116,555
|
|
$
|
1,223,291
|
|
The process of evaluating goodwill for impairment involves the determination of the fair value of the Company's reporting units. In fiscal 2019, fiscal 2018 and fiscal 2017, the fair values of the Company’s reporting units containing goodwill exceeded the related carrying value pursuant to a quantitative assessment completed as of October 26, 2019, October 27, 2018 and October 28, 2017, respectively.
NOTE 8. ACCRUED EXPENSES
Accrued expenses consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 28, 2019
|
|
December 29, 2018
|
|
Compensation and benefits
|
$
|
107,324
|
|
|
$
|
91,851
|
|
|
Utilities and sewage
|
18,085
|
|
|
20,447
|
|
|
Accrued ad valorem, and franchise taxes
|
30,231
|
|
|
31,366
|
|
|
Reserve for self insurance, litigation, environmental and tax matters (Note 20)
|
19,373
|
|
|
14,030
|
|
|
Medical claims liability
|
8,285
|
|
|
9,981
|
|
|
Accrued operating expenses
|
67,194
|
|
|
62,247
|
|
|
Accrued interest payable
|
9,879
|
|
|
17,536
|
|
|
Customer deposits
|
18,318
|
|
|
30,741
|
|
|
Other accrued expense
|
32,702
|
|
|
31,285
|
|
|
|
$
|
311,391
|
|
|
$
|
309,484
|
|
DARLING INGREDIENTS INC.
Notes to Consolidated Financial Statements (continued)
NOTE 9. LEASES
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842). The Company adopted the new standard on December 30, 2018 using the modified retrospective approach and is using the effective date as the Company's date of initial application and consequently, financial information will not be updated and the disclosures required under the this ASU will not be provided for dates and periods before December 30, 2018. The Company has elected the package of expedients, which permits the Company not to reassess under the new standard the Company's prior conclusions about lease identification, lease classification and initial direct costs. The Company did not elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter not being applicable to the Company.
The Company leases certain real and personal property under non-cancelable operating leases. In addition, the Company leases a large portion of the Company's fleet of tractors, all of its rail cars, some IT equipment and other transportation equipment. The Company's office leases include certain lease and non-lease components, where the Company has elected to exclude the non-lease components from the calculation of the lease liability and ROU asset. The Company has finance leases, which are not significant to the Company and not separately disclosed in detail. In addition, the Company's other variable lease payments are not significant.
The components of operating lease expense included in cost of sales and operating expenses and selling, general and administrative expenses were as follows (in thousands):
|
|
|
|
|
|
|
|
|
Twelve Months Ended
|
|
|
December 28, 2019
|
|
Operating lease expense
|
$
|
48,858
|
|
|
Short-term lease costs
|
18,163
|
|
|
Total lease cost
|
$
|
67,021
|
|
Other information (in thousands, except lease terms and discount rates):
|
|
|
|
|
|
|
|
|
Twelve Months Ended
|
|
|
December 28, 2019
|
|
Cash paid for amounts included in the measurement lease liabilities
|
|
|
Operating cash flows from operating leases
|
$
|
47,691
|
|
|
|
|
|
Operating right-of-use assets, net
|
$
|
124,726
|
|
|
|
|
|
Operating lease liabilities, current
|
$
|
37,805
|
|
|
Operating lease liabilities, non-current
|
91,424
|
|
|
Total operating lease liabilities
|
$
|
129,229
|
|
|
|
|
|
Weighted average remaining lease term - operating leases
|
6.46 years
|
|
|
Weighted average discount rate - operating leases
|
4.55
|
%
|
Future annual minimum lease payments and capital lease commitments as of December 28, 2019 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Period Ending Fiscal
|
Operating Leases
|
Capital Leases
|
|
2020
|
$
|
46,062
|
|
$
|
119
|
|
|
2021
|
34,039
|
|
12
|
|
|
2022
|
23,920
|
|
11
|
|
|
2023
|
19,287
|
|
5
|
|
|
2024
|
13,230
|
|
4
|
|
|
Thereafter
|
26,088
|
|
—
|
|
|
|
162,626
|
|
151
|
|
|
Less amounts representing interest
|
(33,397
|
)
|
(6
|
)
|
|
Lease obligations included in current and long-term liabilities
|
129,229
|
|
145
|
|
DARLING INGREDIENTS INC.
Notes to Consolidated Financial Statements (continued)
The Company adopted ASU 2016-02 on December 30, 2018 as noted above. The following disclosure is provided for periods prior to adoption. Future annual minimum lease payments and capital lease commitments as of December 29, 2018 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Period Ending Fiscal
|
Operating Leases
|
Capital Leases
|
|
2020
|
$
|
46,316
|
|
$
|
271
|
|
|
2021
|
34,403
|
|
152
|
|
|
2022
|
22,252
|
|
6
|
|
|
2023
|
13,091
|
|
6
|
|
|
2024
|
8,478
|
|
—
|
|
|
Thereafter
|
28,219
|
|
—
|
|
|
|
$
|
152,759
|
|
$
|
435
|
|
|
Less amounts representing interest
|
|
(20
|
)
|
|
Capital lease obligations included in current and long-term debt
|
|
$
|
415
|
|
Rent expense was approximately $51.8 million and $48.7 million, for the fiscal years ended December 29, 2018 and December 30, 2017, respectively.
The Company's capital lease assets are included in property, plant and equipment and the capital lease obligations are included in the Company's current and long-term debt obligations on the consolidated balance sheet.
NOTE 10. DEBT
Debt consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 28, 2019
|
|
December 29, 2018
|
|
Amended Credit Agreement:
|
|
|
|
|
Revolving Credit Facility ($32.1 million denominated in euro at December 29, 2018)
|
$
|
39,000
|
|
|
$
|
32,105
|
|
|
Term Loan A ($29.8 million denominated in CAD at December 29, 2018)
|
—
|
|
|
68,080
|
|
|
Less unamortized deferred loan costs
|
—
|
|
|
(381
|
)
|
|
Carrying value Term Loan A
|
—
|
|
|
67,699
|
|
|
|
|
|
|
|
Term Loan B
|
495,000
|
|
|
495,000
|
|
|
Less unamortized deferred loan costs
|
(7,696
|
)
|
|
(9,024
|
)
|
|
Carrying value Term Loan B
|
487,304
|
|
|
485,976
|
|
|
|
|
|
|
|
5.25% Senior Notes due 2027 with effective interest of 5.47%
|
500,000
|
|
|
—
|
|
|
Less unamortized deferred loan costs
|
(6,494
|
)
|
|
—
|
|
|
Carrying value 5.25% Senior Notes due 2027
|
493,506
|
|
|
—
|
|
|
|
|
|
|
|
5.375% Senior Notes due 2022 with effective interest of 5.72%
|
—
|
|
|
500,000
|
|
|
Less unamortized deferred loan costs
|
—
|
|
|
(4,876
|
)
|
|
Carrying value 5.375% Senior Notes due 2022
|
—
|
|
|
495,124
|
|
|
|
|
|
|
|
3.625% Senior Notes due 2026 - Denominated in euro with effective interest of 3.83%
|
574,096
|
|
|
590,499
|
|
|
Less unamortized deferred loan costs - Denominated in euro
|
(6,982
|
)
|
|
(8,160
|
)
|
|
Carrying value 3.625% Senior Notes due 2026
|
567,114
|
|
|
582,339
|
|
|
|
|
|
|
|
Other Notes and Obligations
|
62,501
|
|
|
11,189
|
|
|
|
1,649,425
|
|
|
1,674,432
|
|
|
Less Current Maturities
|
90,996
|
|
|
7,492
|
|
|
|
$
|
1,558,429
|
|
|
$
|
1,666,940
|
|
As of December 28, 2019, the Company had capital lease obligations denominated in Canadian dollars included in debt. The total Canadian dollar capital lease obligation was approximately CAD$0.1 million.
DARLING INGREDIENTS INC.
Notes to Consolidated Financial Statements (continued)
As of December 28, 2019, the Company had outstanding debt under the Company's 3.625% Senior Notes due 2026 denominated in euros of €515.0 million. See below for discussion relating to the Company's debt agreements. In addition, at December 28, 2019, the Company had capital lease obligations denominated in euros included in debt. The total euro capital lease obligation was less than €0.1 million.
As of December 28, 2019, the Company had other notes and obligations that consist of various overdraft facilities of approximately $42.2 million, a China working capital line of credit of approximately $17.5 million and other debt of approximately $2.8 million.
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, 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 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 will be available for a letter of credit sub-facility and $50.0 million of which will be 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 Darling Ingredients Germany Holding GmbH 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 December 28, 2019, the Company had $39.0 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 $495.0 million outstanding under the term loan B facility at LIBOR plus a margin of 2.00% per annum for a total of 3.71% per annum. As of December 28, 2019, the Company had availability of $911.9 million under the Amended Credit Agreement taking into account
DARLING INGREDIENTS INC.
Notes to Consolidated Financial Statements (continued)
amounts borrowed, ancillary facilities and letters of credit issued of $3.6 million. The Company also has foreign bank guarantees that are not part of the Company's Amended Credit Agreement in the amount of approximately $11.4 million at December 28, 2019.
The Amended Credit Agreement contains various customary representations and warranties by the Company, which include customary use of materiality, material adverse effect and knowledge qualifiers. The Amended Credit Agreement also contains (a) certain affirmative covenants that impose certain reporting and/or performance obligations on Darling and its restricted subsidiaries, (b) certain negative covenants that generally prohibit, subject to various exceptions, Darling and its restricted subsidiaries from taking certain actions, including, without limitation, incurring indebtedness, making investments, incurring liens, paying dividends and engaging in mergers and consolidations, sale and leasebacks and asset dispositions, (c) financial covenants, which include a maximum total leverage ratio and a minimum interest coverage ratio and (d) customary events of default (including a change of control) for financings of this type. Obligations under the Senior Secured Credit Facilities may be declared due and payable upon the occurrence and during the continuance of customary events of default.
3.625% Senior Notes due 2026. On May 2, 2018, Darling Global Finance B.V. (the “3.625% Issuer”), a wholly-owned subsidiary of Darling, 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 (the “3.625% Indenture”), 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, were used to refinance all of the 4.75% Notes (as defined below) 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 was completed during the second quarter of 2018.
The 3.625% Notes will mature on May 15, 2026. The 3.625% Issuer will pay interest on the 3.625% Notes on May 15 and November 15 of each year, commencing on November 15, 2018. Interest on the 3.625% Notes accrues from May 2, 2018 at a rate of 3.625% per annum and is payable in cash. The 3.625% Notes are guaranteed on a senior unsecured basis by Darling and all of Darling's restricted subsidiaries (other than any foreign subsidiary or any receivable entity) that guarantee the Senior Secured Credit Facilities (collectively, the “3.625% Guarantors”). The 3.625% Notes and the guarantees thereof are senior unsecured obligations of the 3.625% Issuer and the 3.625% Guarantors and rank equally in right of payment to all of the 3.625% Issuer's and the 3.625% Guarantors' existing and future senior unsecured indebtedness. The 3.625% Indenture contains covenants limiting Darling's ability and the ability of its restricted subsidiaries (including the 3.625% Issuer) to, among other things: incur additional indebtedness or issue preferred stock; pay dividends on or make other distributions or repurchases of Darling's capital stock or make other restricted payments; create restrictions on the payment of dividends or certain other amounts from Darling's restricted subsidiaries to Darling or Darling's other restricted subsidiaries; make loans or investments; enter into certain transactions with affiliates; create liens; designate Darling's subsidiaries as unrestricted subsidiaries; and sell certain assets or merge with or into other companies or otherwise dispose of all of substantially all of Darling's assets.
Other than for extraordinary events such as change of control and defined assets sales, the 3.625% Issuer is not required to make mandatory redemption or sinking fund payments on the 3.625% Notes. The 3.625% Notes are redeemable, in whole or in part, at any time on or after May 15, 2021 at the redemption prices specified in the 3.625% Indenture. The 3.625% Issuer may redeem some or all of the 3.625% Notes at any time prior to May 15, 2021, at a redemption price equal to 100% of the principal amount of the 3.625% Notes redeemed, plus accrued and unpaid interest to the redemption date and an Applicable Premium as specified in the 3.625% Indenture and all additional amounts (if any) then due or which will become due on the redemption date as a result of the redemption or otherwise (subject to the rights of holders on the relevant record dates to receive interest due on the relevant interest payment date and additional amounts (if any) in respect thereof).
5.25% Senior Notes due 2027. On April 3, 2019, Darling issued and sold $500.0 million aggregate principal amount of 5.25% Senior Notes due 2027 (the “5.25% Notes”). The 5.25% Notes, which were offered in a private offering, were issued pursuant to a Senior Notes Indenture, dated as of April 3, 2019 (the “5.25% Indenture”), among Darling, the subsidiary guarantors party thereto from time to time, and Regions Bank, as trustee. The gross proceeds from the sale of the Notes, together with cash on hand, were used to refinance all of the Company's 5.375% Notes (as defined below), by cash tender offer for and redemption of those notes, to pay the discount of the initial purchasers and to pay the other fees and expenses related to the offering of the 5.25% Notes. The refinancing of the 5.375% Notes was completed during the second quarter of 2019.
DARLING INGREDIENTS INC.
Notes to Consolidated Financial Statements (continued)
The 5.25% Notes will mature on April 15, 2027. Darling will pay interest on the 5.25% Notes on April 15 and October 15 of each year, commencing on October 15, 2019. Interest on the 5.25% Notes accrues from April 3, 2019 at a rate of 5.25% per annum and is payable in cash. The 5.25% Notes are guaranteed on a senior unsecured basis by Darling and all of Darling's restricted subsidiaries (other than foreign subsidiaries) that are borrowers under or that guarantee the Senior Secured Credit Facilities (collectively, the “5.25% Guarantors”). The 5.25% Notes and the guarantees thereof are senior unsecured obligations of Darling and the 5.25% Guarantors and rank equally in right of payment to all of the Darling's and the 5.25% Guarantors' existing and future senior unsecured indebtedness. The 5.25% Indenture contains covenants limiting Darling's ability and the ability of its restricted subsidiaries to, grant liens to secure indebtedness and merge with or into other companies or otherwise dispose of all or substantially all of Darling's assets. In addition, the Company capitalized $7.0 million of deferred loan costs for the issuance of the 5.25% Notes in the second quarter of 2019.
Other than for extraordinary events such as change of control and defined assets sales, Darling is not required to make mandatory redemption or sinking fund payments on the 5.25% Notes. The 5.25% Notes are redeemable, in whole or in part, at any time on or after April 15, 2022 at the redemption prices specified in the 5.25% Indenture. Darling may redeem some or all of the 5.25% Notes at any time prior to April 15, 2022, at a redemption price equal to 100% of the principal amount of the 5.25% Notes redeemed, plus accrued and unpaid interest to the redemption date and an Applicable Premium as specified in the 5.25% Indenture and all additional amounts (if any) then due or which will become due on the redemption date as a result of the redemption or otherwise (subject to the rights of holders on the relevant record dates to receive interest due on the relevant interest payment date and additional amounts (if any) in respect thereof).
4.75% Senior Notes due 2022. On June 3, 2015, Darling Global Finance B.V. issued and sold €515.0 million aggregate principal amount of the 4.75% Senior Notes due 2022 (the “4.75% Notes”). The Company retired the 4.75% Notes in the second quarter of 2018 using the proceeds from the issuance of the 3.625% Notes and incurred charges of approximately $23.5 million in debt extinguishment charges including the write-off of deferred loan costs.
5.375% Senior Notes due 2022. On January 2, 2014, Darling Escrow Corporation, a wholly-owned subsidiary of Darling, issued $500.0 million aggregate principal amount of its 5.375% Notes due 2022 (the “5.375% Notes”). The Company retired the 5.375% Notes in the second quarter of 2019 using the proceeds from the issuance of the 5.25% Notes and incurred charges of approximately $12.1 million in debt extinguishment charges including the write-off deferred loan costs.
As of December 28, 2019, the Company believes it is in compliance with all financial covenants under the Amended Credit Agreement, as well as all of the other covenants contained in the Amended Credit Agreement, the 5.25% Indenture and the 3.625% Indenture.
Maturities of long-term debt at December 28, 2019 follow (in thousands):
|
|
|
|
|
|
|
|
|
Contractual
Debt Payment
|
|
2020
|
$
|
90,996
|
|
|
2021
|
10,220
|
|
|
2022
|
40
|
|
|
2023
|
1,534
|
|
|
2024
|
493,533
|
|
|
thereafter
|
1,074,274
|
|
|
|
$
|
1,670,597
|
|
NOTE 11. OTHER NONCURRENT LIABILITIES
Other noncurrent liabilities consist of the following (in thousands):
DARLING INGREDIENTS INC.
Notes to Consolidated Financial Statements (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
December 28, 2019
|
|
December 29, 2018
|
|
Accrued pension liability (Note 15)
|
$
|
55,491
|
|
|
$
|
55,632
|
|
|
Reserve for self insurance, litigation, environmental and tax
matters (Note 20)
|
54,568
|
|
|
57,381
|
|
|
Other
|
5,726
|
|
|
2,019
|
|
|
|
$
|
115,785
|
|
|
$
|
115,032
|
|
NOTE 12. INCOME TAXES
On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act” or “U.S. tax reform”) significantly revised the U.S. corporate income tax by, among other things, lowering the statutory corporate rate from 35% to 21%, eliminating certain deductions, limiting interest expense deductions, enhancing the option for claiming accelerated depreciation deductions through 2026, imposing a mandatory one-time tax on accumulated earnings of foreign subsidiaries (also referred to as the toll charge or transition tax), and changing how foreign earnings are subject to U.S. tax. Due to the timing of the Tax Act and the substantial changes it brings, the Securities and Exchange Commission (“SEC”) staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (SAB 118), which provided 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 were recorded to the extent a reasonable estimate could be made. The effects of the Tax Act on Darling include two major categories: (i) mandatory deemed repatriation, and (ii) remeasurement of deferred taxes. As described further below, we recorded a provisional net tax benefit of $75.0 million for the impact of the Tax Act in the year ended December 30, 2017. Below is a brief description of the two categories of effects from U.S. tax reform and its impact on the Company:
(i) Mandatory deemed repatriation - under the Tax Act, a company’s accumulated foreign earnings are deemed to be repatriated into the U.S. The Company recorded a provisional estimate in fiscal 2017 of federal and state tax related to deemed repatriation in the amount of approximately $26.2 million. However, the Company had an existing U.S. deferred tax liability associated with foreign earnings that were not permanently reinvested outside the U.S. in the amount of $38.3 million. It is now expected that these foreign earnings can be repatriated to the U.S. without any additional U.S. tax above the amount accrued related to the mandatory deemed repatriation. Accordingly, the Company released the entire $38.3 million liability. This $38.3 million release combined with the $26.2 million amount related the mandatory deemed repatriation resulted in the Company recognizing a net provisional tax benefit of $12.1 million for this item.
(ii) Remeasurement of deferred taxes - under the Tax Act, the U.S. corporate income tax rate was reduced from 35% to 21%. Accordingly, Darling remeasured the Company's net U.S. deferred tax liability as of December 30, 2017 using the new 21% federal rate, which resulted in a provisional tax benefit in fiscal 2017 of $62.9 million. The Company has significant net operating loss carryforwards to offset the mandatory one-time repatriation; therefore, the Company reduced its deferred tax asset related to its net operating loss carryforwards rather than incurring a toll charge liability for which a cash payment would otherwise be required.
Also, in December 2017, Belgium and France enacted tax law changes resulting in a tax benefit of approximately $13.9 million. This amount is comprised of a benefit of approximately $4.4 million from the re-measurement of net deferred tax liabilities due to a reduction in the corporate tax rate in each country. Additionally, Belgium enacted a new provision increasing its participation exemption to 100%, which generally allows tax-free dividends to be received from subsidiaries resulting in a tax benefit of approximately $9.6 million.
During fiscal 2018, as information was collected, analyzed and guidance was issued by the U.S. Treasury Department, the IRS and other standard setting bodies in respect to the Tax Act, the Company made adjustments to the provisional amounts recorded in fiscal 2017. An adjustment of approximately $1.7 million of additional tax benefit was made in respect to the impact of the mandatory deemed repatriation, which reduced the effective tax rate by approximately 1.4%. The accounting for the tax effects of the Tax Act has been completed as of December 29, 2018.
In December 2018, the Netherlands enacted tax law changes resulting in a tax benefit in fiscal 2018 of approximately $8.4 million due to the re-measurement of net deferred tax liabilities as a result of a phased in reduction of the corporate income tax rate.
U.S. and foreign income from operations before income taxes are as follows (in thousands):
DARLING INGREDIENTS INC.
Notes to Consolidated Financial Statements (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 28, 2019
|
|
December 29, 2018
|
|
December 30, 2017
|
|
United States
|
$
|
260,867
|
|
|
$
|
82,146
|
|
|
$
|
179
|
|
|
Foreign
|
119,567
|
|
|
35,829
|
|
|
64,021
|
|
|
Income from operations before income taxes
|
$
|
380,434
|
|
|
$
|
117,975
|
|
|
$
|
64,200
|
|
Income tax expense attributable to income from continuing operations before income taxes consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 28, 2019
|
|
December 29, 2018
|
|
December 30, 2017
|
|
Current:
|
|
|
|
|
|
|
Federal
|
$
|
(162
|
)
|
|
$
|
(330
|
)
|
|
$
|
274
|
|
|
State
|
341
|
|
|
(3
|
)
|
|
(80
|
)
|
|
Foreign
|
37,117
|
|
|
27,935
|
|
|
31,256
|
|
|
Total current
|
37,296
|
|
|
27,602
|
|
|
31,450
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
13,465
|
|
|
4,803
|
|
|
(76,056
|
)
|
|
State
|
11,804
|
|
|
(2,216
|
)
|
|
622
|
|
|
Foreign
|
(3,098
|
)
|
|
(18,158
|
)
|
|
(25,170
|
)
|
|
Total deferred
|
22,171
|
|
|
(15,571
|
)
|
|
(100,604
|
)
|
|
|
$
|
59,467
|
|
|
$
|
12,031
|
|
|
$
|
(69,154
|
)
|
Income tax expense for the years ended December 28, 2019, December 29, 2018 and December 30, 2017, differed from the amount computed by applying the statutory U.S. federal income tax rate to income from continuing operations before income taxes as a result of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 28, 2019
|
|
December 29, 2018
|
|
December 30, 2017
|
|
Computed "expected" tax expense
|
$
|
79,891
|
|
|
$
|
24,775
|
|
|
$
|
22,470
|
|
|
Change in valuation allowance
|
38
|
|
|
9,700
|
|
|
1,609
|
|
|
Non-deductible compensation expenses
|
3,950
|
|
|
2,305
|
|
|
1,898
|
|
|
Deferred tax on unremitted foreign earnings
|
1,505
|
|
|
(31
|
)
|
|
641
|
|
|
Sub-Part F income
|
1,122
|
|
|
3,361
|
|
|
6,284
|
|
|
Foreign rate differential
|
7,246
|
|
|
658
|
|
|
(8,292
|
)
|
|
Change in uncertain tax positions
|
1,736
|
|
|
3,419
|
|
|
(1,080
|
)
|
|
State income taxes, net of federal benefit
|
5,686
|
|
|
(1,813
|
)
|
|
(1,012
|
)
|
|
Biofuel tax incentives
|
(46,007
|
)
|
|
(18,489
|
)
|
|
—
|
|
|
Change in tax law
|
|
|
|
|
|
|
One-time U.S. transition tax
|
—
|
|
|
(1,654
|
)
|
|
26,243
|
|
|
Deferred tax effects
|
1,352
|
|
|
(8,363
|
)
|
|
(115,169
|
)
|
|
Other, net
|
2,948
|
|
|
(1,837
|
)
|
|
(2,746
|
)
|
|
|
$
|
59,467
|
|
|
$
|
12,031
|
|
|
$
|
(69,154
|
)
|
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 28, 2019 and December 29, 2018 are presented below (in thousands):
DARLING INGREDIENTS INC.
Notes to Consolidated Financial Statements (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
December 28, 2019
|
|
December 29, 2018
|
|
Deferred tax assets:
|
|
|
|
|
Loss contingency reserves
|
$
|
11,193
|
|
|
$
|
9,007
|
|
|
Employee benefits
|
12,236
|
|
|
10,791
|
|
|
Pension liability
|
13,049
|
|
|
12,882
|
|
|
Intangible assets amortization, including taxable goodwill
|
1,485
|
|
|
1,566
|
|
|
Interest expense carryforwards
|
12,361
|
|
|
16,871
|
|
|
Tax loss carryforwards
|
80,195
|
|
|
103,618
|
|
|
Tax credit carryforwards
|
5,653
|
|
|
5,108
|
|
|
Operating lease liabilities
|
33,549
|
|
|
—
|
|
|
Inventory
|
5,185
|
|
|
8,583
|
|
|
Accrued liabilities and other
|
13,677
|
|
|
12,291
|
|
|
Total gross deferred tax assets
|
188,583
|
|
|
180,717
|
|
|
Less valuation allowance
|
(24,759
|
)
|
|
(27,942
|
)
|
|
Net deferred tax assets
|
163,824
|
|
|
152,775
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
Intangible assets amortization, including taxable goodwill
|
(157,332
|
)
|
|
(152,841
|
)
|
|
Property, plant and equipment depreciation
|
(144,911
|
)
|
|
(164,011
|
)
|
|
Investment in DGD Joint Venture
|
(54,287
|
)
|
|
(44,857
|
)
|
|
Operating lease assets
|
(32,233
|
)
|
|
—
|
|
|
Tax on unremitted foreign earnings
|
(6,139
|
)
|
|
(5,648
|
)
|
|
Other
|
(2,459
|
)
|
|
(1,500
|
)
|
|
Total gross deferred tax liabilities
|
(397,361
|
)
|
|
(368,857
|
)
|
|
Net deferred tax liability
|
$
|
(233,537
|
)
|
|
$
|
(216,082
|
)
|
|
|
|
|
|
|
Amounts reported on Consolidated Balance Sheets:
|
|
|
|
|
Non-current deferred tax asset
|
$
|
14,394
|
|
|
$
|
14,981
|
|
|
Non-current deferred tax liability
|
(247,931
|
)
|
|
(231,063
|
)
|
|
Net deferred tax liability
|
$
|
(233,537
|
)
|
|
$
|
(216,082
|
)
|
At December 28, 2019, the Company had net operating loss carryforwards for federal income tax purposes of approximately $106.8 million, $44.6 million of which begin to expire in 2020 through 2036 and $62.2 million of which can be carried forward indefinitely. As a result of the change in ownership which occurred pursuant to the May 2002 recapitalization, utilization of approximately $0.7 million of the federal net operating loss carryforwards is limited to approximately $0.7 million per year for the remaining life of the net operating losses. The Company had a capital loss carry forward for federal income tax purposes of approximately $21.1 million, which expires in 2023 and can only be used in future years in which the Company recognizes capital gains. The Company had interest expense carryforwards of approximately $52.4 million and $25.1 million for federal and state income tax purposes, which may be carried forward indefinitely. The Company had approximately $248.2 million of net operating loss carryforwards for state income tax purposes, $239.0 million of which expire in 2020 through 2039 and $9.2 million of which can be carried forward indefinitely. The Company had foreign net operating loss carryforwards of about $151.6 million, $68.6 million of which expire in 2020 through 2037 and $83.0 million of which can be carried forward indefinitely. Also at December 28, 2019, the Company had U.S. federal and state tax credit carryforwards of approximately $1.3 million, and tax credit carryforwards with respect to its foreign tax jurisdictions of approximately $4.3 million. As of December 28, 2019, the Company had a valuation allowance of $7.8 million due to uncertainties in respect to its ability to utilize its U.S. (federal and state) net operating loss, capital loss and tax credit carryforwards. The Company also had a valuation allowance of $16.9 million due to uncertainties in its ability to utilize foreign net operating loss carryforwards, tax credit carryforwards and other foreign deferred tax assets.
At December 28, 2019, the Company had unrecognized tax benefits of approximately $7.8 million. During fiscal 2017, the Company entered into a settlement agreement with the Darling Ingredients International business seller in which an indemnity receivable of $3.0 million was collected and the Company generally accepted responsibility for any remaining tax liabilities in pre-acquisition tax years. All of the unrecognized tax benefits would favorably impact the Company's effective tax rate if recognized. The Company believes it is reasonably possible that unrecognized tax benefits could change by $3.9 million in the next twelve months. The possible change in unrecognized tax benefits relates to the resolution of an uncertain tax position upon liquidation of certain subsidiaries. The Company recognizes
DARLING INGREDIENTS INC.
Notes to Consolidated Financial Statements (continued)
accrued interest and penalties, as appropriate, related to unrecognized tax benefits as a component of income tax expense. As of December 28, 2019, interest and penalties related to unrecognized tax benefits were $0.6 million.
A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 28, 2019
|
|
December 29, 2018
|
|
Balance at beginning of Year
|
$
|
5,777
|
|
|
$
|
2,384
|
|
|
Change in tax positions related to current year
|
3,887
|
|
|
237
|
|
|
Change in tax positions related to prior years
|
(233
|
)
|
|
3,649
|
|
|
Change in tax positions due to settlement with tax authorities
|
(1,354
|
)
|
|
—
|
|
|
Expiration of the Statute of Limitations
|
(267
|
)
|
|
(493
|
)
|
|
Balance at end of year
|
$
|
7,810
|
|
|
$
|
5,777
|
|
In fiscal 2019, the Company's major taxing jurisdictions are U.S. (federal and state), Belgium, Brazil, Canada, China, France, Germany and the Netherlands. The Company is subject to regular examination by various tax authorities. 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 jurisdictions is open for varying periods, but is generally closed through the 2010 tax year.
Many of the Company's operations are conducted outside the United States. As a result of the Tax Act and the mandatory repatriation, the Company expects to have access to its offshore earnings with minimal to no additional U.S. tax impact. Therefore, the Company does not consider these earnings to be permanently reinvested offshore. As of December 28, 2019, a deferred tax liability of approximately $6.1 million has been recorded for any incremental taxes, including foreign withholding taxes, that are estimated to be incurred when those earnings are distributed to the U.S. in future years.
NOTE 13. STOCKHOLDERS' EQUITY AND STOCK-BASED COMPENSATION
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 and refreshed the amount of the program back up to its original amount of an aggregate of $100.0 million of the Company's Common Stock depending on market conditions. To that point, the Company had previously repurchased $10.9 million shares of Common stock under the program. The repurchases may be made from time to time on the open market at prevailing market prices or in negotiated transactions off the market. On November 6, 2018, the Board approved an increase in the share repurchase program from $100.0 million to $200.0 million and extended the term of the program for an additional year to August 13, 2020. During Fiscal 2019, the Company repurchased approximately $19.3 million including commissions of its common stock in the open market. Since the inception of the share repurchase program, the Company has repurchased approximately $30.1 million of its common stock in open market purchases. As of December 28, 2019, the Company has approximately $180.8 million remaining under the share repurchase program approved in August 2017.
On May 9, 2017, the shareholders approved the Company's 2017 Omnibus Incentive Plan (the “2017 Omnibus Plan”). The 2017 Omnibus Plan replaced the Company's 2012 Omnibus Incentive Plan (the “2012 Omnibus Plan”) for future grants. Under the 2017 Omnibus Plan, the Company can grant stock options, stock appreciation rights, non-vested and restricted stock (including performance stock), restricted stock units (including performance units), other stock-based awards, non-employee director awards, dividend equivalents and cash-based awards. There are up to 20,166,500 common shares available under the 2017 Omnibus Plan which may be granted to participants in any plan year (as such term is defined in the 2017 Omnibus Plan). Some of those shares are subject to outstanding awards as detailed in the tables below. To the extent these outstanding awards are forfeited or expire without exercise, the shares will be returned to and available for future grants under the 2017 Omnibus Plan. The 2017 Omnibus Plan’s purpose is to attract, retain and motivate employees, directors and third party service providers of the Company and to encourage them to have a financial interest in the Company. The 2017 Omnibus Plan is administered by the Compensation Committee (the “Committee”) of the Board of Directors. The Committee has the authority to select plan participants, grant awards, and determine the terms and conditions of such awards as provided in the 2017 Omnibus Plan. For each of fiscal 2017, fiscal 2018 and 2019, the Committee adopted an executive compensation program that includes a long-term incentive component (the “LTIP”) for the Company's key employees, as a subplan
DARLING INGREDIENTS INC.
Notes to Consolidated Financial Statements (continued)
under the terms of the 2017 Omnibus Plan. Pursuant to the LTIP, participants receive (i) annual, overlapping grants of performance share units (“PSUs”) tied to a three-year, forward looking performance metric and (ii) annual stock options grants that vest 33.33% on the first, second and third anniversaries of grant. The principal purpose of the LTIP is to encourage the participants to enhance the value of the Company and, hence, the price of the Company’s stock and the stockholders' return. In addition, the LTIP is designed to create retention incentives for the individual and to provide an opportunity for increased equity ownership by participants. See “Stock Option Awards”, “Fiscal 2019 LTIP PSU Awards”, “Fiscal 2018 LTIP PSU Awards” and “Fiscal 2017 LTIP PSU Awards” below for more information regarding the stock options and PSU awards under the 2019 LTIP, 2018 LTIP and 2017 LTIP. At December 28, 2019, the number of common shares available for issuance under the 2017 Omnibus Plan was 12,522,616.
At December 28, 2019, $6.9 million of total future equity-based compensation expense (determined using the Black-Scholes option pricing model and Monte Carlo model for non-vested stock grants with performance based incentives) related to outstanding non-vested options and stock awards is expected to be recognized over a weighted average period of 1.2 years.
The following is a summary of stock-based compensation awards granted during the years ended December 28, 2019, December 29, 2018 and December 30, 2017.
Stock Option Awards. Stock options to purchase Darling common shares are granted by the Committee to certain of the Company's employees as part of the Company's LTIPs under the 2017 Omnibus Plan. For the options granted under the fiscal 2019 LTIP, 2018 LTIP and 2017 LTIP, the exercise price was equal to the closing price of Darling common shares on the date of grant, which was January 25, 2019, January 29, 2018 and February 6, 2017, respectively, and such options vest 33.33% on the first, second and third anniversaries of the grant date. The Company granted 610,953 stock options under the 2019 LTIP, 637,115 stock options under the 2018 LTIP and 956,809 stock options under the 2017 LTIP.
During fiscal 2019, 2018 and 2017 only nonqualified stock options were issued and none of the options were incentive stock options. The Company’s stock options granted under the LTIPs generally terminate 10 years after the date of grant.
A summary of all stock option activity as of December 28, 2019 and changes during the year ended is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
shares
|
|
Weighted-avg.
exercise price
per share
|
|
Weighted-avg.
remaining
contractual life
|
|
Options outstanding at December 31, 2016
|
2,365,916
|
|
|
$
|
11.65
|
|
|
8.4 years
|
|
Granted
|
956,809
|
|
|
12.29
|
|
|
|
|
Exercised
|
(27,968
|
)
|
|
8.51
|
|
|
|
|
Forfeited
|
(4,000
|
)
|
|
13.55
|
|
|
|
|
Expired
|
—
|
|
|
—
|
|
|
|
|
Options outstanding at December 30, 2017
|
3,290,757
|
|
|
11.86
|
|
|
7.3 years
|
|
Granted
|
637,115
|
|
|
18.82
|
|
|
|
|
Exercised
|
(153,717
|
)
|
|
11.49
|
|
|
|
|
Forfeited
|
(19,953
|
)
|
|
9.99
|
|
|
|
|
Expired
|
—
|
|
|
—
|
|
|
|
|
Options outstanding at December 29, 2018
|
3,754,202
|
|
|
13.07
|
|
|
6.9 years
|
|
Granted
|
610,953
|
|
|
21.00
|
|
|
|
|
Exercised
|
(380,206
|
)
|
|
9.83
|
|
|
|
|
Forfeited
|
(6,464
|
)
|
|
18.11
|
|
|
|
|
Expired
|
—
|
|
|
—
|
|
|
|
|
Options outstanding at December 28, 2019
|
3,978,485
|
|
|
$
|
14.59
|
|
|
6.5 years
|
|
Options exercisable at December 28, 2019
|
2,685,252
|
|
|
$
|
12.70
|
|
|
5.6 years
|
The fair value of each stock option grant under the LTIPs was estimated on the date of grant using the Black Scholes option-pricing model with the following weighted average assumptions and results for fiscal 2019, 2018 and 2017.
DARLING INGREDIENTS INC.
Notes to Consolidated Financial Statements (continued)
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
2019
|
2018
|
2017
|
|
Expected dividend yield
|
|
0.0%
|
0.0%
|
0.0%
|
|
Risk-free interest rate
|
|
2.61%
|
2.54%
|
2.00%
|
|
Expected term
|
|
6.00 years
|
5.82 years
|
5.82 years
|
|
Expected volatility
|
|
29.6%
|
29.3%
|
33.4%
|
|
Fair value of options granted
|
|
$7.16
|
$6.37
|
$4.34
|
The expected lives for options granted during fiscal 2019, 2018 and 2017 were computed using the simplified method since the current option plans historical exercise data has not provided a reasonable basis for estimating the expected term for the current option grants.
For the year ended December 28, 2019, the amount of cash received from the exercise of options was less than $0.1 million and the related tax benefit was $0.7 million. For the year ended December 29, 2018, the amount of cash received from the exercise of options was approximately $0.2 million and the related tax benefit was approximately $0.1 million. For the year ended December 30, 2017, the amount of cash received from the exercise of options was less than $0.1 million and the related tax benefit was less than $0.1 million. The total intrinsic value of options exercised for the years ended December 28, 2019, December 29, 2018 and December 30, 2017 was approximately $4.7 million, $1.1 million and $0.2 million, respectively. The fair value of shares vested for the years ended December 28, 2019, December 29, 2018 and December 30, 2017 was approximately $15.5 million, $12.5 million and $11.3 million, respectively. At December 28, 2019, the aggregate intrinsic value of options outstanding was approximately $53.4 million and the aggregate intrinsic value of options exercisable was approximately $41.1 million.
Non-Vested Stock, Restricted Stock Unit and Performance Share Unit Awards. The Company has in the past granted non-vested stock and restricted stock unit (RSU) awards to certain of the Company's employees as part of the LTIP under the 2012 Omnibus Plan. Starting in 2016, the Committee made changes to the LTIP and instead of the non-vested stock and RSU awards, the Company began to grant performance share unit awards as part of the LTIP. In addition, the Company has granted performance share unit awards, individual non-vested stock and RSU awards to key employees from time to time at the discretion of the Committee. Non-vested stock is generally granted to U.S. based employees, while RSUs are generally granted to foreign based employees, with each RSU equivalent to one share of common stock and payable upon vesting in an equivalent number of shares of Darling common stock. For grants made under the 2017 Omnibus Plan, both non-vested stock and RSUs generally vest on the first three anniversary dates of the grant. Generally, upon termination of employment (voluntary or with cause), non-vested stock, RSUs and discretionary performance share awards that have not vested are forfeited. Upon, death, disability or qualifying retirement, a pro-rata portion of the unvested non-vested and RSU awards will vest and be payable.
A summary of the Company’s non-vested stock, restricted stock unit and performance share unit awards as of December 28, 2019, and changes during the year ended is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Non-Vested, RSU and PSU
Shares
|
|
Weighted Average
Grant Date
Fair Value
|
|
Stock awards outstanding December 31, 2016
|
981,261
|
|
|
$
|
15.56
|
|
|
Shares granted
|
104,750
|
|
|
12.27
|
|
|
Shares vested
|
(486,086
|
)
|
|
13.98
|
|
|
Shares forfeited
|
(239,581
|
)
|
|
20.90
|
|
|
Stock awards outstanding December 30, 2017
|
360,344
|
|
|
13.18
|
|
|
Shares granted
|
—
|
|
|
—
|
|
|
Shares vested
|
(228,991
|
)
|
|
13.11
|
|
|
Shares forfeited
|
(2,779
|
)
|
|
12.11
|
|
|
Stock awards outstanding December 29, 2018
|
128,574
|
|
|
13.32
|
|
|
Shares granted
|
—
|
|
|
—
|
|
|
Shares vested
|
(126,511
|
)
|
|
12.13
|
|
|
Shares forfeited
|
(1,313
|
)
|
|
14.92
|
|
|
Stock awards outstanding December 28, 2019
|
750
|
|
|
$
|
15.50
|
|
Fiscal 2019 LTIP PSU Awards. On January 25, 2019, the Committee granted 305,195 PSUs under the Company's 2019 LTIP. 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 over the same
DARLING INGREDIENTS INC.
Notes to Consolidated Financial Statements (continued)
performance period, with the earned award to be determined in the first quarter of fiscal 2022, after the final results for the relevant performance period are determined.
Fiscal 2018 LTIP PSU Awards. On January 29, 2018, the Committee granted 295,514 PSUs under the Company's 2018 LTIP. 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 over the same performance period, 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.
Fiscal 2017 LTIP PSU Awards. On February 6, 2017, the Committee granted 559,388 PSUs under the Company's 2017 LTIP. 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 over the same performance period, with the earned award to be determined in the first quarter of fiscal 2020, after the final results for the relevant performance period are determined.
Under the 2019 LTIP, 2018 LTIP and 2017 LTIP, PSUs were granted at target level; however, actual awards may vary between 0% and 225% of the target number of PSUs, depending on the performance level achieved. In addition, the number of PSUs earned may be reduced (up to 30%) or increased (capped at the maximum payout) based on the Company's total shareholder return (TSR) over the performance period.
The fair value of each 2019 LTIP, 2018 LTIP and 2017 LTIP PSU award under the Company's 2019 LTIP, 2018 LTIP and 2017 LTIP was estimated on the date of grant using a Monte Carlo model with the following weighted average assumptions for fiscal 2019 , fiscal 2018 and fiscal 2017, except for the illiquidity discount, which only pertains to the 2017 LTIP PSU's with a holding period requirement.
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
2019
|
2018
|
2017
|
|
Expected dividend yield
|
|
0.0%
|
0.0%
|
0.0%
|
|
Risk-free interest rate
|
|
2.58%
|
2.25%
|
1.40%
|
|
Expected term
|
|
2.93 years
|
2.93 years
|
2.89 years
|
|
Expected volatility
|
|
30.7%
|
34.4%
|
32.7%
|
|
Illiquidity discount
|
|
—%
|
—%
|
14.0%
|
A summary of the Company’s 2019, 2018 and 2017 LTIP PSU awards as of December 28, 2019, and changes during the year ended is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
LTIP PSU
Shares
|
|
Weighted Average
Grant Date
Fair Value
|
|
LTIP PSU awards outstanding December 31, 2016
|
664,120
|
|
|
$
|
7.17
|
|
|
Granted
|
559,388
|
|
|
11.14
|
|
|
Additional PSU awards vested from performance
|
—
|
|
|
—
|
|
|
Forfeited
|
(82,492
|
)
|
|
9.99
|
|
|
LTIP PSU awards outstanding December 30, 2017
|
1,141,016
|
|
|
$
|
8.91
|
|
|
Granted
|
295,514
|
|
|
20.60
|
|
|
Additional PSU awards vested from performance
|
88,151
|
|
|
6.95
|
|
|
Stock issued for PSUs
|
(26,212
|
)
|
|
6.95
|
|
|
Forfeited
|
(16,493
|
)
|
|
9.39
|
|
|
LTIP PSU awards outstanding December 29, 2018
|
1,481,976
|
|
|
$
|
11.15
|
|
|
Granted
|
305,195
|
|
|
21.50
|
|
|
Additional PSU awards vested from performance
|
235,126
|
|
|
7.23
|
|
|
Stock issued for PSUs
|
(125,067
|
)
|
|
7.84
|
|
|
Forfeited
|
(3,757
|
)
|
|
19.09
|
|
|
LTIP PSU awards outstanding December 28, 2019
|
1,893,473
|
|
|
$
|
12.54
|
|
DARLING INGREDIENTS INC.
Notes to Consolidated Financial Statements (continued)
Nonemployee Director Restricted Stock and Restricted Stock Unit Awards. On February 24, 2011, the Company's Board of Directors approved an Amended and Restated Non-Employee Director Restricted Stock Award Plan (the “Director Restricted Stock Plan”) pursuant to and in accordance with the Company's 2004 Omnibus Incentive Plan (the “2004 Omnibus Plan”) in order to attract and retain highly qualified persons to serve as non-employee directors and to more closely align such directors' interests with the interests of the stockholders of the Company by providing a portion of their compensation in the form of Company common stock. Under the Director Restricted Stock Plan, $60,000 in restricted Company common stock was awarded to each non-employee director on the fourth business day after the Company released its earnings for its prior completed fiscal year (the “Date of Award”). The amount of restricted stock to be issued was calculated using the closing price of the Company’s common stock on the third business day after the Company released its earnings. The restricted stock was subject to a right of repurchase at $0.01 per share upon termination of the holder as a member of the Company's board of directors for cause and was not transferable. These restrictions lapse with respect to 100% of the restricted stock upon the earliest to occur of (i) 10 years after the date of award, (ii) a Change of Control (as defined in the 2004 Omnibus Plan), and (iii) termination of the non-employee director's service with the Company, other than for “cause” (as defined in the Director Restricted Stock Plan).
Beginning in fiscal 2014, the Board discontinued grants to non-employee directors under the Director Restricted Stock Plan described above, and in lieu thereof, as an additional element of annual non-employee director compensation, pursuant to the 2012 Omnibus Plan, each non-employee director received $90,000 of restricted stock units immediately following the Company’s annual meeting of stockholders at which such directors are elected. Beginning in fiscal 2017, the Board increased the dollar amount of the annual grant of restricted stock units to $110,000, and such grants are now made under the 2017 Omnibus Plan. The number of restricted stock units to be issued is calculated using the closing price of the Company’s stock on the date of its annual meeting. The award vests (and is no longer subject to forfeiture) on the first to occur of (i) the first anniversary of the grant date, (ii) the grantee’s separation from service as a result of death or disability, or (iii) a change of control. The award will become “payable” in shares of the Company’s stock in a single lump sum payment as soon as possible following a grantee’s separation from service, subject to a grantee’s right to elect earlier distributions under certain circumstances. If a grantee ceases to be a director for any reason other than death or disability prior to vesting, the grantee will receive a prorated amount of the award up to the date of separation.
A summary of the Company’s non-employee director restricted stock awards as of December 28, 2019, and changes during the year ended is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock and Restricted Stock Unit
Shares
|
|
Weighted Average
Grant Date
Fair Value
|
|
Stock awards outstanding December 31, 2016
|
111,359
|
|
|
$
|
14.18
|
|
|
Restricted shares granted
|
60,575
|
|
|
15.63
|
|
|
Restricted shares where the restriction lapsed
|
(14,915
|
)
|
|
12.42
|
|
|
Restricted shares forfeited
|
(2,210
|
)
|
|
14.51
|
|
|
Stock awards outstanding December 30, 2017
|
154,809
|
|
|
14.91
|
|
|
Restricted shares granted
|
61,806
|
|
|
16.92
|
|
|
Restricted shares where the restriction lapsed
|
(1,438
|
)
|
|
13.90
|
|
|
Restricted shares forfeited
|
—
|
|
|
—
|
|
|
Stock awards outstanding December 29, 2018
|
215,177
|
|
|
15.49
|
|
|
Restricted shares granted
|
52,990
|
|
|
20.76
|
|
|
Restricted shares where the restriction lapsed
|
(6,803
|
)
|
|
2.94
|
|
|
Restricted shares forfeited
|
—
|
|
|
—
|
|
|
Stock awards outstanding December 28, 2019
|
261,364
|
|
|
$
|
16.89
|
|
NOTE 14. COMPREHENSIVE INCOME/(LOSS)
The Company follows FASB authoritative guidance for reporting and presentation of comprehensive income or loss and its components. Other comprehensive income (loss) is derived from adjustments that reflect pension adjustments, natural gas swap adjustments, corn option adjustments, foreign exchange forward and 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 allowed for a reclassification from accumulated other comprehensive income
DARLING INGREDIENTS INC.
Notes to Consolidated Financial Statements (continued)
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 loss to retained earnings resulting from the Tax Cuts and Jobs Act.
In fiscal 2019, the Company's DGD Joint Venture entered into heating oil derivatives that were deemed to be cash flow hedges. As a result, the Company has accrued the other comprehensive income/(loss) portion belonging to Darling with an offset to the investment in DGD as required by FASB ASC Topic 323.
The components of other comprehensive income/(loss) and the related tax impacts for the years ended December 28, 2019, December 29, 2018 and December 30, 2017 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before-Tax
|
|
Tax (Expense)
|
|
Net-of-Tax
|
|
|
Amount
|
|
or Benefit
|
|
Amount
|
|
Year Ended December 30, 2017
|
|
|
|
|
|
|
Defined Benefit Pension Plans
|
|
|
|
|
|
|
Actuarial (loss)/gain recognized
|
$
|
4,027
|
|
|
$
|
(1,264
|
)
|
|
$
|
2,763
|
|
|
Amortization of actuarial loss
|
4,786
|
|
|
(1,801
|
)
|
|
2,985
|
|
|
Amortization of prior service costs
|
35
|
|
|
(11
|
)
|
|
24
|
|
|
Amortization of settlement
|
42
|
|
|
(15
|
)
|
|
27
|
|
|
Other
|
30
|
|
|
—
|
|
|
30
|
|
|
Total defined benefit pension plans
|
8,920
|
|
|
(3,091
|
)
|
|
5,829
|
|
|
Natural gas swap derivatives
|
|
|
|
|
|
|
Gain/(loss) reclassified to net income
|
35
|
|
|
(14
|
)
|
|
21
|
|
|
Gain/(loss) recognized in other comprehensive income (loss)
|
(65
|
)
|
|
26
|
|
|
(39
|
)
|
|
Total natural gas derivatives
|
(30
|
)
|
|
12
|
|
|
(18
|
)
|
|
Corn option derivatives
|
|
|
|
|
|
|
Gain/(loss) reclassified to net income
|
(5,255
|
)
|
|
2,039
|
|
|
(3,216
|
)
|
|
Gain/(loss) recognized in other comprehensive income (loss)
|
3,494
|
|
|
(1,356
|
)
|
|
2,138
|
|
|
Total corn options
|
(1,761
|
)
|
|
683
|
|
|
(1,078
|
)
|
|
Foreign currency translation
|
|
|
|
|
|
|
Other comprehensive income
|
121,810
|
|
|
—
|
|
|
121,810
|
|
|
Other comprehensive income/(loss)
|
$
|
128,939
|
|
|
$
|
(2,396
|
)
|
|
$
|
126,543
|
|
|
Year Ended December 29, 2018
|
|
|
|
|
|
|
Defined Benefit Pension Plans
|
|
|
|
|
|
|
Actuarial (loss)/gain recognized
|
$
|
(7,901
|
)
|
|
$
|
2,015
|
|
|
$
|
(5,886
|
)
|
|
Amortization of actuarial loss
|
3,543
|
|
|
(910
|
)
|
|
2,633
|
|
|
Actuarial prior service cost recognized
|
(11
|
)
|
|
3
|
|
|
(8
|
)
|
|
Amortization of prior service costs
|
35
|
|
|
(9
|
)
|
|
26
|
|
|
Amortization of curtailment
|
498
|
|
|
—
|
|
|
498
|
|
|
Amortization of settlement
|
(3
|
)
|
|
1
|
|
|
(2
|
)
|
|
Other
|
9
|
|
|
—
|
|
|
9
|
|
|
Total defined benefit pension plans
|
(3,830
|
)
|
|
1,100
|
|
|
(2,730
|
)
|
|
Natural gas swap derivatives
|
|
|
|
|
|
|
Gain/(loss) reclassified to net income
|
14
|
|
|
(3
|
)
|
|
11
|
|
|
Gain/(loss) recognized in other comprehensive income (loss)
|
16
|
|
|
(4
|
)
|
|
12
|
|
|
Total natural gas derivatives
|
30
|
|
|
(7
|
)
|
|
23
|
|
|
Soybean meal option derivatives
|
|
|
|
|
|
|
Gain/(loss) reclassified to net income
|
(8
|
)
|
|
2
|
|
|
(6
|
)
|
|
Gain/(loss) recognized in other comprehensive income (loss)
|
8
|
|
|
(2
|
)
|
|
6
|
|
|
Total soybean meal derivatives
|
—
|
|
|
—
|
|
|
—
|
|
|
Corn option derivatives
|
|
|
|
|
|
|
Gain/(loss) reclassified to net income
|
(1,912
|
)
|
|
493
|
|
|
(1,419
|
)
|
|
Gain/(Loss) recognized in other comprehensive income
|
(361
|
)
|
|
93
|
|
|
(268
|
)
|
|
Total corn options
|
(2,273
|
)
|
|
586
|
|
|
(1,687
|
)
|
|
Foreign exchange derivatives
|
|
|
|
|
|
|
Gain/(Loss) recognized in other comprehensive income
|
1,637
|
|
|
(556
|
)
|
|
1,081
|
|
|
Total foreign exchange derivatives
|
1,637
|
|
|
(556
|
)
|
|
1,081
|
|
|
Foreign currency translation
|
(89,198
|
)
|
|
1,724
|
|
|
(87,474
|
)
|
|
Other comprehensive income/(loss)
|
$
|
(93,634
|
)
|
|
$
|
2,847
|
|
|
$
|
(90,787
|
)
|
|
Year Ended December 28, 2019
|
|
|
|
|
|
|
Defined Benefit Pension Plans
|
|
|
|
|
|
|
Actuarial (loss)/gain recognized
|
$
|
(2,202
|
)
|
|
$
|
211
|
|
|
$
|
(1,991
|
)
|
DARLING INGREDIENTS INC.
Notes to Consolidated Financial Statements (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of actuarial loss
|
4,571
|
|
|
(1,143
|
)
|
|
3,428
|
|
|
Actuarial prior service cost recognized
|
9
|
|
|
(2
|
)
|
|
7
|
|
|
Amortization of prior service costs
|
34
|
|
|
(9
|
)
|
|
25
|
|
|
Amortization of settlement
|
66
|
|
|
(16
|
)
|
|
50
|
|
|
Other
|
16
|
|
|
—
|
|
|
16
|
|
|
Total defined benefit pension plans
|
2,494
|
|
|
(959
|
)
|
|
1,535
|
|
|
Heating oil swap derivatives
|
|
|
|
|
|
|
Gain/(loss) recognized in other comprehensive income (loss)
|
(4,188
|
)
|
|
1,047
|
|
|
(3,141
|
)
|
|
Total heating oil derivatives
|
(4,188
|
)
|
|
1,047
|
|
|
(3,141
|
)
|
|
Corn option derivatives
|
|
|
|
|
|
|
Gain/(loss) reclassified to net income
|
422
|
|
|
(106
|
)
|
|
316
|
|
|
Gain/(Loss) recognized in other comprehensive income
|
(51
|
)
|
|
13
|
|
|
(38
|
)
|
|
Total corn options
|
371
|
|
|
(93
|
)
|
|
278
|
|
|
Foreign exchange derivatives
|
|
|
|
|
|
|
Gain/(loss) reclassified to net income
|
1,345
|
|
|
(442
|
)
|
|
903
|
|
|
Gain/(Loss) recognized in other comprehensive income
|
(6,887
|
)
|
|
2,261
|
|
|
(4,626
|
)
|
|
Total foreign exchange derivatives
|
(5,542
|
)
|
|
1,819
|
|
|
(3,723
|
)
|
|
Foreign currency translation
|
(12,771
|
)
|
|
837
|
|
|
(11,934
|
)
|
|
Other comprehensive income/(loss)
|
$
|
(19,636
|
)
|
|
$
|
2,651
|
|
|
$
|
(16,985
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
December 28, 2019
|
December 29, 2018
|
December 30, 2017
|
Statement of Operations Classification
|
|
Derivative instruments
|
|
|
|
|
|
Soybean meal option derivatives
|
$
|
—
|
|
$
|
8
|
|
$
|
—
|
|
Net sales
|
|
Foreign Exchange derivatives
|
(1,345
|
)
|
—
|
|
—
|
|
Net sales
|
|
Natural gas swap derivatives
|
—
|
|
(14
|
)
|
(35
|
)
|
Cost of sales and operating expenses
|
|
Corn option derivatives
|
(422
|
)
|
1,912
|
|
5,255
|
|
Cost of sales and operating expenses
|
|
|
(1,767
|
)
|
1,906
|
|
5,220
|
|
Total before tax
|
|
|
548
|
|
(492
|
)
|
(2,025
|
)
|
Income taxes
|
|
|
(1,219
|
)
|
1,414
|
|
3,195
|
|
Net of tax
|
|
Defined benefit pension plans
|
|
|
|
|
|
Amortization of prior service cost
|
$
|
(34
|
)
|
$
|
(35
|
)
|
$
|
(35
|
)
|
(a)
|
|
Amortization of actuarial loss
|
(4,571
|
)
|
(3,543
|
)
|
(4,786
|
)
|
(a)
|
|
Amortization of curtailment
|
—
|
|
(498
|
)
|
—
|
|
(a)
|
|
Amortization of settlement
|
(66
|
)
|
3
|
|
(42
|
)
|
(a)
|
|
|
(4,671
|
)
|
(4,073
|
)
|
(4,863
|
)
|
Total before tax
|
|
|
1,168
|
|
918
|
|
1,827
|
|
Income taxes
|
|
|
(3,503
|
)
|
(3,155
|
)
|
(3,036
|
)
|
Net of tax
|
|
Total reclassifications
|
$
|
(4,722
|
)
|
$
|
(1,741
|
)
|
$
|
159
|
|
Net of tax
|
|
|
|
|
(a)
|
These items are included in the computation of net periodic pension cost. See Note 15 Employee Benefit Plans for additional information.
|
The following table presents changes in each component of accumulated comprehensive income/(loss) as of December 28, 2019 as follows (in thousands):
DARLING INGREDIENTS INC.
Notes to Consolidated Financial Statements (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended December 28, 2019
|
|
|
|
Foreign Currency
|
Derivative
|
Defined Benefit
|
|
|
|
|
Translation
|
Instruments
|
Pension Plans
|
Total
|
|
Accumulated Other Comprehensive Income/(loss) December 29, 2018, attributable to Darling, net of tax
|
|
$
|
(270,081
|
)
|
$
|
1,081
|
|
$
|
(35,539
|
)
|
$
|
(304,539
|
)
|
|
Other comprehensive loss before reclassifications
|
|
(11,934
|
)
|
(7,805
|
)
|
(1,968
|
)
|
(21,707
|
)
|
|
Amounts reclassified from accumulated other comprehensive income
|
|
—
|
|
1,219
|
|
3,503
|
|
4,722
|
|
|
Net current-period other comprehensive income/(loss)
|
|
(11,934
|
)
|
(6,586
|
)
|
1,535
|
|
(16,985
|
)
|
|
Noncontrolling interest
|
|
323
|
|
—
|
|
—
|
|
323
|
|
|
Accumulated Other Comprehensive loss December 28, 2019, attributable to Darling, net of tax
|
|
$
|
(282,338
|
)
|
$
|
(5,505
|
)
|
$
|
(34,004
|
)
|
$
|
(321,847
|
)
|
NOTE 15. 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 domestic 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.
The Company maintains defined contribution plans both domestically and at its foreign entities. The Company's matching portion and annual employer contributions to the Company's domestic defined contribution plans for fiscal 2019, 2018 and 2017 were approximately $10.6 million, $10.1 million and $9.6 million, respectively. The Company's matching portion and annual employer contributions to the Company's foreign defined contribution plans for fiscal 2019, 2018 and 2017 were approximately $8.4 million, $7.8 million and $7.5 million, respectively.
The Company recognizes the over-funded or under-funded status of the Company's defined benefit post-retirement plans as an asset or liability in the Company's balance sheet, with changes in the funded status recognized through comprehensive income in the year in which they occur. The Company uses the month-end date of December 31 as the measurement date for all of the Company's defined benefit plans, which is the closest month-end to the Company's fiscal year-end. The following table sets forth the plans’ funded status for the Company's domestic and foreign defined benefit plans and amounts recognized in the Company's Consolidated Balance Sheets based on the measurement date (December 31, 2019 and December 31, 2018) (in thousands):
DARLING INGREDIENTS INC.
Notes to Consolidated Financial Statements (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
December 28,
2019
|
|
December 29,
2018
|
|
Change in projected benefit obligation:
|
|
|
|
|
Projected benefit obligation at beginning of period
|
$
|
190,666
|
|
|
$
|
204,728
|
|
|
Service cost
|
2,696
|
|
|
3,064
|
|
|
Interest cost
|
6,828
|
|
|
6,443
|
|
|
Employee contributions
|
368
|
|
|
410
|
|
|
Actuarial loss/(gain)
|
20,927
|
|
|
(12,235
|
)
|
|
Benefits paid
|
(8,120
|
)
|
|
(7,799
|
)
|
|
Effect of curtailment
|
(43
|
)
|
|
(474
|
)
|
|
Effect of settlement
|
(903
|
)
|
|
(280
|
)
|
|
Other
|
(154
|
)
|
|
(3,191
|
)
|
|
Projected benefit obligation at end of period
|
212,265
|
|
|
190,666
|
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
Fair value of plan assets at beginning of period
|
133,861
|
|
|
150,517
|
|
|
Actual return on plan assets
|
26,014
|
|
|
(11,922
|
)
|
|
Employer contributions
|
4,343
|
|
|
4,538
|
|
|
Employee contributions
|
368
|
|
|
410
|
|
|
Benefits paid
|
(8,120
|
)
|
|
(7,799
|
)
|
|
Effect of settlement
|
(903
|
)
|
|
(331
|
)
|
|
Other
|
139
|
|
|
(1,552
|
)
|
|
Fair value of plan assets at end of period
|
155,702
|
|
|
133,861
|
|
|
|
|
|
|
|
Funded status
|
(56,563
|
)
|
|
(56,805
|
)
|
|
Net amount recognized
|
$
|
(56,563
|
)
|
|
$
|
(56,805
|
)
|
|
|
|
|
|
|
Amounts recognized in the consolidated balance
sheets consist of:
|
|
|
|
|
|
|
Current liability
|
$
|
(1,072
|
)
|
|
$
|
(1,173
|
)
|
|
Noncurrent liability
|
(55,491
|
)
|
|
(55,632
|
)
|
|
Net amount recognized
|
$
|
(56,563
|
)
|
|
$
|
(56,805
|
)
|
|
|
|
|
|
|
Amounts recognized in accumulated other
comprehensive loss consist of:
|
|
|
|
|
|
|
Net actuarial loss
|
$
|
45,062
|
|
|
$
|
47,501
|
|
|
Prior service cost
|
295
|
|
|
351
|
|
|
Net amount recognized (a)
|
$
|
45,357
|
|
|
$
|
47,852
|
|
|
|
|
|
(a)
|
Amounts do not include deferred taxes of $11.4 million and $12.3 million at December 28, 2019 and December 29, 2018, respectively.
|
The amounts included in “Other” in the above table reflect the impact of foreign exchange translation for plans in Brazil, Belgium, Canada, France, Germany, Japan, Netherlands and United Kingdom. The Company's domestic pension plan benefits comprise approximately 73% and 74% of the projected benefit obligation for fiscal 2019 and fiscal 2018, respectively. Additionally, the Company has made required and tax deductible discretionary contributions to its domestic pension plans in fiscal 2019 and fiscal 2018 of approximately $0.9 million and $1.0 million, respectively. The Company made required and tax deductible discretionary contributions to its foreign pension plans in fiscal 2019 and fiscal 2018 of approximately $3.4 million and $ 3.5 million, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
December 28,
2019
|
|
December 29,
2018
|
|
Projected benefit obligation
|
$
|
212,265
|
|
|
$
|
190,666
|
|
|
Accumulated benefit obligation
|
201,708
|
|
|
181,642
|
|
|
Fair value of plan assets
|
155,702
|
|
|
133,861
|
|
DARLING INGREDIENTS INC.
Notes to Consolidated Financial Statements (continued)
The Company's service cost component of net periodic pension cost is included in compensation costs while all components of net periodic 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 includes the following components (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 28,
2019
|
|
December 29,
2018
|
|
December 30,
2017
|
|
Service cost
|
$
|
2,696
|
|
|
$
|
3,064
|
|
|
$
|
3,043
|
|
|
Interest cost
|
6,828
|
|
|
6,443
|
|
|
6,711
|
|
|
Expected return on plan assets
|
(7,270
|
)
|
|
(8,226
|
)
|
|
(7,181
|
)
|
|
Net amortization and deferral
|
4,605
|
|
|
3,578
|
|
|
4,821
|
|
|
Curtailment
|
(33
|
)
|
|
(263
|
)
|
|
—
|
|
|
Settlement
|
66
|
|
|
47
|
|
|
42
|
|
|
Net pension cost
|
$
|
6,892
|
|
|
$
|
4,643
|
|
|
$
|
7,436
|
|
Amounts recognized in accumulated other comprehensive income (loss) for the year ended (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
Actuarial (loss)/gain recognized:
|
|
|
|
|
Reclassification adjustments
|
$
|
3,428
|
|
|
$
|
2,633
|
|
|
Actuarial (loss)/gain recognized during the period
|
(1,991
|
)
|
|
(5,886
|
)
|
|
Amortization of settlement
|
50
|
|
|
(2
|
)
|
|
Amortization of curtailment
|
—
|
|
|
498
|
|
|
Prior service (cost) credit recognized:
|
|
|
|
|
|
|
Reclassification adjustments
|
25
|
|
|
26
|
|
|
Prior service cost arising during the period
|
7
|
|
|
(8
|
)
|
|
Other
|
16
|
|
|
9
|
|
|
|
$
|
1,535
|
|
|
$
|
(2,730
|
)
|
The estimated amount that will be amortized from accumulated other comprehensive loss into net periodic pension cost in fiscal 2020 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
2020
|
|
Net actuarial loss
|
$
|
3,417
|
|
|
Prior service cost
|
33
|
|
|
|
$
|
3,450
|
|
Weighted average assumptions used to determine benefit obligations were:
|
|
|
|
|
|
|
|
|
|
|
December 28,
2019
|
|
December 29,
2018
|
|
December 30,
2017
|
|
|
|
|
|
|
|
|
Discount rate
|
2.77%
|
|
3.68%
|
|
3.40%
|
|
Rate of compensation increase
|
0.40%
|
|
0.42%
|
|
0.38%
|
Weighted average assumptions used to determine net periodic benefit cost for the employee benefit pension plans were:
|
|
|
|
|
|
|
|
|
|
|
December 28,
2019
|
|
December 29,
2018
|
|
December 30,
2017
|
|
Discount rate
|
3.33%
|
|
2.30%
|
|
3.49%
|
|
Rate of increase in future compensation levels
|
0.42%
|
|
0.36%
|
|
0.43%
|
|
Expected long-term rate of return on assets
|
6.13%
|
|
6.13%
|
|
6.17%
|
DARLING INGREDIENTS INC.
Notes to Consolidated Financial Statements (continued)
Consideration was made to the long-term time horizon for the (U.S. and Canada's) plans' benefit obligations as well as the related asset class mix in determining the expected long-term rate of return. Historical returns are also considered, over the long-term time horizon, in determining the expected return. Considering the overall asset mix of approximately 60% equity and 40% fixed income with equity exposure on a declining trend since the implementation of the glide path for two of the U.S. plans, the Company believes it is reasonable to expect a long-term rate of return of 6.4% for the (U.S. and Canada's) plans' investments as a whole. The remaining foreign plans' assets are principally invested under insurance contracts arrangements which have weighted average expected long-term rate of returns of 3.3%.
The investment objectives have been established in conjunction with a comprehensive review of the current and projected financial requirements. The primary investment objectives are: 1) to have the ability to pay all benefit and expense obligations when due; 2) to maximize investment returns within reasonable and prudent levels of risk in order to minimize contributions; and 3) to maintain flexibility in determining the future level of contributions.
Investment results and changing discount rates are the most critical elements in achieving funding objectives; however, contributions are used as a supplemental source of funding as deemed appropriate.
The investment guidelines are based upon an investment horizon of greater than ten years; therefore, interim fluctuations are viewed with this perspective. The strategic asset allocation is based on this long-term perspective and the plans' funded status. However, because the participants’ average age is somewhat older than the typical average plan age, consideration is given to retaining some short-term liquidity. Analysis of the cash flow projections of the plans indicates that benefit payments will continue to exceed contributions. The results of a thorough asset-liability study completed during 2012 established a dynamic asset allocation glide path (the “Glide Path”) by which the U.S. plans' asset allocations are determined. The Glide Path designates intervals based on funded status which contain a corresponding allocation to equities/real assets and fixed income. As the U.S. plans' funded status improves, the allocations become more conservative, and the opposite is true when the funded status declines.
|
|
|
|
|
|
Fixed Income
|
35% - 80%
|
|
Equities
|
20% - 65%
|
The equity allocation is invested in stocks traded on one of the U.S. stock exchanges or in foreign companies whose stock is traded outside the U.S. and/or companies that conduct the major portion of their business outside the U.S. Securities convertible into such stocks, convertible bonds and preferred stock, may also be purchased. The portfolio may invest in American Depository Receipts (“ADR”). The majority of the equities are invested in mutual funds that are well-diversified among growth and value stocks, as well as large, mid, and small cap assets. This mix is balanced based on the understanding that large cap stocks are historically less volatile than small cap stocks: however, smaller cap stocks have historically outperformed larger cap stocks. The emerging markets portion of the equity allocation is held below 10% due to greater volatility in the asset class. Risk adjusted returns are the primary driver of allocation choices within these asset classes. The portfolio is well-diversified in terms of companies, industries and countries.
The diversified asset portion of the allocation will invest in securities with a goal to outpace inflation and preserve their value. The securities in this allocation may consist of inflation-indexed bonds, securities of real estate companies, commodity index-linked notes, fixed-income securities, securities of natural resource companies, master limited partnerships, publicly-listed infrastructure companies, and floating rate debt.
All investment objectives are expected to be achieved over a market cycle anticipated to be a period of five to seven years. Reallocations are performed on a monthly basis to retain target allocation ranges. On a quarterly basis the plans' funded status will be recalculated to determine which Glide Path interval allocation is appropriate.
The following table presents fair value measurements for the Company's defined benefit plans’ assets as categorized using the fair value hierarchy under FASB authoritative guidance (in thousands):
DARLING INGREDIENTS INC.
Notes to Consolidated Financial Statements (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Quoted Prices in
Active Markets for
Identical Assets
|
|
Significant Other
Observable
Inputs
|
|
Significant
Unobservable
Inputs
|
|
(In thousands of dollars)
|
Fair Value
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Balances as December 29, 2018
|
|
|
|
|
|
|
|
|
Fixed Income:
|
|
|
|
|
|
|
|
|
Long Term
|
$
|
21,670
|
|
|
$
|
21,670
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Short Term
|
2,032
|
|
|
2,032
|
|
|
—
|
|
|
—
|
|
|
Equity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic equities
|
37,223
|
|
|
37,223
|
|
|
—
|
|
|
—
|
|
|
International equities
|
24,714
|
|
|
24,714
|
|
|
—
|
|
|
—
|
|
|
Insurance contracts
|
9,636
|
|
|
—
|
|
|
6,299
|
|
|
3,337
|
|
|
Total categorized in fair value hierarchy
|
95,275
|
|
|
85,639
|
|
|
6,299
|
|
|
3,337
|
|
|
Other investments measured at NAV
|
38,586
|
|
|
|
|
|
|
|
|
Totals
|
$
|
133,861
|
|
|
$
|
85,639
|
|
|
$
|
6,299
|
|
|
$
|
3,337
|
|
|
|
|
|
|
|
|
|
|
|
Balances as December 28, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Long Term
|
$
|
16,154
|
|
|
$
|
16,154
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Short Term
|
3,448
|
|
|
3,448
|
|
|
—
|
|
|
—
|
|
|
Equity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic equities
|
52,420
|
|
|
52,420
|
|
|
—
|
|
|
—
|
|
|
International equities
|
32,167
|
|
|
32,167
|
|
|
—
|
|
|
—
|
|
|
Insurance contracts
|
10,266
|
|
|
—
|
|
|
5,792
|
|
|
4,474
|
|
|
Total categorized in fair value hierarchy
|
114,455
|
|
|
104,189
|
|
|
5,792
|
|
|
4,474
|
|
|
Other investments measured at NAV
|
41,247
|
|
|
|
|
|
|
|
|
Totals
|
$
|
155,702
|
|
|
$
|
104,189
|
|
|
$
|
5,792
|
|
|
$
|
4,474
|
|
The majority of the U.S. and Canada plan pension assets are invested in mutual funds; however, some assets are invested in pooled separate accounts (“PSA”) which have similar mutual fund counterparts. PSA accounts are generally used to access lower fund management expenses when compared to their mutual fund counterparts. The mutual funds are generally invested in institutional shares, retirement shares, or A-shares with no loads. The fair value of each mutual fund and PSA is based on the market value of the underlying investments. The U.S. pension plans PSA for fiscal 2019 and fiscal 2018 utilized net asset value (“NAV”) per share (or its equivalent) to measure its investments, as a practical expedient in accordance with ASC Topic 820, Fair Value Measurements and have not been classified in the fair value hierarchy in the above table. The majority of the foreign pension assets are held under insurance contracts where the investment risk for the accumulated benefit obligation rests with the insurer, which the Company has no specific detailed asset information.
The fair value measurement of plan assets using significant unobservable inputs (level 3) changed due to the following:
|
|
|
|
|
|
|
|
|
|
|
Insurance
|
|
(in thousands of dollars)
|
|
Contracts
|
|
Balance as of December 30, 2017
|
|
$
|
3,375
|
|
|
Unrealized gains relating to instruments still held in the reporting period.
|
|
114
|
|
|
Purchases, sales, and settlements
|
|
—
|
|
|
Exchange rate changes
|
|
(152
|
)
|
|
Balance as of December 29, 2018
|
|
3,337
|
|
|
Unrealized gains relating to instruments still held in the reporting period.
|
|
1,168
|
|
|
Purchases, sales, and settlements
|
|
—
|
|
|
Exchange rate changes
|
|
(31
|
)
|
|
Balance as of December 28, 2019
|
|
$
|
4,474
|
|
DARLING INGREDIENTS INC.
Notes to Consolidated Financial Statements (continued)
Contributions
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 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 current actuarial estimates, the Company expects to make payments of approximately $4.8 million to meet funding requirements for its domestic and foreign pension plans in fiscal 2020.
Estimated Future Benefit Payments
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid (in thousands):
|
|
|
|
|
|
|
|
Year Ending
|
Pension Benefits
|
|
2020
|
$
|
10,546
|
|
|
2021
|
10,498
|
|
|
2022
|
10,754
|
|
|
2023
|
10,675
|
|
|
2024
|
11,892
|
|
|
Years 2025 – 2029
|
64,147
|
|
Multiemployer Pension Plans
The Company participates in various multiemployer pension plans which provide defined benefits to certain employees covered by labor contracts in the United States. 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 FASB issued guidance requiring companies to provide additional disclosures related to individually significant multiemployer pension plans. The Company's contributions to each individual 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. The following table provides more detail on these significant multiemployer plans (contributions in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expiration
|
|
Pension
|
EIN Pension
|
Pension Protection Act Zone Status
|
FIP/RP Status Pending/
|
Contributions
|
Date of Collective Bargaining
|
|
Fund
|
Plan Number
|
2019
|
2018
|
Implemented
|
2019
|
2018
|
2017
|
Agreement
|
|
Western Conference of Teamsters Pension Plan
|
91-6145047 / 001
|
Green
|
Green
|
No
|
$
|
1,514
|
|
$
|
1,505
|
|
$
|
1,524
|
|
December 2023 (b)
|
|
Central States, Southeast and Southwest Areas Pension Plan (a)
|
36-6044243 / 001
|
Red
|
Red
|
Yes
|
916
|
|
978
|
|
968
|
|
August 2022 (c)
|
|
All other multiemployer plans
|
|
|
|
|
1,196
|
|
1,064
|
|
980
|
|
|
|
|
|
Total Company Contributions
|
$
|
3,626
|
|
$
|
3,547
|
|
$
|
3,472
|
|
|
|
|
|
|
(a)
|
In July 2005 this plan received a 10 year extension from the IRS for amortizing unfunded liabilities. In April 2016 the IRS approved a modification of the amortization extension.
|
|
|
|
|
(b)
|
The Company has several plants that participate in the Western Conference of Teamsters Pension Plan under collective bargaining agreements that require minimum funding contributions. The agreements have expiration dates through December 31, 2023.
|
|
|
|
|
(c)
|
The Company has several processing plants that participate in the Central States, Southeast and Southwest Areas Pension Plan under collective bargaining agreements that require minimum funding contributions. Certain of these agreements have expired and are being renegotiated with others having expiration dates through August 2, 2022.
|
DARLING INGREDIENTS INC.
Notes to Consolidated Financial Statements (continued)
With respect to the other multiemployer pension plans in which the Company participates and which are not individually significant, five plans have certified as critical or red zone, two plan have certified as endangered or yellow zone, as defined by the Pension Protection Act of 2006. The Company's portion of contributions to all plans amounted to $3.6 million, $3.5 million and $3.5 million for the years ended December 28, 2019, December 29, 2018 and December 30, 2017, respectively.
The Company has received notices in prior years of withdrawal liability from five U.S. multiemployer plans in which it participated. As of December 28, 2019, the Company has an aggregate accrued liability of approximately $6.0 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.
NOTE 16. DERIVATIVES
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 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. Corn options and future contracts are entered into with the intent of managing forecasted sales of 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 December 28, 2019, the Company had foreign currency option and forward contracts and corn option contracts outstanding that qualified and were designated for hedge accounting as well as corn forward contracts and 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 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 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 fiscal 2018 and fiscal 2019, the Company entered into foreign exchange option and forward contracts that are considered cash flow hedges. Under the terms of the foreign exchange contracts, the Company hedged a portion of its forecasted collagen sales in currencies other than the functional currency through the fourth quarter of fiscal 2022. As of December 28, 2019, the contract positions and activity are not significant to the Company. At December 28, 2019 and December 29, 2018, the aggregate fair value of these foreign exchange contracts was approximately $1.3 million and $1.6 million, respectively. The December 28, 2019 amounts are included in other current assets, other noncurrent assets and accrued expenses on the balance sheet, with an offset recorded in accumulated other comprehensive loss.
In fiscal 2019, the Company entered into corn option contracts that are considered cash flow hedges. Under the terms of the corn option contracts the Company hedged a portion of its forecasted sales of BBP into the second quarter of fiscal 2020. At December 28, 2019, the aggregate fair value of the corn contracts was $0.4 million. As of December 29, 2018 there were no outstanding amounts. The amounts are included in other current assets on the balance sheet.
DARLING INGREDIENTS INC.
Notes to Consolidated Financial Statements (continued)
As of December 28, 2019, 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 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Functional Currency
|
|
Contract Currency
|
|
Type
|
Amount
|
|
Type
|
Amount
|
|
Brazilian real
|
45,908
|
|
|
Euro
|
9,983
|
|
|
Brazilian real
|
1,106,077
|
|
|
U.S. Dollar
|
308,320
|
|
|
Euro
|
71,203
|
|
|
U.S. Dollar
|
79,664
|
|
|
Euro
|
26,943
|
|
|
Polish zloty
|
115,500
|
|
|
Euro
|
5,159
|
|
|
Japanese yen
|
624,510
|
|
|
Euro
|
21,074
|
|
|
Chinese renminbi
|
166,146
|
|
|
Euro
|
13,441
|
|
|
Australian dollar
|
21,850
|
|
|
Euro
|
6,905
|
|
|
British pound
|
5,930
|
|
|
Polish zloty
|
26,647
|
|
|
Euro
|
6,233
|
|
|
British pound
|
94
|
|
|
Euro
|
113
|
|
|
Japanese yen
|
204,824
|
|
|
U.S. dollar
|
1,909
|
|
|
U.S. dollar
|
705
|
|
|
Japanese yen
|
77,000
|
|
|
U.S. dollar
|
49,833
|
|
|
Euro
|
45,000
|
|
|
Australian dollar
|
432
|
|
|
Euro
|
267
|
|
The Company estimates the amount that will be reclassified from accumulated other comprehensive loss at December 28, 2019 into earnings over the next 12 months will be approximately $3.1 million. As of December 28, 2019, no amounts have been reclassified into earnings as a result of the discontinuance of cash flow hedges.
The table below summarizes the effect of derivatives not designated as hedges on the Company's consolidated statements of operations for the year ended December 28, 2019, December 29, 2018 and December 30, 2017 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss or (Gain) Recognized in Income on Derivatives Not Designated as Hedges
|
|
|
|
|
|
For The Year Ended
|
|
Derivatives not designated as hedging instruments
|
|
Location
|
|
December 28, 2019
|
December 29, 2018
|
December 30, 2017
|
|
Foreign exchange
|
|
Foreign currency loss/(gain)
|
|
$
|
1,565
|
|
$
|
(2,160
|
)
|
$
|
13,460
|
|
|
Foreign exchange
|
|
Net sales
|
|
903
|
|
2,806
|
|
—
|
|
|
Foreign exchange
|
|
Cost of sales and operating expenses
|
|
(452
|
)
|
(1,005
|
)
|
—
|
|
|
Foreign exchange
|
|
Selling, general and administrative expense
|
|
1,649
|
|
3,040
|
|
(2,763
|
)
|
|
Corn options and futures
|
|
Net sales
|
|
670
|
|
683
|
|
212
|
|
|
Corn options and futures
|
|
Cost of sales and operating expenses
|
|
(1,636
|
)
|
(543
|
)
|
(1,659
|
)
|
|
Natural gas and heating oil swaps and options
|
|
Cost of sales and operating expenses
|
|
(506
|
)
|
1,031
|
|
—
|
|
|
Heating oil swaps and options
|
|
Net sales
|
|
—
|
|
—
|
|
492
|
|
|
Soybean meal
|
|
Net sales
|
|
—
|
|
—
|
|
(405
|
)
|
|
Soybean oil
|
|
Net sales
|
|
—
|
|
—
|
|
45
|
|
|
Total
|
|
|
|
$
|
2,193
|
|
$
|
3,852
|
|
$
|
9,382
|
|
At December 28, 2019, the Company had forward purchase agreements in place for purchases of approximately $43.5 million of natural gas and diesel fuel. These forward purchase agreements have no net settlement provisions and the Company intends to take physical delivery. Accordingly, the forward purchase agreements are not subject to the requirements of fair value accounting because they qualify as normal purchases as defined.
DARLING INGREDIENTS INC.
Notes to Consolidated Financial Statements (continued)
NOTE 17. FAIR VALUE MEASUREMENT
FASB authoritative guidance which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements including guidance related to nonrecurring measurements of nonfinancial assets and liabilities.
The following tables presents the Company's financial instruments that are measured at fair value on a recurring and nonrecurring basis as of December 28, 2019 and December 29, 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 December 28, 2019 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 assets
|
$
|
4,140
|
|
$
|
—
|
|
$
|
4,140
|
|
$
|
—
|
|
|
Total Assets
|
4,140
|
|
—
|
|
4,140
|
|
—
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
Derivative liabilities
|
1,593
|
|
—
|
|
1,593
|
|
—
|
|
|
5.25% Senior Notes
|
531,850
|
|
—
|
|
531,850
|
|
—
|
|
|
3.625% Senior Notes
|
605,327
|
|
—
|
|
605,327
|
|
—
|
|
|
Term Loan B
|
497,475
|
|
—
|
|
497,475
|
|
—
|
|
|
Revolver
|
38,805
|
|
—
|
|
38,805
|
|
—
|
|
|
Total Liabilities
|
$
|
1,675,050
|
|
$
|
—
|
|
$
|
1,675,050
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 29, 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 assets
|
$
|
4,307
|
|
$
|
—
|
|
$
|
4,307
|
|
$
|
—
|
|
|
Total Assets
|
4,307
|
|
—
|
|
4,307
|
|
—
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
Derivative liabilities
|
3,235
|
|
—
|
|
3,235
|
|
—
|
|
|
5.375% Senior Notes
|
495,000
|
|
—
|
|
495,000
|
|
—
|
|
|
3.625% Senior Notes
|
585,303
|
|
—
|
|
585,303
|
|
—
|
|
|
Term Loan A
|
67,739
|
|
—
|
|
67,739
|
|
—
|
|
|
Term Loan B
|
492,525
|
|
—
|
|
492,525
|
|
—
|
|
|
Revolver
|
31,623
|
|
—
|
|
31,623
|
|
—
|
|
|
Total Liabilities
|
$
|
1,675,425
|
|
$
|
—
|
|
$
|
1,675,425
|
|
$
|
—
|
|
Derivative assets and liabilities consist of the Company's corn option and future contracts, foreign currency contracts, natural gas swap contracts and heating oil swap contracts which represent the difference between the observable market rates of commonly quoted intervals for similar assets and liabilities in active markets and the fixed swap rate considering the instrument’s term, notional amount and credit risk. See Note 16 Derivatives for discussion on the Company's derivatives.
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 for the Company's other debt is not deemed to be significantly different than the fair value and all other instruments have been recorded at fair value.
DARLING INGREDIENTS INC.
Notes to Consolidated Financial Statements (continued)
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.
NOTE 18. ASSET IMPAIRMENT, EXIT AND RESTRUCTURING COSTS
In the second quarter of fiscal 2018, management decided to permanently shut down the Company's Hurlingham, Argentina collagen plant. As of December 29, 2018, the Company has incurred restructuring and asset impairment charges of approximately $15.0 million, which includes employee termination charges of approximately $8.4 million, asset impairment charges of approximately $2.9 million and other factory and operational restructuring charges of approximately $3.7 million.
NOTE 19. CONCENTRATION OF CREDIT RISK
Concentration of credit risk is limited due to the Company's diversified customer base and the fact that the Company sells commodities. No single customer accounted for more than 10% of the Company’s net sales in fiscal years 2019, 2018 and 2017.
NOTE 20. CONTINGENCIES
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 December 28, 2019 and December 29, 2018, the reserves for insurance, environmental, litigation and tax contingencies reflected on the balance sheet in accrued expenses and other non-current liabilities were approximately $70.5 million and $66.6 million, respectively. The Company has insurance recovery receivables of approximately $26.2 million and $26.1 million, as of December 28, 2019 and December 29, 2018, 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 alleged successor-in-interest to The Standard Tallow Corporation) is considered a potentially responsible party (a “PRP”) with respect to alleged contamination in the lower 17-mile area of the Passaic River 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 former plant sites located in Newark and Kearny, New Jersey by The Standard Tallow Corporation, 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 the (“ROD”) 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 EPA has already offered early cash out settlements to 20 of the other PRPs and has stated that other parties who did not discharge any of the eight contaminants of concern identified in the ROD (the “COCs”) may also be eligible for cash out settlements and conducted a settlement analysis using a third-party allocator. The Company
DARLING INGREDIENTS INC.
Notes to Consolidated Financial Statements (continued)
participated in this allocation process as it asserts that it is not responsible for any liabilities of its former subsidiary The Standard Tallow Corporation, which was legally dissolved in 2000, and that, in any event, The Standard Tallow Corporation did not discharge any of the COCs. In November 2019, the Company received a cash out settlement offer from the EPA in the amount of $0.6 million ($0.3 million for each of the former plant sites in question) for liabilities relating to the lower 8.3 miles of the lower Passaic River area. The Company has accepted this settlement offer, which is now subject to the EPA’s administrative approval process, which includes publication and a public comment period. On September 30, 2016, Occidental Chemical Corporation (“OCC”) entered into an agreement with the EPA to perform the remedial design for the cleanup plan for the lower 8.3 miles of the Passaic River. On June 30, 2018, OCC filed a complaint in the United States District Court for the District of New Jersey against over 100 companies, including the Company, seeking cost recovery or contribution for costs under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) relating to various investigations and cleanups OCC has conducted or is conducting in connection with the Passaic River. According to the complaint, OCC has incurred or is incurring costs which include the estimated cost to complete the remedial design for the cleanup plan for the lower 8.3 miles of the Passaic River. OCC is also seeking a declaratory judgment to hold the defendants liable for their proper shares of future response costs, including the remedial action for the lower 8.3 miles of the Passaic River. The Company, along with 40 of the other defendants, had previously received a release from OCC of its CERCLA contribution claim of $165 million associated with the costs to design the remedy for the lower 8.3 miles of the Passaic River. Furthermore, in the event the settlement with the EPA described above is consummated, it could preclude certain of the claims alleged by OCC against the Company. 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 definitive evidence that the former Standard Tallow Corporation plant sites contributed any of the COCs 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.
NOTE 21. BUSINESS SEGMENTS
The Company sells its products domestically and internationally and operates 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 general corporate expenses.
Included in corporate activities are general corporate expenses and the amortization of 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, the Rothsay ingredients business, and 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 collagen 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 investment in the DGD Joint Venture (ii) the Company's biofuel business conducted under the Dar Pro® and Rothsay names and (iii) the bioenergy business conducted by Darling Ingredients International under the Ecoson and Rendac names.
Business Segments (in thousands):
DARLING INGREDIENTS INC.
Notes to Consolidated Financial Statements (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Feed Ingredients
|
Food Ingredients
|
Fuel Ingredients
|
Corporate
|
Total
|
|
Fiscal Year Ended December 28, 2019
|
|
|
|
|
|
|
Net Sales
|
$
|
1,970,561
|
|
$
|
1,119,085
|
|
$
|
274,259
|
|
$
|
—
|
|
$
|
3,363,905
|
|
|
Cost of sales and operating expenses
|
1,519,596
|
|
864,618
|
|
204,871
|
|
—
|
|
2,589,085
|
|
|
Gross Margin
|
450,965
|
|
254,467
|
|
69,388
|
|
—
|
|
774,820
|
|
|
|
|
|
|
|
|
|
Loss (gain) on sale of assets
|
(7,720
|
)
|
(13,175
|
)
|
313
|
|
—
|
|
(20,582
|
)
|
|
Selling, general and administrative expense
|
200,487
|
|
97,363
|
|
2,762
|
|
57,911
|
|
358,523
|
|
|
Depreciation and amortization
|
203,456
|
|
79,671
|
|
31,946
|
|
10,437
|
|
325,510
|
|
|
Equity in net income of Diamond Green Diesel
|
—
|
|
—
|
|
364,452
|
|
—
|
|
364,452
|
|
|
Segment operating income/(loss)
|
54,742
|
|
90,608
|
|
398,819
|
|
(68,348
|
)
|
475,821
|
|
|
|
|
|
|
|
|
|
Equity in net income of other unconsolidated subsidiaries
|
428
|
|
—
|
|
—
|
|
—
|
|
428
|
|
|
Segment income/(loss)
|
55,170
|
|
90,608
|
|
398,819
|
|
(68,348
|
)
|
476,249
|
|
|
|
|
|
|
|
|
|
Total other expense
|
|
|
|
|
(95,815
|
)
|
|
Income before income taxes
|
|
|
|
|
$
|
380,434
|
|
|
|
|
|
|
|
|
|
Segment assets at December 28, 2019
|
$
|
2,653,363
|
|
$
|
1,345,526
|
|
$
|
1,087,701
|
|
$
|
258,668
|
|
$
|
5,345,258
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Feed Ingredients
|
Food Ingredients
|
Fuel Ingredients
|
Corporate
|
Total
|
|
Fiscal Year Ended December 29, 2018
|
|
|
|
|
|
|
Net Sales
|
$
|
1,952,555
|
|
$
|
1,139,126
|
|
$
|
296,045
|
|
$
|
—
|
|
$
|
3,387,726
|
|
|
Cost of sales and operating expenses
|
1,497,973
|
|
918,141
|
|
230,260
|
|
—
|
|
2,646,374
|
|
|
Gross Margin
|
454,582
|
|
220,985
|
|
65,785
|
|
—
|
|
741,352
|
|
|
|
|
|
|
|
|
|
Loss/(gain) on sale of assets
|
725
|
|
(282
|
)
|
266
|
|
—
|
|
709
|
|
|
Selling, general and administrative expense
|
176,722
|
|
91,546
|
|
(4,770
|
)
|
45,766
|
|
309,264
|
|
|
Restructuring and impairment charges
|
—
|
|
14,965
|
|
—
|
|
—
|
|
14,965
|
|
|
Depreciation and amortization
|
194,292
|
|
80,988
|
|
34,981
|
|
10,931
|
|
321,192
|
|
|
Equity in net income of Diamond Green Diesel
|
—
|
|
—
|
|
159,779
|
|
—
|
|
159,779
|
|
|
Segment operating income/(loss)
|
82,843
|
|
33,768
|
|
195,087
|
|
(56,697
|
)
|
255,001
|
|
|
|
|
|
|
|
|
|
Equity in net loss of unconsolidated subsidiaries
|
(550
|
)
|
—
|
|
—
|
|
—
|
|
(550
|
)
|
|
Segment income/(loss)
|
82,293
|
|
33,768
|
|
195,087
|
|
(56,697
|
)
|
254,451
|
|
|
|
|
|
|
|
|
|
Total other expense
|
|
|
|
|
(136,476
|
)
|
|
Income before income taxes
|
|
|
|
|
$
|
117,975
|
|
|
|
|
|
|
|
|
|
Segment assets at December 29, 2018
|
$
|
2,566,106
|
|
$
|
1,401,291
|
|
$
|
761,817
|
|
$
|
160,140
|
|
$
|
4,889,354
|
|
DARLING INGREDIENTS INC.
Notes to Consolidated Financial Statements (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Feed Ingredients
|
Food Ingredients
|
Fuel Ingredients
|
Corporate
|
Total
|
|
Fiscal Year Ended December 30, 2017
|
|
|
|
|
|
|
Net Sales
|
$
|
2,239,492
|
|
$
|
1,156,976
|
|
$
|
265,783
|
|
$
|
—
|
|
$
|
3,662,251
|
|
|
Cost of sales and operating expenses
|
1,744,990
|
|
920,165
|
|
210,525
|
|
—
|
|
2,875,680
|
|
|
Gross Margin
|
494,502
|
|
236,811
|
|
55,258
|
|
—
|
|
786,571
|
|
|
|
|
|
|
|
|
|
Loss/(gain) on sale of assets
|
(358
|
)
|
218
|
|
(97
|
)
|
—
|
|
(237
|
)
|
|
Selling, general and administrative expense
|
178,347
|
|
104,644
|
|
10,355
|
|
50,156
|
|
343,502
|
|
|
Depreciation and amortization
|
184,172
|
|
75,010
|
|
31,019
|
|
11,899
|
|
302,100
|
|
|
Equity in net income of Diamond Green Diesel
|
—
|
|
—
|
|
28,239
|
|
—
|
|
28,239
|
|
|
Segment operating income/(loss)
|
132,341
|
|
56,939
|
|
42,220
|
|
(62,055
|
)
|
169,445
|
|
|
|
|
|
|
|
|
|
Equity in net income of unconsolidated subsidiaries
|
265
|
|
—
|
|
—
|
|
—
|
|
265
|
|
|
Segment income/(loss)
|
132,606
|
|
56,939
|
|
42,220
|
|
(62,055
|
)
|
169,710
|
|
|
|
|
|
|
|
|
|
Total other expense
|
|
|
|
|
(105,510
|
)
|
|
Income before income taxes
|
|
|
|
|
$
|
64,200
|
|
|
|
|
|
|
|
|
Business Segment Property, Plant and Equipment (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 28,
2019
|
|
December 29,
2018
|
|
December 30,
2017
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
Feed Ingredients
|
$
|
203,456
|
|
|
$
|
194,292
|
|
|
$
|
184,172
|
|
|
Food Ingredients
|
79,671
|
|
|
80,988
|
|
|
75,010
|
|
|
Fuel Ingredients
|
31,946
|
|
|
34,981
|
|
|
31,019
|
|
|
Corporate Activities
|
10,437
|
|
|
10,931
|
|
|
11,899
|
|
|
Total
|
$
|
325,510
|
|
|
$
|
321,192
|
|
|
$
|
302,100
|
|
|
Capital expenditures:
|
|
|
|
|
|
|
Feed Ingredients
|
$
|
229,415
|
|
|
$
|
237,215
|
|
|
$
|
191,953
|
|
|
Food Ingredients
|
85,501
|
|
|
51,659
|
|
|
50,099
|
|
|
Fuel Ingredients
|
23,964
|
|
|
27,121
|
|
|
24,707
|
|
|
Corporate Activities
|
20,618
|
|
|
5,901
|
|
|
7,409
|
|
|
Total (a)
|
$
|
359,498
|
|
|
$
|
321,896
|
|
|
$
|
274,168
|
|
|
|
|
|
(a)
|
Excludes capital assets acquired by acquisition in fiscal 2018 of approximately $31.6 million and excludes immaterial capital assets acquired by acquisition in fiscal 2017.
|
Long-lived assets related to the Company's operations in North America, Europe, China, South American and other were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
FY 2019
|
FY 2018
|
|
|
Long-Lived Assets
|
Long-Lived Assets
|
|
North America
|
$
|
2,991,537
|
|
$
|
2,562,389
|
|
|
Europe
|
1,228,807
|
|
1,219,084
|
|
|
China
|
124,874
|
|
136,711
|
|
|
South America
|
73,477
|
|
64,916
|
|
|
Other
|
9,275
|
|
8,312
|
|
|
Total
|
$
|
4,427,970
|
|
$
|
3,991,412
|
|
DARLING INGREDIENTS INC.
Notes to Consolidated Financial Statements (continued)
NOTE 22. REVENUE
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 Revenue Recognition (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 December 28, 2019, 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 year ended December 28, 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of changes in accounting policies
|
|
|
As reported
|
|
Adjustments
|
|
Balances without adoption of Topic 606
|
|
Year Ended December 28, 2019
|
|
|
|
|
|
|
Net sales
|
$
|
3,363,905
|
|
|
184,835
|
|
|
3,548,740
|
|
|
Cost of sale and operating expenses
|
$
|
2,589,085
|
|
|
184,835
|
|
|
2,773,920
|
|
|
|
|
|
|
|
|
|
Year Ended December 29, 2018
|
|
|
|
|
|
|
Net sales
|
$
|
3,387,726
|
|
|
177,726
|
|
|
$
|
3,565,452
|
|
|
Cost of sales and operating expenses
|
$
|
2,646,374
|
|
|
177,726
|
|
|
$
|
2,824,100
|
|
The following tables presents the Company revenues disaggregated by geographic area and major product types by reportable segment for the years ended December 28, 2019, December 29, 2018 and December 30, 2017 (in thousands):
DARLING INGREDIENTS INC.
Notes to Consolidated Financial Statements (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 28, 2019
|
|
|
Feed Ingredients
|
Food Ingredients
|
Fuel Ingredients
|
Total
|
|
Geographic Area
|
|
|
|
|
|
North America
|
$
|
1,635,382
|
|
$
|
214,623
|
|
$
|
39,568
|
|
$
|
1,889,573
|
|
|
Europe
|
309,097
|
|
609,999
|
|
234,691
|
|
1,153,787
|
|
|
China
|
16,342
|
|
178,283
|
|
—
|
|
194,625
|
|
|
South America
|
—
|
|
51,168
|
|
—
|
|
51,168
|
|
|
Other
|
9,740
|
|
65,012
|
|
—
|
|
74,752
|
|
|
Net sales
|
$
|
1,970,561
|
|
$
|
1,119,085
|
|
$
|
274,259
|
|
$
|
3,363,905
|
|
|
|
|
|
|
|
|
Major product types
|
|
|
|
|
|
Fats
|
$
|
584,336
|
|
$
|
133,898
|
|
$
|
—
|
|
$
|
718,234
|
|
|
Used cooking oil
|
185,705
|
|
—
|
|
—
|
|
185,705
|
|
|
Proteins
|
791,284
|
|
—
|
|
—
|
|
791,284
|
|
|
Bakery
|
191,551
|
|
—
|
|
—
|
|
191,551
|
|
|
Other rendering
|
167,870
|
|
—
|
|
—
|
|
167,870
|
|
|
Food ingredients
|
—
|
|
894,761
|
|
—
|
|
894,761
|
|
|
Bioenergy
|
—
|
|
—
|
|
234,691
|
|
234,691
|
|
|
Biofuels
|
—
|
|
—
|
|
39,568
|
|
39,568
|
|
|
Other
|
49,815
|
|
90,426
|
|
—
|
|
140,241
|
|
|
Net sales
|
$
|
1,970,561
|
|
$
|
1,119,085
|
|
$
|
274,259
|
|
$
|
3,363,905
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 29, 2018
|
|
|
Feed Ingredients
|
Food Ingredients
|
Fuel Ingredients
|
Total
|
|
Geographic Area
|
|
|
|
|
|
North America
|
$
|
1,586,930
|
|
$
|
181,213
|
|
$
|
48,858
|
|
$
|
1,817,001
|
|
|
Europe
|
329,341
|
|
648,933
|
|
247,187
|
|
1,225,461
|
|
|
China
|
28,288
|
|
182,369
|
|
—
|
|
210,657
|
|
|
South America
|
—
|
|
53,206
|
|
—
|
|
53,206
|
|
|
Other
|
7,996
|
|
73,405
|
|
—
|
|
81,401
|
|
|
Net sales
|
$
|
1,952,555
|
|
$
|
1,139,126
|
|
$
|
296,045
|
|
$
|
3,387,726
|
|
|
|
|
|
|
|
|
Major product types
|
|
|
|
|
|
Fats
|
$
|
564,790
|
|
$
|
163,815
|
|
$
|
—
|
|
$
|
728,605
|
|
|
Used cooking oil
|
166,634
|
|
—
|
|
—
|
|
166,634
|
|
|
Proteins
|
842,878
|
|
—
|
|
—
|
|
842,878
|
|
|
Bakery
|
180,227
|
|
—
|
|
—
|
|
180,227
|
|
|
Other rendering
|
129,273
|
|
—
|
|
—
|
|
129,273
|
|
|
Food ingredients
|
—
|
|
886,042
|
|
—
|
|
886,042
|
|
|
Bioenergy
|
—
|
|
—
|
|
247,187
|
|
247,187
|
|
|
Biofuels
|
—
|
|
—
|
|
48,858
|
|
48,858
|
|
|
Other
|
68,753
|
|
89,269
|
|
—
|
|
158,022
|
|
|
Net sales
|
$
|
1,952,555
|
|
$
|
1,139,126
|
|
$
|
296,045
|
|
$
|
3,387,726
|
|
DARLING INGREDIENTS INC.
Notes to Consolidated Financial Statements (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 30, 2017 (a)
|
|
|
Feed Ingredients
|
Food Ingredients
|
Fuel Ingredients
|
Total
|
|
Geographic Area Revenues
|
|
|
|
|
|
North America
|
$
|
1,696,081
|
|
$
|
193,950
|
|
$
|
46,996
|
|
$
|
1,937,027
|
|
|
Europe
|
503,786
|
|
650,177
|
|
218,787
|
|
1,372,750
|
|
|
China
|
32,103
|
|
177,677
|
|
—
|
|
209,780
|
|
|
South America
|
—
|
|
60,111
|
|
—
|
|
60,111
|
|
|
Other
|
7,522
|
|
75,061
|
|
—
|
|
82,583
|
|
|
Net sales
|
$
|
2,239,492
|
|
$
|
1,156,976
|
|
$
|
265,783
|
|
$
|
3,662,251
|
|
|
|
|
|
|
|
|
Major product types
|
|
|
|
|
|
Fats
|
$
|
648,328
|
|
$
|
183,719
|
|
$
|
—
|
|
$
|
832,047
|
|
|
Used cooking oil
|
185,516
|
|
—
|
|
—
|
|
185,516
|
|
|
Proteins
|
816,060
|
|
—
|
|
—
|
|
816,060
|
|
|
Bakery
|
209,801
|
|
—
|
|
—
|
|
209,801
|
|
|
Other rendering
|
286,183
|
|
—
|
|
—
|
|
286,183
|
|
|
Food ingredients
|
—
|
|
880,128
|
|
—
|
|
880,128
|
|
|
Bioenergy
|
—
|
|
—
|
|
218,787
|
|
218,787
|
|
|
Biofuels
|
—
|
|
—
|
|
46,996
|
|
46,996
|
|
|
Other
|
93,604
|
|
93,129
|
|
—
|
|
186,733
|
|
|
Net sales
|
$
|
2,239,492
|
|
$
|
1,156,976
|
|
$
|
265,783
|
|
$
|
3,662,251
|
|
(a) As noted above prior year amounts have not been adjusted under the modified retrospective method for billed freight of approximately $160.0 million that is included in net sales for the year ended December 30, 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 when 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. Collagen 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
DARLING INGREDIENTS INC.
Notes to Consolidated Financial Statements (continued)
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.
Long-Term Performance Obligations. The Company from time to time enters into long-term contracts to supply certain volumes of finished products to certain customers. Revenue recognized in 2019 under these long-term supply contracts was approximately $41.0 million, with the remaining performance obligations to be recognized in future periods (generally 5 years) of approximately $280.8 million.
NOTE 23. QUARTERLY FINANCIAL DATA (UNAUDITED AND IN THOUSANDS EXCEPT PER SHARE AMOUNTS):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 28, 2019
|
|
|
First
Quarter
|
Second
Quarter
|
Third
Quarter
|
Fourth
Quarter (a)
|
|
Net sales
|
$
|
835,104
|
|
$
|
827,324
|
|
$
|
842,049
|
|
$
|
859,428
|
|
|
Operating income
|
48,551
|
|
74,124
|
|
59,859
|
|
293,287
|
|
|
Income from operations before income taxes
|
24,914
|
|
38,820
|
|
37,687
|
|
279,013
|
|
|
Net income
|
19,640
|
|
31,044
|
|
26,837
|
|
243,446
|
|
|
Net income attributable to minority interests
|
(1,628
|
)
|
(4,786
|
)
|
(1,116
|
)
|
(837
|
)
|
|
Net income attributable to Darling
|
18,012
|
|
26,258
|
|
25,721
|
|
242,609
|
|
|
Basic earnings per share
|
0.11
|
|
0.16
|
|
0.16
|
|
1.48
|
|
|
Diluted earnings per share
|
0.11
|
|
0.16
|
|
0.15
|
|
1.44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 29, 2018
|
|
|
First
Quarter (b)
|
Second
Quarter
|
Third
Quarter
|
Fourth
Quarter
|
|
Net sales
|
$
|
875,374
|
|
$
|
846,646
|
|
$
|
812,576
|
|
$
|
853,130
|
|
|
Operating income
|
128,953
|
|
36,754
|
|
15,556
|
|
73,738
|
|
|
Income/(loss) from operations before income taxes
|
101,787
|
|
(27,455
|
)
|
(6,540
|
)
|
50,183
|
|
|
Net income/(loss)
|
98,075
|
|
(29,138
|
)
|
(5,137
|
)
|
42,144
|
|
|
Net income attributable to minority interests
|
(770
|
)
|
(1,282
|
)
|
(900
|
)
|
(1,496
|
)
|
|
Net income/(loss) attributable to Darling
|
97,305
|
|
(30,420
|
)
|
(6,037
|
)
|
40,648
|
|
|
Basic earnings/(loss) per share
|
0.59
|
|
(0.18
|
)
|
(0.04
|
)
|
0.25
|
|
|
Diluted earnings/(loss) per share
|
0.58
|
|
(0.18
|
)
|
(0.04
|
)
|
0.24
|
|
(a) In the fourth quarter of fiscal 2019, the Company's results include 2019 and 2018 blenders tax credits of approximately $234.4 million.
(b) In the first quarter of fiscal 2018, the Company's results includes 2017 blenders tax credits of approximately $92.7 million.
NOTE 24. RELATED PARTY TRANSACTIONS
Raw Material Agreement
The Company has entered into a Raw Material Agreement with the DGD Joint Venture 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
DARLING INGREDIENTS INC.
Notes to Consolidated Financial Statements (continued)
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 years ended December 28, 2019, December 29, 2018 and December 30, 2017, the Company has recorded sales to the DGD Joint Venture of approximately $208.7 million, $131.8 million and $171.3 million, respectively. At December 28, 2019 and December 29, 2018, the Company has approximately $17.8 million and $8.0 million in outstanding receivables due from the DGD Joint Venture, respectively. In addition, the Company has eliminated additional sales of approximately $5.1 million, $4.6 million and $4.1 million for the year ended December 28, 2019, December 29, 2018 and December 30, 2017, respectively to the DGD Joint Venture and deferred the Company's portion of profit on those sales relating to inventory assets still remaining on the DGD Joint Venture's balance sheet at December 28, 2019, December 29, 2018 and December 30, 2017 of approximately $0.8 million, $0.9 million and $0.9 million, respectively.
Revolving Loan Agreement
On May 1, 2019, 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. The DGD Lenders have committed to make loans available to the DGD Joint Venture in the total amount of $50.0 million with each lender committed to $25.0 million of the total commitment. Any borrowings by the DGD Joint Venture 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 April 29, 2020. The DGD Loan Agreement replaces a similar agreement with lower commitment levels that expired on December 31, 2018. As of December 28, 2019, no amounts are owed to Darling Green under the DGD Loan Agreement.
Guarantee Agreement
In February 2020, in connection with the DGD Joint Venture’s expansion project at its Norco, LA facility, it has entered into two agreements (the “IMTT Terminaling Agreements”) with International-Matex Tank Terminals (“IMTT”), pursuant to which the DGD Joint Venture will move raw material and finished product to and from the IMTT terminal facility by pipeline, thereby providing better logistical capabilities. As a condition to entering into the IMTT Terminaling Agreements, IMTT required that the Company and Valero guarantee their proportionate share, up to $50 million each, of the DGD Joint Venture’s obligations under the IMTT Terminaling Agreements (the “Guarantee”), subject to the conditions provided for in the IMTT Terminaling Agreements. The Company has not recorded any liability as a result of the guarantee, as the Company believes the likelihood of having to make any payments under the guarantee is remote.
NOTE 25. NEW ACCOUNTING PRONOUNCEMENTS
In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2019-12, Simplifying the Accounting for Income Taxes. This ASU amends Topic 740 Income Taxes, which will eliminate certain exceptions in accounting for income taxes, improves consistency in application and clarifies existing guidance. The standard is effective for fiscal years beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating the impact of this standard.
In August 2018, the FASB issued ASU No. 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract. This ASU amends Subtopic 350-40, Intangibles - Goodwill and Other Internal - Use Software, which will align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The standard is effective for fiscal years beginning after December 15, 2019 and for interim periods therein, with early adoption permitted. Implementation should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company adopted the new accounting standard effective December 30, 2018 and the adoption did not have a material impact on the Company's consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-14, Changes to the Disclosure Requirements for Defined Benefit Plans. This ASU amends Subtopic 715-20, Compensation - Retirement Benefits - Defined Benefit Plans - General, which modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans by removing and adding certain disclosures for these plans. The standard is effective for fiscal years ending after December 15, 2020, with early adoption permitted. The Company is currently evaluating the impact of this standard.
DARLING INGREDIENTS INC.
Notes to Consolidated Financial Statements (continued)
In August 2018, the FASB issued ASU No. 2018-13, Changes to the Disclosure Requirements for Fair Value Measurements. This ASU amends Topic 820, Fair Value Measurement, which changes the disclosure requirements for fair value measurements by removing, adding and modifying certain disclosures. The standard is effective for fiscal years beginning after December 15, 2019 and for interim periods therein, with early adoption permitted. The initial adoption of this ASU is not expected to have a material impact on the Company's consolidated financial statements.
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 with disclosure on a prospective basis. The Company adopted this ASU on December 30, 2018 and the initial adoption of this ASU did not have a material impact on the Company's consolidated financial statements.
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 June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. Under ASU 2016-13, existing guidance on reporting credit losses for trade and other receivables and available for sale debt securities will be replaced with a new forward-looking “expected loss” model that generally will result in the earlier recognition of allowances for losses. This ASU is effective for fiscal years beginning after December 15, 2019 and interim periods therein. The initial adoption of this ASU is not expected to have a material impact on the Company's consolidated financial statements.
NOTE 26. GUARANTOR FINANCIAL INFORMATION
The Company's 5.25% Notes and 3.625% Notes (see Note 10) 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 3.625% Notes and is discussed further below, or any receivables entity): Darling National, Griffin and its subsidiary Craig Protein, Darling Global Holdings Inc., EV Acquisition LLC, Rousselot Inc., Rousselot Dubuque Inc., Sonac USA LLC and Rousselot Peabody Inc. In addition, the 3.625% 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 3.625% Notes, fully and unconditionally guaranteed the 5.25% Notes and 3.625% Notes on a joint and several basis. The following financial statements present condensed consolidating financial data for (i) Darling, (ii) the combined Notes Guarantors, (iii) the combined other subsidiaries of the Company that did not guarantee the 5.25% Notes or the 3.625% 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 December 28, 2019 and December 29, 2018, and the condensed consolidating statements of operations, the condensed consolidating statements of comprehensive income/(loss) and the condensed consolidating statements of cash flows for the years ended December 28, 2019, December 29, 2018 and December 30, 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 euro-denominated notes such as the 3.625% Notes and therefore does not have any substantial operations or assets.
DARLING INGREDIENTS INC.
Notes to Consolidated Financial Statements (continued)
Condensed Consolidating Balance Sheet
As of December 28, 2019
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
Guarantors
|
Non-guarantors
|
Eliminations
|
Consolidated
|
|
ASSETS
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
551
|
|
$
|
26
|
|
$
|
72,358
|
|
$
|
—
|
|
$
|
72,935
|
|
|
Restricted cash
|
103
|
|
—
|
|
7
|
|
—
|
|
110
|
|
|
Accounts receivable, net
|
51,097
|
|
702,945
|
|
518,614
|
|
(866,318
|
)
|
406,338
|
|
|
Inventories
|
26,893
|
|
86,609
|
|
249,455
|
|
—
|
|
362,957
|
|
|
Income taxes refundable
|
1,106
|
|
—
|
|
2,211
|
|
—
|
|
3,317
|
|
|
Prepaid expenses
|
20,888
|
|
2,241
|
|
23,470
|
|
—
|
|
46,599
|
|
|
Other current assets
|
5,399
|
|
(2,326
|
)
|
40,872
|
|
(18,913
|
)
|
25,032
|
|
|
Total current assets
|
106,037
|
|
789,495
|
|
906,987
|
|
(885,231
|
)
|
917,288
|
|
|
Investment in subsidiaries
|
5,365,956
|
|
1,366,635
|
|
844,043
|
|
(7,576,634
|
)
|
—
|
|
|
Property, plant and equipment, net
|
434,237
|
|
524,577
|
|
843,597
|
|
—
|
|
1,802,411
|
|
|
Intangible assets, net
|
44,404
|
|
170,581
|
|
311,409
|
|
—
|
|
526,394
|
|
|
Goodwill
|
49,902
|
|
490,748
|
|
682,641
|
|
—
|
|
1,223,291
|
|
|
Investment in unconsolidated subsidiaries
|
—
|
|
—
|
|
689,354
|
|
—
|
|
689,354
|
|
|
Operating lease right-of-use asset
|
74,005
|
|
31,243
|
|
19,478
|
|
—
|
|
124,726
|
|
|
Other assets
|
35,456
|
|
134
|
|
61,974
|
|
(50,164
|
)
|
47,400
|
|
|
Deferred income taxes
|
—
|
|
—
|
|
14,394
|
|
—
|
|
14,394
|
|
|
|
$
|
6,109,997
|
|
$
|
3,373,413
|
|
$
|
4,373,877
|
|
$
|
(8,512,029
|
)
|
$
|
5,345,258
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
$
|
40,916
|
|
$
|
10
|
|
$
|
68,983
|
|
$
|
(18,913
|
)
|
$
|
90,996
|
|
|
Accounts payable
|
893,490
|
|
29,535
|
|
182,484
|
|
(866,257
|
)
|
239,252
|
|
|
Income taxes payable
|
(10
|
)
|
—
|
|
8,905
|
|
—
|
|
8,895
|
|
|
Current operating lease liability
|
20,454
|
|
10,510
|
|
6,841
|
|
—
|
|
37,805
|
|
|
Accrued expenses
|
116,758
|
|
32,861
|
|
161,833
|
|
(61
|
)
|
311,391
|
|
|
Total current liabilities
|
1,071,608
|
|
72,916
|
|
429,046
|
|
(885,231
|
)
|
688,339
|
|
|
Long-term debt, net of current portion
|
1,040,974
|
|
30
|
|
567,589
|
|
(50,164
|
)
|
1,558,429
|
|
|
Long-term operating lease liability
|
58,970
|
|
20,281
|
|
12,173
|
|
—
|
|
91,424
|
|
|
Other noncurrent liabilities
|
80,409
|
|
—
|
|
35,376
|
|
—
|
|
115,785
|
|
|
Deferred income taxes
|
122,109
|
|
—
|
|
125,822
|
|
—
|
|
247,931
|
|
|
Total liabilities
|
2,374,070
|
|
93,227
|
|
1,170,006
|
|
(935,395
|
)
|
2,701,908
|
|
|
Total stockholders' equity
|
3,735,927
|
|
3,280,186
|
|
3,203,871
|
|
(7,576,634
|
)
|
2,643,350
|
|
|
|
$
|
6,109,997
|
|
$
|
3,373,413
|
|
$
|
4,373,877
|
|
$
|
(8,512,029
|
)
|
$
|
5,345,258
|
|
DARLING INGREDIENTS INC.
Notes to Consolidated Financial Statements (continued)
Condensed Consolidating Balance Sheet
As of December 29, 2018
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
Guarantors
|
Non-guarantors
|
Eliminations
|
Consolidated
|
|
ASSETS
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
995
|
|
$
|
32
|
|
$
|
106,235
|
|
$
|
—
|
|
$
|
107,262
|
|
|
Restricted cash
|
103
|
|
—
|
|
4
|
|
—
|
|
107
|
|
|
Accounts receivable, net
|
56,113
|
|
619,628
|
|
461,005
|
|
(751,009
|
)
|
385,737
|
|
|
Inventories
|
23,752
|
|
83,261
|
|
234,015
|
|
—
|
|
341,028
|
|
|
Income taxes refundable
|
2,851
|
|
—
|
|
3,611
|
|
—
|
|
6,462
|
|
|
Prepaid expenses
|
12,890
|
|
2,936
|
|
19,421
|
|
—
|
|
35,247
|
|
|
Other current assets
|
2,680
|
|
(1,418
|
)
|
20,837
|
|
—
|
|
22,099
|
|
|
Total current assets
|
99,384
|
|
704,439
|
|
845,128
|
|
(751,009
|
)
|
897,942
|
|
|
Investment in subsidiaries
|
4,880,193
|
|
1,366,126
|
|
844,044
|
|
(7,090,363
|
)
|
—
|
|
|
Property, plant and equipment, net
|
375,824
|
|
503,130
|
|
808,904
|
|
—
|
|
1,687,858
|
|
|
Intangible assets, net
|
50,132
|
|
200,936
|
|
344,794
|
|
—
|
|
595,862
|
|
|
Goodwill
|
49,506
|
|
490,748
|
|
688,905
|
|
—
|
|
1,229,159
|
|
|
Investment in unconsolidated subsidiary
|
13,969
|
|
—
|
|
396,208
|
|
—
|
|
410,177
|
|
|
Other assets
|
39,395
|
|
138
|
|
13,842
|
|
—
|
|
53,375
|
|
|
Deferred income taxes
|
—
|
|
—
|
|
14,981
|
|
—
|
|
14,981
|
|
|
|
$
|
5,508,403
|
|
$
|
3,265,517
|
|
$
|
3,956,806
|
|
$
|
(7,841,372
|
)
|
$
|
4,889,354
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
$
|
3,558
|
|
$
|
5
|
|
$
|
3,929
|
|
$
|
—
|
|
$
|
7,492
|
|
|
Accounts payable
|
783,406
|
|
24,388
|
|
162,678
|
|
(750,993
|
)
|
219,479
|
|
|
Income tax payable
|
(10
|
)
|
—
|
|
4,053
|
|
—
|
|
4,043
|
|
|
Accrued expenses
|
107,572
|
|
33,387
|
|
168,541
|
|
(16
|
)
|
309,484
|
|
|
Total current liabilities
|
894,526
|
|
57,780
|
|
339,201
|
|
(751,009
|
)
|
540,498
|
|
|
Long-term debt, net of current portion
|
1,019,130
|
|
18
|
|
647,792
|
|
—
|
|
1,666,940
|
|
|
Other noncurrent liabilities
|
78,589
|
|
—
|
|
36,443
|
|
—
|
|
115,032
|
|
|
Deferred income taxes
|
95,710
|
|
—
|
|
135,353
|
|
—
|
|
231,063
|
|
|
Total liabilities
|
2,087,955
|
|
57,798
|
|
1,158,789
|
|
(751,009
|
)
|
2,553,533
|
|
|
Total stockholders' equity
|
3,420,448
|
|
3,207,719
|
|
2,798,017
|
|
(7,090,363
|
)
|
2,335,821
|
|
|
|
$
|
5,508,403
|
|
$
|
3,265,517
|
|
$
|
3,956,806
|
|
$
|
(7,841,372
|
)
|
$
|
4,889,354
|
|
DARLING INGREDIENTS INC.
Notes to Consolidated Financial Statements (continued)
Condensed Consolidating Statements of Operations
For the year ended December 28, 2019
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
Guarantors
|
Non-guarantors
|
Eliminations
|
Consolidated
|
|
Net sales
|
$
|
652,708
|
|
$
|
1,305,464
|
|
$
|
1,637,861
|
|
$
|
(232,128
|
)
|
$
|
3,363,905
|
|
|
Cost and expenses:
|
|
|
|
|
|
|
Cost of sales and operating expenses
|
515,286
|
|
1,078,247
|
|
1,227,680
|
|
(232,128
|
)
|
2,589,085
|
|
|
Loss (gain) on sale of assets
|
(403
|
)
|
(7,356
|
)
|
(12,823
|
)
|
—
|
|
(20,582
|
)
|
|
Selling, general and administrative expenses
|
187,851
|
|
43,855
|
|
126,817
|
|
—
|
|
358,523
|
|
|
Depreciation and amortization
|
61,777
|
|
104,247
|
|
159,486
|
|
—
|
|
325,510
|
|
|
Total costs and expenses
|
764,511
|
|
1,218,993
|
|
1,501,160
|
|
(232,128
|
)
|
3,252,536
|
|
|
Equity in net income of Diamond Green Diesel
|
—
|
|
—
|
|
364,452
|
|
—
|
|
364,452
|
|
|
Operating income/(loss)
|
(111,803
|
)
|
86,471
|
|
501,153
|
|
—
|
|
475,821
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
(56,240
|
)
|
(167
|
)
|
(22,267
|
)
|
—
|
|
(78,674
|
)
|
|
Debt extinguishment costs
|
(12,126
|
)
|
—
|
|
—
|
|
—
|
|
(12,126
|
)
|
|
Foreign currency gains/(losses)
|
(306
|
)
|
4
|
|
(1,009
|
)
|
—
|
|
(1,311
|
)
|
|
Gain on disposal of subsidiaries
|
—
|
|
—
|
|
2,967
|
|
—
|
|
2,967
|
|
|
Other income/(expense), net
|
(5,828
|
)
|
(880
|
)
|
37
|
|
—
|
|
(6,671
|
)
|
|
Equity in net income/(loss) of other unconsolidated subsidiaries
|
(2,425
|
)
|
—
|
|
2,853
|
|
—
|
|
428
|
|
|
Earnings in investments in subsidiaries
|
471,827
|
|
—
|
|
—
|
|
(471,827
|
)
|
—
|
|
|
Income/(loss) from operations before taxes
|
283,099
|
|
85,428
|
|
483,734
|
|
(471,827
|
)
|
380,434
|
|
|
Income taxes (benefit)
|
(29,501
|
)
|
13,354
|
|
75,614
|
|
—
|
|
59,467
|
|
|
Net income attributable to noncontrolling interests
|
—
|
|
—
|
|
(8,367
|
)
|
—
|
|
(8,367
|
)
|
|
Net income/(loss) attributable to Darling
|
$
|
312,600
|
|
$
|
72,074
|
|
$
|
399,753
|
|
$
|
(471,827
|
)
|
$
|
312,600
|
|
Condensed Consolidating Statements of Operations
For the year ended December 29, 2018
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
Guarantors
|
Non-guarantors
|
Eliminations
|
Consolidated
|
|
Net sales
|
$
|
541,499
|
|
$
|
1,338,376
|
|
$
|
1,738,427
|
|
$
|
(230,576
|
)
|
$
|
3,387,726
|
|
|
Cost and expenses:
|
|
|
|
|
|
|
Cost of sales and operating expenses
|
422,028
|
|
1,080,420
|
|
1,374,502
|
|
(230,576
|
)
|
2,646,374
|
|
|
Loss (gain) on sale of assets
|
(86
|
)
|
(184
|
)
|
979
|
|
—
|
|
709
|
|
|
Selling, general and administrative expenses
|
149,715
|
|
46,199
|
|
113,350
|
|
—
|
|
309,264
|
|
|
Restructuring and impairment charges
|
—
|
|
—
|
|
14,965
|
|
—
|
|
14,965
|
|
|
Depreciation and amortization
|
48,941
|
|
107,581
|
|
164,670
|
|
—
|
|
321,192
|
|
|
Total costs and expenses
|
620,598
|
|
1,234,016
|
|
1,668,466
|
|
(230,576
|
)
|
3,292,504
|
|
|
Equity in net income of Diamond Green Diesel
|
—
|
|
—
|
|
159,779
|
|
—
|
|
159,779
|
|
|
Operating income/(loss)
|
(79,099
|
)
|
104,360
|
|
229,740
|
|
—
|
|
255,001
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
(56,832
|
)
|
7,397
|
|
(36,994
|
)
|
—
|
|
(86,429
|
)
|
|
Debt extinguishment costs
|
(15,635
|
)
|
—
|
|
(7,874
|
)
|
—
|
|
(23,509
|
)
|
|
Foreign currency gains/(losses)
|
(431
|
)
|
(103
|
)
|
(5,897
|
)
|
—
|
|
(6,431
|
)
|
|
Gain/(loss) on sale of subsidiaries
|
(15,583
|
)
|
—
|
|
3,038
|
|
—
|
|
(12,545
|
)
|
|
Other income/(expense), net
|
(18,487
|
)
|
(1,019
|
)
|
11,944
|
|
—
|
|
(7,562
|
)
|
|
Equity in net income/(loss) of unconsolidated subsidiaries
|
(2,622
|
)
|
—
|
|
2,072
|
|
—
|
|
(550
|
)
|
|
Earnings in investments in subsidiaries
|
270,943
|
|
—
|
|
—
|
|
(270,943
|
)
|
—
|
|
|
Income/(loss) from operations before taxes
|
82,254
|
|
110,635
|
|
196,029
|
|
(270,943
|
)
|
117,975
|
|
|
Income taxes (benefit)
|
(19,242
|
)
|
11,282
|
|
19,991
|
|
—
|
|
12,031
|
|
|
Net income attributable to noncontrolling interests
|
—
|
|
—
|
|
(4,448
|
)
|
—
|
|
(4,448
|
)
|
|
Net income/(loss) attributable to Darling
|
$
|
101,496
|
|
$
|
99,353
|
|
$
|
171,590
|
|
$
|
(270,943
|
)
|
$
|
101,496
|
|
DARLING INGREDIENTS INC.
Notes to Consolidated Financial Statements (continued)
Condensed Consolidating Statements of Operations
For the year ended December 30, 2017
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
Guarantors
|
Non-guarantors
|
Eliminations
|
Consolidated
|
|
Net sales
|
$
|
545,699
|
|
$
|
1,464,920
|
|
$
|
1,893,304
|
|
$
|
(241,672
|
)
|
$
|
3,662,251
|
|
|
Cost and expenses:
|
|
|
|
|
|
|
Cost of sales and operating expenses
|
429,983
|
|
1,198,528
|
|
1,488,841
|
|
(241,672
|
)
|
2,875,680
|
|
|
Loss (gain) on sale of assets
|
(302
|
)
|
(257
|
)
|
322
|
|
—
|
|
(237
|
)
|
|
Selling, general and administrative expenses
|
150,880
|
|
55,053
|
|
137,569
|
|
—
|
|
343,502
|
|
|
Depreciation and amortization
|
42,366
|
|
106,406
|
|
153,328
|
|
—
|
|
302,100
|
|
|
Total costs and expenses
|
622,927
|
|
1,359,730
|
|
1,780,060
|
|
(241,672
|
)
|
3,521,045
|
|
|
Equity in net income of Diamond Green Diesel
|
—
|
|
—
|
|
28,239
|
|
—
|
|
28,239
|
|
|
Operating income/(loss)
|
(77,228
|
)
|
105,190
|
|
141,483
|
|
—
|
|
169,445
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
(55,336
|
)
|
15,818
|
|
(49,408
|
)
|
—
|
|
(88,926
|
)
|
|
Foreign currency gains/(losses)
|
(234
|
)
|
114
|
|
(6,778
|
)
|
—
|
|
(6,898
|
)
|
|
Loss on sale of subsidiaries
|
—
|
|
—
|
|
(885
|
)
|
—
|
|
(885
|
)
|
|
Other income/(expense), net
|
(14,651
|
)
|
37
|
|
5,813
|
|
—
|
|
(8,801
|
)
|
|
Equity in net income/(loss) of unconsolidated subsidiary
|
(1,847
|
)
|
—
|
|
2,112
|
|
—
|
|
265
|
|
|
Earnings in investments in subsidiaries
|
438,580
|
|
—
|
|
—
|
|
(438,580
|
)
|
—
|
|
|
Income/(loss) from operations before taxes
|
289,284
|
|
121,159
|
|
92,337
|
|
(438,580
|
)
|
64,200
|
|
|
Income taxes (benefit)
|
160,816
|
|
(130,508
|
)
|
(99,462
|
)
|
—
|
|
(69,154
|
)
|
|
Net income attributable to noncontrolling interests
|
—
|
|
—
|
|
(4,886
|
)
|
—
|
|
(4,886
|
)
|
|
Net income/(loss) attributable to Darling
|
$
|
128,468
|
|
$
|
251,667
|
|
$
|
186,913
|
|
$
|
(438,580
|
)
|
$
|
128,468
|
|
Condensed Consolidating Statements of Comprehensive Income/(Loss)
For the year ended December 28, 2019
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
Guarantors
|
Non-guarantors
|
Eliminations
|
Consolidated
|
|
Net income
|
$
|
320,967
|
|
$
|
72,074
|
|
$
|
399,753
|
|
$
|
(471,827
|
)
|
$
|
320,967
|
|
|
Other comprehensive income/(loss), net of tax:
|
|
|
|
|
|
|
Foreign currency translation
|
837
|
|
—
|
|
(12,771
|
)
|
—
|
|
(11,934
|
)
|
|
Pension adjustments
|
4,287
|
|
—
|
|
(2,752
|
)
|
—
|
|
1,535
|
|
|
Corn option derivative adjustments
|
278
|
|
—
|
|
—
|
|
—
|
|
278
|
|
|
Heating oil derivative adjustments
|
—
|
|
—
|
|
(3,141
|
)
|
—
|
|
(3,141
|
)
|
|
Foreign exchange derivative adjustments
|
—
|
|
—
|
|
(3,723
|
)
|
—
|
|
(3,723
|
)
|
|
Total other comprehensive income/(loss), net of tax
|
5,402
|
|
—
|
|
(22,387
|
)
|
—
|
|
(16,985
|
)
|
|
Total comprehensive income/(loss)
|
326,369
|
|
72,074
|
|
377,366
|
|
(471,827
|
)
|
303,982
|
|
|
Comprehensive income attributable to noncontrolling interests
|
—
|
|
—
|
|
8,690
|
|
—
|
|
$
|
8,690
|
|
|
Comprehensive income/(loss) attributable to Darling
|
$
|
326,369
|
|
$
|
72,074
|
|
$
|
368,676
|
|
$
|
(471,827
|
)
|
$
|
295,292
|
|
DARLING INGREDIENTS INC.
Notes to Consolidated Financial Statements (continued)
Condensed Consolidating Statements of Comprehensive Income/(Loss)
For the year ended December 29, 2018
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
Guarantors
|
Non-guarantors
|
Eliminations
|
Consolidated
|
|
Net income
|
$
|
105,944
|
|
$
|
99,353
|
|
$
|
171,590
|
|
$
|
(270,943
|
)
|
$
|
105,944
|
|
|
Other comprehensive income/(loss), net of tax:
|
|
|
|
|
|
|
Foreign currency translation
|
1,724
|
|
(53,387
|
)
|
(35,811
|
)
|
—
|
|
(87,474
|
)
|
|
Pension adjustments
|
(4,184
|
)
|
—
|
|
1,454
|
|
—
|
|
(2,730
|
)
|
|
Natural gas swap derivative adjustments
|
23
|
|
—
|
|
—
|
|
—
|
|
23
|
|
|
Corn option derivative adjustments
|
(1,687
|
)
|
—
|
|
—
|
|
—
|
|
(1,687
|
)
|
|
Foreign exchange derivative adjustments
|
—
|
|
—
|
|
1,081
|
|
—
|
|
1,081
|
|
|
Total other comprehensive income, net of tax
|
(4,124
|
)
|
(53,387
|
)
|
(33,276
|
)
|
—
|
|
(90,787
|
)
|
|
Total comprehensive income/(loss)
|
$
|
101,820
|
|
$
|
45,966
|
|
$
|
138,314
|
|
$
|
(270,943
|
)
|
$
|
15,157
|
|
|
Comprehensive income attributable to noncontrolling interests
|
—
|
|
—
|
|
3,894
|
|
—
|
|
3,894
|
|
|
Comprehensive income/(loss) attributable to Darling
|
$
|
101,820
|
|
$
|
45,966
|
|
$
|
134,420
|
|
$
|
(270,943
|
)
|
$
|
11,263
|
|
Condensed Consolidating Statements of Comprehensive Income/(Loss)
For the year ended December 30, 2017
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
Guarantors
|
Non-guarantors
|
Eliminations
|
Consolidated
|
|
Net income
|
$
|
133,354
|
|
$
|
251,667
|
|
$
|
186,913
|
|
$
|
(438,580
|
)
|
$
|
133,354
|
|
|
Other comprehensive income/(loss), net of tax:
|
|
|
|
|
|
|
Foreign currency translation
|
—
|
|
—
|
|
121,810
|
|
—
|
|
121,810
|
|
|
Pension adjustments
|
4,797
|
|
—
|
|
1,032
|
|
—
|
|
5,829
|
|
|
Natural gas swap derivative adjustments
|
(18
|
)
|
—
|
|
—
|
|
—
|
|
(18
|
)
|
|
Corn option derivative adjustments
|
(1,078
|
)
|
—
|
|
—
|
|
—
|
|
(1,078
|
)
|
|
Total other comprehensive income/(loss), net of tax
|
3,701
|
|
—
|
|
122,842
|
|
—
|
|
126,543
|
|
|
Total comprehensive income/(loss)
|
$
|
137,055
|
|
$
|
251,667
|
|
$
|
309,755
|
|
$
|
(438,580
|
)
|
$
|
259,897
|
|
|
Comprehensive income attributable to noncontrolling interests
|
—
|
|
—
|
|
947
|
|
—
|
|
947
|
|
|
Comprehensive income/(loss) attributable to Darling
|
$
|
137,055
|
|
$
|
251,667
|
|
$
|
308,808
|
|
$
|
(438,580
|
)
|
$
|
258,950
|
|
DARLING INGREDIENTS INC.
Notes to Consolidated Financial Statements (continued)
Condensed Consolidating Statements of Cash Flows
For the year ended December 28, 2019
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
Guarantors
|
Non-guarantors
|
Eliminations
|
Consolidated
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
Net income
|
$
|
320,967
|
|
$
|
72,074
|
|
$
|
399,753
|
|
$
|
(471,827
|
)
|
$
|
320,967
|
|
|
Earnings in investments in subsidiaries
|
(471,827
|
)
|
—
|
|
—
|
|
471,827
|
|
—
|
|
|
Other operating cash flows
|
244,255
|
|
5,020
|
|
(207,621
|
)
|
—
|
|
41,654
|
|
|
Net cash provided by operating activities
|
93,395
|
|
77,094
|
|
192,132
|
|
—
|
|
362,621
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
Capital expenditures
|
(113,632
|
)
|
(94,659
|
)
|
(151,207
|
)
|
—
|
|
(359,498
|
)
|
|
Acquisitions, net of cash acquired
|
(1,157
|
)
|
—
|
|
(274
|
)
|
—
|
|
(1,431
|
)
|
|
Investment in subsidiaries and affiliates
|
(2,393
|
)
|
(393
|
)
|
—
|
|
786
|
|
(2,000
|
)
|
|
Proceeds from sale of investment in subsidiary
|
—
|
|
—
|
|
3,671
|
|
—
|
|
3,671
|
|
|
Note receivable from affiliates
|
50,164
|
|
—
|
|
(50,164
|
)
|
—
|
|
—
|
|
|
Gross proceeds from sale of property, plant and equipment and other assets
|
1,034
|
|
12,459
|
|
4,742
|
|
—
|
|
18,235
|
|
|
Proceeds from insurance settlements
|
1,493
|
|
5,107
|
|
—
|
|
—
|
|
6,600
|
|
|
Payments related to routes and other intangibles
|
(131
|
)
|
—
|
|
(3,520
|
)
|
—
|
|
(3,651
|
)
|
|
Net cash provide/(used) in investing activities
|
(64,622
|
)
|
(77,486
|
)
|
(196,752
|
)
|
786
|
|
(338,074
|
)
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
Proceeds from long-term debt
|
500,000
|
|
—
|
|
17,606
|
|
—
|
|
517,606
|
|
|
Payments on long-term debt
|
(545,872
|
)
|
(7
|
)
|
(35,284
|
)
|
—
|
|
(581,163
|
)
|
|
Borrowings from revolving credit facility
|
281,000
|
|
—
|
|
188,227
|
|
—
|
|
469,227
|
|
|
Payments on revolving credit facility
|
(242,000
|
)
|
—
|
|
(219,669
|
)
|
—
|
|
(461,669
|
)
|
|
Net overdraft financing
|
8,358
|
|
—
|
|
30,009
|
|
—
|
|
38,367
|
|
|
Deferred loan costs
|
(7,027
|
)
|
—
|
|
—
|
|
—
|
|
(7,027
|
)
|
|
Issuance of common stock
|
39
|
|
—
|
|
—
|
|
—
|
|
39
|
|
|
Repurchase of common stock
|
(19,260
|
)
|
—
|
|
—
|
|
—
|
|
(19,260
|
)
|
|
Contributions from parent
|
—
|
|
393
|
|
393
|
|
(786
|
)
|
—
|
|
|
Minimum withholding taxes paid on stock awards
|
(4,455
|
)
|
—
|
|
(17
|
)
|
—
|
|
(4,472
|
)
|
|
Distributions to noncontrolling interests
|
—
|
|
—
|
|
(6,533
|
)
|
—
|
|
(6,533
|
)
|
|
Net cash provided/(used) in financing activities
|
(29,217
|
)
|
386
|
|
(25,268
|
)
|
(786
|
)
|
(54,885
|
)
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalent
|
—
|
|
—
|
|
(3,986
|
)
|
—
|
|
(3,986
|
)
|
|
Net increase/(decrease) in cash, cash equivalents and restricted cash
|
(444
|
)
|
(6
|
)
|
(33,874
|
)
|
—
|
|
(34,324
|
)
|
|
Cash, cash equivalents and restricted cash at beginning of year
|
1,098
|
|
32
|
|
106,239
|
|
—
|
|
107,369
|
|
|
Cash, cash equivalents and restricted cash at end of year
|
$
|
654
|
|
$
|
26
|
|
$
|
72,365
|
|
$
|
—
|
|
$
|
73,045
|
|
DARLING INGREDIENTS INC.
Notes to Consolidated Financial Statements (continued)
Condensed Consolidating Statements of Cash Flows
For the year ended December 29, 2018
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
Guarantors
|
Non-guarantors
|
Eliminations
|
Consolidated
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
Net income/(loss)
|
$
|
105,944
|
|
$
|
99,353
|
|
$
|
171,590
|
|
$
|
(270,943
|
)
|
$
|
105,944
|
|
|
Earnings in investments in subsidiaries
|
(270,943
|
)
|
—
|
|
—
|
|
270,943
|
|
—
|
|
|
Other operating cash flows
|
323,903
|
|
(81,561
|
)
|
50,329
|
|
—
|
|
292,671
|
|
|
Net cash provided by operating activities
|
158,904
|
|
17,792
|
|
221,919
|
|
—
|
|
398,615
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
Capital expenditures
|
(115,004
|
)
|
(90,402
|
)
|
(116,490
|
)
|
—
|
|
(321,896
|
)
|
|
Acquisitions, net of cash acquired
|
(100,500
|
)
|
—
|
|
(7,227
|
)
|
—
|
|
(107,727
|
)
|
|
Investment in subsidiaries and affiliates
|
(12,250
|
)
|
(198,880
|
)
|
—
|
|
198,880
|
|
(12,250
|
)
|
|
Proceeds from sale of investment in subsidiary
|
79,955
|
|
—
|
|
2,805
|
|
—
|
|
82,760
|
|
|
Note receivable from affiliates
|
—
|
|
266,880
|
|
(266,880
|
)
|
—
|
|
—
|
|
|
Gross proceeds from sale of property, plant and equipment and other assets
|
2,125
|
|
1,146
|
|
16,057
|
|
—
|
|
19,328
|
|
|
Proceeds from insurance settlements
|
750
|
|
503
|
|
—
|
|
—
|
|
1,253
|
|
|
Payments related to routes and other intangibles
|
(299
|
)
|
—
|
|
(3,584
|
)
|
—
|
|
(3,883
|
)
|
|
Net cash provided/(used) in investing activities
|
(145,223
|
)
|
(20,753
|
)
|
(375,319
|
)
|
198,880
|
|
(342,415
|
)
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
Proceeds from long-term debt
|
—
|
|
—
|
|
624,620
|
|
—
|
|
624,620
|
|
|
Payments on long-term debt
|
(15,116
|
)
|
—
|
|
(671,512
|
)
|
—
|
|
(686,628
|
)
|
|
Borrowings from revolving credit facility
|
351,000
|
|
—
|
|
192,898
|
|
—
|
|
543,898
|
|
|
Payments on revolving credit facility
|
(351,000
|
)
|
—
|
|
(159,974
|
)
|
—
|
|
(510,974
|
)
|
|
Net overdraft financing
|
3,558
|
|
—
|
|
(98
|
)
|
—
|
|
3,460
|
|
|
Deferred loan costs
|
(824
|
)
|
—
|
|
(8,844
|
)
|
—
|
|
(9,668
|
)
|
|
Issuances of common stock
|
182
|
|
—
|
|
—
|
|
—
|
|
182
|
|
|
Contributions from parent
|
—
|
|
—
|
|
198,880
|
|
(198,880
|
)
|
—
|
|
|
Minimum withholding taxes paid on stock awards
|
(2,210
|
)
|
—
|
|
(5
|
)
|
—
|
|
(2,215
|
)
|
|
Distributions to noncontrolling interest
|
—
|
|
—
|
|
(10,257
|
)
|
—
|
|
(10,257
|
)
|
|
Net cash provided/(used) in financing activities
|
(14,410
|
)
|
—
|
|
165,708
|
|
(198,880
|
)
|
(47,582
|
)
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
—
|
|
—
|
|
(8,165
|
)
|
—
|
|
(8,165
|
)
|
|
Net increase/(decrease) in cash, cash equivalents and restricted cash
|
(729
|
)
|
(2,961
|
)
|
4,143
|
|
—
|
|
453
|
|
|
Cash, cash equivalents and restricted cash at beginning of year
|
1,827
|
|
2,993
|
|
102,096
|
|
—
|
|
106,916
|
|
|
Cash, cash equivalents and restricted cash at end of year
|
$
|
1,098
|
|
$
|
32
|
|
$
|
106,239
|
|
$
|
—
|
|
$
|
107,369
|
|
DARLING INGREDIENTS INC.
Notes to Consolidated Financial Statements (continued)
Condensed Consolidating Statements of Cash Flows
For the year ended December 30, 2017
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
Guarantors
|
Non-guarantors
|
Eliminations
|
Consolidated
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
Net income/(loss)
|
$
|
133,354
|
|
$
|
251,667
|
|
$
|
186,913
|
|
$
|
(438,580
|
)
|
$
|
133,354
|
|
|
Earnings in investments in subsidiaries
|
(438,580
|
)
|
—
|
|
—
|
|
438,580
|
|
—
|
|
|
Other operating cash flows
|
489,302
|
|
(240,494
|
)
|
28,274
|
|
—
|
|
277,082
|
|
|
Net cash provided/(used) by operating activities
|
184,076
|
|
11,173
|
|
215,187
|
|
—
|
|
410,436
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
Capital expenditures
|
(83,520
|
)
|
(74,384
|
)
|
(116,264
|
)
|
—
|
|
(274,168
|
)
|
|
Acquisitions, net of cash acquired
|
—
|
|
(12,144
|
)
|
—
|
|
—
|
|
(12,144
|
)
|
|
Investment in subsidiaries and affiliates
|
(6,309
|
)
|
(13,386
|
)
|
—
|
|
14,945
|
|
(4,750
|
)
|
|
Note receivable from affiliates
|
—
|
|
82,000
|
|
(82,000
|
)
|
—
|
|
—
|
|
|
Gross proceeds from sale of property, plant and equipment and other assets
|
2,577
|
|
3,980
|
|
1,533
|
|
—
|
|
8,090
|
|
|
Proceeds from insurance settlements
|
—
|
|
—
|
|
6,054
|
|
—
|
|
6,054
|
|
|
Payments related to routes and other intangibles
|
(7,135
|
)
|
—
|
|
—
|
|
—
|
|
(7,135
|
)
|
|
Net cash provided/(used) in investing activities
|
(94,387
|
)
|
(13,934
|
)
|
(190,677
|
)
|
14,945
|
|
(284,053
|
)
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
Proceeds from long-term debt
|
—
|
|
—
|
|
33,401
|
|
—
|
|
33,401
|
|
|
Payments on long-term debt
|
(79,706
|
)
|
—
|
|
(69,917
|
)
|
—
|
|
(149,623
|
)
|
|
Borrowing from revolving credit facility
|
170,000
|
|
—
|
|
29,495
|
|
—
|
|
199,495
|
|
|
Payments on revolving credit facility
|
(170,000
|
)
|
—
|
|
(34,935
|
)
|
—
|
|
(204,935
|
)
|
|
Net overdraft financing
|
—
|
|
—
|
|
(714
|
)
|
—
|
|
(714
|
)
|
|
Deferred loan costs
|
(6,717
|
)
|
—
|
|
—
|
|
—
|
|
(6,717
|
)
|
|
Issuances of common stock
|
22
|
|
—
|
|
—
|
|
—
|
|
22
|
|
|
Contributions from parent
|
—
|
|
—
|
|
14,945
|
|
(14,945
|
)
|
—
|
|
|
Minimum withholding taxes paid on stock awards
|
(3,034
|
)
|
—
|
|
(15
|
)
|
—
|
|
(3,049
|
)
|
|
Deductions to noncontrolling interest
|
—
|
|
—
|
|
(17,451
|
)
|
—
|
|
(17,451
|
)
|
|
Distributions to noncontrolling interests
|
—
|
|
—
|
|
(5,281
|
)
|
—
|
|
(5,281
|
)
|
|
Net cash provided/(used) in financing activities
|
(89,435
|
)
|
—
|
|
(50,472
|
)
|
(14,945
|
)
|
(154,852
|
)
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
—
|
|
—
|
|
20,528
|
|
—
|
|
20,528
|
|
|
Net increase/(decrease) in cash, cash equivalents and restricted cash
|
254
|
|
(2,761
|
)
|
(5,434
|
)
|
—
|
|
(7,941
|
)
|
|
Cash, cash equivalents and restricted cash at beginning of year
|
1,573
|
|
5,754
|
|
107,530
|
|
—
|
|
114,857
|
|
|
Cash, cash equivalents and restricted cash at end of year
|
$
|
1,827
|
|
$
|
2,993
|
|
$
|
102,096
|
|
$
|
—
|
|
$
|
106,916
|
|
PART II