株探米国株
英語
エドガーで原本を確認する
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
 
FORM 10-Q
 
 (Mark One)      
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended
July 1, 2023
OR
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
  For the transition period from _______ to _______
 
Commission File Number   001-13323

DARLING INGREDIENTS INC.
(Exact name of registrant as specified in its charter) 
Delaware 36-2495346
 (State or other jurisdiction      (I.R.S. Employer
of incorporation or organization)    Identification Number)
 5601 N MacArthur Blvd., Irving, Texas     75038
(Address of principal executive offices)     (Zip Code)

Registrant's telephone number, including area code:  (972) 717-0300

Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common stock $0.01 par value per share DAR New York Stock Exchange (“NYSE”)
 
    Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.       Yes ☒     No ☐
 
    Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).        Yes ☒     No ☐

 Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer Accelerated filer    
Non-accelerated filer    Smaller reporting company       
Emerging growth company
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of Exchange Act.
 
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes ☐     No ☒
 
There were 159,491,100 shares of common stock, $0.01 par value, outstanding at August 3, 2023.



DARLING INGREDIENTS INC. AND SUBSIDIARIES
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JULY 1, 2023
 
 
TABLE OF CONTENTS   

 
 
    Page No.
   
     
 
 
   
     
 
   
     
 
   
     
 
     
     
 60
     
     
     
   
64
     
 
2





DARLING INGREDIENTS INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
July 1, 2023 and December 31, 2022
(in thousands, except share data)
July 1,
2023
December 31,
2022
ASSETS (unaudited)
Current assets:
Cash and cash equivalents $ 111,541  $ 127,016 
Restricted cash 299  315 
Accounts receivable, less allowance for bad debts of $12,912 at
   July 1, 2023 and $11,889 at December 31, 2022
746,638  676,573 
Inventories 825,130  673,621 
Prepaid expenses 116,540  85,665 
Income taxes refundable 22,621  18,583 
Other current assets 53,188  56,324 
Total current assets 1,875,957  1,638,097 
Property, plant and equipment, less accumulated depreciation of $2,219,926 at
   July 1, 2023 and $2,054,928 at December 31, 2022
2,774,526  2,462,082 
Intangible assets, less accumulated amortization of $685,911 at
   July 1, 2023 and $623,101 at December 31, 2022
1,074,604  865,122 
Goodwill 2,566,169  1,970,377 
Investment in unconsolidated subsidiaries 2,214,312  1,926,395 
Operating lease right-of-use assets 196,554  186,141 
Other assets 246,032  136,268 
Deferred income taxes 25,085  17,888 
  $ 10,973,239  $ 9,202,370 
LIABILITIES AND STOCKHOLDERS’ EQUITY    
Current liabilities:    
Current portion of long-term debt $ 88,085  $ 69,846 
Accounts payable, principally trade 427,066  472,491 
Income taxes payable 29,821  44,851 
Current operating lease liabilities 48,381  49,232 
Accrued expenses 420,196  432,023 
Total current liabilities 1,013,549  1,068,443 
Long-term debt, net of current portion 4,458,797  3,314,969 
Long-term operating lease liabilities 149,165  141,703 
Other non-current liabilities 339,270  298,933 
Deferred income taxes 561,895  481,832 
Total liabilities 6,522,676  5,305,880 
Commitments and contingencies
Stockholders’ equity:    
     Common stock, $0.01 par value; 250,000,000 shares authorized; 174,317,233 and
        173,593,099 shares issued at July 1, 2023 and December 31, 2022,
        respectively
1,743  1,736 
Additional paid-in capital 1,680,188  1,660,084 
     Treasury stock, at cost; 14,827,327 and 13,623,503 shares at
       July 1, 2023 and December 31, 2022, respectively
(624,852) (554,451)
Accumulated other comprehensive loss (212,561) (383,874)
Retained earnings 3,523,712  3,085,528 
Total Darling's stockholders’ equity 4,368,230  3,809,023 
Noncontrolling interests 82,333  87,467 
 Total stockholders' equity 4,450,563  3,896,490 
  $ 10,973,239  $ 9,202,370 
 The accompanying notes are an integral part of these consolidated financial statements.
3


DARLING INGREDIENTS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
Three and six months ended July 1, 2023 and July 2, 2022
(in thousands, except per share data)
(unaudited)


 
Three Months Ended Six Months Ended
  July 1,
2023
July 2,
2022
July 1,
2023
July 2,
2022
Net sales $ 1,757,621  $ 1,650,188  $ 3,548,793  $ 3,016,522 
Costs and expenses:    
Cost of sales and operating expenses 1,359,702  1,231,507  2,726,675  2,252,084 
Loss/(gain) on sale of assets 259  (1,055) (68) (1,444)
Selling, general and administrative expenses 136,751  107,776  272,217  209,808 
Restructuring and asset impairment charges 896  8,557  5,420  8,557 
Acquisition and integration costs 1,706  5,358  8,728  9,131 
Change in fair value of contingent consideration (7,499) —  (7,499) — 
Depreciation and amortization 122,086  93,113  238,092  172,359 
Total costs and expenses 1,613,901  1,445,256  3,243,565  2,650,495 
 Equity in net income of Diamond Green Diesel
212,964  73,680  307,301  145,484 
Operating income 356,684  278,612  612,529  511,511 
Other expense:    
Interest expense (70,193) (24,008) (120,492) (39,611)
Foreign currency gain/(loss) 2,490  (4,412) 7,494  (5,512)
Other income/(expense), net 5,079  (302) 11,238  (1,044)
Total other expense (62,624) (28,722) (101,760) (46,167)
Equity in net income of other unconsolidated subsidiaries 1,849  2,272  1,969  3,632 
Income before income taxes 295,909  252,162  512,738  468,976 
Income tax expense 40,712  47,333  67,686  73,416 
Net income 255,197  204,829  445,052  395,560 
Net income attributable to noncontrolling interests (2,814) (2,833) (6,868) (5,511)
Net income attributable to Darling $ 252,383  $ 201,996  $ 438,184  $ 390,049 
Basic income per share $ 1.58  $ 1.25  $ 2.74  $ 2.41 
Diluted income per share $ 1.55  $ 1.23  $ 2.69  $ 2.37 

 



The accompanying notes are an integral part of these consolidated financial statements.
4


DARLING INGREDIENTS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)
Three and six months ended July 1, 2023 and July 2, 2022
(in thousands)
(unaudited)

Three Months Ended Six Months Ended
  July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022
Net income $ 255,197  $ 204,829  $ 445,052  $ 395,560 
Other comprehensive income/(loss), net of tax:    
Foreign currency translation adjustments 82,592  (93,855) 138,809  (90,473)
Pension adjustments 327  428  654  857 
Commodities derivative adjustments (17,662) 24,462  3,462  2,404 
Interest rate swap adjustments 9,606  —  10,326  — 
Foreign exchange derivative adjustments 9,271  (20,719) 14,891  8,716 
Total other comprehensive income/(loss), net of tax 84,134  (89,684) 168,142  (78,496)
Total comprehensive income $ 339,331  $ 115,145  $ 613,194  $ 317,064 
Comprehensive income attributable to noncontrolling interests
301  2,687  3,697  6,232 
Comprehensive income attributable to Darling $ 339,030  $ 112,458  $ 609,497  $ 310,832 





The accompanying notes are an integral part of these consolidated financial statements.

5



DARLING INGREDIENTS INC. AND SUBSIDIARIES
  
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Six months ended July 1, 2023 and July 2, 2022
(in thousands, except share data)
(unaudited)
Common Stock
Number of Outstanding Shares
$0.01 par Value
Additional Paid-In Capital Treasury Stock Accumulated Other Comprehensive Loss Retained Earnings Stockholders' equity attributable to Darling Non-controlling Interests Total Stockholders' Equity
Balances at December 31, 2022 159,969,596  $ 1,736  $ 1,660,084  $ (554,451) $ (383,874) $ 3,085,528  $ 3,809,023  $ 87,467  $ 3,896,490 
Net income —  —  —  —  —  185,801  185,801  4,054  189,855 
Deductions to noncontrolling interests
—  —  —  —  —  —  —  (3,441) (3,441)
Addition to noncontrolling interests —  —  —  —  —  —  —  1,643  1,643 
Pension adjustments, net of tax —  —  —  —  327  —  327  —  327 
Commodities derivative adjustments, net of tax —  —  —  —  21,124  —  21,124  —  21,124 
Interest rate swap adjustments, net of tax —  —  —  —  720  —  720  —  720 
Foreign exchange derivative adjustments, net of tax —  —  —  —  5,620  —  5,620  —  5,620 
Foreign currency translation adjustments
—  —  —  —  56,875  —  56,875  (658) 56,217 
Issuance of non-vested stock —  —  47  —  —  —  47  —  47 
Stock-based compensation —  —  11,806  —  —  —  11,806  —  11,806 
Treasury stock (1,039,462) —  —  (60,510) —  —  (60,510) —  (60,510)
Issuance of common stock 633,972  1,695  —  —  —  1,701  —  1,701 
Balances at April 1, 2023 159,564,106  $ 1,742  $ 1,673,632  $ (614,961) $ (299,208) $ 3,271,329  $ 4,032,534  $ 89,065  $ 4,121,599 
Net income —  —  —  —  —  252,383  252,383  2,814  255,197 
Distribution of noncontrolling interest earnings
—  —  —  —  —  —  —  (9,036) (9,036)
Addition to noncontrolling interests —  —  —  —  —  —  —  2,003  2,003 
Pension adjustments, net of tax —  —  —  —  327  —  327  —  327 
Commodities derivative adjustments, net of tax —  —  —  —  (17,662) —  (17,662) —  (17,662)
Interest rate swap adjustments, net of tax —  —  —  —  9,606  —  9,606  —  9,606 
Foreign exchange derivative adjustments, net of tax —  —  —  —  9,271  —  9,271  —  9,271 
Foreign currency translation adjustments
—  —  —  —  85,105  —  85,105  (2,513) 82,592 
Issuance of non-vested stock —  —  46  —  —  —  46  —  46 
Stock-based compensation —  —  6,186  —  —  —  6,186  —  6,186 
Treasury stock (164,362) —  —  (9,891) —  —  (9,891) —  (9,891)
Issuance of common stock 90,162  324  —  —  —  325  —  325 
Balances at July 1, 2023 159,489,906  $ 1,743  $ 1,680,188  $ (624,852) $ (212,561) $ 3,523,712  $ 4,368,230  $ 82,333  $ 4,450,563 
The accompanying notes are an integral part of these consolidated financial statements.
6


DARLING INGREDIENTS INC. AND SUBSIDIARIES
  
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Six months ended July 1, 2023 and July 2, 2022
(in thousands, except share data)
(unaudited)

Common Stock
Number of Outstanding Shares
$0.01 par Value
Additional Paid-In Capital Treasury Stock Accumulated Other Comprehensive Loss Retained Earnings Stockholders' equity attributable to Darling Non-controlling Interests Total Stockholders' Equity
Balances at January 1, 2022 160,792,004  $ 1,717  $ 1,627,816  $ (374,721) $ (321,690) $ 2,347,838  $ 3,280,960  $ 66,825  $ 3,347,785 
Net income —  —  —  —  —  188,053  188,053  2,678  190,731 
Pension adjustments, net of tax —  —  —  —  429  —  429  —  429 
Commodities derivative adjustments, net of tax —  —  —  —  (22,058) —  (22,058) —  (22,058)
Foreign exchange derivative adjustments, net of tax —  —  —  —  29,435  —  29,435  —  29,435 
Foreign currency translation adjustments
—  —  —  —  2,515  —  2,515  867  3,382 
Issuance of non-vested stock 5,000  —  18  —  —  —  18  —  18 
Stock-based compensation —  —  6,305  —  —  —  6,305  —  6,305 
Treasury stock (938,113) —  —  (64,185) —  —  (64,185) —  (64,185)
Issuance of common stock 1,644,866  17  3,791  —  —  —  3,808  —  3,808 
Balances at April 2, 2022 161,503,757  $ 1,734  $ 1,637,930  $ (438,906) $ (311,369) $ 2,535,891  $ 3,425,280  $ 70,370  $ 3,495,650 
Net income —  —  —  —  —  201,996  201,996  2,833  204,829 
Pension adjustments, net of tax —  —  —  —  428  —  428  —  428 
Commodities derivative adjustments, net of tax —  —  —  —  24,462  —  24,462  —  24,462 
Foreign exchange derivative adjustments, net of tax —  —  —  —  (20,719) —  (20,719) —  (20,719)
Foreign currency translation adjustments
—  —  —  —  (93,709) —  (93,709) (146) (93,855)
Issuance of non-vested stock —  —  30  —  —  —  30  —  30 
Stock-based compensation —  —  7,016  —  —  —  7,016  —  7,016 
Treasury stock (751,432) —  —  (52,811) —  —  (52,811) —  (52,811)
Issuance of common stock 108,586  1,492  —  —  —  1,493  —  1,493 
Balances at July 2, 2022 160,860,911  $ 1,735  $ 1,646,468  $ (491,717) $ (400,907) $ 2,737,887  $ 3,493,466  $ 73,057  $ 3,566,523 

The accompanying notes are an integral part of these consolidated financial statements.
7


DARLING INGREDIENTS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended July 1, 2023 and July 2, 2022
(in thousands)
(unaudited)
  July 1,
2023
July 2,
2022
Cash flows from operating activities:    
Net Income $ 445,052  $ 395,560 
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and amortization 238,092  172,359 
Gain on sale of assets (68) (1,444)
Asset impairment —  8,557 
Change in fair value of contingent consideration (7,499) — 
Gain on insurance proceeds from insurance settlements (13,836) — 
Deferred taxes 34,202  35,674 
Increase/(decrease) in long-term pension liability 480  (547)
Stock-based compensation expense 18,085  13,369 
                  Deferred loan cost amortization 3,138  2,207 
                  Equity in net income of Diamond Green Diesel and other unconsolidated subsidiaries (309,270) (149,116)
Distributions of earnings from Diamond Green Diesel and other unconsolidated subsidiaries 103,794  1,631 
Changes in operating assets and liabilities, net of effects from acquisitions:    
Accounts receivable 24,397  (47,046)
Income taxes refundable/payable (24,551) (28,834)
Inventories and prepaid expenses (22,301) (95,199)
Accounts payable and accrued expenses (94,080) 72,351 
Other 10,065  (18,487)
Net cash provided by operating activities 405,700  361,035 
Cash flows from investing activities:    
Capital expenditures (234,307) (151,478)
      Acquisitions, net of cash acquired (1,079,083) (1,235,537)
  Investment in Diamond Green Diesel (75,000) (239,750)
      Investment in other unconsolidated subsidiaries (27) — 
      Loan repayment from Diamond Green Diesel 25,000  — 
        Gross proceeds from disposal of property, plant and equipment and other assets 2,733  2,161 
Proceeds from insurance settlement 13,836  — 
Payments related to routes and other intangibles (1,517) (179)
Net cash used in investing activities (1,348,365) (1,624,783)
Cash flows from financing activities:    
Proceeds from long-term debt 807,956  1,663,612 
Payments on long-term debt (83,616) (23,600)
Borrowings from revolving credit facility 1,415,916  777,902 
Payments on revolving credit facility (1,063,516) (937,921)
Net cash overdraft financing 16,673  12 
Deferred loan costs (9) (10,707)
Repurchase of common stock (52,941) (65,887)
Minimum withholding taxes paid on stock awards (15,558) (45,836)
Distributions to noncontrolling interests (4,824) — 
Net cash provided by financing activities 1,020,081  1,357,575 
Effect of exchange rate changes on cash 16,535  (16,059)
Net increase in cash, cash equivalents and restricted cash 93,951  77,768 
Cash, cash equivalents and restricted cash at beginning of period 150,168  69,072 
Cash, cash equivalents and restricted cash at end of period $ 244,119  $ 146,840 

The accompanying notes are an integral part of these consolidated financial statements.
8


DARLING INGREDIENTS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
July 1, 2023
(unaudited)

(1)General

The accompanying consolidated financial statements for the three and six month periods ended July 1, 2023 and July 2, 2022, have been prepared by Darling Ingredients Inc., a Delaware corporation (“Darling”, and together with its subsidiaries, the “Company” or “we”, “us” or “our”) in accordance with generally accepted accounting principles in the United States (“GAAP”) without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).  The information furnished herein reflects all adjustments (consisting only of normal recurring accruals) that are, in the opinion of management, necessary to present a fair statement of the financial position and operating results of the Company as of and for the respective periods. However, these operating results are not necessarily indicative of the results expected for a full fiscal year. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been omitted pursuant to such rules and regulations.  However, management of the Company believes, to the best of their knowledge, that the disclosures herein are adequate to make the information presented not misleading.  The accompanying consolidated financial statements should be read in conjunction with the audited consolidated financial statements contained in the Company’s Form 10-K for the fiscal year ended December 31, 2022. 

(2)Summary of Significant Accounting Policies

(a)Basis of Presentation

The consolidated financial statements include the accounts of Darling and its consolidated subsidiaries. Noncontrolling interests represent the outstanding ownership interest in the Company's consolidated subsidiaries that are not owned by the Company. In the accompanying Consolidated Statements of Operations, the noncontrolling interest in net income of the consolidated subsidiaries is shown as an allocation of the Company's net income and is presented separately as “Net income attributable to noncontrolling interests.” In the Company's Consolidated Balance Sheets, noncontrolling interests represent the ownership interests in the Company's 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.

(b)Fiscal Periods

The Company has a 52/53 week fiscal year ending on the Saturday nearest December 31.  Fiscal periods for the consolidated financial statements included herein are as of July 1, 2023, and include the 13 and 26 weeks ended July 1, 2023, and the 13 and 26 weeks ended July 2, 2022.

(c)    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 shown on the Consolidated Balance Sheet as of July 1, 2023 and December 31, 2022, primarily represented amounts set aside as collateral for foreign construction projects and U.S. environmental claims and were insignificant to the Company. Restricted cash included in other long term assets on the Consolidated Balance Sheet as of July 1, 2023 and December 31, 2022, primarily represents acquisition consideration hold-back amounts that are part of the purchase price set aside in escrow in the Company's name for possible indemnification claims by the Company, which amounts will be paid to the sellers in the future if no claims arise. A reconciliation of cash, cash equivalents, and restricted cash reported within the Consolidated Balance Sheets that sum to the total of same such amounts shown in the Consolidated Statement of Cash flows is as follows (in thousands):

9


July 1, 2023 December 31, 2022
Cash and cash equivalents $ 111,541  $ 127,016 
Restricted cash 299  315 
Restricted cash included in other long-term assets 132,279  22,837 
Total cash, cash equivalents and restricted cash shown in the statement of cash flows $ 244,119  $ 150,168 

(d)    Accounts Receivable Factoring

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 sells certain selected customers’ trade receivables to third party banks without recourse for cash less a nominal fee. For the three months ended July 1, 2023 and July 2, 2022, the Company sold approximately $130.6 million and $145.0 million of its trade receivables and incurred approximately $1.7 million and $0.7 million in fees, respectively, which are recorded as interest expense. For the six months ended July 1, 2023 and July 2, 2022, the Company sold approximately $292.0 million and $271.3 million of its trade receivables and incurred approximately $3.7 million and $1.1 million in fees, which are recorded as interest expense.

(e)    Revenue Recognition

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 related to certain foreign and domestic sales.  These amounts are recorded as unearned revenue in accrued expenses and recognized when control of the promised finished product is transferred to the Company's customer.  See Note 20 (Revenue) to the Company's Consolidated Financial Statements included herein.

(f)    Use of Estimates

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.

As a result of the Russia-Ukraine war and the current inflationary environment, we have evaluated the potential impact to the Company's operations and for any indicators of potential triggering events that could indicate certain of the Company's assets may be impaired. Through the six months ended July 1, 2023, the Company has not observed any impairments of the Company's assets or a significant change in their fair value due to the Russia-Ukraine war or inflation.

(g)    Out-of-Period Correction

During the quarter ended July 1, 2023, the Company determined the fair value of the contingent consideration liability recorded related to the FASA Group of approximately R$867.5 million (approximately $168.1 million USD at the exchange rate in effect on the closing date of the acquisition) was overstated in the initial purchase price allocation.
10


The error was the result of the use of an incorrect fair value model under the income approach to determine fair value of the contingent consideration liability upon acquisition. Utilizing assistance from external valuation experts and the use of a monte-carlo simulation, the Company determined during the quarter ended July 1, 2023 the acquisition date fair value of the contingent payment was R$428.2 million (approximately $83.0 million USD at the exchange rate in effect on the closing date of the acquisition) representing the probability weighted present value of the expected payment to be made under the agreement using the income approach. This resulted in an overstatement of the fair value of the contingent consideration liability of approximately $85.1 million on the acquisition date.

The Company assessed the impact of this error and concluded that it was not material to the financial statements previously issued for any interim or annual period and the correction of the error during the quarter ended July 1, 2023 is not material to the second quarter 2023 financial statements and is not expected to be material to the annual financial statements for fiscal 2023. The correction of the fair value of the contingent consideration liability at the acquisition date was recorded as an immaterial out-of-period correction during the quarter ended July 1, 2023 with the offset to the balance sheet recorded as a reduction to goodwill of approximately $85.1 million, which is included in the Feed Ingredients segment.

(h)    Reclassifications

Certain immaterial prior year amounts have been reclassified to conform to current year presentation.

(i)    Earnings Per Share

Basic income per common share is computed by dividing net income attributable to Darling by the weighted average number of common shares including non-vested and restricted shares outstanding during the period.  Diluted income per common share is computed by dividing net income attributable to Darling by the weighted average number of common shares outstanding during the period increased by dilutive common equivalent shares determined using the treasury stock method.
Net Income per Common Share (in thousands, except per share data)
  Three Months Ended
July 1, 2023 July 2, 2022
  Income Shares Per Share Income Shares Per Share
Basic:            
Net Income attributable to Darling $ 252,383  159,810  $ 1.58  $ 201,996  161,632  $ 1.25 
Diluted:            
Effect of dilutive securities:            
Add: Option shares in the money and dilutive effect of non-vested stock awards   3,308      3,781   
Less: Pro forma treasury shares   (748)     (668)  
Diluted:            
Net income attributable to Darling $ 252,383  162,370  $ 1.55  $ 201,996  164,745  $ 1.23 

Net Income per Common Share (in thousands, except per share data)
  Six Months Ended
July 1, 2023 July 2, 2022
  Income Shares Per Share Income Shares Per Share
Basic:            
Net Income attributable to Darling $ 438,184  159,978  $ 2.74  $ 390,049  161,514  $ 2.41 
Diluted:            
Effect of dilutive securities:            
Add: Option shares in the money and dilutive effect of non-vested stock awards   3,363      3,879   
Less: Pro forma treasury shares   (748)     (720)  
Diluted:            
Net income attributable to Darling $ 438,184  162,593  $ 2.69  $ 390,049  164,673  $ 2.37 
11



For the three months ended July 1, 2023 and July 2, 2022, respectively, no outstanding stock options were excluded from diluted income per common share as the effect would be antidilutive. For the three months ended July 1, 2023 and July 2, 2022, respectively, 478,289 and 249,564 shares of non-vested stock and stock equivalents were excluded from diluted income per common share as the effect was antidilutive.

For the six months ended July 1, 2023 and July 2, 2022, respectively, no outstanding stock options were excluded from diluted income per common share as the effect would be antidilutive. For the six months ended July 1, 2023 and July 2, 2022, respectively, 450,248 and 248,051 shares of non-vested stock and stock equivalents were excluded from diluted income per common share as the effect was antidilutive.

(3)    Investment in Unconsolidated Subsidiaries

On January 21, 2011, a wholly-owned subsidiary of Darling entered into a limited liability company agreement with a wholly-owned subsidiary of Valero Energy Corporation (“Valero”) to form Diamond Green Diesel Holdings LLC (“DGD” or the “DGD Joint Venture”). The DGD Joint Venture is owned 50% / 50% with Valero.

Selected financial information for the Company's DGD Joint Venture is as follows:

(in thousands) June 30, 2023 December 31, 2022
Assets:
Total current assets $ 1,623,715  $ 1,304,805 
Property, plant and equipment, net 3,828,093  3,866,854 
Other assets 88,305  61,665 
Total assets $ 5,540,113  $ 5,233,324 
Liabilities and members' equity:
Total current portion of long term debt $ 102,935  $ 217,066 
Total other current liabilities 378,589  515,023 
Total long term debt 760,700  774,783 
Total other long term liabilities 16,568  17,249 
Total members' equity 4,281,321  3,709,203 
Total liabilities and members' equity $ 5,540,113  $ 5,233,324 

Three Months Ended Six Months Ended
(in thousands) June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022
Revenues:
Operating revenues $ 2,246,111  $ 1,455,886  $ 3,926,161  $ 2,436,578 
Expenses:
Total costs and expenses less depreciation, amortization and accretion expense
1,751,315  1,274,665  3,172,719  2,082,237 
Depreciation, amortization and accretion expense
58,315  31,317  116,922  57,809 
Total costs and expenses 1,809,630  1,305,982  3,289,641  2,140,046 
Operating income 436,481  149,904  636,520  296,532 
Other income 2,121  722  4,162  711 
Interest and debt expense, net (12,674) (3,266) (26,080) (6,275)
Net income $ 425,928  $ 147,360  $ 614,602  $ 290,968 

As of July 1, 2023, under the equity method of accounting, the Company has an investment in the DGD Joint Venture of approximately $2,144.0 million on the consolidated balance sheet. The Company has recorded equity in net income from the DGD Joint Venture of approximately $213.0 million and $73.7 million for the three months ended July 1, 2023 and July 2, 2022, respectively. The Company has recorded equity in net income from the DGD Joint Venture of approximately $307.3 million and $145.5 million for the six months ended July 1, 2023 and July 2, 2022, respectively. In December 2019, the blender tax credits were extended for calendar years 2020, 2021 and 2022. On August 16, 2022, the U.S. government enacted the Inflation Reduction Act ( the “IR Act”). As part of the IR Act, the blender tax credits were extended as is until December 31, 2024. After 2024, the Clean Fuels Production Credit (the “CFPC”) becomes effective from 2025 through 2027. Under the CFPC, on-road transportation fuel receives a base credit of up to $1.00 per gallon of renewable diesel multiplied by the fuel's emission reduction percentage as long as it is produced at a qualifying facility and it meets prevailing wage requirements and apprenticeship requirements.
12


In contrast to the blenders tax credits, the CFPC requires that production must take place in the United States. For the three months ended June 30, 2023 and June 30, 2022, the DGD Joint Venture recorded approximately $387.5 million and $198.4 million of blenders tax credits, respectively. For the six months ended June 30, 2023 and June 30, 2022, the DGD Joint Venture recorded approximately $633.5 million and $354.2 million of blenders tax credits, respectively. The blenders tax credits are recorded as a reduction of cost of sales by the DGD Joint Venture. In the six months ended July 1, 2023 and July 2, 2022, respectively, the Company made $75.0 million and $239.75 million capital contributions to the DGD Joint Venture. In the six months ended July 1, 2023 and July 2, 2022, the Company received $101.4 million and zero dividend distributions from the DGD Joint Venture, respectively. As of July 1, 2023, the DGD Joint Venture has borrowings outstanding of $50.0 million under their unsecured revolving credit facility. On July 18, 2023, the Company received approximately $62.2 million as a dividend distribution 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.

(4)    Acquisitions

Gelnex

On March 31, 2023, the Company acquired all of the shares of Gelnex, a leading global producer of collagen products (the “Gelnex Acquisition”). The Gelnex Acquisition includes a network of five processing facilities in South America and one in the United States. The initial purchase price of approximately $1.2 billion was comprised of an initial cash payment of approximately $1.1 billion, which consisted of a payment of approximately R$4.3 billion Brazilian real (approximately $855.1 million USD at the exchange rate of R$5.0812:USD$1.00 on the closing date) and a payment of approximately $243.5 million in USD, and is subject to various post-closing adjustments in accordance with the stock purchase agreement. In addition, the Company incurred a liability of approximately $104.1 million for acquisition consideration hold-back amounts that are part of the purchase price set aside in escrow in the Company's name for possible indemnification claims by the Company, which amounts will be paid to the sellers in the future if no claims arise. The hold-back amount represents a noncash investing activity during the period of acquisition. The Gelnex Acquisition gives us immediate capacity to serve the growing needs of our collagen customers and the growing gelatin market. The initial purchase price was financed by borrowing all of the Company's term A-3 facility of $300.0 million and term A-4 facility of $500.0 million, with the remainder coming through revolver borrowings under the Company's Amended Credit Agreement.

The following table summarizes the preliminary estimated fair value of the assets acquired and the liabilities assumed in the Gelnex Acquisition as of March 31, 2023 (in thousands) inclusive of all measurement period adjustments recorded:
Accounts receivable $ 81,000 
Inventories 141,066 
Other current assets 3,502 
Property, plant and equipment 127,769 
Identifiable intangible assets 283,951 
Goodwill 630,669 
Operating lease right-of-use assets 134 
Other assets 2,703 
Deferred tax asset 857 
Accounts payable (15,059)
Current operating lease liabilities (26)
Current portion of long-term debt (44,692)
Accrued expenses (18,888)
Long-term debt, net of current portion (1,407)
Long-term operating lease liabilities (123)
Deferred tax liability (8,310)
Other noncurrent liabilities (19)
Purchase price, net of cash acquired $ 1,183,127 
Less hold-back 104,145 
Cash paid for acquisition, net of cash acquired $ 1,078,982 
13



As the Gelnex Acquisition occurred on the last business day of the first quarter, and the Company preliminarily allocated the purchase price of the acquisition to the assets acquired and liabilities assumed based on their estimated fair values on a provisional basis using methods based on historical experience, with the excess of the purchase price over the aggregate provisional fair values recorded as goodwill.

The above amounts are provisional in nature and are subject to change during the measurement period if additional information about the facts and circumstances that existed at the acquisition date becomes available. The Company is in the ongoing process of conducting a valuation of all the assets acquired and liabilities assumed related to the acquisition including identifiable intangible assets, personal and real property, deferred taxes and others, including possible future purchase price adjustments related to working capital and taxes. The Company has engaged third party valuation experts to assist in the determination of the fair value of assets acquired and liabilities assumed using the income, market or cost approaches (or a combination thereof).

The $630.7 million of goodwill from the Gelnex Acquisition, which is expected to strengthen the Company's gelatin business and expand its ability to service increased demand of its collagen customer base, is assigned to the Food Ingredients segment. Of the preliminary goodwill booked in the Gelnex Acquisition approximately $506.4 million is expected to be deductible for tax purposes. The identifiable intangibles of $284.0 million have preliminarily been recorded as other intangible assets. Due to the fact that the Company is in the process of conducting a valuation of all the assets acquired, certain other disclosures regarding the type and weighted average life of intangibles is not known at this time and will be updated when the information becomes available.

The final fair value of the net assets acquired may result in adjustments to these assets and liabilities, including goodwill, which may be significant. If new information is obtained about facts and circumstances that existed at the acquisition date, the Company will adjust its measurement of provisional amounts recorded, thus the final determination of the values presented in the above table of assets acquired and liabilities assumed may result in retrospective adjustments to the values presented with a corresponding adjustment to goodwill. During the second quarter ended July 1, 2023 immaterial amounts have been adjusted to goodwill.

The amount of net sales and net income (loss) from the Gelnex Acquisition included in the Company's consolidated statement of operations for both the three and six months ended July 1, 2023 were $91.2 million and $(19.1) million, respectively. The Company incurred acquisition costs related to the Gelnex Acquisition for the three and six months ended July 1, 2023 of approximately $0.1 million and $5.9 million, respectively.

FASA Group

On August 1, 2022, the Company acquired all of the shares of the FASA Group, the largest independent rendering company in Brazil, pursuant to a stock purchase agreement dated May 5, 2022 (the “FASA Acquisition”). The FASA Group, with its 14 rendering plants and an additional two plants under construction at the time of acquisition, will supplement the Company's global supply of waste fats, making it a leader in the supply of low-carbon waste fats and oils.

The Company initially paid approximately R$2.9 billion Brazilian real in cash (approximately $562.6 million USD at the exchange rate in effect on the closing date of the acquisition) for all the shares of the FASA Group, subject to certain post closing adjustments and a contingent payment based on future earnings growth in accordance with the terms set forth in the stock purchase agreement. Under the stock purchase agreement, such contingent payment could range from R$0 to a maximum of R$1.0 billion if future earnings growth reaches certain levels over a three-year period. The Company completed an initial analysis as of the acquisition date for this contingency and recorded a liability of approximately R$867.5 million (approximately $168.1 million USD at the exchange rate in effect on the closing date of the acquisition) representing the present value of the maximum contingency under the income approach.

As disclosed in Note 2(g), as a result of the immaterial out-of-period correction identified during the quarter ended July 1, 2023, utilizing assistance from external valuation experts and the use of a Monte Carlo model, the Company determined the acquisition date fair value of the contingent consideration was R$428.2 million (approximately $83.0 million USD at the exchange rate in effect on the closing date of the acquisition) representing the probability weighted present value of the expected payment to be made under the agreement using the income approach, resulting in an overstatement of the fair value of the contingent consideration liability of approximately $85.1 million. The immaterial out-of-period correction reduced the acquisition date fair value of contingent consideration liability and goodwill associated with the FASA Acquisition by approximately $85.1 million during the quarter ended July 1, 2023.
14


The Company will analyze the contingent consideration liability using a Monte Carlo model each quarter and any change in fair value will be recorded through operating income as changes in fair value of contingent consideration including the accretion of the change in the long-term liability.

The hold-back and contingent consideration amounts represent a noncash investing activity during the period of acquisition. The Company initially financed the FASA Acquisition by borrowing approximately $515.0 million of revolver borrowings under the Company's Amended Credit Agreement, with the remainder coming from cash on hand. During the fourth quarter of fiscal 2022, the Company made immaterial working capital adjustments and made a cash payment for working capital purchase price adjustment per the stock purchase agreement of approximately $7.1 million with an offset to goodwill. The Company obtained new information about facts and circumstances that existed at the acquisition date during the first and second quarter of 2023 that resulted in measurement period adjustments to increase property, plant and equipment by approximately $81.5 million, decrease intangible assets by approximately $41.7 million, decrease goodwill by approximately $21.5 million, increase deferred tax liabilities by approximately $16.0 million and increase other assets and liabilities by approximately $2.3 million, with the net impact of the adjustments to the consolidated statement of operations being immaterial.

The following table summarizes the final fair value of the assets acquired and the liabilities assumed in the FASA Acquisition as of August 1, 2022 at the exchange rate of R$5.16:USD$1.00 (in thousands), as adjusted for the immaterial out of period correction disclosed in Note 2(g) and inclusive of all measurement adjustments recorded:

Accounts receivable $ 76,640 
Inventories 43,058 
Other current assets 33,327 
Property, plant and equipment 224,384 
Identifiable intangible assets 119,477 
Goodwill (1) 301,937 
Operating lease right-of-use assets 583 
Other assets 62,388 
Deferred tax asset 2,315 
Accounts payable (15,920)
Current portion of long-term debt (18,680)
Accrued expenses (38,708)
Long-term debt, net of current portion (41,926)
Long-term operating lease liabilities (583)
Deferred tax liability (95,653)
Other noncurrent liabilities (503)
Non-controlling interests (21,704)
Purchase price, net of cash acquired $ 630,432 
Less hold-back 21,705 
Less contingent consideration (1) 82,984 
Cash paid for acquisition, net of cash acquired $ 525,743 

(1)     As disclosed in Note 2(g), the immaterial out-of-period correction made during the quarter ended July 1, 2023 resulted in a reduction of goodwill and contingent consideration liability recorded associated with the FASA Acquisition of approximately $85.1 million.

The $301.9 million of goodwill from the FASA Acquisition, which is expected to strengthen the Company's base business and expand its ability to provide additional low carbon intensity feedstocks to fuel the growing demand for renewable diesel, was assigned to the Feed Ingredients segment and is nondeductible for tax purposes. The identifiable intangible assets include $108.5 million in routes with a life of 12 years and $10.9 million in trade name with a life of 5 years for a total weighted average life of approximately 11.4 years.

The amount of net sales and net income (loss) from the FASA Acquisition included in the Company's consolidated statement of operations for the three and six months ended July 1, 2023 were $90.3 million and $183.8 million and $(2.7) million and $1.8 million, respectively.

15


Valley Proteins

On May 2, 2022, the Company acquired all of the shares of Valley Proteins, pursuant to a stock purchase agreement dated December 28, 2021 (the “Valley Acquisition”). The Valley Acquisition includes a network of 18 major rendering plants and used cooking oil facilities throughout the southern, southeast and mid-Atlantic regions of the U.S. The Company initially paid approximately $1.177 billion in cash for the Valley Acquisition, subject to various post-closing adjustments in accordance with the stock purchase agreement. During the third quarter of fiscal 2022, the Company made immaterial working capital adjustments and made a cash payment for a working capital purchase price adjustment per the stock purchase agreement of approximately $6.0 million with an offset to goodwill. The initial purchase price was financed by borrowing all of the Company's term A-1 facility of $400.0 million and term A-2 facility of $500.0 million, with the remainder coming through revolver borrowings under the Company's Amended Credit Agreement.

The following table summarizes the final fair value of the assets acquired and the liabilities assumed in the Valley Acquisition as of May 2, 2022 (in thousands) inclusive of all measurement period adjustments recorded:

Accounts receivable $ 68,558 
Inventories 58,246 
Other current assets 13,825 
Property, plant and equipment 409,405 
Identifiable intangible assets 389,200 
Goodwill 358,298 
Operating lease right-of-use assets 16,380 
Other assets 14,164 
Deferred tax asset 1,075 
Accounts payable (47,615)
Current portion of long-term debt (2,043)
Current operating lease liabilities (4,779)
Accrued expenses (66,034)
Long-term debt, net of current portion (5,995)
Long-term operating lease liabilities (11,601)
Other noncurrent liabilities (19,436)
Purchase price, net of cash acquired $ 1,171,648 

The $358.3 million of goodwill from the Valley Acquisition, which is expected to strengthen the Company's base business and expand its ability to provide additional low carbon intensity feedstocks to fuel the growing demand for renewable diesel, was assigned to the Feed Ingredients segment. For U.S. income tax purposes, the Valley Acquisition is treated as a purchase of substantially all the assets of Valley Proteins; therefore, almost all of the goodwill is expected to be deductible for tax purposes. The identifiable intangible assets include $292.1 million in collection routes with a life of 15 years and $97.1 million in permits with a life of 15 years for a total weighted average life of approximately 15 years.

The amount of net sales and net income from the Valley Acquisition included in the Company's consolidated statement of operations for the three and six months ended July 1, 2023 were $199.9 million and $426.3 million and $4.1 million and $3.6 million, respectively.

As a result of the Gelnex Acquisition, the FASA Acquisition and the Valley Acquisition, effective March 31, 2023, August 1, 2022 and May 2, 2022, respectively, the Company began including the operations of these acquisitions in the Company's consolidated financial statements. The following table presents selected pro forma information, for comparative purposes, assuming the Gelnex Acquisition, the FASA Acquisition and the Valley Acquisition had occurred on January 2, 2022 for the periods presented (in thousands):

Three Months Ended Six Months Ended
July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022
Net sales $ 1,757,621  $ 1,927,083  $ 3,647,060  $ 3,705,923 
Net income 255,197  200,668  448,019  371,706 
16


The Company notes that pro forma results of operations for the additional acquisitions discussed below have not been presented because the effect of each acquisition individually or in the aggregate is not deemed material to net sales, total assets and net income of the Company for any period presented.

On February 25, 2022, a wholly-owned international subsidiary of the Company acquired all of the shares of Group Op de Beeck, a Belgium digester, organic and industrial waste processing company, that is now included in our Fuel Ingredients segment, for an initially estimated purchase price of approximately $91.7 million, plus or minus various closing adjustments in accordance with the stock purchase agreement. Initially, the Company paid approximately $71.3 million in cash consideration. In the second quarter of fiscal 2022, the Company paid an additional $4.2 million for purchase price adjustments related to working capital and estimated future construction costs for a total purchase price of approximately $75.5 million. The Company recorded assets and liabilities consisting of property, plant and equipment of approximately $28.1 million, intangible assets of approximately $27.2 million, goodwill of approximately $29.6 million and other net liabilities of approximately $9.4 million including working capital and net debt.

Additionally, the Company completed other immaterial acquisitions in the first six months of fiscal 2023 and 2022.

On November 2, 2022, the Company announced that we entered into a definitive agreement to purchase Polish rendering company, Miropasz Group for approximately €110.0 million, subject to post-closing adjustments. The transaction is subject to customary approvals, including the receipt of regulatory approval and is anticipated to close in the third quarter of 2023.

The Company incurred acquisition costs and integration costs of approximately $1.7 million and $5.4 million for the three months ended July 1, 2023 and July 2, 2022, respectively. The Company incurred acquisition and integration costs of approximately $8.7 million and $9.1 million for the six months ended July 1, 2023 and July 2, 2022, respectively.

(5)    Inventories

A summary of inventories follows (in thousands):

    
  July 1, 2023 December 31, 2022
Finished product $ 480,025  $ 384,289 
Work in process 138,034  100,790 
Raw material 68,387  69,164 
Supplies and other 138,684  119,378 
  $ 825,130  $ 673,621 

(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):
    
17


  July 1, 2023 December 31, 2022
Indefinite Lived Intangible Assets:    
Trade names $ 52,203  $ 51,639 
  52,203  51,639 
Finite Lived Intangible Assets:    
Routes 753,442  781,286 
Permits 560,416  557,083 
Non-compete agreements 695  695 
Trade names 77,400  76,549 
Royalty, consulting, land use rights and leasehold 20,382  20,971 
Other intangible assets 295,977  — 
  1,708,312  1,436,584 
Accumulated Amortization:
Routes (221,628) (196,108)
Permits (389,854) (368,005)
Non-compete agreements (617) (563)
Trade names (57,999) (53,486)
Royalty, consulting, land use rights and leasehold (5,242) (4,939)
Other intangible assets (10,571) — 
(685,911) (623,101)
Total Intangible assets, less accumulated amortization $ 1,074,604  $ 865,122 

Gross intangible assets changed due to net acquisition activity in the first six months of fiscal 2023 by approximately $245.0 million and the remaining change is due to foreign currency translation and retirements. Other intangibles represent the preliminary amounts recorded in the Gelnex Acquisition. Amortization expense for the three months ended July 1, 2023 and July 2, 2022, was approximately $33.3 million and $21.0 million, respectively, and for the six months ended July 1, 2023 and July 2, 2022 was approximately $59.5 million and $37.5 million, respectively.

(7)    Goodwill

Changes in the carrying amount of goodwill (in thousands):
  Feed Ingredients Food Ingredients Fuel Ingredients Total
Balance at December 31, 2022      
Goodwill $ 1,556,855  $ 320,807  $ 143,379  $ 2,021,041 
Accumulated impairment losses (15,914) (3,170) (31,580) (50,664)
  1,540,941  317,637  111,799  1,970,377 
Goodwill acquired during year 3,247  626,202  —  629,449 
Measurement period adjustments (21,271) 4,467  (66) (16,870)
Out-of-period correction (1) (85,144) —  —  (85,144)
Foreign currency translation 34,190  31,628  2,539  68,357 
Balance at July 1, 2023      
Goodwill 1,487,877  983,104  145,852  2,616,833 
Accumulated impairment losses (15,914) (3,170) (31,580) (50,664)
  $ 1,471,963  $ 979,934  $ 114,272  $ 2,566,169 

(1)    As disclosed in Note 2(g), the immaterial out-of-period correction made during the quarter ended July 1, 2023 resulted in a reduction of goodwill recorded associated with the FASA Acquisition of approximately $85.1 million, which is included in the Feed Ingredients segment.


18


(8)    Accrued Expenses

Accrued expenses consist of the following (in thousands):

  July 1, 2023 December 31, 2022
Compensation and benefits
$ 134,677  $ 145,048 
Accrued operating expenses
101,476  97,128 
Other accrued expense
184,043  189,847 
  $ 420,196  $ 432,023 


(9)    Debt

Debt consists of the following (in thousands):
July 1, 2023 December 31, 2022
Amended Credit Agreement:    
Revolving Credit Facility ($212.9 million and $32.0 million denominated in € at July 1, 2023 and December 31, 2022, respectively)
$ 491,921  $ 135,028 
Term A-1 facility 400,000  400,000 
Less unamortized deferred loan costs (635) (722)
Carrying value Term A-1 facility 399,365  399,278 
Term A-2 facility 487,500  493,750 
Less unamortized deferred loan costs (902) (1,034)
Carrying value Term A-2 facility 486,598  492,716 
Term A-3 facility 300,000  — 
Less unamortized deferred loan costs (964) — 
Carrying value Term A-3 facility 299,036  — 
Term A-4 facility 496,875  — 
Less unamortized deferred loan costs (1,168) — 
Carrying value Term A-4 facility 495,707  — 
Term Loan B
200,000  200,000 
Less unamortized deferred loan costs (981) (1,302)
Carrying value Term Loan B 199,019  198,698 
6% Senior Notes due 2030 with effective interest of 6.12%
1,000,000  1,000,000 
Less unamortized deferred loan costs net of bond premium (6,841) (7,228)
Carrying value 6% Senior Notes due 2030
993,159  992,772 
5.25% Senior Notes due 2027 with effective interest of 5.47%
500,000  500,000 
Less unamortized deferred loan costs (3,694) (4,127)
Carrying value 5.25% Senior Notes due 2027
496,306  495,873 
3.625% Senior Notes due 2026 - Denominated in euro with effective interest of 3.83%
562,329  549,814 
Less unamortized deferred loan costs - Denominated in euro (3,274) (3,728)
Carrying value 3.625% Senior Notes due 2026
559,055  546,086 
Other Notes and Obligations 126,716  124,364 
4,546,882  3,384,815 
Less Current Maturities 88,085  69,846 
$ 4,458,797  $ 3,314,969 

As of July 1, 2023, the Company had outstanding debt under the revolving credit facility denominated in euros of €195.0 million and outstanding debt under the Company's 3.625% Senior Notes due 2026 denominated in euros of €515.0 million.
19


In addition, at July 1, 2023, the Company had finance lease obligations denominated in euros of approximately €7.8 million.

As of July 1, 2023, the Company had other notes and obligations of $126.7 million that consist of various overdraft facilities of approximately $41.3 million, Brazilian notes of approximately $48.5 million, a China working capital line of credit of approximately $5.1 million and other debt of approximately $31.8 million, including U.S. finance lease obligations of approximately $4.2 million.

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.

The interest rate applicable to any borrowings under the revolving credit facility equals the adjusted term secured overnight financing rate (SOFR) for U.S. dollar borrowings or the adjusted euro interbank rate (EURIBOR) for euro borrowings or the adjusted daily simple Sterling overnight index average (SONIA) for British pound borrowings or CDOR for Canadian dollar borrowings plus 1.375% per annum or base rate or the adjusted term SOFR for U.S. dollar borrowings or Canadian prime rate for Canadian dollar borrowings or the adjusted daily simple European short term rate (ESTR) for euro borrowings or the adjusted daily SONIA rate for British pound borrowings plus 0.375% per annum subject to certain step-ups or step-downs based on the Company's total leverage ratio. The interest rate applicable to any borrowing under the term A-1 facility and term A-3 facility equals the adjusted term SOFR plus a minimum of 1.50% per annum subject to certain step-ups based on the Company's total leverage ratio. The interest rate applicable to any borrowing under the term A-2 facility and term A-4 facility equals the adjusted term SOFR plus 1.375% 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 equals the base rate plus 1.00% or LIBOR plus 2.00%.

As of July 1, 2023, the Company had (i) $44.0 million outstanding under the revolving credit facility at base rate plus a margin of 0.375% per annum for a total of 8.625% per annum, (ii) $235.0 million outstanding under the revolver at SOFR plus a margin of 1.375% per annum for a total of 6.5775% per annum, (iii) $400.0 million outstanding under the term A-1 facility at SOFR plus a margin of 1.50% per annum for a total of 6.7025% per annum, (iv) $487.5 million outstanding under the term A-2 facility at SOFR plus a margin of 1.375% per annum for a total of 6.5775% per annum, (v) $300.0 million outstanding under the term A-3 facility at SOFR plus a margin 1.50% per annum for a total of 6.7025% per annum, (vi) $496.9 million outstanding under the term A-4 facility at SOFR plus a margin 1.375% per annum for a total of 6.5775% per annum, (vii) $200.0 million outstanding under the term B facility at LIBOR plus a margin of 2.00% per annum for a total of 7.15% per annum and (viii) €195.0 million outstanding under the revolving credit facility at EURIBOR plus a margin of 1.375% per annum for a total of 4.7630% per annum. As of July 1, 2023, the Company had revolving credit facility availability of $956.0 million, under the Amended Credit Agreement taking into account amounts borrowed, ancillary facilities of $48.3 million and letters of credit issued of $3.9 million. The Company also had foreign bank guarantees of approximately $13.0 million and U.S. bank guarantees of approximately $10.9 million that are not part of the Company's Amended Credit Agreement at July 1, 2023.

As of July 1, 2023, the Company believes it is in compliance with all of the financial covenants under the Amended Credit Agreement, as well as all of the other covenants contained in the Amended Credit Agreement, the 6% Senior Notes due 2030, the 5.25% Senior Notes due 2027 and the 3.625% Senior Notes due 2026.

(10)    Other Noncurrent Liabilities
 
Other noncurrent liabilities consist of the following (in thousands):

  July 1, 2023 December 31, 2022
Accrued pension liability $ 22,656  $ 22,538 
Reserve for self-insurance, litigation, environmental and tax matters 87,915  76,685 
Long-term acquisition hold-backs 134,969  26,113 
Long-term contingent consideration (1) 87,329  169,903 
Other 6,401  3,694 
  $ 339,270  $ 298,933 

20


(1)    As disclosed in Note 2(g), the immaterial out-of-period correction made during the quarter ended July 1, 2023 resulted in a reduction of goodwill recorded associated with the FASA Acquisition of approximately $85.1 million.

(11)    Income Taxes
 
The Company has provided income taxes for the three and six month periods ended July 1, 2023 and July 2, 2022, based on its estimate of the effective tax rate for the entire 2023 and 2022 fiscal years. The Company’s estimated annual effective tax rate is based on forecasts of income by jurisdiction, permanent differences between book and tax income, the relative proportion of income and losses by jurisdiction, and statutory income tax rates. Discrete events such as the assessment of the ultimate outcome of tax audits, audit settlements, recognizing previously unrecognized tax benefits due to the lapsing of statutes of limitation, recognizing or derecognizing deferred tax assets due to projections of income or loss and changes in tax laws are recognized in the period in which they occur.
 
Unrecognized tax benefits represent the difference between tax positions taken or expected to be taken in a tax return and the benefits recognized for financial statement purposes. As of July 1, 2023 and July 2, 2022, the Company had $19.1 million and $12.1 million, respectively of gross unrecognized tax benefits and $1.3 million and $1.2 million, respectively of related accrued interest and penalties. The Company's gross unrecognized tax benefits are not expected to decrease significantly within the next twelve months.

On August 16, 2022, the U.S. government enacted the IR Act that includes tax incentives for energy and climate initiatives, among other provisions. The blender tax credits, which are refundable excise tax credits, have been extended two years through December 31, 2024. After 2024, the CFPC, a transferable income tax credit, becomes effective from 2025 through 2027. We are assessing these tax incentives, which could materially change our pre-tax or after-tax amounts and impact our tax rate in future years. We will continue to evaluate the applicability and effect of the IR Act as more guidance is issued.

The Company’s major taxing jurisdictions include the United States (federal and state), Canada, the Netherlands, Belgium, Brazil, Germany, France and China. The Company is subject to regular examination by various tax authorities and although the final outcome of these examinations is not yet determinable, the Company does not anticipate that any of the examinations will have a significant impact on the Company's results of operations or financial position. The statute of limitations for the Company’s major tax jurisdictions is open for varying periods, but is generally closed through the 2013 tax year.

(12)      Other Comprehensive Income/(Loss)

The components of other comprehensive income/(loss) and the related tax impacts for the three and six months ended July 1, 2023 and July 2, 2022 are as follows (in thousands):

21


Three Months Ended
Before-Tax Tax (Expense) Net-of-Tax
Amount or Benefit Amount
July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022
Defined benefit pension plans
Amortization of prior service (cost)/benefit
$ —  $ $ —  $ (2) $ —  $
Amortization of actuarial loss 434  570  (107) (146) 327  424 
Total defined benefit pension plans 434  576  (107) (148) 327  428 
Soybean meal option derivatives
Reclassified to earnings (166) 124  42  (31) (124) 93 
Activity recognized in other comprehensive income/(loss) (163) (144) 41  37  (122) (107)
Total soybean meal option derivatives (329) (20) 83  (246) (14)
Corn option derivatives
Reclassified to earnings (653) 7,238  165  (1,839) (488) 5,399 
Activity recognized in other comprehensive income/(loss) 597  726  (150) (184) 447  542 
Total corn option derivatives (56) 7,964  15  (2,023) (41) 5,941 
Heating oil derivatives
Activity recognized in other comprehensive income/(loss) (23,292) 24,847  5,917  (6,312) (17,375) 18,535 
Total heating oil derivatives (23,292) 24,847  5,917  (6,312) (17,375) 18,535 
Interest swap derivatives
Reclassified to earnings (990) —  251  —  (739) — 
Activity recognized in other comprehensive income/(loss) 13,867  —  (3,522) —  10,345  — 
Total interest swap derivatives 12,877  —  (3,271) —  9,606  — 
Foreign exchange derivatives
Reclassified to earnings (7,459) (6,280) 2,539  2,055  (4,920) (4,225)
Activity recognized in other comprehensive income/(loss) 21,515  (25,091) (7,324) 8,597  14,191  (16,494)
Total foreign exchange derivatives 14,056  (31,371) (4,785) 10,652  9,271  (20,719)
Foreign currency translation 82,696  (95,562) (104) 1,707  82,592  (93,855)
Other comprehensive income/(loss) $ 86,386  $ (93,566) $ (2,252) $ 3,882  $ 84,134  $ (89,684)
22


Six Months Ended
Before-Tax Tax (Expense) Net-of-Tax
Amount or Benefit Amount
July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022
Defined benefit pension plans
Amortization of prior service (cost)/benefit
$ —  $ 11  $ —  $ (3) $ —  $
Amortization of actuarial loss 868  1,140  (214) (291) 654  849 
Total defined benefit pension plans 868  1,151  (214) (294) 654  857 
Soybean meal option derivatives
Reclassified to earnings (504) (317) 128  81  (376) (236)
Activity recognized in other comprehensive income/(loss) (87) (24) 22  (65) (18)
Total soybean meal option derivatives (591) (341) 150  87  (441) (254)
Corn option derivatives
Reclassified to earnings (1,537) 11,345  390  (2,882) (1,147) 8,463 
Activity recognized in other comprehensive income/(loss) 1,627  (10,159) (412) 2,581  1,215  (7,578)
Total corn option derivatives 90  1,186  (22) (301) 68  885 
Heating oil derivatives
Activity recognized in other comprehensive income/(loss) 5,140  2,377  (1,305) (604) 3,835  1,773 
Total heating oil derivatives 5,140  2,377  (1,305) (604) 3,835  1,773 
Interest swap derivatives
Reclassified to earnings 866  —  (220) —  646  — 
Activity recognized in other comprehensive income/(loss) 12,976  —  (3,296) —  9,680  — 
Total interest swap derivatives 13,842  —  (3,516) —  10,326  — 
Foreign exchange derivatives
Reclassified to earnings (12,273) (7,351) 4,176  2,415  (8,097) (4,936)
Activity recognized in other comprehensive income/(loss) 34,844  20,331  (11,856) (6,679) 22,988  13,652 
Total foreign exchange derivatives 22,571  12,980  (7,680) (4,264) 14,891  8,716 
Foreign currency translation 139,555  (92,901) (746) 2,428  138,809  (90,473)
Other comprehensive income/(loss) $ 181,475  $ (75,548) $ (13,333) $ (2,948) $ 168,142  $ (78,496)

The following table presents the amounts reclassified out of each component of other comprehensive income/(loss), net of tax for the three and six months ended July 1, 2023 and July 2, 2022 as follows (in thousands):

23


Three Months Ended Six Months Ended
July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022 Statement of Operations Classification
Derivative instruments
Soybean meal option derivatives $ 166  $ (124) $ 504  $ 317  Net sales
Foreign exchange contracts 7,459  6,280  12,273  7,351  Net sales
Corn option derivatives 653  (7,238) 1,537  (11,345) Cost of sales and operating expenses
Interest swaps 990  —  (866) —  Foreign currency Gain/(loss) and interest expense
9,268  (1,082) 13,448  (3,677) Total before tax
(2,997) (185) (4,474) 386  Income taxes
6,271  (1,267) 8,974  (3,291) Net of tax
Defined benefit pension plans
Amortization of prior service cost
$ —  $ (6) $ —  $ (11) (a)
Amortization of actuarial loss
(434) (570) (868) (1,140) (a)
(434) (576) (868) (1,151) Total before tax
107  148  214  294  Income taxes
(327) (428) (654) (857) Net of tax
Total reclassifications $ 5,944  $ (1,695) $ 8,320  $ (4,148) Net of tax

(a)These items are included in the computation of net periodic pension cost. See Note 14 (Employee Benefit Plans) to the Company's Consolidated Financial Statement included herein for additional information.

The following table presents changes in each component of accumulated other comprehensive income/(loss) as of July 1, 2023 as follows (in thousands):
Six Months Ended July 1, 2023
Foreign Defined
Currency Derivative Benefit
Translation Instruments Pension Plans Total
Accumulated Other Comprehensive loss December 31, 2022, attributable to Darling, net of tax $ (374,368) $ 7,176  $ (16,682) $ (383,874)
Other comprehensive loss before reclassifications 138,809  37,653  —  176,462 
Amounts reclassified from accumulated other comprehensive loss
—  (8,974) 654  (8,320)
Net current-period other comprehensive income 138,809  28,679  654  168,142 
Noncontrolling interest
(3,171) —  —  (3,171)
Accumulated Other Comprehensive loss July 1, 2023, attributable to Darling, net of tax $ (232,388) $ 35,855  $ (16,028) $ (212,561)

(13)    Stockholders' Equity

Fiscal 2023 Long-Term Incentive Opportunity Awards (2023 LTIP). On January 3, 2023, the Compensation Committee (the “Committee”) of the Company's Board of Directors adopted the 2023 LTIP pursuant to which they awarded certain of the Company's key employees, 118,208 restricted stock units and 177,299 performance share units (the “PSUs”) under the Company's 2017 Omnibus Incentive Plan. The restricted stock units vest 33.33% on the first, second and third anniversaries of the grant date. The PSUs are tied to a three-year forward-looking performance period and will be earned based on the Company's average return on gross investment (“ROGI”), as calculated in accordance with the terms of the award agreement, relative to the average ROGI of the Company's performance peer group companies, with the earned award to be determined in the first quarter of fiscal 2026, after the final results for the relevant performance period are determined. The PSUs were granted at a target of 100%, but each PSU will reduce or increase (up to 225%) depending on the Company's ROGI relative to that of the performance peer group companies and is also subject to the application of a total shareholder return (“TSR”) cap/collar modifier depending on the Company's TSR during the performance period relative to that of the performance peer group companies. On May 11, 2023, the Committee awarded 4,432 restricted stock units and 6,648 PSUs to a newly hired executive officer, which will have the same performance period and terms as those issued to the other participants on January 3, 2023.
24


In addition, on May 11, 2023, the Committee granted the newly hired executive officer a one-time grant of 44,304 restricted stock units that will vest in three equal installments on the first, second and third anniversaries of the grant.

As previously announced, the Company’s Board of Directors approved a share repurchase program in August 2017, then refreshed and increased the program on December 9, 2021 up to an aggregate of $500.0 million of the Company's Common Stock depending on market conditions, and extended the program to August 13, 2024. During the first six months of fiscal 2023, $52.9 million of Common Stock was repurchased under the share repurchase program. As of July 1, 2023, the Company had approximately $321.6 million remaining under the share repurchase program.

(14)    Employee Benefit Plans

Net pension cost for the three and six months ended July 1, 2023 and July 2, 2022 includes the following components (in thousands):
Pension Benefits Pension Benefits
  Three Months Ended Six Months Ended
  July 1,
2023
July 2,
2022
July 1,
2023
July 2,
2022
Service cost $ 683  $ 798  $ 1,358  $ 1,626 
Interest cost 1,961  1,312  3,917  2,632 
Expected return on plan assets (1,805) (2,156) (3,608) (4,321)
Amortization of prior service cost —  —  11 
Amortization of actuarial loss 434  570  868  1,140 
Net pension cost $ 1,273  $ 530  $ 2,535  $ 1,088 

Based on actuarial estimates at July 1, 2023, the Company expects to contribute approximately $3.7 million to its pension plans to meet funding requirements during the next twelve months. Additionally, the Company has made tax deductible discretionary and required contributions to its pension plans for the six months ended July 1, 2023 and July 2, 2022 of approximately $1.6 million and $1.5 million, respectively.  

The Company participates in various multiemployer pension plans which provide defined benefits to certain employees covered by labor contracts.  These plans are not administered by the Company and contributions are determined in accordance with provisions of negotiated labor contracts to meet their pension benefit obligations to their participants. The Company's contributions to each multiemployer plan represent less than 5% of the total contributions to each plan. Based on the most currently available information, the Company has determined that, if a withdrawal were to occur, withdrawal liabilities on two of the plans in which the Company currently participates could be material to the Company, with one of these material plans certified as critical or red zone. With respect to the other multiemployer pension plans in which the Company participates and which are not individually significant, five plans have certified as critical or red zone and one plan has certified as endangered as defined by the Pension Protection Act of 2006.

The Company currently has withdrawal liabilities recorded on four U.S. multiemployer plans in which it participated. During the second quarter of fiscal 2023, the Company was notified by one of their multiemployer plans that an additional partial withdrawal liability was incurred and the Company also received a notification that another one of its multiemployer plans liabilities was being reduced. As a result of these events, the Company recorded an additional liability of approximately $2.8 million. As of July 1, 2023, the Company has an aggregate accrued liability of approximately $6.6 million representing the present value of scheduled withdrawal liability payments on the multiemployer plans that have given notice of withdrawal. 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.

(15)    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, energy costs and the risk of changes in interest rates and foreign currency exchange rates.

25


The Company makes limited use of derivative instruments to manage cash flow risks related to interest rates, natural gas usage, diesel fuel usage, inventory, forecasted sales and foreign currency exchange rates. The Company does not use derivative instruments for trading purposes. Interest rate swaps are entered into with the intent of managing overall borrowing costs by reducing the potential impact of increases in interest rates on floating-rate long-term debt. Natural gas swaps and options are entered into with the intent of managing the overall cost of natural gas usage by reducing the potential impact of seasonal weather demands on natural gas that increases natural gas prices.  Heating oil swaps and options are entered into with the intent of managing the overall cost of diesel fuel usage by reducing the potential impact of seasonal weather demands on diesel fuel that increases diesel fuel prices.  Soybean meal forwards and options are entered into with the intent of managing the impact of changing prices for poultry meal sales. Corn options and future contracts are entered into with the intent of managing U.S. forecasted sales of bakery by-products (“BBP”) by reducing the impact of changing prices.  Foreign currency forward and option contracts are entered into to mitigate the foreign exchange rate risk for transactions designated in a currency other than the local functional currency. 

At July 1, 2023, the Company had soybean meal forward and option contracts, foreign exchange forward and option contracts and interest rate swaps outstanding that qualified and were designated for hedge accounting as well as corn forward contracts, soybean meal forward and option contracts and foreign currency forward contracts that did not qualify and were not designated for hedge accounting.

In the first six months of fiscal 2023 and 2022, 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.

Cash Flow Hedges

In the first quarter and second quarter of fiscal 2023, the Company entered into interest rate swaps that are designated as cash flow hedges. The notional amount of these swaps totaled $900.0 million. Under the contracts, the Company is obligated to pay a weighted average rate of 4.007% while receiving the 1-month SOFR rate. Under the terms of the interest rate swaps, the Company hedged a portion of its variable rate debt into the first quarter of 2026. At July 1, 2023, the aggregate fair value of these interest rate swaps was approximately $13.3 million. These amounts are included in other current assets and other assets on the balance sheet, with an offset recorded in accumulated other comprehensive loss.

In the first quarter of fiscal 2023, the Company also entered into cross currency swaps that are designated as cash flow hedges. The notional amount of these swaps was €519.2 million. Under the contracts, the Company is obligated to pay a 4.6% euro denominated fixed rate while receiving a weighted average U.S. dollar fixed rate of 5.799%. Under the terms of the cross currency swaps, the Company hedged its intercompany notes receivable into the first quarter of 2025. Accordingly, changes in the fair value of the cash flow hedge are initially recorded as gains and/or losses as a component of accumulated other comprehensive loss. We immediately reclassify from accumulated other comprehensive loss to earnings an amount to offset the remeasurement recognized in earnings associated with the respective intercompany loan. Additionally, we reclassify amounts from accumulated other comprehensive income/(loss) associated with the interest rate differential between the U.S. dollar and a Euro to interest expense. At July 1, 2023, the aggregate fair value of these cross currency swaps was approximately $4.1 million. These amounts are included in other current assets and other non-current liabilities on the balance sheet, with an offset recorded in accumulated other comprehensive loss.

In fiscal 2022, the Company entered into corn option contracts on the Chicago Board of Trade that are designated as cash flow hedges. Under the terms of the corn option contracts, the Company hedged a portion of its U.S. forecasted sales of BBP into the second quarter of fiscal 2023. There are not any open designated corn option contracts at July 1, 2023. At July 1, 2023 and December 31, 2022, the aggregate fair value of these corn option contracts was approximately zero and $0.9 million, respectively. The amounts outstanding as of December 31, 2022 are included in other current assets on the balance sheet, with an offset recorded in accumulated other comprehensive loss.

In fiscal 2022 and fiscal 2023, the Company entered into foreign exchange forward and option contracts that are designated as 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 2024. At July 1, 2023 and December 31, 2022, the aggregate fair value of these foreign exchange contracts was approximately $33.6 million and $13.8 million, respectively. These amounts are included in other current assets, accrued expenses, other assets and other non-current liabilities on the balance sheet, with an offset recorded in accumulated other comprehensive loss.
26



In fiscal 2022 and fiscal 2023, the Company entered into soybean meal option contracts to hedge a portion of its forecasted poultry meal sales into the fourth quarter of fiscal 2023. At July 1, 2023 and December 31, 2022, the aggregate fair value of the soybean meal contracts was approximately $0.1 million and $0.6 million, respectively. These amounts are included in other current assets and accrued expenses on the balance sheet, with an offset recorded in accumulated other comprehensive loss.

As of July 1, 2023, the Company had the following designated and non-designated outstanding forward and option contract amounts that were entered into to hedge 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 36,462  Euro 6,778 
Brazilian real 3,073,819  U.S. dollar 742,803 
Euro 26,862  U.S. dollar 29,329 
Euro 33,017  Polish zloty 147,500 
Euro 10,790  Japanese yen 1,661,510 
Euro 20,614  Chinese renminbi 158,683 
Euro 18,250  Australian dollar 29,691 
Euro 4,842  British pound 4,162 
Euro 35  Canadian dollar 50 
Polish zloty 1,380  U.S. dollar 339 
Polish zloty 31,858  Euro 7,170 
British pound 69  Euro 81 
Japanese yen 371,817  U.S. dollar 2,716 
U.S. dollar 1,094  Japanese yen 156,000 
U.S. dollar 562,340  Euro 519,182 

The Company estimates the amount that will be reclassified from accumulated other comprehensive loss at July 1, 2023 into earnings over the next 12 months for all cash flow hedges will be approximately $49.7 million. As of July 1, 2023, 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 three and six months ended July 1, 2023 and July 2, 2022 (in thousands):

Loss or (Gain) Recognized in Income on Derivatives Not Designated as Hedges
Three Months Ended Six Months Ended
Derivatives not designated as hedging instruments Location July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022
Foreign exchange Foreign currency loss/(gain) $ (2,036) $ 35,025  $ (1,236) $ 42,492 
Foreign exchange
Net sales
(306) 732  (977) 890 
Foreign exchange
Cost of sales and operating expenses
(103) (503) (120) (758)
Foreign exchange Selling, general and administrative expenses (2,673) 3,937  (4,058) (2,587)
Corn options and futures Net sales 1,111  850  1,382  (1,286)
Corn options and futures
Cost of sales and operating expenses
(2,191) (2,384) (2,608) 3,169 
Heating Oil swaps and options
Selling, general and administrative expenses —  —  49  — 
Soybean meal
Net sales
525  —  308  — 
Total $ (5,673) $ 37,657  $ (7,260) $ 41,920 

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At July 1, 2023, the Company had forward purchase agreements in place for purchases of approximately $186.4 million of natural gas and diesel fuel.  The Company intends to take physical delivery of the commodities under the forward purchase agreements and accordingly, these contracts are not subject to the requirements of fair value accounting because they qualify as normal purchases.

(16)    Fair Value Measurements

FASB authoritative guidance defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.  The following table presents the Company’s financial instruments that are measured at fair value on a recurring and nonrecurring basis as of July 1, 2023 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 July 1, 2023 Using
Quoted Prices in
Active Markets for
Identical Assets
Significant Other
Observable
Inputs
Significant
Unobservable
Inputs
(In thousands of dollars) Total (Level 1) (Level 2) (Level 3)
Assets
Derivative instruments $ 56,124  $ —  $ 56,124  $ — 
Total Assets $ 56,124  $ —  $ 56,124  $ — 
Liabilities
Derivative instruments $ 14,155  $ —  $ 14,155  $ — 
Contingent consideration 87,329  —  —  87,329 
6% Senior notes 974,300  —  974,300  — 
5.25% Senior notes 482,500  —  482,500  — 
3.625% Senior notes 548,045  —  548,045  — 
Term loan A-1 399,000  —  399,000  — 
Term loan A-2 485,063  —  485,063  — 
Term loan A-3 298,500  —  298,500  — 
Term loan A-4 494,391  —  494,391  — 
Term loan B 200,000  —  200,000  — 
Revolver debt 484,542  —  484,542  — 
Total Liabilities $ 4,467,825  $ —  $ 4,380,496  $ 87,329 

    Fair Value Measurements at December 31, 2022 Using
Quoted Prices in
Active Markets for
Identical Assets
Significant Other
Observable
Inputs
Significant
Unobservable
Inputs
(In thousands of dollars) Total (Level 1) (Level 2) (Level 3)
Assets
Derivative instruments $ 20,324  $ —  $ 20,324  $ — 
Total Assets $ 20,324  $ —  $ 20,324  $ — 
Liabilities
Derivative instruments $ 5,406  $ —  $ 5,406  $ — 
Contingent consideration 169,903  —  —  169,903 
6% Senior notes 977,200  —  977,200  — 
5.25% Senior notes 485,700  —  485,700  — 
3.625% Senior notes 533,155  —  533,155  — 
Term loan A-1 398,000  —  398,000  — 
Term loan A-2 488,813  —  488,813  — 
Term loan B 199,000  —  199,000  — 
Revolver debt 133,003  —  133,003  — 
Total Liabilities $ 3,390,180  $ —  $ 3,220,277  $ 169,903 

Derivative assets and liabilities consist of the Company’s corn option and future contracts, foreign currency forward and option contracts, soybean meal forward contracts and interest rate swap contracts which represent the difference between observable market rates of commonly quoted intervals for similar assets and liabilities in active markets and the fixed swap rate considering the instruments term, notional amount and credit risk.
28


See Note 15 (Derivatives) to the Company's Consolidated Financial Statements included herein 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 fair value of the senior notes, term loan A-1, term loan A-2, term loan A-3, term loan A-4, term loan B and revolver debt is based on market quotation from third-party banks. The carrying amount of the Company's other debt is not deemed to be significantly different from the fair value and all other instruments have been recorded at fair value.

The fair value measurement of the contingent consideration liability uses significant unobservable inputs (level 3). The changes in contingent consideration are due to the following:

(in thousands of dollars) Contingent Consideration
Balance as of December 31, 2022 $ 169,903 
Out-of-period correction (1) (85,144)
Total included in earnings during period (5,443)
Exchange rate changes 8,013 
Balance as of July 1, 2023 $ 87,329 

(1)    As disclosed in Note 2(g), the immaterial out-of-period correction made during the quarter ended July 1, 2023 resulted in a reduction of goodwill recorded associated with the FASA Acquisition of approximately $85.1 million.

(17)    Restructuring and Asset Impairment Charges 

In December 2022, the Company's management reviewed our global network of collagen plants for optimization opportunities and decided to close our Peabody, Massachusetts plant in 2023. In addition to charges incurred in fiscal 2022, the Company incurred additional restructuring charges in the first six months of fiscal 2023 in the Food Segment for employee termination and retention costs of approximately $5.3 million. In addition, the Company incurred approximately $0.1 million of employee termination costs in the Feed Segment related to closing down of a processing location in Europe and transferring the material to another processing location in Europe.

(18)    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 environmental matters, including 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 July 1, 2023 and December 31, 2022, the reserves for insurance, environmental, litigation and tax contingencies reflected on the balance sheet in accrued expenses and other non-current liabilities was approximately $95.9 million and $92.1 million, respectively. The Company has insurance recovery receivables reflected on the balance sheet in other current assets and other assets of approximately $36.0 million as of July 1, 2023 and December 31, 2022, 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.
29


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 (the “Lower 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 March 2016, the Company received another letter from the 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 made no demand on the Company and laid out a framework for remedial design/remedial action implementation under which the EPA would first seek funding from major PRPs. The letter indicated that the EPA had sent the letter to over 100 parties, which include large chemical and refining companies, manufacturing companies, foundries, plastic companies, pharmaceutical companies and food and consumer product companies. The Company 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 eight contaminants of concern identified in the ROD (the “COCs”). Subsequently, the EPA conducted a settlement analysis using a third-party allocator and offered early cash out settlements to those PRPs for whom the third-party allocator determined did not discharge any of the COCs. The Company participated in this allocation process, and in November 2019, 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 accepted this settlement offer, and the settlement became effective on April 16, 2021 following the completion of the EPA's administrative approval process. In September 2021, the EPA released a ROD selecting an interim remedy for the upper nine miles of the Lower Passaic River at an expected additional cost of $441 million. In October 2022, the Company, along with other settling defendants, entered into a Consent Decree with the EPA pursuant to which the Company paid $0.3 million to settle liabilities for both of the former plant sites in question related to the upper nine miles of the Lower Passaic River. The Company paid this amount into escrow, as the settlement is subject to the EPA’s administrative approval process, which includes publication, a public comment period and court approval. 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 Lower 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 Lower 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 Lower 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 Lower 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 Lower Passaic River. Furthermore, the Company's settlements with the EPA described above 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.

(19)    Business Segments

The Company sells its products domestically and internationally, operating within three industry segments: Feed Ingredients, Food Ingredients and Fuel Ingredients. The measure of segment income/(loss) includes all revenues, operating expenses (excluding certain amortization of intangibles), and selling, general and administrative expenses incurred at all operating locations and excludes corporate activities.

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Included in corporate activities are general corporate expenses and the amortization of certain intangibles. Assets of corporate activities include cash, unallocated prepaid expenses, deferred tax assets, prepaid pension, and miscellaneous other assets.

Feed Ingredients
Feed Ingredients consists principally of (i) the Company's U.S. ingredients business, including the Company's fats and proteins, used cooking oil, trap grease, Darling Canada, and the ingredients and specialty products businesses conducted by Darling Ingredients International under the Sonac and FASA names (proteins, fats, and blood 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 and Gelnex names, (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 and (ii) the bioenergy business conducted by Darling Ingredients International under the Ecoson and Rendac names.

Business Segments (in thousands):
Feed Ingredients Food Ingredients Fuel Ingredients Corporate Total
Three Months Ended July 1, 2023
Net Sales $ 1,141,661  $ 476,093  $ 139,867  $ —  $ 1,757,621 
Cost of sales and operating expenses 876,413  371,095  112,194  —  1,359,702 
Gross Margin 265,248  104,998  27,673  —  397,919 
Loss/(gain) on sale of assets 322  (65) —  259 
Selling, general and administrative expenses 77,406  33,684  4,971  20,690  136,751 
Restructuring and asset impairment charges —  896  —  —  896 
Acquisition and integration costs —  —  —  1,706  1,706 
Change in fair value of contingent consideration (7,499) —  —  —  (7,499)
Depreciation and amortization 82,575  28,445  8,567  2,499  122,086 
Equity in net income of Diamond Green Diesel
—  —  212,964  —  212,964 
Segment operating income/(loss) 112,444  41,971  227,164  (24,895) 356,684 
Equity in net income of other unconsolidated subsidiaries
1,849  —  —  —  1,849 
Segment income/(loss) 114,293  41,971  227,164  (24,895) 358,533 
Total other expense (62,624)
Income before income taxes $ 295,909 


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Feed Ingredients Food Ingredients Fuel Ingredients Corporate Total
Three Months Ended July 2, 2022
Net Sales $ 1,170,347  $ 369,181  $ 110,660  $ —  $ 1,650,188 
Cost of sales and operating expenses 864,306  280,964  86,237  —  1,231,507 
Gross Margin 306,041  88,217  24,423  —  418,681 
Gain on sale of assets (964) (73) (18) —  (1,055)
Selling, general and administrative expenses 64,863  22,855  4,277  15,781  107,776 
Restructuring and impairment charges 8,557  —  —  —  8,557 
Acquisition and integration costs —  —  —  5,358  5,358 
Depreciation and amortization 68,938  14,449  6,936  2,790  93,113 
Equity in net income of Diamond Green Diesel
—  —  73,680  —  73,680 
Segment operating income/(loss) 164,647  50,986  86,908  (23,929) 278,612 
Equity in net income of other unconsolidated subsidiaries 2,272  —  —  —  2,272 
Segment income/(loss) 166,919  50,986  86,908  (23,929) 280,884 
Total other expense (28,722)
Income before income taxes $ 252,162 
Feed Ingredients Food Ingredients Fuel Ingredients Corporate Total
Six Months Ended July 1, 2023
Net Sales $ 2,379,155  $ 872,485  $ 297,153  $ —  $ 3,548,793 
Cost of sales and operating expenses 1,826,485  661,210  238,980  —  2,726,675 
Gross Margin 552,670  211,275  58,173  —  822,118 
Gain on sale of assets (20) (19) (29) —  (68)
Selling, general and administrative expenses 152,097  66,806  11,163  42,151  272,217 
Restructuring and asset impairment charges 92  5,328  —  —  5,420 
Acquisition and integration costs —  —  —  8,728  8,728 
Change in fair value of contingent consideration (7,499) —  —  —  (7,499)
Depreciation and amortization 172,895  42,918  16,960  5,319  238,092 
Equity in net income of Diamond Green Diesel
—  —  307,301  —  307,301 
Segment operating income/(loss) 235,105  96,242  337,380  (56,198) 612,529 
Equity in net income of other unconsolidated subsidiaries
1,969  —  —  —  1,969 
Segment income/(loss) 237,074  96,242  337,380  (56,198) 614,498 
Total other expense (101,760)
Income before income taxes $ 512,738 
Segment assets at July 1, 2023 $ 4,738,648  $ 2,613,854  $ 2,573,246  $ 1,047,491  $ 10,973,239 


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Feed Ingredients Food Ingredients Fuel Ingredients Corporate Total
Six Months Ended July 2, 2022
Net Sales $ 2,049,785  $ 723,995  $ 242,742  $ —  $ 3,016,522 
Cost of sales and operating expenses 1,509,829  551,276  190,979  —  2,252,084 
Gross Margin 539,956  172,719  51,763  —  764,438 
Gain on sale of assets (1,305) (82) (57) —  (1,444)
Selling, general and administrative expenses 121,072  49,699  8,197  30,840  209,808 
Restructuring and asset impairment charges 8,557  —  —  —  8,557 
Acquisition and integration costs —  —  —  9,131  9,131 
Depreciation and amortization 123,288  29,899  13,610  5,562  172,359 
Equity in net income of Diamond Green Diesel
—  —  145,484  —  145,484 
Segment operating income/(loss) 288,344  93,203  175,497  (45,533) 511,511 
Equity in net income of other unconsolidated subsidiaries 3,632  —  —  —  3,632 
Segment income/(loss) 291,976  93,203  175,497  (45,533) 515,143 
Total other expense (46,167)
Income before income taxes $ 468,976 
Segment assets at December 31, 2022 $ 4,866,351  $ 1,251,473  $ 2,307,199  $ 777,347  $ 9,202,370 

(20)    Revenue

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 an 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 Company elected to treat shipping and handling as fulfillment costs, 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 following tables present the Company revenues disaggregated by geographic area and major product types by reportable segment for the three and six months ended July 1, 2023 and July 2, 2022 (in thousands):


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Three Months Ended July 1, 2023
Feed Ingredients Food Ingredients Fuel Ingredients Total
Geographic Area
North America $ 946,100  $ 101,388  $ —  $ 1,047,488 
Europe 96,064  227,193  139,867  463,124 
China 6,160  71,414  —  77,574 
South America 90,293  54,493  —  144,786 
Other 3,044  21,605  —  24,649 
Net sales $ 1,141,661  $ 476,093  $ 139,867  $ 1,757,621 
Major product types
Fats $ 405,287  $ 38,207  $ —  $ 443,494 
Used cooking oil 146,275  —  —  146,275 
Proteins 435,956  —  —  435,956 
Bakery 67,263  —  —  67,263 
Other rendering 70,265  —  —  70,265 
Food ingredients —  412,307  —  412,307 
Bioenergy —  —  139,867  139,867 
Other 16,615  25,579  —  42,194 
Net sales $ 1,141,661  $ 476,093  $ 139,867  $ 1,757,621 


Six Months Ended July 1, 2023
Feed Ingredients Food Ingredients Fuel Ingredients Total
Geographic Area
North America $ 1,971,857  $ 200,739  $ —  $ 2,172,596 
Europe 206,316  417,466  297,153  920,935 
China 11,503  148,785  —  160,288 
South America 183,832  65,277  —  249,109 
Other 5,647  40,218  —  45,865 
Net sales $ 2,379,155  $ 872,485  $ 297,153  $ 3,548,793 
Major product types
Fats $ 895,605  $ 83,195  $ —  $ 978,800 
Used cooking oil 283,968  —  —  283,968 
Proteins 883,103  —  —  883,103 
Bakery 142,196  —  —  142,196 
Other rendering 140,079  —  —  140,079 
Food ingredients —  731,448  —  731,448 
Bioenergy —  —  297,153  297,153 
Other 34,204  57,842  —  92,046 
Net sales $ 2,379,155  $ 872,485  $ 297,153  $ 3,548,793 

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Three Months Ended July 2, 2022
Feed Ingredients Food Ingredients Fuel Ingredients Total
Geographic Area
North America $ 1,028,244  $ 91,381  $ —  $ 1,119,625 
Europe 132,247  186,865  110,660  429,772 
China 6,932  64,326  —  71,258 
South America —  12,868  —  12,868 
Other 2,924  13,741  —  16,665 
Net sales $ 1,170,347  $ 369,181  $ 110,660  $ 1,650,188 
Major product types
Fats $ 498,914  $ 53,178  $ —  $ 552,092 
Used cooking oil 152,737  —  —  152,737 
Proteins 351,125  —  —  351,125 
Bakery 89,593  —  —  89,593 
Other rendering 64,123  —  —  64,123 
Food ingredients —  280,435  —  280,435 
Bioenergy —  —  110,660  110,660 
Other 13,855  35,568  —  49,423 
Net sales $ 1,170,347  $ 369,181  $ 110,660  $ 1,650,188 


Six Months Ended July 2, 2022
Feed Ingredients Food Ingredients Fuel Ingredients Total
Geographic Area
North America $ 1,784,082  $ 175,281  $ —  $ 1,959,363 
Europe 246,710  368,875  242,742  858,327 
China 13,568  130,633  —  144,201 
South America —  21,364  —  21,364 
Other 5,425  27,842  —  33,267 
Net sales $ 2,049,785  $ 723,995  $ 242,742  $ 3,016,522 
Major product types
Fats $ 867,308  $ 105,442  $ —  $ 972,750 
Used cooking oil 247,633  —  —  247,633 
Proteins 621,312  —  —  621,312 
Bakery 168,104  —  —  168,104 
Other rendering 121,667  —  —  121,667 
Food ingredients —  550,951  —  550,951 
Bioenergy —  —  242,742  242,742 
Other 23,761  67,602  —  91,363 
Net sales $ 2,049,785  $ 723,995  $ 242,742  $ 3,016,522 

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 to date in 2023 under these long-term supply contracts was approximately $92.3 million, with the remaining performance obligations to be recognized in future periods (generally four years) of approximately $929.1 million.

(21)    Related Party Transactions

Raw Material Agreement

The Company entered into a Raw Material Agreement with the DGD Joint Venture in May 2011 pursuant to which the Company will offer to supply certain animal fats and used cooking oil at market prices, but the DGD Joint Venture is not obligated to purchase the raw material offered by the Company. Additionally, the Company may offer other feedstocks to the DGD Joint Venture, such as inedible corn oil, purchased on a resale basis. For the three months ended July 1, 2023 and July 2, 2022, the Company recorded sales to the DGD Joint Venture of approximately $325.0 million and $295.7 million, respectively.
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For the six months ended July 1, 2023 and July 2, 2022, the Company recorded sales to the DGD Joint Venture of approximately $663.6 million and $510.1 million, respectively. At July 1, 2023 and December 31, 2022, the Company had $33.3 million and $116.9 million in outstanding receivables due from the DGD Joint Venture, respectively. In addition, the Company has eliminated approximately $38.4 million and $38.5 million of additional sales for the six months ended July 1, 2023 and July 2, 2022, respectively to defer the Company's portion of profit of approximately $8.1 million and $10.1 million on those sales relating to inventory assets remaining on the DGD Joint Venture's balance sheet at July 1, 2023 and July 2, 2022, respectively.

Revolving Loan Agreement

On May 1, 2019, Darling, through its wholly owned subsidiary Darling Green Energy LLC, (“Darling Green”), and Diamond Alternative Energy, LLC, a wholly owned subsidiary of Valero (“Diamond Alternative” and together with Darling Green, the “DGD Lenders”), entered into a revolving loan agreement (the “2019 DGD Loan Agreement”) with the DGD Joint Venture, pursuant to which the DGD Lenders committed to making 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 2019 DGD Loan Agreement were 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%. On June 15, 2023, the DGD Lenders entered into a new revolving loan agreement (the “2023 DGD Loan Agreement”) with the DGD Joint Venture that replaced and superseded in its entirety the 2019 DGD Loan Agreement and pursuant to which the DGD Lenders have committed to making loans available to the DGD Joint Venture in the total amount of $200.0 million with each lender committed to $100.0 million of the total commitment. Any borrowings by the DGD Joint Venture under the 2023 DGD Loan Agreement are at the applicable annum rate equal to the sum of (a) Term SOFR on such day plus (b) 2.50%. The 2023 DGD Loan Agreement expires on June 15, 2026. In September 2022 and again in December 2022, the DGD Joint Venture borrowed all $50.0 million available under the 2019 DGD Loan Agreement, including the Company's full $25.0 million commitment. The Company received interest from the DGD Joint Venture for the three months ended July 1, 2023 and July 2, 2022 of approximately $0.1 million and $0.2 million, respectively and received interest from the DGD Joint Venture for the six months ended July 1, 2023 and July 2, 2022 of approximately $0.6 million and $0.4 million, respectively. As of July 1, 2023 and December 31, 2022, zero and $25.0 million, respectively, was owed to Darling Green under the 2023 DGD Loan Agreement and the 2019 DGD Loan Agreement, as applicable. This note receivable amount is included in other current assets on the balance sheet and is included in investing activities on the cash flow statement.

Guarantee Agreements

In February 2020, in connection with the DGD Joint Venture’s expansion project at its Norco, LA facility, it 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 a maximum of approximately $50 million each, of the DGD Joint Venture’s obligations under the IMTT Terminaling Agreements (the “IMTT Guarantee”), subject to the conditions provided for in the IMTT Terminaling Agreements. The Company has not recorded any liability as a result of the IMTT Guarantee, as the Company believes the likelihood of having to make any payments under the IMTT Guarantee is remote.

In April 2021, in connection with the DGD Joint Venture’s expansion project at its Port Arthur, TX facility, it entered into two agreements (the “GTL Terminaling Agreements”) with GT Logistics, LLC (“GTL”), pursuant to which the DGD Joint Venture will move raw material and finished product to and from the GTL terminal facility by pipeline, thereby providing better logistical capabilities. As a condition to entering into the GTL Terminaling Agreements, GTL required that the Company and Valero guarantee their proportionate share, up to a maximum of approximately $160 million each, of the DGD Joint Venture’s obligations under the GTL Terminaling Agreements (the “GTL Guarantee”), subject to the conditions provided for in the GTL Terminaling Agreements. The maximum amount of the GTL Guarantee is reduced over the 20-year initial term of the GTL Terminaling Agreements as the termination fee under such agreements declines. The Company has not recorded any liability as a result of the GTL Guarantee, as the Company believes the likelihood of having to make any payments under the GTL Guarantee is remote.

(22)    Cash Flow Information

The following table sets forth supplemental cash flow information and non-cash transactions (in thousands):

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Six Months Ended
July 1, 2023 July 2, 2022
Supplemental disclosure of cash flow information:
Change in accrued capital expenditures $ (6,375) $ (2,947)
Cash paid during the period for:
Interest, net of capitalized interest $ 105,420  $ 33,791 
Income taxes, net of refunds $ 87,966  $ 72,377 
Non-cash operating activities
Operating lease right of use asset obtained in exchange for new lease liabilities $ 46,549  $ 41,554 
Non-cash financing activities
Debt issued for assets $ (50) $ 1,005 

(23)    New Accounting Pronouncements

The Company does not believe that any recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying consolidated financial statements.
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Item 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth below under the heading “Forward Looking Statements” and elsewhere in this report, and under the heading “Risk Factors” in Part I, Item 1A in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on February 27, 2023 and in the Company's other public filings with the SEC.

The following discussion should be read in conjunction with the unaudited consolidated financial statements and related notes thereto contained in this report.

Overview

Darling Ingredients Inc. (“Darling”, and together with its subsidiaries, the “Company” or “we,” “us” or “our”) 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. With operations on five continents, the Company collects and transforms all aspects of animal by-product streams into useable and specialty ingredients, such as collagen, edible fats, feed-grade fats, animal proteins and meals, plasma, pet food ingredients, organic fertilizers, yellow grease, fuel feedstocks, green energy, natural casings and hides. The Company also recovers and converts recycled oils (used cooking oil and animal fats) into valuable feed and feedstock and collects and processes residual bakery products into feed ingredients. In addition, the Company provides environmental services, such as grease trap collection and disposal services to food service establishments. The Company sells its products domestically and internationally and operates within three industry segments: Feed Ingredients, Food Ingredients and Fuel Ingredients.

The Feed Ingredients operating segment includes the Company's global activities related to (i) the collection and processing of beef, poultry and pork animal by-products in North America, Europe and South America into non-food grade oils and protein meals, (ii) the collection and processing of bakery residuals in North America into Cookie Meal®, which is predominantly used in poultry and swine rations, (iii) the collection and processing of used cooking oil in North America and South America into non-food grade fats, (iv) the collection and processing of porcine and bovine blood in China, Europe, North America and Australia into blood plasma powder and hemoglobin, (v) the processing of selected portions of slaughtered animals into a variety of meat products for use in pet food in Europe, North America and South America, (vi) the processing of cattle hides and hog skins in North America, (vii) the production of organic fertilizers using protein produced from the Company’s animal by-products processing activities in North America and Europe, (viii) the rearing and processing of black soldier fly larvae into specialty proteins for use in animal feed and pet food in North America, and (ix) the provision of grease trap services to food service establishments in North America. Non-food grade oils and fats produced and marketed by the Company are principally sold to third parties to be used as ingredients in animal feed and pet food, as an ingredient for the production of renewable diesel and biodiesel, or to the oleo-chemical industry to be used as an ingredient in a wide variety of industrial applications. Protein meals, blood plasma powder and hemoglobin produced and marketed by the Company are sold to third parties to be used as ingredients in animal feed, pet food and aquaculture.

The Food Ingredients operating segment includes the Company's global activities related to (i) the purchase and processing of beef and pork bone chips, beef hides, pig skins, and fish skins into collagen in Europe, China, South America and North America, (ii) the collection and processing of porcine and bovine intestines into natural casings in Europe, China and North America, (iii) the extraction and processing of porcine mucosa into crude heparin in Europe, (iv) the collection and refining of animal fat into food grade fat in Europe, and (v) the processing of bones to bone chips for the collagen industry and bone ash in Europe. Collagens produced and marketed by the Company are sold to third parties to be used as ingredients in the pharmaceutical, nutraceutical, food, pet food and technical (e.g., photographic) industries. Natural casings produced and marketed by the Company are sold to third parties to be used as an ingredient in the production of sausages and other similar food products.

The Fuel Ingredients operating segment includes the Company's global activities related to (i) the Company’s share of the results of its equity investment in Diamond Green Diesel Holdings LLC, a joint venture with Valero Energy Corporation (“Valero”) to convert animal fats, recycled greases, used cooking oil, inedible corn oil, soybean oil, or other feedstocks that become economically and commercially viable into renewable diesel (“DGD” or the “DGD Joint Venture”) as described in Note 3 (Investment in Unconsolidated Subsidiaries) to the Company's Consolidated Financial Statements for the period ended July 1, 2023 included herein, (ii) the conversion of organic sludge and food waste into biogas in Europe, (iii) the collection and conversion of fallen stock and certain animal by-products pursuant to applicable E.U. regulations into low-grade energy sources to be used in industrial applications, and (iv) the processing of manure into natural bio-phosphate in Europe.
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Corporate Activities principally include unallocated corporate overhead expenses, acquisition-related expenses, interest expense net of interest income, and other non-operating income and expenses.

Economic Conditions and Uncertainties

Global Economic Conditions

We operate globally and have operations in numerous countries. As such, we are exposed to, and impacted by global macroeconomic factors, U.S. and foreign government policies and foreign exchange fluctuations. Global economic conditions continue to be highly volatile due to, among other things, the conflict in Ukraine and its impact on volatility in energy and other commodity prices, inflation, cost and supply chain pressures and availability, and disruption in banking systems and capital markets. Disturbances in world financial, credit, commodities and stock markets, including inflationary, deflationary and recessionary conditions and an increase in the recent turmoil in the world banking markets, could have a negative impact on the Company’s results of operations. Any such disturbances or disruptions may also magnify the impact of other risks described in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, as filed with the SEC on February 27, 2023.

Energy Policies of U.S. and Foreign Governments

Prices for our finished products, including those of DGD, may be impacted by worldwide government policies relating to renewable fuels and greenhouse gas emissions (“GHG”). Programs like the National Renewable Fuel Standard Program (“RFS”) and low carbon fuel standards (“LCFS”) (such as in the state of California) and tax credits for biofuels both in the United States and abroad are subject to revision and change which may impact the demand for our finished products. Legal challenges or changes to, a failure to enforce, reductions in the mandated volumes under, or discontinuing or suspension of any of these programs could have a negative impact on our business and results of operations. However, such rules and the regulatory environment are continuing to evolve and change, and we cannot predict the ultimate effect that such changes may have on our business.

Climate Change

There is a growing global concern that carbon dioxide and other GHG in the atmosphere may have an adverse impact on global temperatures, weather patterns and the frequency of extreme weather and natural disasters. We are subject to physical, operational, transitional and financial risks associated with climate change and global, regional and local weather conditions, as well as legal, regulatory and market responses to climate change. Certain jurisdictions in which we operate have either imposed, or are considering imposing, new or increasingly stringent legal and regulatory requirements to reduce or mitigate the potential effects of climate change, including regulation and reduction of GHG and potential carbon pricing programs. These new or increasingly stringent legal or regulatory requirements could result in significantly increased costs of compliance and additional investments in facilities and equipment, and reduced raw material supplies in areas where these requirements limit or eliminate livestock operations. While we assess climate related regulatory risks as part of our risk management process, we are unable to predict the scope, nature and timing of any new or increasingly stringent environmental laws and regulations and therefore cannot predict the ultimate impact of such laws and regulations on our business or financial results. We continue to monitor existing and proposed laws and regulations in the jurisdictions in which we operate and to consider actions we may take to potentially mitigate the unfavorable impact, if any, of such laws or regulations. Furthermore, emerging legislation seeks to regulate corporate ESG practices, including practices related to the causes and impacts of climate change as well as supply chain control and compliance with human rights. These new rules, which apply to all large companies and to listed small and medium-sized enterprises, require companies to report on how sustainability issues (environmental, social, and governance) affect their business and about their own impact on people and the environment. There has also been increased focus from our stakeholders, including consumers, employees and investors, on our ESG practices. We expect that stakeholder expectations with respect to ESG expectations will continue to evolve rapidly, which may necessitate additional resources to monitor, report on, and adjust our operations.

For additional information on risk factors that could impact our results, please refer to “Risk Factors” in Part I, Item 1A of the Company's Form 10-K for the fiscal year ended December 31, 2022, as filed with the SEC on February 27, 2023.

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Operating Performance Indicators

    The Company monitors the performance of its business segments using key financial metrics such as results of operations, non-GAAP measurements (Adjusted EBITDA), segment operating income, raw material processed, gross margin percentage, foreign currency translation, and corporate activities. The Company’s operating results can vary significantly due to changes in factors such as the fluctuation in commodity prices and energy prices, weather conditions, crop harvests, government policies and programs, changes in global demand, changes in standards of living, protein consumption, and global production of competing ingredients. Due to these unpredictable factors that are beyond the control of the Company, forward-looking financial or operational estimates are not provided. The Company is exposed to certain risks associated with a business that is influenced by agricultural-based commodities. These risks are further described in Item 1A of Part I, “Risk Factors” included in the Company’s Form 10-K for the fiscal year ended December 31, 2022.

    The Company’s Feed Ingredients segment animal by-products, bakery residuals, used cooking oil recovery, and blood operations are each influenced by prices for agricultural-based alternative ingredients such as corn oil, soybean oil, soybean meal, and palm oil. In these operations, the costs of the Company's raw materials change with, or in certain cases are indexed to, the selling price or the anticipated selling price of the finished goods produced from the acquired raw materials and/or in some cases, the price spread between various types of finished products. The Company believes that this methodology of procuring raw materials generally establishes a relatively stable gross margin upon the acquisition of the raw material. Although the costs of raw materials for the Feed Ingredients segment are generally based upon actual or anticipated finished goods selling prices, rapid and material changes in finished goods prices, including competing agricultural-based alternative ingredients, generally have an immediate, and often times, material impact on the Company’s gross margin and profitability resulting from the brief lapse of time between the procurement of the raw materials and the sale of the finished goods. In addition, the volume of raw material acquired, which has a direct impact on the amount of finished goods produced, can also have a material effect on the gross margin reported, as the Company has a substantial amount of fixed operating costs.

    The Company’s Food Ingredients segment collagen and natural casings products are influenced by other competing ingredients including plant-based and synthetic hydrocolloids and artificial casings. In the collagen operation, the cost of the Company's animal-based raw material moves in relationship to the selling price of the finished goods. The processing time for the Food Ingredients segment collagen and casings is generally 30 to 60 days, which is substantially longer than the Company's Feed Ingredients segment animal by-products operations. Consequently, the Company’s gross margin and profitability in this segment can be influenced by the movement of finished goods prices from the time the raw materials were procured until the finished goods are sold.

The Company’s Fuel Ingredients segment converts fats into renewable diesel, organic sludge and food waste into biogas, and fallen stock into low-grade energy sources. The Company's gross margin and profitability in this segment are impacted by world energy prices for oil, electricity and natural gas, global feed stock prices and governmental subsidies.

The reporting currency for the Company's financial statements is the U.S. dollar. The Company operates in over 15 countries and therefore, certain of the Company's assets, liabilities, revenues and expenses are denominated in functional currencies other than the U.S. dollar, primarily in the Euro, Brazilian real, Chinese renminbi, Canadian dollar and Polish zloty. To prepare the Company's consolidated financial statements, assets, liabilities, revenues, and expenses must be translated into U.S. dollars at the applicable exchange rate. As a result, increases or decreases in the value of the U.S. dollar against these other currencies will affect the amount of these items recorded in the Company's consolidated financial statements, even if their value has not changed in the functional currency. This could have a significant impact on the Company's results, if such increase or decrease in the value of the U.S. dollar relative to these other currencies is substantial.

Results of Operations

Three Months Ended July 1, 2023 Compared to Three Months Ended July 2, 2022

Operating Performance Metrics

Operating performance metrics which management routinely monitors as an indicator of operating performance include:

•Finished product commodity prices
40


•Segment results
•Foreign currency exchange
•Corporate activities
•Non-U.S. GAAP measures

These indicators and their importance are discussed below.

Finished Product Commodity Prices  

Prices for finished product commodities that the Company produces in the Feed Ingredients segment are reported each business day on the Jacobsen Index (the “Jacobsen”), an established North American trading exchange price publisher. The Jacobsen reports industry sales from the prior day's activity by product. Included on the Jacobsen are reported prices for finished products such as protein (primarily meat and bone meal (“MBM”), poultry meal (“PM”) and feather meal (“FM”)), hides, fats (primarily bleachable fancy tallow (“BFT”) and yellow grease (“YG”)) and corn, which is a substitute commodity for the Company's bakery by-product (“BBP”) as well as a range of other branded and value-added products, which are products of the Company's Feed Ingredients segment. In the United States and South America, the Company regularly monitors the Jacobsen for MBM, PM, FM, BFT, YG and corn because it provides a daily indication of the Company's U.S. and Brazilian revenue performance against business plan benchmarks. In Europe and South America, the Company regularly monitors Thomson Reuters (“Reuters”) to track the competing commodities palm oil and soy meal.

Although the Jacobsen and Reuters provide useful metrics of performance, the Company's finished products are commodities that compete with other commodities such as corn, soybean oil, palm oil complex, soybean meal and heating oil on nutritional and functional values. Therefore, actual pricing for the Company's finished products, as well as competing products, can be quite volatile. In addition, neither the Jacobsen nor Reuters provides forward or future period pricing for the Company's commodities. The Jacobsen and Reuters prices quoted below are for delivery of the finished product at a specified location. Although the Company's prices generally move in concert with reported Jacobsen and Reuters prices, the Company's actual sales prices for its finished products may vary significantly from the Jacobsen and Reuters because of production and delivery timing differences and because the Company's finished products are delivered to multiple locations in different geographic regions which utilize alternative price indexes. In addition, certain of the Company's premium branded finished products may sell at prices that may be higher than the closest product on the related Jacobsen or Reuters index. During the second quarter of fiscal 2023, the Company's actual sales prices by product trended with the disclosed Jacobsen and Reuters prices.

Average Jacobsen and Reuters prices (at the specified delivery point) for the second quarter of fiscal 2023, compared to average Jacobsen and Reuters prices for the second quarter of fiscal 2022 are as follows:

  Avg. Price
2nd Quarter
2023
Avg. Price
2nd Quarter
2022
 
Increase/(Decrease)
%
Increase/(Decrease)
Jacobsen:
MBM (Illinois) $ 464.27/ton $ 366.62/ton $ 97.65/ton 26.6  %
Feed Grade PM (Mid-South) $ 485.56/ton $ 385.83/ton $ 99.73/ton 25.8  %
Pet Food PM (Mid-South) $ 934.67/ton $ 801.37/ton $ 133.30/ton 16.6  %
Feather meal (Mid-South) $ 577.87/ton $ 571.58/ton $ 6.29/ton 1.1  %
BFT (Chicago) $ 56.61/cwt $    79.51/cwt $ (22.90)/cwt (28.8) %
YG (Illinois) $ 46.06/cwt $   60.11/cwt $ (14.05)/cwt (23.4) %
Corn (Illinois) $ 6.68/bushel $ 8.20/bushel $ (1.52)/bushel (18.5) %
Reuters:
Palm Oil (CIF Rotterdam) $ 958.00/MT $ 1,662.00/MT $ (704.00)/MT (42.4) %
Soy meal (CIF Rotterdam) $ 516.00/MT $ 550.00/MT $ (34.00)/MT (6.2) %

The following table shows the average Jacobsen and Reuters prices for the second quarter of fiscal 2023, compared to average Jacobsen and Reuters prices for the first quarter of fiscal 2023.
41


  Avg. Price
2nd Quarter
2023
Avg. Price
1st Quarter
2023
 
Increase/(Decrease)
%
Increase/(Decrease)
Jacobsen:
MBM (Illinois) $ 464.27/ton $ 435.85/ton $ 28.42/ton 6.5  %
Feed Grade PM (Mid-South) $ 485.56/ton $ 406.94/ton $ 78.62/ton 19.3  %
Pet Food PM (Mid-South) $ 934.67/ton $ 743.75/ton $ 190.92/ton 25.7  %
Feather meal (Mid-South) $ 577.87/ton $ 596.73/ton $ (18.86)/ton (3.2) %
BFT (Chicago) $ 56.61/cwt $    61.39/cwt $     (4.78)/cwt (7.8) %
YG (Illinois) $ 46.06/cwt $   51.10/cwt $   (5.04)/cwt (9.9) %
Corn (Illinois) $ 6.68/bushel $ 6.84/bushel $ (0.16)/bushel (2.3) %
Reuters:
Palm Oil (CIF Rotterdam) $ 958.00/MT $ 993.00/MT $ (35.00)/MT (3.5) %
Soy meal (CIF Rotterdam) $ 516.00/MT $ 595.00/MT $ (79.00)/MT (13.3) %

Segment Results

Segment operating income for the three months ended July 1, 2023 was $356.7 million, which reflects an increase of $78.1 million or 28.0% as compared to the three months ended July 2, 2022.

(in thousands, except percentages) Feed Ingredients Food Ingredients Fuel Ingredients Corporate Total
Three Months Ended July 1, 2023
Net Sales $ 1,141,661  $ 476,093  $ 139,867  $ —  $ 1,757,621 
Cost of sales and operating expenses 876,413  371,095  112,194  —  1,359,702 
Gross Margin 265,248  104,998  27,673  —  397,919 
Gross Margin % 23.2  % 22.1  % 19.8  % —  % 22.6  %
Loss/(gain) on sale of assets 322  (65) —  259 
Selling, general and administrative expenses 77,406  33,684  4,971  20,690  136,751 
Restructuring and asset impairment charges —  896  —  —  896 
Acquisition and integration costs —  —  —  1,706  1,706 
Change in fair value of contingent consideration (7,499) —  —  —  (7,499)
Depreciation and amortization 82,575  28,445  8,567  2,499  122,086 
Equity in net income of Diamond Green Diesel
—  —  212,964  —  212,964 
Segment operating income/(loss) 112,444  41,971  227,164  (24,895) 356,684 
Equity in net income of other unconsolidated subsidiaries
1,849  —  —  —  1,849 
Segment income/(loss) 114,293  41,971  227,164  (24,895) 358,533 

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(in thousands, except percentages) Feed Ingredients Food Ingredients Fuel Ingredients Corporate Total
Three Months Ended July 2, 2022
Net Sales $ 1,170,347  $ 369,181  $ 110,660  $ —  $ 1,650,188 
Cost of sales and operating expenses 864,306  280,964  86,237  —  1,231,507 
Gross Margin 306,041  88,217  24,423  —  418,681 
Gross Margin % 26.1  % 23.9  % 22.1  % —  % 25.4  %
Gain on sale of assets (964) (73) (18) —  (1,055)
Selling, general and administrative expenses 64,863  22,855  4,277  15,781  107,776 
Restructuring and asset impairment charges 8,557  —  —  —  8,557 
Acquisition and integration costs —  —  —  5,358  5,358 
Depreciation and amortization 68,938  14,449  6,936  2,790  93,113 
Equity in net income of Diamond Green Diesel
—  —  73,680  —  73,680 
Segment operating income/(loss) 164,647  50,986  86,908  (23,929) 278,612 
Equity in net income of other unconsolidated subsidiaries 2,272  —  —  —  2,272 
Segment income/(loss) 166,919  50,986  86,908  (23,929) 280,884 

Feed Ingredients Segment

Raw material volume. In the three months ended July 1, 2023, the raw material processed by the Company's Feed Ingredients segment totaled approximately 3.1 million metric tons. Compared to the three months ended July 2, 2022, overall raw material volume processed in the Feed Ingredients segment increased approximately 15.2%. The increase was primarily due to the Valley Acquisition and the FASA Acquisition.

Sales. The decrease in net sales for the Feed Ingredients segment was primarily due to the following (in millions of dollars):
Fats Proteins Other Rendering Total Rendering Used Cooking Oil Bakery Other Total
Net sales three months ended July 2, 2022 $ 498.8  $ 351.1  $ 64.2  $ 914.1  $ 152.6  $ 89.7  $ 13.9  $ 1,170.3 
Increase (decrease) in sales volumes 43.7  59.6  —  103.3  39.9  (11.6) —  131.6 
Increase (decrease) in finished product prices (138.3) 21.9  —  (116.4) (45.7) (10.8) —  (172.9)
Increase (decrease) due to currency exchange rates (0.2) 1.4  0.1  1.3  (0.5) —  —  0.8 
Other change —  —  9.1  9.1  —  —  2.7  11.8 
Total change (94.8) 82.9  9.2  (2.7) (6.3) (22.4) 2.7  (28.7)
Net sales three months ended July 1, 2023 $ 404.0  $ 434.0  $ 73.4  $ 911.4  $ 146.3  $ 67.3  $ 16.6  $ 1,141.6 

Margins. In the Feed Ingredients segment for the three months ended July 1, 2023, the gross margin percentage decreased to 23.2% as compared to 26.1% for the comparable period of fiscal 2022. The decrease in margin is primarily due to lower overall finished product prices as well as lower overall margins from the Valley Acquisition and the FASA Acquisition as compared to fiscal 2022.

Segment operating income. Feed Ingredients operating income for the three months ended July 1, 2023 was $112.4 million, a decrease of $(52.2) million or (31.7)% as compared to the three months ended July 2, 2022. The decrease was primarily due to lower overall finished product prices and an increase in selling, general and administrative expenses and depreciation and amortization from the Valley Acquisition and FASA Acquisition as compared to fiscal 2022.


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Food Ingredients Segment

Raw material volume. In the three months ended July 1, 2023, the raw material processed by the Company's Food Ingredients segment totaled approximately 331,000 metric tons. Compared to the three months ended July 2, 2022, overall raw material volume processed in the Food Ingredients segment increased approximately 21.7%. The increase was primarily due to the Gelnex Acquisition.

Sales. Net sales increased in the Food Ingredients segment primarily due to the increased sales recognized from the Gelnex Acquisition.

Margins. In the Food Ingredients segment for the three months ended July 1, 2023, the gross margin percentage decreased to 22.1% as compared to 23.9% for the comparable period of fiscal 2022. The decrease was primarily due to lower margins from the Gelnex Acquisition as a result of a step up of inventory value in purchase accounting as compared to fiscal 2022.

Segment operating income. Food Ingredients operating income was $42.0 million for the three months ended July 1, 2023, a decrease of $9.0 million or 17.6% as compared to the three months ended July 2, 2022. The decrease was primarily due to a decrease in margins and an increase in selling, general and administrative expenses and depreciation and amortization expense from the Gelnex Acquisition as compared to fiscal 2022.

Fuel Ingredients Segment

Raw material volume. In the three months ended July 1, 2023, the raw material processed by the Company's Fuel Ingredients segment totaled approximately 347,000 metric tons. Compared to the three months ended July 2, 2022, overall raw material volume processed in the Fuel Ingredients segment decreased approximately 1.1%.

Sales. Net sales increased in the Fuel Ingredients segment primarily due to higher sales volumes in Europe.

Margins. In the Fuel Ingredients segment (exclusive of the equity contribution from the DGD Joint Venture) for the three months ended July 1, 2023, the gross margin percentage decreased to 19.8% as compared to 22.1% for the comparable period of fiscal 2022. The decrease was primarily due to the impact of decreases in sales prices for our products sold into the energy markets that negatively impacted margins.

Segment operating income. The Company's Fuel Ingredients segment operating income (inclusive of the equity contribution from the DGD Joint Venture) for the three months ended July 1, 2023 was $227.2 million, an increase of $140.3 million or 161.4% as compared to the same period in fiscal 2022. The increase was primarily due to increased volumes from production at the DGD Joint Venture's Port Arthur plant and lower raw material prices at the DGD Joint Venture.

Foreign Currency Exchange

    During the second quarter of fiscal 2023, overall the euro strengthened while the Canadian dollar weakened and the Brazilian real remained unchanged against the U.S. dollar as compared to the same period in fiscal 2022. Using actual results for the three months ended July 1, 2023 and using the prior year's average currency rate for the three months ended July 2, 2022, foreign currency translation would result in a decrease in operating income of approximately $1.6 million. The average rate for the three months ended July 1, 2023 were €1.00:$1.09, R$1.00:$0.20 and C$1.00:$0.74 as compared to the average rates for the three months ended July 2, 2022 of €1.00:$1.06, R$1.00:$0.20 and C$1.00:$0.78, respectively.

Corporate Activities

Selling, General and Administrative Expenses.  Selling, general and administrative expenses were approximately $20.7 million during the three months ended July 1, 2023, compared to approximately $15.8 million during the three months ended July 2, 2022, an increase of $4.9 million.  The increase is primarily due to higher costs for corporate related compensation and benefits.

Acquisition and Integration costs. Acquisition and integration costs were approximately $1.7 million during the three months ended July 1, 2023 as compared to $5.4 million for the same period in fiscal 2022. These costs decreased as we moved into the integration phase on the most recent acquisitions as compared to the prior year acquisition costs incurred on several acquisitions in the three months ended July 2, 2022.

44


Depreciation and Amortization.  Depreciation and amortization charges were approximately $2.5 million for the three months ended July 1, 2023 as compared to $2.8 million for the three months ended July 2, 2022.

Interest Expense. Interest expense was $70.2 million during the three months ended July 1, 2023, compared to $24.0 million during the three months ended July 2, 2022, an increase of $46.2 million. The increase in interest expense is primarily due to an increase in debt outstanding, including increased interest expense from the issuance of the 6% Senior Notes due 2030, the borrowing of all amounts under the term A-1, term A-2, term A-3 and term A-4 facilities, all of which were borrowed to fund acquisitions, and higher borrowings under the revolving credit facility as compared to the same period in fiscal 2022.

Foreign Currency Gain/(Loss).  Foreign currency gains were $2.5 million for the three months ended July 1, 2023 as compared to foreign currency losses of $4.4 million for the three months ended July 2, 2022. The increase in currency gains is due primarily to an increase in gains on the revaluation of an intercompany note as compared to losses from non-functional currency assets and liabilities in the same period of fiscal 2022.

Other Income/(Expense), net. Other income was $5.1 million in the three months ended July 1, 2023, compared to other expense of $(0.3) million for the three months ended July 2, 2022. The increase in other income was primarily due to casualty loss insurance proceeds received for the prior year Ward plant fire and an increase in interest income that was partially offset by an increase in the non-service component of pension expense and other miscellaneous non-operating expenses as compared to the same period in fiscal 2022.

Equity in Net Income in Investment of Other Unconsolidated Subsidiaries. The change in this line item is not significant and primarily represents the Company's pro rata share of the net income from foreign unconsolidated subsidiaries.
Income Taxes. The Company recorded income tax expense of $40.7 million for the three months ended July 1, 2023, compared to $47.3 million recorded in the three months ended July 2, 2022, a decrease of $6.6 million. The effective tax rate for the three months ended July 1, 2023 and July 2, 2022 is 13.8% and 18.8%, respectively. The effective tax rate for the three months ended July 1, 2023 differs from the federal statutory rate of 21% due primarily to the relative mix of earnings among jurisdictions with different tax rates (including foreign withholding taxes and state income taxes) and biofuel tax incentives. The effective tax rate for the three months ended July 2, 2022 differs from the federal statutory rate of 21% due primarily to the relative mix of earnings among jurisdictions with different tax rates (including foreign withholding taxes and state income taxes), biofuel tax incentives, and discrete items, including excess tax benefits from stock compensation. The Company's effective tax rate excluding biofuel tax incentives and discrete items is 25.8% for the three months ended July 1, 2023, compared to 26.6% for the three months ended July 2, 2022.

Non-U.S. GAAP Measures

Adjusted EBITDA is not a recognized accounting measurement under GAAP; it should not be considered as an alternative to net income, as a measure of operating results, or as an alternative to cash flow as a measure of liquidity. It is presented here not as an alternative to net income, but rather as a measure of the Company's operating performance. Since EBITDA (generally, net income plus interest expense, taxes, depreciation and amortization) is not calculated identically by all companies, the presentation in this report may not be comparable to EBITDA or Adjusted EBITDA presentations disclosed by other companies. Adjusted EBITDA is calculated below and represents for any relevant period, net income/(loss) plus depreciation and amortization, restructuring, acquisition and integration costs, goodwill and long-lived asset impairment, change in fair value of contingent consideration, interest expense, income tax provision, other income/(expense) and equity in net (income)/loss of unconsolidated subsidiary. Management believes that Adjusted EBITDA is useful in evaluating the Company's operating performance compared to that of other companies in its industry because the calculation of Adjusted EBITDA generally eliminates the effects of financing, income taxes and certain non-cash and other items that may vary for different companies for reasons unrelated to overall operating performance.  

Pro forma Adjusted EBITDA to Foreign Currency is not a recognized accounting measurement under GAAP. The Company evaluates the impact of foreign currency on its adjusted EBITDA. DGD Joint Venture Adjusted EBITDA (Darling's share) is not reflected in the Adjusted EBITDA or the Pro forma Adjusted EBITDA to Foreign Currency (Non-GAAP).

The Company’s management uses Adjusted EBITDA as a measure to evaluate performance and for other discretionary purposes. In addition to the foregoing, management also uses or will use Adjusted EBITDA to measure compliance with certain financial covenants under the Company’s Senior Secured Credit Facilities, 6% Notes, 5.25% Notes and 3.625% Notes that were outstanding at July 1, 2023.
45


However, the amounts shown below for Adjusted EBITDA differ from the amounts calculated under similarly titled definitions in the Company’s Senior Secured Credit Facilities, 6% Notes, 5.25% Notes and 3.625% Notes, as those definitions permit further adjustments to reflect certain other non-recurring costs, non-cash charges and cash dividends from the DGD Joint Venture. Additionally, the Company evaluates the impact of foreign exchange on operating cash flow, which is defined as segment operating income (loss) plus depreciation and amortization.

DGD Joint Venture Adjusted EBITDA (Darling's share) is not a recognized accounting measurement under GAAP; it should not be considered as an alternative to net income or equity in net income of Diamond Green Diesel, as a measure of operating results, or as an alternative to cash flow as a measure of liquidity and is not intended to be a presentation in accordance with GAAP. The Company calculates DGD Joint Venture Adjusted EBITDA (Darling's share) by taking DGD's operating income plus DGD's depreciation, amortization and accretion expense and then multiplying by 50% to get Darling's share of DGD's EBITDA.

Reconciliation of Net Income to (Non-GAAP) Adjusted EBITDA and (Non-GAAP) Pro Forma Adjusted EBITDA
Second Quarter 2023 as Compared to Second Quarter 2022
Three Months Ended
(dollars in thousands) July 1,
2023
July 2,
2022
Net income attributable to Darling $ 252,383  $ 201,996 
Depreciation and amortization 122,086  93,113 
Interest expense 70,193  24,008 
Income tax expense 40,712  47,333 
Restructuring and asset impairment charges 896  8,557 
Acquisition and integration costs 1,706  5,358 
Change in fair value of contingent consideration (7,499) — 
Foreign currency loss/(gain) (2,490) 4,412 
Other expense/(income), net (5,079) 302 
Equity in net income of Diamond Green Diesel (212,964) (73,680)
Equity in net income of other unconsolidated subsidiaries (1,849) (2,272)
Net income attributable to non-controlling interests 2,814  2,833 
Darling's Adjusted EBITDA $ 260,909  $ 311,960 
Foreign currency exchange impact (1) (1,550) — 
Pro forma Adjusted EBITDA to Foreign Currency (Non-GAAP) $ 259,359  $ 311,960 
DGD Joint Venture Adjusted EBITDA (Darling's Share) $ 247,398  $ 90,611 
Darling plus Darling's share of DGD Joint Venture Adjusted EBITDA $ 508,307  $ 402,571 

(1) The average rates for the three months ended July 1, 2023 were €1.00:$1.09, R$1.00:$0.20 and C$1.00:$0.74 as compared to the average rate for the three months ended July 2 of €1.00:$1.06, R$1.00:$0.20 and C$1.00:$0.78, respectively.

Six Months Ended July 1, 2023 Compared to Six Months Ended July 2, 2022

Operating Performance Metrics

Operating performance metrics which management routinely monitors as an indicator of operating performance include:

•Finished product commodity prices
•Segment results
•Foreign currency exchange
•Corporate activities
•Non-U.S. GAAP measures

These indicators and their importance are discussed below.


46


Finished Product Commodity Prices  

During the first six months of fiscal 2023, the Company's actual sales prices by product trended with the disclosed Jacobsen and Reuters prices.

Average Jacobsen and Reuters prices (at the specified delivery point) for the first six months of fiscal 2023, compared to average Jacobsen and Reuters prices for the first six months of fiscal 2022 are as follows:

  Avg. Price
First Six Months
2023
Avg. Price
First Six Months
2022
 
Increase/(Decrease)
%
Increase/(Decrease)
Jacobsen:
MBM (Illinois) $ 450.06/ton $ 341.92/ton $ 108.14/ton 31.6  %
Feed Grade PM (Mid-South) $ 446.25/ton $ 376.43/ton $ 69.82/ton 18.5  %
Pet Food PM (Mid-South) $ 839.21/ton $ 781.53/ton $ 57.68/ton 7.4  %
Feather meal (Mid-South) $ 587.30/ton $ 548.45/ton $ 38.85/ton 7.1  %
BFT (Chicago) $ 59.00/cwt $    75.45/cwt $ (16.45)/cwt (21.8) %
YG (Illinois) $ 48.58/cwt $   57.01/cwt $ (8.43)/cwt (14.8) %
Corn (Illinois) $ 6.76/bushel $ 7.55/bushel $ (0.79)/bushel (10.5) %
Reuters:
Palm Oil (CIF Rotterdam) $ 976.00/MT $ 1,608.00/MT $ (632.00)/MT (39.3) %
Soy meal (CIF Rotterdam) $ 556.00/MT $ 563.00/MT $ (7.00)/MT (1.2) %

Segment Results

Segment operating income for the six months ended July 1, 2023 was $612.5 million, which reflects an increase of $101.0 million or 19.7% as compared to the six months ended July 2, 2022.

(in thousands, except percentages) Feed Ingredients Food Ingredients Fuel Ingredients Corporate Total
Six Months Ended July 1, 2023
Net Sales $ 2,379,155  $ 872,485  $ 297,153  $ —  $ 3,548,793 
Cost of sales and operating expenses 1,826,485  661,210  238,980  —  2,726,675 
Gross Margin 552,670  211,275  58,173  —  822,118 
Gross Margin % 23.2  % 24.2  % 19.6  % —  % 23.2  %
Gain on sale of assets (20) (19) (29) —  (68)
Selling, general and administrative expenses 152,097  66,806  11,163  42,151  272,217 
Restructuring and asset impairment charges 92  5,328  —  —  5,420 
Acquisition and integration costs —  —  —  8,728  8,728 
Change in fair value of contingent consideration (7,499) —  —  —  (7,499)
Depreciation and amortization 172,895  42,918  16,960  5,319  238,092 
Equity in net income of Diamond Green Diesel
—  —  307,301  —  307,301 
Segment operating income/(loss) 235,105  96,242  337,380  (56,198) 612,529 
Equity in net income of other unconsolidated subsidiaries
1,969  —  —  —  1,969 
Segment income/(loss) 237,074  96,242  337,380  (56,198) 614,498 

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(in thousands, except percentages) Feed Ingredients Food Ingredients Fuel Ingredients Corporate Total
Six Months Ended July 2, 2022
Net Sales $ 2,049,785  $ 723,995  $ 242,742  $ —  $ 3,016,522 
Cost of sales and operating expenses 1,509,829  551,276  190,979  —  2,252,084 
Gross Margin 539,956  172,719  51,763  —  764,438 
Gross Margin % 26.3  % 23.9  % 21.3  % —  % 25.3  %
Gain on sale of assets (1,305) (82) (57) —  (1,444)
Selling, general and administrative expenses 121,072  49,699  8,197  30,840  209,808 
Restructuring and asset impairment charges 8,557  —  —  —  8,557 
Acquisition and integration costs —  —  —  9,131  9,131 
Depreciation and amortization 123,288  29,899  13,610  5,562  172,359 
Equity in net income of Diamond Green Diesel
—  —  145,484  —  145,484 
Segment operating income/(loss) 288,344  93,203  175,497  (45,533) 511,511 
Equity in net income of other unconsolidated subsidiaries 3,632  —  —  —  3,632 
Segment income/(loss) 291,976  93,203  175,497  (45,533) 515,143 

Feed Ingredients Segment

Raw material volume. In the six months ended July 1, 2023, the raw material processed by the Company's Feed Ingredients segment totaled approximately 6.3 million metric tons. Compared to the six months ended July 2, 2022, overall raw material volume processed in the Feed Ingredients segment increased approximately 26.2%. The increase was primarily due to the Valley Acquisition and the FASA Acquisition.

Sales. The increase in net sales for the Feed Ingredients segment was primarily due to the following (in millions of dollars):
Fats Proteins Other Rendering Total Rendering Used Cooking Oil Bakery Other Total
Net sales six months ended July 2, 2022 $ 867.3  $ 621.3  $ 121.7  $ 1,610.3  $ 247.6  $ 168.1  $ 23.8  $ 2,049.8 
Increase (decrease) in sales volumes 153.3  177.4  —  330.7  62.2  (18.4) —  374.5 
Increase (decrease) in finished product prices (124.8) 81.4  —  (43.4) (24.5) (7.5) —  (75.4)
Increase (decrease) due to currency exchange rates (0.2) 3.0  0.2  3.0  (1.3) —  —  1.7 
Other change —  —  18.2  18.2  —  —  10.4  28.6 
Total change 28.3  261.8  18.4  308.5  36.4  (25.9) 10.4  329.4 
Net sales six months ended July 1, 2023 $ 895.6  $ 883.1  $ 140.1  $ 1,918.8  $ 284.0  $ 142.2  $ 34.2  $ 2,379.2 

Margins. In the Feed Ingredients segment for the six months ended July 1, 2023, the gross margin percentage decreased to 23.2% as compared to 26.3% for the comparable period of fiscal 2022. The decrease in margin is primarily due to lower overall finished product prices as well as lower overall margins from the Valley Acquisition and the FASA Acquisition as compared to fiscal 2022.

Segment operating income. Feed Ingredients operating income for the six months ended July 1, 2023 was $235.1 million, a decrease of $(53.2) million or (18.5)% as compared to the six months ended July 2, 2022. The decrease was primarily due to the lower overall finished product prices and an increase in selling, general and administrative expenses and depreciation and amortization from the Valley Acquisition and FASA Acquisition as compared to fiscal 2022.


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Food Ingredients Segment

Raw material volume. In the six months ended July 1, 2023, the raw material processed by the Company's Food Ingredients segment totaled approximately 596,000 metric tons. Compared to the six months ended July 2, 2022, overall raw material volume processed in the Food Ingredients segment increased approximately 8.4%. The increase was primarily due to the Gelnex Acquisition.

Sales. Net sales increased in the Food Ingredients segment primarily due to the increased sales recognized from the Gelnex Acquisition.

Margins. In the Food Ingredients segment for the six months ended July 1, 2023, the gross margin percentage increased to 24.2% as compared to 23.9% for the comparable period of fiscal 2022. The increase was primarily due to increased sales of higher margin hydrolyzed collagen that was partially offset by lower margins from the Gelnex Acquisition as a result of a step up of inventory value in purchase accounting as compared to fiscal 2022.

Segment operating income. Food Ingredients operating income was $96.2 million for the six months ended July 1, 2023, an increase of $3.0 million or 3.2% as compared to the six months ended July 2, 2022. The increase was primarily due to increased sales of higher margin hydrolyzed collagen that more than offset lower margins from the Gelnex Acquisition and an increase in selling, general and administrative expenses, an increase in depreciation and amortization and restructuring and asset impairment costs as compared to fiscal 2022.

Fuel Ingredients Segment

Raw material volume. In the six months ended July 1, 2023, the raw material processed by the Company's Fuel Ingredients segment totaled approximately 696,000 metric tons. Compared to the six months ended July 2, 2022, overall raw material volume processed in the Fuel Ingredients segment increased approximately 0.6%.

Sales. Net sales increased in the Fuel Ingredients segment primarily due to higher sales volumes.

Margins. In the Fuel Ingredients segment (exclusive of the equity contribution from the DGD Joint Venture) for the six months ended July 1, 2023, the gross margin percentage decreased to 19.6% as compared to 21.3% for the comparable period of fiscal 2022. The decrease was primarily due to the impact of decreases in sales prices for our products sold into the energy markets that negatively impacted margins.

Segment operating income. The Company's Fuel Ingredients segment operating income (inclusive of the equity contribution from the DGD Joint Venture) for the six months ended July 1, 2023 was $337.4 million, an increase of $161.9 million or 92.3% as compared to the same period in fiscal 2022. The increase was primarily due to increased volumes from production at the DGD Joint Venture's Port Arthur plant and lower raw material prices at the DGD Joint Venture.

Foreign Currency Exchange

    During the first six months of fiscal 2023, overall the euro and Canadian dollar weakened and the Brazilian real remained unchanged against the U.S. dollar as compared to the same period in fiscal 2022. Using actual results for the six months ended July 1, 2023 and using the prior year's average currency rate for the six months ended July 2, 2022, foreign currency translation would result in an increase in operating income of approximately $5.8 million. The average rate for the six months ended July 1, 2023 were €1.00:$1.08, R$1.00:$0.20 and C$1.00:$0.74 as compared to the average rates for the six months ended July 2, 2022 of €1.00:$1.09, R$1.00:$0.20 and C$1.00:$0.79, respectively.

Corporate Activities

Selling, General and Administrative Expenses.  Selling, general and administrative expenses were approximately $42.2 million during the six months ended July 1, 2023, compared to approximately $30.8 million during the six months ended July 2, 2022, an increase of $11.4 million.  The increase is primarily due to higher costs for corporate related compensation and benefits.

Acquisition and Integration costs. Acquisition and integration costs were approximately $8.7 million during the six months ended July 1, 2023 as compared to $9.1 million for the same period in fiscal 2022. These costs primarily relate to the Gelnex Acquisition, FASA Acquisition and Valley Acquisition for the six months ended July 1, 2023 as compared to the prior year acquisition costs that primarily related to the Valley Acquisition, Op de Beeck acquisition and the FASA Acquisition.

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Depreciation and Amortization.  Depreciation and amortization charges were approximately $5.3 million for the six months ended July 1, 2023 as compared to $5.6 million for the six months ended July 2, 2022.

Interest Expense. Interest expense was $120.5 million during the six months ended July 1, 2023, compared to $39.6 million during the six months ended July 2, 2022, an increase of $80.9 million. The increase in interest expense is primarily due to an increase in debt outstanding, including increased interest expense from the issuance of the 6% Senior Notes due 2030, the borrowing of all amounts under the term A-1, term A-2, term A-3 and term A-4 facilities, all of which were borrowed to fund acquisitions, and higher borrowings under the revolving credit facility as compared to the same period in fiscal 2022.

Foreign Currency Gain/(Loss).  Foreign currency gains were $7.5 million for the six months ended July 1, 2023 as compared to foreign currency losses of $5.5 million for the six months ended July 2, 2022. The increase in currency gains is due primarily to an increase in gains on the revaluation of an intercompany note as compared to losses from non-functional currency assets and liabilities in the same period of fiscal 2022.

Other Income/(Expense), net. Other income was $11.2 million in the six months ended July 1, 2023, compared to other expense of $(1.0) million for the six months ended July 2, 2022. The increase in other income was primarily due to casualty loss insurance proceeds received for the prior year Tacoma and Ward plant fires and an increase in interest income that was partially offset by an increase in the non-service component of pension expense and other miscellaneous non-operating expenses as compared to the same period in fiscal 2022.

Equity in Net Income in Investment of Other Unconsolidated Subsidiaries. The change in this line item is not significant and primarily represents the Company's pro rata share of the net income from foreign unconsolidated subsidiaries.
Income Taxes. The Company recorded income tax expense of $67.7 million for the six months ended July 1, 2023, compared to $73.4 million recorded in the six months ended July 2, 2022, a decrease of $5.7 million. The effective tax rate for the six months ended July 1, 2023 and July 2, 2022 is 13.2% and 15.7%, respectively. The effective tax rate for the six months ended July 1, 2023 differs from the federal statutory rate of 21% due primarily to the relative mix of earnings among jurisdictions with different tax rates (including foreign withholding taxes and state income taxes) and biofuel tax incentives. The effective tax rate for the six months ended July 2, 2022 differs from the federal statutory rate of 21% due primarily to the relative mix of earnings among jurisdictions with different tax rates (including foreign withholding taxes and state income taxes), biofuel tax incentives, and discrete items, including excess tax benefits from stock compensation. The Company's effective tax rate excluding biofuel tax incentives and discrete items is 25.7% for the six months ended July 1, 2023, compared to 26.2% for the six months ended July 2, 2022.

Non-U.S. GAAP Measures

For discussion of the reasons the Company's management believes the following Non-GAAP financial measures provide useful information to investors and the purposes for which the Company's management uses such measures, see “Results of Operations - Three Months Ended July 1, 2023 Compared to the Three Months Ended July 2, 2022 - Non-U.S GAAP Measures.”

Reconciliation of Net Income to (Non-GAAP) Adjusted EBITDA and (Non-GAAP) Pro Forma Adjusted EBITDA
First Six Months of Fiscal 2023 as Compared to First Six Months of Fiscal 2022
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Six Months Ended
(dollars in thousands) July 1,
2023
July 2,
2022
Net income attributable to Darling $ 438,184  $ 390,049 
Depreciation and amortization 238,092  172,359 
Interest expense 120,492  39,611 
Income tax expense 67,686  73,416 
Restructuring and asset impairment charges 5,420  8,557 
Acquisition and integration costs 8,728  9,131 
Change in fair value of contingent consideration (7,499) — 
Foreign currency loss/(gain) (7,494) 5,512 
Other expense/(income), net (11,238) 1,044 
Equity in net income of Diamond Green Diesel (307,301) (145,484)
Equity in net income of other unconsolidated subsidiaries (1,969) (3,632)
Net income attributable to non-controlling interests 6,868  5,511 
Darling's Adjusted EBITDA $ 549,969  $ 556,074 
Foreign currency exchange impact (1) 5,779  — 
Pro forma Adjusted EBITDA to Foreign Currency (Non-GAAP) $ 555,748  $ 556,074 
DGD Joint Venture Adjusted EBITDA (Darling's Share) $ 376,721  $ 177,171 
Darling plus Darling's share of DGD Joint Venture Adjusted EBITDA $ 926,690  $ 733,245 

(1) The average rates for the six months ended July 1, 2023 were €1.00:$1.08, R$1.00:$0.20 and C$1.00:$0.74 as compared to the average rate for the six months ended July 2, 2022 of €1.00:$1.09, R$1.00:$0.20 and C$1.00:$0.79, respectively.

FINANCING, LIQUIDITY AND CAPITAL RESOURCES

Credit Facilities

Indebtedness

Certain Debt Outstanding at July 1, 2023. On July 1, 2023, debt outstanding under the Company's Amended Credit Agreement, the Company's 6% Notes, the Company's 5.25% Notes and the Company's 3.625% Notes consists of the following (in thousands):    
    
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Senior Notes:  
6 % Notes due 2030 $ 1,000,000 
Less unamortized deferred loan costs net of bond premium (6,841)
Carrying value of 6% Notes due 2030 $ 993,159 
5.25 % Notes due 2027 $ 500,000 
Less unamortized deferred loan costs (3,694)
Carrying value of 5.25% Notes due 2027 $ 496,306 
3.625 % Notes due 2026 - Denominated in euros $ 562,329 
Less unamortized deferred loan costs (3,274)
Carrying value of 3.625% Notes due 2026 $ 559,055 
   
Amended Credit Agreement:  
Term A-1 facility $ 400,000 
Less unamortized deferred loan costs (635)
Carrying value of Term A-1 facility $ 399,365 
Term A-2 facility $ 487,500 
Less unamortized deferred loan costs (902)
Carrying value of Term A-2 facility $ 486,598 
Term A-3 facility $ 300,000 
Less unamortized deferred loan costs (964)
Carrying value of Term A-3 facility $ 299,036 
Term A-4 facility $ 496,875 
Less unamortized deferred loan costs (1,168)
Carrying value of Term A-4 facility $ 495,707 
Term Loan B $ 200,000 
Less unamortized deferred loan costs (981)
Carrying value of Term Loan B $ 199,019 
Revolving Credit Facility:  
Maximum availability $ 1,500,000 
Ancillary Facilities 48,253 
Borrowings outstanding 491,921 
Letters of credit issued 3,871 
Availability $ 955,955 
Other Debt
$ 126,716 

During the first six months of fiscal 2023, the U.S. dollar weakened as compared to the euro at December 31, 2022. Using the euro based debt outstanding at July 1, 2023 and comparing the closing balance sheet rate at July 1, 2023 to the balance sheet rate at December 31, 2022, the U.S. dollar debt balances of euro based debt increased by approximately $17.4 million at July 1, 2023. The closing balance sheet rate assumption used in this calculation was the actual fiscal closing balance sheet rate at July 1, 2023 of €1.00:$1.0919 as compared to the closing balance sheet rate at December 31, 2022 of €1.00:$1.0676.

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. The Amended Credit Agreement provides for senior secured credit facilities in the aggregate principal amount of $3.725 billion comprised of (i) the Company's $525.0 million term B facility, (ii) the Company's $400.0 million term A-1 facility, (iii) the Company's $500.0 million term A-2 facility, (iv) the Company's $300.0 million Term A-3 facility, (v) the Company's $500.0 million Term A-4 facility and (vi) the Company's $1.5 billion five-year revolving credit facility (up to $150.0 million of which will be available for a letter of credit subfacility 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).
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Up to $1.46 billion of the revolving credit facility is available to be borrowed by Darling, Darling Canada, Darling NL, Darling Ingredients International Holding B.V. (“Darling BV”), Darling GmbH, and Darling Belgium in U.S. dollars, Canadian dollars, euros, Sterling and other currencies to be agreed and available to each applicable lender. The remaining $40.0 million must be borrowed in U.S. dollars only by Darling. The revolving credit facility will mature on December 9, 2026. The revolving credit facility will be used for working capital needs, general corporate purposes and other purposes not prohibited by the Amended Credit Agreement.

•As of July 1, 2023, the Company had availability of $956.0 million under the revolving credit facility, taking into account that the Company had $491.9 million in outstanding borrowings, $48.3 million in ancillary facilities and letters of credit issued of $3.9 million.

•As of July 1, 2023, the Company has borrowed all $400.0 million under the terms of the term A-1 facility and has made no repayments. Amounts borrowed under the term A-1 facility that are repaid by the Company cannot be reborrowed. The term A-1 facility borrowings are repayable in quarterly installments of 0.25% of the aggregate principle amount of the relevant term A-1 facility on the last day of each March, June, September and December of each year commencing on the last day of such month falling on or after the last day of the first full fiscal quarter following the second anniversary of December 9, 2021 and continuing until the last day of such quarterly period ending immediately prior to the term A-1 facility maturity date of December 9, 2026 and one final installment in the amount of the term A-1 facility then outstanding, due and payable on December 9, 2026.

•As of July 1, 2023, the Company has borrowed all $500.0 million under the terms of the term A-2 facility and has repaid $12.5 million, which when repaid by the Company cannot be reborrowed. The term A-2 facility borrowings are repayable in quarterly installments of 0.625% of the aggregate principle amount of the relevant term A-2 facility on the last day of each March, June, September and December of each year commencing on the last day of such month falling on or after the last day of the first full fiscal quarter following the borrowings or September 30, 2022 and continuing until the last day of such quarterly period ending March 31, 2025, and quarterly installments of 1.25% of the aggregate principle amount of the relevant term A-2 facility due and payable on the last day of each March, June, September and December of each year commencing on the last day of such month falling on or after the last day of the first full fiscal quarter ending June 30, 2025 and continuing until the last day of such quarterly period ending immediately prior to the term A-2 facility maturity date of December 9, 2026 and one final installment in the amount of the term A-2 facility then outstanding, due and payable on December 9, 2026.

•As of July 1, 2023, the Company has borrowed all $300.0 million under the terms of the term A-3 facility and has made no repayments. Amounts borrowed under the term A-3 facility that are repaid by the Company cannot be reborrowed. The term A-3 facility borrowings are repayable in quarterly installments of 0.25% of the aggregate principle amount of the relevant term A-3 facility on the last day of each March, June, September and December of each year commencing on the last day of such month falling on or after the last day of the first full fiscal quarter following the second anniversary of December 9, 2021 and continuing until the last day of such quarterly period ending immediately prior to the term A-3 facility maturity date of December 9, 2026 and one final installment in the amount of the term A-3 facility then outstanding, due and payable on December 9, 2026.

•As of July 1, 2023, the Company has borrowed all $500.0 million under the terms of the term A-4 facility and has repaid $3.1 million, which when repaid by the Company cannot be reborrowed. The Term A-4 facility borrowings are repayable in quarterly installments of 0.625% of the aggregate principle amount of the relevant term A-4 facility on the last day of each March, June, September and December of each year commencing on the last day of such month falling on or after the last day of the first full fiscal quarter following the borrowings or June 30, 2023 and continuing until the last day of such quarterly period ending March 31, 2025, and quarterly installments of 1.25% of the aggregate principle amount of the relevant term A-4 facility due and payable on the last day of each March, June, September and December of each year commencing on the last day of such month falling on or after the last day of the first full fiscal quarter ending June 30, 2025 and continuing until the last day of such quarterly period ending immediately prior to the term A-4 facility maturity date of December 9, 2026 and one final installment in the amount of the term A-4 facility then outstanding, due and payable on December 9, 2026.

•As of July 1, 2023, the Company has borrowed all $525.0 million under the terms of the term B facility and repaid $325.0 million, which when repaid, cannot be reborrowed. As a result of early payments made by the Company under the term B facility only one final installment of the relevant term B facility then outstanding is due on December 18, 2024. The term B facility will mature on December 18, 2024.

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•The interest rate applicable to any borrowings under the revolving credit facility will equal the adjusted term secured overnight financing rate (SOFR) for U.S. dollar borrowings or the adjusted euro interbank rate (EURIBOR) for euro borrowings or the adjusted daily simple Sterling overnight index average (SONIA) for British pound borrowings or CDOR for Canadian dollar borrowings plus 1.375% per annum or base rate or the adjusted term SOFR for U.S. dollar borrowings or Canadian prime rate for Canadian dollar borrowings or the adjusted daily simple European short term rate (ESTR) for euro borrowings or the adjusted daily SONIA rate for British pound borrowings plus 0.375% per annum subject to certain step-ups or step-downs based on the Company's total leverage ratio. The interest rate applicable to any borrowing under the term A-1 facility and the term A-3 facility will equal the adjusted term SOFR plus a minimum of 1.50% per annum subject to certain step-ups based on the Company's total leverage ratio. The interest rate applicable to any borrowing under the term A-2 facility and term A-4 facility will equal the adjusted term SOFR plus 1.375% per annum subject to certain step-ups and 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%.

6% Senior Notes due 2030. On June 9, 2022, Darling issued and sold $750.0 million aggregate principal amount of 6% Senior Notes due 2030 (the “6% Initial Notes”). The 6% Initial Notes, which were offered in a private offering, were issued pursuant to a Senior Notes Indenture, dated as of June 9, 2022 (the “6% Base Indenture”), among Darling, the subsidiary guarantors party thereto from time to time, and Truist Bank, as trustee. On August 17, 2022, Darling issued an additional $250.0 million in aggregate principal amount of its 6% Senior Notes due 2030 (the “add-on notes” and, together with the 6% Initial Notes, the “6% Notes”). The add-on notes and related guarantees, which were offered in a private offering, were issued as additional notes under the 6% Base Indenture, as supplemented by a supplemental indenture, dated as of August 17, 2022 (the “supplemental indenture” and, together with the 6% Base Indenture, the “6% Indenture”). The add-on notes have the same terms as the 6% Initial Notes (other than issue date and issue price) and, together with the 6% Initial Notes, constitute a single class of securities under the 6% Indenture. The 6% 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.

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 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.

3.625% Senior Notes due 2026. On May 2, 2018, Darling Global Finance B.V. issued and sold €515.0 million aggregate principal amount of 3.625% Senior Notes due 2026 (the “3.625% Notes”). The 3.625% Notes, which were offered in a private offering, were issued pursuant to a Senior Notes Indenture, dated as of May 2, 2018 (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 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.

Other debt consists of U.S., European and Brazil overdraft ancillary facilities and finance lease obligations, note arrangements in U.S., Brazil, China and European notes that are not part of the Company's Amended Credit Agreement, 6% Notes, 5.25% Notes or 3.625% Notes.

The classification of long-term debt in the Company’s July 1, 2023 consolidated balance sheet is based on the contractual repayment terms of the 6% Notes, the 5.25% Notes, the 3.625% Notes and debt issued under the Amended Credit Agreement.

As a result of the Company's borrowings under its Amended Credit Agreement, the 6% Indenture, the 5.25% Indenture and the 3.625% Indenture, the Company is highly leveraged. Investors should note that, in order to make scheduled payments on the indebtedness outstanding under the Amended Credit Agreement, the 6% Notes, the 5.25% Notes and the 3.625% Notes, and otherwise, the Company will rely in part on a combination of dividends, distributions and intercompany loan repayments from the Company's direct and indirect U.S. and foreign subsidiaries. The Company is prohibited under the Amended Credit Agreement, the 6% Indenture, the 5.25% Indenture and the 3.625% Indenture from entering (or allowing such subsidiaries to enter) into contractual limitations on the Company's subsidiaries’ ability to declare dividends or make other payments or distributions to the Company. The Company has also attempted to structure the Company's consolidated indebtedness in such a way as to maximize the Company's ability to move cash from the Company's subsidiaries to Darling or another subsidiary that will have fewer limitations on the ability to make upstream payments, whether to Darling or directly to the Company's lenders as a Guarantor.
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Nevertheless, applicable laws under which the Company's direct and indirect subsidiaries are formed may provide limitations on such dividends, distributions and other payments. In addition, regulatory authorities in various countries where the Company operates or where the Company imports or exports products may from time to time impose import/export limitations, foreign exchange controls or currency devaluations that may limit the Company's access to profits from the Company's subsidiaries or otherwise negatively impact the Company's financial condition and therefore reduce the Company's ability to make required payments under the Amended Credit Agreement, the 6% Notes, the 5.25% Notes and the 3.625% Notes, or otherwise. In addition, fluctuations in foreign exchange values may have a negative impact on the Company's ability to repay indebtedness denominated in U.S. or Canadian dollars or euros. See “Risk Factors - Our business may be adversely impacted by fluctuations in exchange rates, which could affect our ability to comply with our financial covenants” and “- Our ability to repay our indebtedness depends in part on the performance of our subsidiaries, including our non-guarantor subsidiaries, and their ability to make payments” in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2022 as filed with the SEC on February 27, 2023.
 
As of July 1, 2023, the Company believes it is in compliance with all of the financial covenants under the Amended Credit Agreement, as well as all of the other covenants contained in the Amended Credit Agreement, the 6% Indenture, the 5.25% Indenture and the 3.625% Indenture.

Working Capital and Capital Expenditures

On July 1, 2023, the Company had working capital of $862.4 million and its working capital ratio was 1.85 to 1 compared to working capital of $569.7 million and a working capital ratio of 1.53 to 1 on December 31, 2022.  As of July 1, 2023, the Company had unrestricted cash of $111.5 million and funds available under the revolving credit facility of $956.0 million, compared to unrestricted cash of $127.0 million and funds available under the revolving credit facility of $1,313.0 million at December 31, 2022. The Company diversifies its cash investments by limiting the amounts deposited with any one financial institution.

Net cash provided by operating activities was $405.7 million for the first six months ended July 1, 2023, as compared to net cash provided by operating activities of $361.0 million for the first six months ended July 2, 2022, an increase of $44.7 million due primarily to an increase in cash distributions received from the DGD Joint Venture. Cash used in investing activities was $1,348.4 million for the first six months ended July 1, 2023, compared to $1,624.8 million for the first six months ended July 2, 2022, a decrease in cash used in investing activities of $276.4 million, primarily due to a decrease in payments for acquisitions and capital contributions to the DGD Joint Venture that more than offset an increase in capital expenditures.  Net cash provided by financing activities was $1,020.1 million for the first six months ended July 1, 2023, compared to $1,357.6 million for the first six months ended July 2, 2022, a decrease in net cash provided by financing activities of $337.5 million, primarily due to a decrease in debt borrowings utilized to fund acquisitions in the first six months ended July 1, 2023 compared to the first six months ended July 2, 2022.

Capital expenditures of $234.3 million were made during the first six months of fiscal 2023, compared to $151.5 million in the first six months of fiscal 2022. The Company expects to incur additional capital expenditures of approximately $330 million for the remainder of fiscal 2023 including compliance and expansion projects and spending related to acquired companies. The Company intends to finance these costs using cash flows from operations. Capital expenditures related to compliance with environmental regulations were $26.7 million and $16.9 million during the first six months ended July 1, 2023 and July 2, 2022, respectively.

Accrued Insurance and Pension Plan Obligations

Based upon the annual actuarial estimate, current year accruals and claims paid during the first six months of fiscal 2023, the Company has an accrued balance of approximately $20.2 million it expects will become due during the next twelve months in order to meet obligations related to the Company’s self-insurance reserves and accrued insurance obligations, which are included in current accrued expenses at July 1, 2023.  The self insurance reserve is composed of estimated liability for claims arising for workers’ compensation, auto liability and general liability claims.  The self-insurance reserve liability is determined annually, based upon a third party actuarial estimate.  The actuarial estimate may vary from year to year due to changes in cost of health care, the pending number of claims or other factors beyond the control of management of the Company. 

Based upon current actuarial estimates, the Company expects to contribute approximately $0.2 million to its domestic pension plans in order to meet minimum pension funding requirements during the next twelve months. In addition, the Company expects to make payments of approximately $3.5 million under its foreign pension plans in the next twelve months.
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The minimum pension funding requirements are determined annually, based upon a third party actuarial estimate. The actuarial estimate may vary from year to year due to fluctuations in return on investments or other factors beyond the control of management of the Company or the administrator of the Company’s pension funds. No assurance can be given that the minimum pension funding requirements will not increase in the future. The Company has made tax deductible discretionary and required contributions to its domestic pension plans for the first six months ended July 1, 2023 of approximately $0.1 million. Additionally, the Company has made required and tax deductible discretionary contributions to its foreign pension plans for the first six months ended July 1, 2023 of approximately $1.5 million.

The U.S. Pension Protection Act of 2006 (“PPA”) went into effect in January 2008.  The stated goal of the PPA is to improve the funding of U.S. pension plans.  U.S. plans in an under-funded status are required to increase employer contributions to improve the funding level within PPA timelines.  Volatility in the world equity and other financial markets, including that associated with the recent turmoil in the world banking markets and the Russia-Ukraine war, could have a material negative impact on U.S. pension plan assets and the status of required funding under the PPA.  The Company participates in various U.S. multiemployer pension plans which provide defined benefits to certain employees covered by labor contracts.  These plans are not administered by the Company and contributions are determined in accordance with provisions of negotiated labor contracts to meet their pension benefit obligations to their participants. The Company's contributions to each individual U.S. multiemployer plan represent less than 5% of the total contributions to each plan. Based on the most currently available information, the Company has determined that, if a withdrawal were to occur, withdrawal liabilities for two of the U.S. plans in which the Company currently participates could be material to the Company, with one of these material plans certified as critical or red zone under PPA guidelines. The Company currently has withdrawal liabilities recorded on four U.S. multiemployer plans in which it participated. During the second quarter of fiscal 2023, the Company was notified by one of their multiemployer plans that an additional partial withdrawal liability was incurred and the Company also received a notification that another one of its multiemployer plans liabilities was being reduced. As a result of these events, the Company recorded an additional liability of approximately $2.8 million. As of July 1, 2023, the Company has an aggregate accrued liability of approximately $6.6 million representing the present value of scheduled withdrawal liability payments on the multiemployer plans that have given notice of withdrawal. 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.

DGD Joint Venture

The DGD Joint Venture currently operates two renewable diesel plants, one located adjacent to Valero’s St. Charles Refinery in Norco, Louisiana (the “DGD St. Charles Plant”) and one located adjacent to Valero’s Port Arthur Refinery in Port Arthur, Texas (the “DGD Port Arthur Plant” and, together with the DGD St. Charles Plant, the “DGD Facilities”). The DGD Joint Venture was formed in January 2011 to design, engineer, construct and operate the DGD St. Charles Plant, which reached mechanical completion and began production of renewable diesel and certain other co-products in late June 2013. In October 2021, the DGD Joint Venture completed an expansion of the DGD St. Charles Plant that increased its renewable diesel production capability to up to 750 million gallons per year of renewable diesel, as well as separating renewable naphtha (approximately 30 million gallons) and other light end renewable hydrocarbons for sale into low carbon fuel markets, at a total cost, including naphtha production and improved logistics capability, of approximately $1.1 billion. Additionally, in November 2022, the DGD Joint Venture completed the construction of the DGD Port Arthur Plant, with a name plate capacity to produce 470 million gallons per year of renewable diesel and 20 million gallons per year of renewable naphtha and having similar logistics flexibilities as those of the DGD St. Charles Plant. The DGD Port Arthur Plant was completed at a total cost of approximately $1.43 billion. The DGD Facilities have a combined renewable diesel production capacity of approximately 1.2 billion gallons per year. Furthermore, in January 2023, the DGD Joint Venture partners approved a capital project at the DGD Port Arthur Plant to provide the plant with the capability to upgrade approximately fifty percent (50%) of its current 470 million gallon annual production capacity to sustainable aviation fuel (SAF). Work on the project is underway, with completion expected in 2025 at a total estimated cost of approximately $315 million, which is expected to be primarily funded by DGD Joint Venture cash flow; however, if the DGD Joint Venture cash flow is not sufficient to fund the remaining project costs, the DGD Joint Venture may need to borrow funds or the joint venture partners may be required to contribute additional funds to complete the project.

On May 1, 2019, Darling, through its wholly owned subsidiary Darling Green Energy LLC, (“Darling Green”), and Diamond Alternative Energy, LLC, a wholly owned subsidiary of Valero (“Diamond Alternative” and together with Darling Green, the “DGD Lenders”), entered into a revolving loan agreement (the “2019 DGD Loan Agreement”) with the DGD Joint Venture, pursuant to which the DGD Lenders committed to making 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 2019 DGD Loan Agreement were 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%.
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On June 15, 2023, the DGD Lenders entered into a new revolving loan agreement (the “2023 DGD Loan Agreement”) with the DGD Joint Venture that replaced and superseded in its entirety the 2019 DGD Loan Agreement and pursuant to which the DGD Lenders have committed to making loans available to the DGD Joint Venture in the total amount of $200.0 million with each lender committed to $100.0 million of the total commitment. Any borrowings by the DGD Joint Venture under the 2023 DGD Loan Agreement are at the applicable annum rate equal to the sum of (a) Term SOFR on such day plus (b) 2.50%. The 2023 DGD Loan Agreement expires on June 15, 2026. In September 2022 and again in December 2022, the DGD Joint Venture borrowed all $50.0 million available under the 2019 DGD Loan Agreement, including the Company's full $25.0 million commitment. The Company received interest from the DGD Joint Venture for the three months ended July 1, 2023 and July 2, 2022 of approximately $0.1 million and $0.2 million, respectively and received interest from the DGD Joint Venture for the six months ended July 1, 2023 and July 2, 2022 of approximately $0.6 million and $0.4 million, respectively. As of July 1, 2023 and December 31, 2022, zero and $25.0 million, respectively, was owed to Darling Green under the 2023 DGD Loan Agreement and the 2019 DGD Loan Agreement, as applicable. This note receivable amount is included in other current assets on the balance sheet and is included in investing activities on the cash flow statement.

On June 23, 2023, the DGD Joint Venture entered into an amended and restated credit agreement for $400.0 million senior, unsecured revolving credit facility, with CoBank ACB acting as lead arranger and the administrative agent for the lending group, which is comprised of Farm Credit System institutions. The revolving credit facility matures June 23, 2026 and is non-recourse to the joint venture partners. As of July 1, 2023, the DGD Joint Venture has borrowings outstanding of $50.0 million under this unsecured revolving credit facility.

Based on the sponsor support agreements executed in connection with the initial construction of the DGD St. Charles Plant, the Company contributed a total of approximately $111.7 million for initial completion of the DGD St Charles Plant, and each partner has subsequently made $528.8 million in additional capital contributions to the DGD Joint Venture. As of July 1, 2023, under the equity method of accounting, the Company has an investment in the DGD Joint Venture of approximately $2,144.0 million included on the consolidated balance sheet.

The Company’s original investment in DGD has expanded since 2011 to the point that it is now integral to how Darling operates its business. Darling traditionally collected and converted used cooking oil and animal fats into feed ingredients which were sold on a caloric value to feed animals as well as for industrial technical uses. Over the past decade, the world’s increasing focus on climate change and greenhouse gas has provided a new finished market for the Company’s finished fats ingredients. With Darling’s significant fats ownership, this has and continues to transform how Darling operates. In 2022, a large portion of Darling’s total U.S. finished fats products were sold to the DGD Joint Venture as feedstock for renewable diesel. In 2022, DGD was Darling’s largest finished product customer in terms of net sales, with Darling recording sales of approximately $1.1 billion to DGD or 17% of total net sales.

From a procurement, production and distribution standpoint, DGD has become integral to Darling’s base business. DGD is integrated to the Company’s operations via the combined vertical operating structure from collecting raw fats, to processing collected fats at Darling facilities worldwide to transporting the refined fats to the DGD St. Charles and Port Arthur Plants as feedstock. The Darling supply chain has become more efficient and sustainable with transparency for verification to obtain full value to low carbon intensity markets. The development of the low carbon markets in North America and Europe has influenced how Darling operates its core business and has also been a driver for the recent DGD expansions, which are making DGD much more relevant to Darling’s earnings. Since 2011 when construction began on DGD, Darling has invested substantially to increase its U.S. railcar fleet to efficiently manage nationwide transportation of Darling fats to DGD. Additionally, Darling acquired an Iowa location on the Mississippi River that further enhances the ability of the Company's Midwest network of facilities to collect and deliver feedstocks to DGD via water, rail or truck from a centralized location. In fiscal 2022, Darling acquired both Valley Proteins and FASA, each of which supply additional feedstocks to DGD. Darling has also stepped up collection efforts by providing indoor used cooking oil collection units in exchange for extended collection contracts at eating establishments and has moved to more of a centralized digital marketing effort with restaurant chains and franchise groups and invested in internet search engine key words to improve visibility with restaurants. The Company also includes DGD in marketing efforts to emphasize environmental sustainability that restaurants participate in when their used cooking oil is collected by Darling. From a production standpoint, Darling now isolates used cooking oil from other fats to preserve identification to qualify for a higher carbon intensity value. As a result, the Company includes its equity in net income of the DGD Joint Venture as operating income.


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Financial Impact of Significant Debt Outstanding

The Company has a substantial amount of indebtedness, which could make it more difficult for the Company to satisfy its obligations to its financial lenders and its contractual and commercial commitments, limit the Company's ability to obtain additional financing to fund future working capital, capital expenditures, acquisitions or other general corporate requirements on commercially reasonable terms or at all, require the Company to use a substantial portion of its cash flows from operations to pay principal and interest on its indebtedness instead of other purposes, thereby reducing the amount of the Company's cash flows from operations available for working capital, capital expenditures, acquisitions and other general corporate purposes, increase the Company's vulnerability to adverse economic, industry and business conditions, expose the Company to the risk of increased interest rates as certain of the Company's borrowings are at variable rates of interest, limit the Company's flexibility in planning for, or reacting to, changes in the Company's business and the industry in which the Company operates, place the Company at a competitive disadvantage compared to other, less leveraged competitors, and/or increase the Company's cost of borrowing.

Cash Flows and Liquidity Risks

Management believes that the Company’s cash flows from operating activities, unrestricted cash and funds available under the Amended Credit Agreement, will be sufficient to meet the Company’s working capital needs and maintenance and compliance-related capital expenditures, scheduled debt and interest payments, income tax obligations, and other contemplated needs through the next twelve months. Numerous factors could have adverse consequences to the Company that cannot be estimated at this time, such as negative impacts from the COVID-19 outbreak and the Russia-Ukraine war and those other factors discussed below under the heading “Forward Looking Statements”. These factors, coupled with volatile prices for natural gas and diesel fuel, currency exchange fluctuations, general performance of the U.S. and global economies, disturbances in world financial, credit, commodities and stock markets, and any decline in consumer confidence, including the inability of consumers and companies to obtain credit due to lack of liquidity in the financial markets, among others, could negatively impact the Company’s results of operations in fiscal year 2023 and thereafter. The Company reviews the appropriate use of unrestricted cash periodically. As of the date of this report, other than the Company's previously announced acquisition of Miropasz for approximately €110.0 million in cash, which will be financed through borrowings under the Company's Amended Credit Agreement, no decision has been made as to non-ordinary course material cash usages at this time; however, potential usages could include: opportunistic capital expenditures and/or acquisitions and joint ventures; investments relating to the Company’s renewable energy strategy, including, without limitation, potential required funding obligations with respect to the DGD Joint Venture SAF project or potential investments in additional renewable diesel projects; investments in response to governmental regulations relating to human and animal food safety or other regulations; unexpected funding required by the legislation, regulation or mass termination of multiemployer plans; and paying dividends or repurchasing stock, subject to limitations under the Amended Credit Agreement, the 6% Notes, the 5.25% Notes and the 3.625% Notes, as well as suitable cash conservation to withstand adverse commodity cycles. The Company's Board of Directors has approved a share repurchase program of up to an aggregate of $500.0 million of the Company's Common Stock depending on market conditions. The repurchases may be made from time to time on the open market at prevailing market prices or in negotiated transactions off the market. The program runs through August 13, 2024, unless further extended or shortened by the Board of Directors. During the first six months of fiscal 2023, the Company has repurchased approximately $52.9 million of its common stock in the open market. As of July 1, 2023, the Company had approximately $321.6 million remaining in its share repurchase program.

Each of the factors described above has the potential to adversely impact the Company's liquidity in a variety of ways, including through reduced raw materials availability, reduced finished product prices, reduced sales, potential inventory buildup, increased bad debt reserves, potential impairment charges and/or higher operating costs.

Sales prices for the principal products that the Company sells are typically influenced by the demand and pricing of renewable diesel and sales prices for agricultural-based alternative ingredients, the prices of which are based on established commodity markets and are subject to volatile changes. Any decline in these prices has the potential to adversely impact the Company's liquidity. Any of a decline in raw material availability, a decline in agricultural-based alternative ingredients prices, increases in energy prices or the impact of U.S. and foreign regulation (including, without limitation, China), changes in foreign exchange rates, imposition of currency controls and currency devaluations has the potential to adversely impact the Company's liquidity. A decline in commodities prices, a rise in energy prices, a slowdown in the U.S. or international economy, high inflation rates or other factors could cause the Company to fail to meet management's expectations or could cause liquidity concerns.


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OFF BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS

Based upon the underlying purchase agreements, the Company has commitments to purchase $299.7 million of commodity products consisting of approximately $96.4 million of finished products, approximately $186.4 million of natural gas and diesel fuel and approximately $16.9 million of other commitments during the next five years, which are not included in liabilities on the Company’s balance sheet at July 1, 2023.  The Company intends to take physical delivery of the commodities under the forward purchase agreements and accordingly, these contracts are not subject to the requirements of fair value accounting because they qualify as normal purchases. The commitments will be recorded on the balance sheet of the Company when delivery of these commodities or products occurs and ownership passes to the Company during the remainder of fiscal 2023 and through fiscal 2027, in accordance with accounting principles generally accepted in the United States.

The following table summarizes the Company’s other commercial commitments, including both on- and off-balance sheet arrangements that are part of the Company's Amended Credit Agreement and other foreign and domestic bank guarantees that are not a part of the Company's Amended Credit Agreement at July 1, 2023 (in thousands):
            
Other commercial commitments:  
Standby letters of credit $ 3,871 
Standby letters of credit (ancillary facility) 25,672 
Foreign and domestic bank guarantees 23,871 
Total other commercial commitments: $ 53,414 

CRITICAL ACCOUNTING POLICIES

The Company follows certain significant accounting policies when preparing its consolidated financial statements. A complete summary of these policies is included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on February 27, 2023.

NEW ACCOUNTING PRONOUNCEMENTS

See Note 23, “New Accounting Pronouncements,” to the consolidated financial statements for a description of new accounting pronouncements.

FORWARD LOOKING STATEMENTS

This Quarterly Report on Form 10-Q includes “forward-looking” statements that are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the statements.   Statements that are not statements of historical facts are forward-looking statements and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Words such as “estimate,” “project,” “planned,” “contemplate,” “potential,” “possible,” “proposed,” “intend,” “believe,” “anticipate,” “expect,” “may,” “will,” “would,” “should,” “could,” and similar expressions are intended to identify forward-looking statements.  All statements other than statements of historical facts included in this report are forward looking statements, including, without limitation, the statements under the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and located elsewhere herein regarding industry prospects, the Company’s financial position or the Company's use of cash.  Forward-looking statements are based on the Company's current expectations and assumptions regarding its business, the economy and other future conditions. The Company cautions readers that any such forward-looking statements it makes are not guarantees of future performance and that actual results may differ materially from anticipated results or expectations expressed in its forward-looking statements as a result of a variety of factors, including many that are beyond the Company's control.
 
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In addition to those factors discussed elsewhere in this report and in the Company's other public filings with the SEC, important factors that could cause actual results to differ materially from the Company’s expectations include: existing and unknown future limitations on the ability of the Company's direct and indirect subsidiaries to make their cash flow available to the Company for payments on the Company's indebtedness or other purposes; global demands for bio-fuels and grain and oilseed commodities, which have exhibited volatility, and can impact the cost of feed for cattle, hogs and poultry, thus affecting available rendering feedstock and selling prices for the Company’s products; reductions in raw material volumes available to the Company due to weak margins in the meat production industry as a result of higher feed costs, reduced consumer demand or other factors, reduced volume from food service establishments, or otherwise; reduced demand for animal feed; reduced finished product prices, including a decline in fat and used cooking oil finished product prices; changes to government policies around the world relating to renewable fuels and greenhouse gas (“GHG”) emissions that adversely affect programs like the U.S. government's renewable fuel standard, low carbon fuel standards (“LCFS”) and tax credits for biofuels both in the United States and abroad; possible product recall resulting from developments relating to the discovery of unauthorized adulterations to food or food additives; the occurrence of 2009 H1N1 flu (initially known as “Swine Flu”), highly pathogenic strains of avian influenza (collectively known as “Bird Flu”), severe acute respiratory syndrome (“SARS”), bovine spongiform encephalopathy (or “BSE”), porcine epidemic diarrhea (“PED”) or other diseases associated with animal origin in the United States or elsewhere, such as the outbreak of African Swine Fever in China and elsewhere; the occurrence of pandemics, epidemics or disease outbreaks, such as the COVID-19 outbreak; unanticipated costs and/or reductions in raw material volumes related to the Company’s compliance with the existing or unforeseen new U.S. or foreign (including, without limitation, China) regulations (including new or modified animal feed, Bird Flu, SARS, PED, BSE or ASF or similar or unanticipated regulations) affecting the industries in which the Company operates or its value added products; risks associated with the DGD Joint Venture, including possible unanticipated operating disruptions, a decline in margins on the products produced by the DGD Joint Venture and issues relating to the announced SAF upgrade project; risks and uncertainties relating to international sales and operations, including imposition of tariffs, quotas, trade barriers and other trade protections imposed by foreign countries; tax changes, such as the introduction of a global minimum tax; difficulties or a significant disruption in the Company's information systems or failure to implement new systems and software successfully; risks relating to possible third party claims of intellectual property infringement; increased contributions to the Company’s pension and benefit plans, including multiemployer and employer-sponsored defined benefit pension plans as required by legislation, regulation or other applicable U.S. or foreign law or resulting from a U.S. mass withdrawal event; bad debt write-offs; loss of or failure to obtain necessary permits and registrations; continued or escalated conflict in the Middle East, North Korea, Ukraine or elsewhere, including the Russia-Ukraine war; uncertainty regarding the exit of the U.K. from the European Union; and/or unfavorable export or import markets. These factors, coupled with volatile prices for natural gas and diesel fuel, inflation rates, climate conditions, currency exchange fluctuations, general performance of the U.S. and global economies, disturbances in world financial, credit, commodities and stock markets, such as the recent turmoil in the world banking markets, and any decline in consumer confidence and discretionary spending, including the inability of consumers and companies to obtain credit due to lack of liquidity in the financial markets, among others, could cause actual results to vary materially from the forward-looking statements included in this report or negatively impact the Company's results of operations. Among other things, future profitability may be affected by the Company’s ability to grow its business, which faces competition from companies that may have substantially greater resources than the Company. The Company's announced share repurchase program may be suspended or discontinued at any time and purchases of shares under the program are subject to market conditions and other factors, which are likely to change from time to time. For more detailed discussion of these factors see the Risk Factors discussion in Item 1A of Part I of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2022. The Company cautions readers that all forward-looking statements speak only as of the date made, and the Company undertakes no obligation to update any forward-looking statements, whether as a result of changes in circumstances, new events or otherwise.

Item 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

Market risks affecting the Company include exposures to changes in prices of the finished products the Company sells, interest rates on debt, availability of raw material supplies and the price of natural gas and diesel fuel used in the Company's plants. Raw materials available to the Company are impacted by seasonal factors, including holidays, when raw material volume declines; warm weather, which can adversely affect the quality of raw material processed and finished products produced; and cold weather, which can impact the collection of raw material. Predominantly all of the Company’s finished products are commodities that are generally sold at prices prevailing at the time of sale. Additionally, with the acquisition of foreign entities we are exposed to foreign currency exchange risks, imposition of currency controls and the possibility of currency devaluation.

The Company makes limited use of derivative instruments to manage cash flow risks related to interest rates, natural gas usage, diesel fuel usage, inventory, forecasted sales and foreign currency exchange rates. The Company does not use derivative instruments for trading purposes. Interest rate swaps are entered into with the intent of managing overall borrowing costs by reducing the potential impact of increases in interest rates on floating-rate long-term debt. Natural gas swaps and options are entered into with the intent of managing the overall cost of natural gas usage by reducing the potential impact of seasonal weather demands on natural gas that increases natural gas prices. Heating oil swaps and options are entered into with the intent of managing the overall cost of diesel fuel usage by reducing the potential impact of seasonal weather demands on diesel fuel that increases diesel fuel prices. Soybean meal forwards and 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.
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The Company intends to take physical delivery of the commodities under certain of the Company's natural gas and diesel fuel instruments and accordingly, these contracts are not subject to the requirements of fair value accounting because they qualify as normal purchases. At July 1, 2023, the Company had soybean meal forward and option contracts, foreign exchange forward and option contracts and interest rate swaps outstanding that qualified and were designated for hedge accounting as well as corn forward contracts, soybean meal forward and option contracts and foreign currency forward contracts that did not qualify and were not designated for hedge accounting.

In the first and second quarter of fiscal 2023, the Company entered into interest rate swaps that are designated as cash flow hedges. The notional amount of these swaps totaled $900.0 million. Under the contracts, the Company is obligated to pay a weighted average rate of 4.007% while receiving the 1-Month SOFR rate, which excludes margin. Under the terms of the interest rate swaps, the Company hedged a portion of its variable rate debt into the first quarter of 2026. At July 1, 2023, the aggregate fair value of these interest rate swaps was approximately $13.3 million. These amounts are included in other current assets and other assets on the balance sheet, with an offset recorded in accumulated other comprehensive loss.

In the first quarter of fiscal 2023, the Company also entered into cross currency swaps that are designated as cash flow hedges. The notional amount of these swaps was €519.2 million. Under the contracts, the Company is obligated to pay a 4.6% fixed rate while receiving a weighted average fixed rate of 5.799%. Under the terms of the cross currency swaps, the Company hedged its intercompany notes receivable into the first quarter of 2025. Accordingly, changes in the fair value of the cash flow hedge are initially recorded as gains and/or losses as a component of accumulated other comprehensive loss. We immediately reclassify from accumulated other comprehensive loss to earnings an amount to offset the remeasurement recognized in earnings associated with the respective intercompany loan. Additionally, we reclassify amounts from accumulated other comprehensive income (loss) associated with the interest rate differential between the U.S. dollar and a Euro denominated intercompany loan to interest expense. At July 1, 2023, the aggregate fair value of these cross currency swaps was approximately $4.1 million. These amounts are included in other current assets and other non-current liabilities on the balance sheet, with an offset recorded in accumulated other comprehensive loss.

In fiscal 2022, the Company entered into corn option contracts on the Chicago Board of Trade that are designated as cash flow hedges. Under the terms of the corn option contracts, the Company hedged a portion of its U.S. forecasted sales of BBP into the second quarter of fiscal 2023. There are not any open designated corn option contracts at July 1, 2023. As of July 1, 2023 and December 31, 2022 the aggregate fair value of these corn option contracts was approximately $0.0 million and $0.9 million, respectively. The amounts outstanding as of December 31, 2022 are included in other current assets on the balance sheet, with an offset recorded in accumulated other comprehensive loss. The Company may enter into corn option contracts in the future from time to time.

In fiscal 2022 and the first quarter of fiscal 2023, the Company entered into foreign exchange forward and option 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 2024. As of July 1, 2023 and December 31, 2022, the aggregate fair value of these foreign exchange contracts was approximately $33.6 million and $13.8 million, respectively. As of July 1, 2023, approximately $28.7 million is included in other current assets and approximately $4.9 million is included in other assets, with an offset recorded in accumulated other comprehensive loss. As of December 31, 2022, approximately $15.6 million is included in other current assets, approximately $1.0 million is included in accrued expenses and approximately $0.8 million is included in other non-current liabilities on the balance sheet, with an offset recorded in accumulated other comprehensive loss.

In fiscal 2022 and fiscal 2023, the Company entered into soybean meal forward and option contracts to hedge a portion of its forecasted poultry meal sales into the fourth quarter of fiscal 2023. As of July 1, 2023 and December 31, 2022, the aggregate fair value of the soybean meal contracts was $0.1 million and $0.6 million, respectively. The amounts are included in other current assets and accrued expenses on the balance sheet, with an offset recorded in accumulated other comprehensive loss.

As of July 1, 2023, the Company had the following outstanding forward and option contract amounts that were entered into to hedge foreign currency transactions in currencies other than the functional currency and forecasted transactions in currencies other than the functional currency (in thousands):

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Functional Currency Contract Currency Range of U.S.
Type Amount Type Amount Hedge rates Equivalent
Brazilian real 36,462  Euro 6,778  5.24 - 5.76 $ 7,567 
Brazilian real 3,073,819  U.S. dollar 742,803  3.35 - 6.63 742,803 
Euro 26,862  U.S. dollar 29,329  1.08 - 1.11 29,329 
Euro 33,017  Polish zloty 147,500  4.45 - 4.50 36,052 
Euro 10,790  Japanese yen 1,661,510  146.39 - 156.83 11,781 
Euro 20,614  Chinese renminbi 158,683  7.33 - 7.89 22,508 
Euro 18,250  Australian dollar 29,691  1.62 - 1.64 19,927 
Euro 4,842  British pound 4,162  0.86 5,287 
Euro 35  Canadian dollar 50  1.44 38 
Polish zloty 1,380  U.S. dollar 339  4.07 339 
Polish zloty 31,858  Euro 7,170  4.44 - 4.46 7,816 
British pound 69  Euro 81  0.86 88 
Japanese yen 371,817  U.S. dollar 2,716  132.67 - 142.51 2,716 
U.S. dollar 1,094  Japanese yen 156,000  142.54 1,094 
U.S. dollar 562,340  Euro 519,182  1.08 562,340 
$ 1,449,685 

The above foreign currency contracts that are not designated as hedges had an aggregate fair value of approximately $1.9 million and are included in other current assets and accrued expenses at July 1, 2023.

Additionally, the Company had corn forward contracts and soybean meal forward and option contracts that are marked to market because they did not qualify for hedge accounting at July 1, 2023. These contracts have an aggregate fair value of approximately $0.5 million and $0.3 million, respectively and are included in other current assets and accrued expenses at July 1, 2023.

As of July 1, 2023, the Company had forward purchase agreements in place for purchases of approximately $186.4 million of natural gas and diesel fuel and approximately $16.9 million of other commitments during the next five years. As of July 1, 2023, the Company had forward purchase agreements in place for purchases of approximately $96.4 million of finished product during the next five years.

Foreign Exchange

The Company has significant international operations and is subject to certain opportunities and risks, including currency fluctuations. As a result, the Company is affected by changes in foreign currency exchange rates, particularly with respect to the euro, Brazilian real, Canadian dollar, Australian dollar, Chinese renminbi, British pound, Polish zloty, and Japanese yen.

Item 4.   CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures.  As required by Rule 13a-15(b) of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), the Company's management, including the Chief Executive Officer and Chief Financial Officer, conducted an evaluation, as of the end of the period covered by this report, of the effectiveness of the design and operation of the Company's disclosure controls and procedures.  As defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, disclosure controls and procedures are controls and other procedures of the Company that are designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms.  Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is accumulated and communicated to the Company's management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.
62



Based on management’s evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of the end of the period covered by this report.

Changes in Internal Control over Financial Reporting.  As required by Exchange Act Rule 13a-15(d), the Company’s management, including the Chief Executive Officer and Chief Financial Officer, also conducted an evaluation of the Company’s internal control over financial reporting to determine whether any change occurred during the quarter covered by this report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.  Based on that evaluation, there has been no change in the Company’s internal control over financial reporting during the last fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect the Company's internal control over financial reporting other than internal controls being implemented at Group Op de Beeck, Valley Proteins and FASA.

During the first quarter of 2023, the Company acquired Gelnex. The Company is currently in the process of integrating this acquisition pursuant to the Sarbanes-Oxley Act of 2002. The Company is evaluating changes to processes, information technology systems and other components of internal controls over financial reporting as part of the ongoing integration activities, and as a result, certain controls will be periodically changed. The Company believes, however, it will be able to maintain sufficient controls over the substantive results of its financial reporting throughout the integration process. Due to the timing of the Gelnex Acquisition, the internal control over financial reporting of Gelnex will be excluded from management's assessment of the Company's internal control over financial reporting for fiscal 2023, as permitted under SEC regulations.
63



DARLING INGREDIENTS INC. AND SUBSIDIARIES
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JULY 1, 2023

PART II:  Other Information
 
Item 1.  LEGAL PROCEEDINGS

The information required by this Item 1 is contained within Note 18 (Contingencies) on pages 29 through 30 of this Form 10-Q and is incorporated herein by reference.

Item 1A.  RISK FACTORS

In addition to the other information set forth in this report, you should carefully consider the factors described in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, which could materially affect our business, financial condition or future results. The risks described in this report and in our Annual Report on Form 10-K are not the only risks we face. Additional risks and uncertainties that are not currently known or that are currently deemed to be immaterial may also materially and adversely affect our business operations and financial condition or the market price of our common stock.

Item 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On December 9, 2021, the Company’s Board of Directors approved the extension for an additional two years ending August 13, 2024 of its previously announced share repurchase program and refreshed and increased the amount of the program up to an aggregate of $500.0 million of the Company's common stock depending on market conditions. During the first six months of fiscal 2023, the Company repurchased approximately $52.9 million, including commissions, worth of its common stock in the open market. As of July 1, 2023, the Company had approximately $321.6 million remaining under the share repurchase program initially approved in August 2017 and subsequently extended to August 13, 2024.

The following table is a summary of equity securities purchased by the Company during the second quarter of fiscal 2023.
ISSUER PURCHASES OF EQUITY SECURITIES
Period
Total Number of Shares Purchased (1)
Average Price Paid per Share (2)
Total Number of Shares Purchased as part of Publicly Announced Plans or Programs (4)
Maximum Number (or Approximate Dollar Value) of Shares that may yet be Purchased Under the Plan or Programs at End of Period.
April 2023:
April 2, 2023 through April 29, 2023 194  58.30  —  $ 330,728,221 
May 2023:
April 30, 2023 through May 27, 2023 5,650  61.52  —  330,728,221 
June 2023:
May 28, 2023 through July 1, 2023 158,518  62.13  153,202  321,584,728 
Total 164,362  (3) 61.62  153,202  $ 321,584,728 

(1)    All shares purchased during the second quarter were acquired by the Company pursuant to the announced share repurchase program (other than shares withheld for taxes on restricted stock, restricted stock units, performance units and exercised options and the strike price on exercised options).
(2)    The average price paid per share is calculated on a trade date basis and excludes commissions.
(3)    Includes 11,160 shares withheld for the exercise of options and taxes on restricted stock, restricted stock units, performance units and options. The 153,202 shares were repurchased at an average of $59.57 per share.
(4)    Represents purchases made during the quarter under the authorization from the Company's Board of Directors, as announced, to repurchase up to an aggregate of $500.0 million of the Company's common stock over the period ending August 13, 2024, unless extended or shortened by the Board of Directors.

64


Item 5.    OTHER INFORMATION

Rule 10b5-1 Plan Adoptions and Modifications

None.

Item 6.  EXHIBITS

 The following exhibits are filed herewith:
4.1
4.2
4.3
10.1
  31.1
  31.2
32
  101 Interactive Data Files Pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets as of July 1, 2023 and December 31, 2022; (ii) Consolidated Statements of Operations for the three and six months ended July 1, 2023 and July 2, 2022; (iii) Consolidated Statements of Comprehensive Income/(Loss) for the three and six months ended July 1, 2023 and July 2, 2022; (iv) Consolidated Statements of Stockholders' Equity for the six months ended July 1, 2023 and July 2, 2022; (v) Consolidated Statements of Cash Flows for the six months ended July 1, 2023 and July 2, 2022; (vi) Notes to the Consolidated Financial Statements.
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
65



SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 
 
  DARLING INGREDIENTS INC.
Date:    August 8, 2023 By:  /s/  Brad Phillips
    Brad Phillips
    Chief Financial Officer
   
(Principal Financial Officer and Duly Authorized Officer)
 
 




66
EX-4.1 2 ex41darling3625notes-secon.htm EX-4.1 Document

EXHIBIT 4.1


SECOND SUPPLEMENTAL INDENTURE
THIS SECOND SUPPLEMENTAL INDENTURE (this “Supplemental Indenture”), dated as of June 20, 2023, is between Gelnex, Inc. (the “Guaranteeing Subsidiary”), a subsidiary of Darling Ingredients Inc., a Delaware corporation (“Parent”), the Issuer (as defined below), and Citibank, N.A., London Branch, as trustee under the Indenture referred to herein (the “Trustee”).

W I T N E S S E T H

WHEREAS, Darling Global Finance B.V., a private company with limited liability (besloten vennootschap met beperkte aansprakelijkheid) incorporated under Dutch law (the “Issuer”), and a wholly-owned subsidiary of Parent, Parent and the other Guarantors (as defined in the Indenture referred to below) have heretofore executed and delivered to the Trustee an indenture (the “Indenture”), dated as of May 2, 2018, providing for the issuance of an unlimited aggregate principal amount of 3.625% Senior Notes due 2026 (the “Notes”);

WHEREAS, the Indenture provides that under certain circumstances the Guaranteeing Subsidiary shall execute and deliver to the Trustee a supplemental indenture pursuant to which the Guaranteeing Subsidiary shall unconditionally Guarantee all of the Issuer’s Obligations under the Notes and the Indenture on the terms and conditions set forth herein and under the Indenture; and

WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is authorized to execute and deliver this Supplemental Indenture.

NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties mutually covenant and agree for the equal and ratable benefit of the Holders as follows:

1.Capitalized Terms. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture.

2.Guarantor. The Guaranteeing Subsidiary hereby agrees to be a Guarantor under the Indenture and to be bound by the terms of the Indenture applicable to Guarantors, including Article 10 thereof.

3.Releases. The Note Guarantee of the Guaranteeing Subsidiary shall be unconditionally released and discharged as provided in Section 10.06 of the Indenture.

4.No Recourse Against Others. No past, present or future director, officer, employee, incorporator or stockholder of the Issuer, the Parent or the Guarantors (including the Guaranteeing Subsidiary) shall have any liability for any obligations of the Issuer, the Parent or the Guarantors (including the Guaranteeing Subsidiary) under the Notes, any Note Guarantees, the Indenture or this Supplemental Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting Notes waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes.

5.Governing Law. THIS SUPPLEMENTAL INDENTURE WILL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

6.Waiver of Jury Trial. EACH OF THE GUARANTEEING SUBSIDIARY AND THE TRUSTEE HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS SUPPLEMENTAL INDENTURE, THE INDENTURE, THE NOTES OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.





7.Counterparts. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. Delivery of an executed counterparty by facsimile or other electronic means (including “.pdf” and “.tif” format) shall constitute delivery of an executed original. Signatures of the parties hereto transmitted by facsimile, PDF or other electronic means shall be deemed to be their original signatures for all purposes. The words “execution,” “signed,” “signature,” “delivery” and words of like import in or relating to this Supplemental Indenture or any document to be signed in connection with this Supplemental Indenture shall be deemed to include electronic signatures, deliveries or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature, physical delivery thereof or the use of a paper-based recordkeeping system, as the case may be, and the parties hereto consent to conduct the transactions contemplated hereunder by electronic means.

8.Headings. The headings of the Sections of this Supplemental Indenture have been inserted for convenience of reference only, are not to be considered a part of this Supplemental Indenture and shall in no way modify or restrict any of the terms or provisions hereof.

9.The Trustee. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made solely by the Guaranteeing Subsidiary.

10.Benefits Acknowledged. The Guaranteeing Subsidiary’s Guarantee is subject to the terms and conditions set forth in the Indenture. The Guaranteeing Subsidiary acknowledges that it will receive direct and indirect benefits from the financing arrangements contemplated by the Indenture and this Supplemental Indenture and that the guarantee and waivers made by it pursuant to this Note Guarantee are knowingly made in contemplation of such benefits.

11.Successors. All agreements of the Guaranteeing Subsidiary in this Supplemental Indenture shall bind its successors, except as otherwise provided in Section 10.06 of the Indenture. All agreements of the Trustee in this Supplemental Indenture shall bind its successors.

2




IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed, all as of the date first above written.


DARLING GLOBAL FINANCE B.V.
By
By:
/s/ Brad Phillips

Name:    Brad Phillips

Title:    Management Board Member A

By: By:
/s/ Martinus Beerendonk

Name:    Martinus Beerendonk

Title:    Management Board Member B


GELNEX, INC.
By
By:
/s/ Brad Phillips

Name:    Brad Phillips

Title:    Executive Vice President & Chief     Financial Officer


CITIBANK, N.A., LONDON BRANCH, AS TRUSTEE
By
By:
/s/ Erika Kolb

Name: Erika Kolb

Title: Vice President






EX-4.2 3 ex42darling525notes-second.htm EX-4.2 Document
        EXHIBIT 4.2
SECOND SUPPLEMENTAL INDENTURE
THIS SECOND SUPPLEMENTAL INDENTURE (this “Supplemental Indenture”), dated as of June 20, 2023, is between Gelnex, Inc. (the “Guaranteeing Subsidiary”), a subsidiary of Darling Ingredients Inc., a Delaware corporation (the “Company”), the Company, and Regions Bank, as trustee under the Indenture referred to herein (the “Trustee”).
W I T N E S S E T H
WHEREAS, the Company and the Guarantors (as defined in the Indenture referred to below) have heretofore executed and delivered to the Trustee an indenture (the “Indenture”), dated as of April 3, 2019, providing for the issuance of an unlimited aggregate principal amount of 5.25% Senior Notes due 2027 (the “Notes”);
WHEREAS, the Indenture provides that under certain circumstances the Guaranteeing Subsidiary shall execute and deliver to the Trustee a supplemental indenture pursuant to which the Guaranteeing Subsidiary shall unconditionally Guarantee all of the Company’s Obligations under the Notes and the Indenture on the terms and conditions set forth herein and under the Indenture; and
WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties mutually covenant and agree for the equal and ratable benefit of the Holders as follows:
1. Capitalized Terms. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture.
2. Guarantor. The Guaranteeing Subsidiary hereby agrees to be a Guarantor under the Indenture and to be bound by the terms of the Indenture applicable to Guarantors, including Article 10 thereof.
3. Releases. The Note Guarantee of the Guaranteeing Subsidiary shall be unconditionally released and discharged as provided in Section 10.06 of the Indenture.
4. No Recourse Against Others. No past, present or future director, officer, employee, incorporator or stockholder of the Company or the Guarantors (including the Guaranteeing Subsidiary) shall have any liability for any obligations of the Company or the Guarantors (including the Guaranteeing Subsidiary) under the Notes, any Note Guarantees, the Indenture or this Supplemental Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting Notes waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes.
5. Governing Law. THIS SUPPLEMENTAL INDENTURE WILL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

6. Waiver of Jury Trial. EACH OF THE GUARANTEEING SUBSIDIARY AND THE TRUSTEE HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING



ARISING OUT OF OR RELATING TO THIS SUPPLEMENTAL INDENTURE, THE INDENTURE, THE NOTES OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
7. Counterparts. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. Delivery of an executed counterparty by facsimile or other electronic means (including “.pdf” and “.tif” format) shall constitute delivery of an executed original. Signatures of the parties hereto transmitted by facsimile, PDF or other electronic means shall be deemed to be their original signatures for all purposes. The words “execution,” “signed,” “signature,” “delivery” and words of like import in or relating to this Supplemental Indenture or any document to be signed in connection with this Supplemental Indenture shall be deemed to include electronic signatures, deliveries or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature, physical delivery thereof or the use of a paper-based recordkeeping system, as the case may be, and the parties hereto consent to conduct the transactions contemplated hereunder by electronic means.
8. Headings. The headings of the Sections of this Supplemental Indenture have been inserted for convenience of reference only, are not to be considered a part of this Supplemental Indenture and shall in no way modify or restrict any of the terms or provisions hereof.
9. The Trustee. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made solely by the Guaranteeing Subsidiary.
10. Benefits Acknowledged. The Guaranteeing Subsidiary’s Guarantee is subject to the terms and conditions set forth in the Indenture. The Guaranteeing Subsidiary acknowledges that it will receive direct and indirect benefits from the financing arrangements contemplated by the Indenture and this Supplemental Indenture and that the guarantee and waivers made by it pursuant to this Note Guarantee are knowingly made in contemplation of such benefits.
11. Successors. All agreements of the Guaranteeing Subsidiary in this Supplemental Indenture shall bind its successors, except as otherwise provided in Section 10.06 of the Indenture. All agreements of the Trustee in this Supplemental Indenture shall bind its successors.


2




IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed, all as of the date first above written.

DARLING INGREDIENTS INC.
By
By:
/s/ Brad Phillips

Name:    Brad Phillips

Title:    Executive Vice President & Chief     Financial Officer


GELNEX, INC.
By
By:
/s/ Brad Phillips

Name:    Brad Phillips

Title:    Executive Vice President & Chief     Financial Officer



REGIONS BANK, as Trustee
By
By:
/s/ R. Douglas Milner

Name: R. Douglas Milner

Title: Senior Vice President





EX-4.3 4 ex43darling6notes-thirdsup.htm EX-4.3 Document
    EXHIBIT 4.3
THIRD SUPPLEMENTAL INDENTURE
THIS THIRD SUPPLEMENTAL INDENTURE (this “Supplemental Indenture”), dated as of June 20, 2023, among Gelnex, Inc. (the “Guaranteeing Subsidiary”), a subsidiary of Darling Ingredients Inc., a Delaware corporation (the “Company”), the Company, and Truist Bank, as trustee under the Indenture referred to herein (the “Trustee”).
W I T N E S S E T H
WHEREAS, the Company and the Guarantors (as defined in the Indenture referred to below) have heretofore executed and delivered to the Trustee an indenture (the “Indenture”), dated as of June 9, 2022, providing for the issuance of an unlimited aggregate principal amount of 6% Senior Notes due 2030 (the “Notes”);
WHEREAS, the Indenture provides that under certain circumstances the Guaranteeing Subsidiary shall execute and deliver to the Trustee a supplemental indenture pursuant to which the Guaranteeing Subsidiary shall unconditionally Guarantee all of the Company’s Obligations under the Notes and the Indenture on the terms and conditions set forth herein and under the Indenture; and
WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties mutually covenant and agree for the equal and ratable benefit of the Holders as follows:
1.    Capitalized Terms. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture.
2.    Guarantor. The Guaranteeing Subsidiary hereby agrees to be a Guarantor under the Indenture and to be bound by the terms of the Indenture applicable to Guarantors, including Article 10 thereof.
3.    Releases. The Note Guarantee of the Guaranteeing Subsidiary shall be automatically and unconditionally released and discharged as provided in Section 10.06 of the Indenture.
4.    No Recourse Against Others. No past, present or future director, officer, employee, incorporator or stockholder of the Company or the Guarantors (including the Guaranteeing Subsidiary) shall have any liability for any obligations of the Company or the Guarantors (including the Guaranteeing Subsidiary) under the Notes, any Note Guarantees, the Indenture or this Supplemental Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting Notes waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes.
5.    Governing Law. THIS SUPPLEMENTAL INDENTURE WILL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
6.    Waiver of Jury Trial. EACH OF THE GUARANTEEING SUBSIDIARY AND THE TRUSTEE HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING



ARISING OUT OF OR RELATING TO THIS SUPPLEMENTAL INDENTURE, THE INDENTURE, THE NOTES OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
7.    Counterparts. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. Delivery of an executed counterparty by facsimile or other electronic means (including “.pdf” and “.tif” format) shall constitute delivery of an executed original. Signatures of the parties hereto transmitted by facsimile, PDF or other electronic means shall be deemed to be their original signatures for all purposes. The words “execution,” “signed,” “signature,” “delivery” and words of like import in or relating to this Supplemental Indenture or any document to be signed in connection with this Supplemental Indenture shall be deemed to include electronic signatures, deliveries or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature, physical delivery thereof or the use of a paper-based recordkeeping system, as the case may be, and the parties hereto consent to conduct the transactions contemplated hereunder by electronic means.
8.    Headings. The headings of the Sections of this Supplemental Indenture have been inserted for convenience of reference only, are not to be considered a part of this Supplemental Indenture and shall in no way modify or restrict any of the terms or provisions hereof.
9.    The Trustee. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made solely by the Guaranteeing Subsidiary.
10.    Benefits Acknowledged. The Guaranteeing Subsidiary’s Guarantee is subject to the terms and conditions set forth in the Indenture. The Guaranteeing Subsidiary acknowledges that it will receive direct and indirect benefits from the financing arrangements contemplated by the Indenture and this Supplemental Indenture and that the guarantee and waivers made by it pursuant to this Note Guarantee are knowingly made in contemplation of such benefits.
11.    Successors. All agreements of the Guaranteeing Subsidiary in this Supplemental Indenture shall bind its successors, except as otherwise provided in Section 10.06 of the Indenture. All agreements of the Trustee in this Supplemental Indenture shall bind its successors.



IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed, all as of the date first above written.

DARLING INGREDIENTS INC.
By
By:
 /s/ Brad Phillips

Name:    Brad Phillips

Title:     Executive Vice President & Chief     Financial Officer

GELNEX, INC.
By
By:
/s/ Brad Phillips

Name: Brad Phillips

Title: Executive Vice President & Chief Financial Officer


TRUIST BANK, as Trustee
By
By:
/s/ Cristina G. Rhodebeck

Name: Cristina G. Rhodebeck

Title: Senior Vice President



EX-10.1 5 ex101-darlingdirectorcompe.htm EX-10.1 Document
Exhibit 10.1

Effective May 9, 2023
DARLING INGREDIENTS INC.
Non-Employee Director Compensation Program

1.Purpose. This Non-Employee Director Compensation Program (the “Program”) is adopted by the Board of Directors (the “Board”) of Darling Ingredients Inc. (the “Company”). This Program is adopted pursuant to the Darling Ingredients Inc. 2017 Omnibus Incentive Plan (the “2017 Plan”). Capitalized terms defined in the 2017 Plan that are used herein without being defined shall have the same meanings as set forth in the 2017 Plan.
2.Participants. Each Non-Employee Director shall participate in the Program (each, a “Participant”).
3.Restricted Stock Units.
3.1 Grant.
(a)Immediately following the conclusion of the Company’s annual meeting of stockholders (the “Annual Meeting”) in each year, beginning with the Annual Meeting to be held in 2022, and subject to the availability of shares of common stock of the Company, $0.01 par value per share (“Common Stock”), under the 2017 Plan, each Participant elected to the Board at such Annual Meeting shall, automatically and without necessity of any action by the Board or any committee thereof, receive the number of Restricted Stock Units equal to the quotient of (i) the grant value approved by the Board (which grant value shall remain in effect until modified by the Board) divided by (ii) the Fair Market Value of a share of Common Stock on the date of the grant (reduced to the nearest whole number) (such number of Restricted Stock Units, the “Annual RSU Grant Amount”), subject to the terms and conditions of this Program and the 2017 Plan. A Restricted Stock Unit is the right, subject to the terms and conditions of the Program and the 2017 Plan, to receive a distribution of a share of Common Stock, pursuant to Section 3.7 below.
(b)Each Participant elected or appointed on a date other than the date of an Annual Meeting shall, on the date the Non-Employee Director commences service on the Board and automatically and without necessity of any action by the Board or any committee thereof, receive a pro-rated grant for the number of Restricted Stock Units (reduced to the nearest whole number) equal to (i) the product of (A) the Annual RSU Grant Amount applicable to the immediately preceding Annual Meeting, multiplied by (B) the quotient of (1) the number of days before the next Annual Meeting divided by (2) the number of days from the immediately preceding Annual Meeting until the next regularly scheduled Annual meeting divided by (ii) the Fair Market Value of a share of Common Stock on the date of the grant (reduced to the nearest whole number); provided, however, if the next Annual Meeting date has not been approved by the Board at the time of grant, for purposes of this calculation it should be assumed that 365 days will elapse between the two Annual Meetings.




3.2Restricted Stock Unit Agreement. Each Restricted Stock Unit grant shall be subject to the Company’s standard form of restricted stock unit agreement previously approved by the Board.
3.3Restricted Stock Unit Account. The Company shall maintain an account (“RSU Account”) on its books in the name of each Participant, which shall reflect the number of Restricted Stock Units awarded to a Participant that the Participant is eligible to receive under this Program and which have not yet been distributed to the Participant in accordance with Section 3.7 hereof.
3.4Dividend Equivalents. Upon the payment of any dividend on Common Stock occurring during the period preceding the distribution of a Participant’s Restricted Stock Unit award pursuant to Section 3.7 below, the Company shall credit to a cash account maintained by the Company on its books in the name of the Participant with respect to the Restricted Stock Units an amount equal in value to the dividends that the Participant would have received had the Participant been the actual owner on the record date of the number of shares of Common Stock represented by the Restricted Stock Units in the Participant’s RSU Account on that date (“Dividend Equivalents”). No interest or earnings shall be credited with respect to the Dividend Equivalents. Such Dividend Equivalents shall be subject to the same forfeiture, vesting, and distribution provisions of this Program applicable to the Restricted Stock Units to which such Dividend Equivalents relate.
3.5Forfeiture. Except as set forth in Section 3.6, if a Participant incurs a Separation from Service, as defined below, prior to the Vesting Date, as defined below, the Participant’s Restricted Stock Units shall be forfeited and revert to the Company, and the Company shall have no obligation to pay any Dividend Equivalents pursuant to Section 3.4 above with respect to the forfeited Restricted Stock Units. The Company shall have no further obligation to such a Participant under the Program with respect to such Restricted Stock Units. For purposes of this Program, the term “Separation from Service” shall mean the date on which the Participant’s membership on the Board terminates for any reason, including resignation or retirement.
3.6Vesting. A Participant shall become 100% vested in the Restricted Stock Units granted hereunder upon the date (the “Vesting Date”) that is the earliest to occur of (a) the one-year anniversary of the Grant Date (the “Regular Vesting Date”), (b) the date of the Participant’s death, Disability or Retirement, and (c) the date of a Change in Control, provided that the Participant has not incurred a Separation from Service prior to the earliest of the foregoing three events; provided, however, if the Participant has a Separation from Service for any reason other than death, Disability or Retirement before the Regular Vesting Date, the Participant shall become vested in a prorated portion of the Restricted Stock Units as of the date of such Separation from Service based on the number of days from the Grant Date to the date of Separation from Service divided by 365, and any Restricted Stock Units not so vested shall be forfeited.
2



(a)For purposes of this Program, “Disability” shall mean that the Participant is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment as determined by the Board in its sole discretion; provided, however, that the Participant shall recuse himself or herself from the determination as to his or her own Disability.
(b)For purposes of this Program, “Retirement” shall mean the Participant’s separation from the Board due to the decision of the Participant to not stand for re-election as a Non-Employee Director, provided that the Participant completes his or her current term as a Non-Employee Director by serving as a Non-Employee Director through the date of the Annual Shareholders Meeting following the Grant Date.
3.7Distribution. Subject to any deferral election completed by the Participant and Section 409A of the Code, the Restricted Stock Units  shall be payable to the Participant in a single lump sum payment within sixty (60) days following the Participant’s Separation from Service. For each calendar year, a Participant may elect, in writing by December 31 of the year preceding the applicable calendar year to defer the Restricted Stock Units to be granted to the Participant during such calendar year; provided, however, an individual who becomes a Non-Employee Director for the first time after a calendar year has commenced may make a deferral election, prior to the date the individual becomes a Non-Employee Director, with respect to all or a portion of the Restricted Stock Units that are granted after the date of such election
3.8Adjustment. All Restricted Stock Units provided under the Program are subject to adjustment in accordance with the provisions of Section 4.5 of the 2017 Plan.
3.9Availability of Shares. If on any grant date, the number of shares of Common Stock which would otherwise be granted in the form of Restricted Stock Units granted under the Program shall exceed the number of shares of Common Stock then remaining available under the 2017 Plan, the available shares shall be allocated to Participants pro-rata in proportion to the number of shares subject to Restricted Stock Units that Participants would otherwise be entitled to receive, and the remaining portion of their Restricted Stock Unit grant shall be granted in the form of cash compensation, subject to the same vesting and payment terms as set forth in this Section 3.
4.Cash Compensation.
3



4.1General. The Company shall pay each Participant an annual cash retainer of $100,000 per calendar year (the “Annual Cash Retainer”). In addition to the Annual Cash Retainer, (i) Participants serving as the Chair of the Audit Committee or the Chair of the Compensation Committee are entitled to an additional $25,000 cash payment per calendar year, Participants serving as the Chair of the Environmental, Social and Governance Committee are entitled to an additional $20,000 cash payment per calendar year and Participants serving as the Chair of the Nominating and Corporate Governance Committee are entitled to an additional $15,000 cash payment per calendar year (the “Chairperson Retainers”) and (ii) the Company’s Lead Director is entitled to an additional $95,000 cash payment per calendar year (the “Lead Director Retainer” and, together with the Annual Cash Retainer and Chairperson Retainers, the “Cash Compensation”). Subject to Section 4.2, the Cash Compensation shall be paid quarterly in arrears (but in any event no later than the March 15th immediately following the conclusion of the applicable year). If a Participant dies prior to receiving his or her Cash Compensation for a particular quarter, such Cash Compensation shall be distributed to the Participant’s Beneficiary or, in the absence of a Beneficiary, to the Participant’s estate. For purposes of determining the amount of such quarterly payment(s), a Participant who joins the Board or a committee following the beginning of the applicable quarter shall be entitled to a pro rata portion of the Cash Compensation based on the number of days served on the Board or applicable committee during such quarter. The amount of Cash Compensation set forth in this Section 4.1 shall remain in effect until modified by the Board and the amounts set forth herein shall be automatically updated, without any action or amendment of this Program required, to reflect the Cash Compensation as subsequently modified by the Board.
4.2    Deferrals. For each calendar year, a Participant may elect, in writing by December 31 of the year preceding the applicable calendar year, to (i) receive the Cash Compensation payable in cash quarterly, as specified in Section 4.1, or (ii) defer the Cash Compensation in the form of fully-vested Deferred Stock Units which constitute “Other Stock Awards” granted pursuant to Article 8 of the 2017 Plan; provided, however, an individual who becomes a Non-Employee Director for the first time after a calendar year has commenced may make a deferral election, prior to the date the individual becomes a Non-Employee Director, with respect to all or a portion of the Cash Compensation that is earned after the date of such election.
If a Participant does not affirmatively make an election (or fails to make a timely election) with respect to the Cash Compensation, then all of such Cash Compensation will be payable in the form of cash, as specified in Section 4.1.
4.3    Deferred Stock Unit Account. The Company shall maintain an account (“DSU Account”) on its books in the name of each Participant, which shall reflect the number of Deferred Stock Units awarded to a Participant that the Participant is eligible to receive under this Program and which have not yet been distributed to the Participant in accordance with Section 4.2 hereof. The crediting of Deferred Stock Units to the Participant’s DSU Account with respect to the deferral of Cash Compensation pursuant to Section 4.2 shall be made as of the first trading day for the calendar year in which such fees are earned by the Participant (or, in the case of a newly appointed Non-Employee Director that elects to defer his or her Cash Compensation in accordance with Section 4.2, the first trading day on or after the
4



Non-Employee Director commences service on the Board). The number of Deferred Stock Units to be credited shall be equal to the result of dividing the amount deferred for the calendar year by the Fair Market Value of a share of Common Stock on the first trading day for the calendar year in which such fees are earned by the Participant (or, if applicable, the trading day on or after date the Non-Employee Director commences service on the Board) (reduced to the nearest whole number), subject to the terms and conditions of this Program and the 2017 Plan.
4.4 Dividend Equivalents. Upon the payment of any dividend on Common Stock occurring during the period preceding the distribution of a Participant’s Deferred Stock Unit award pursuant to Section 4.2 below, the Company shall credit to a cash account maintained by the Company on its books in the name of the Participant Dividend Equivalents, as calculated in accordance with Section 3.4, with respect to the Deferred Stock Units. No interest or earnings shall be credited with respect to the Dividend Equivalents. Such Dividend Equivalents shall be subject to the same distribution provisions of this Program applicable to the Deferred Stock Units to which such Dividend Equivalents relate.
4.5    Distribution. Subject to any deferral election completed by the Participant and Section 409A of the Code, the Deferred Stock Units  shall be payable to the Participant in a single lump sum payment within sixty (60) days following the Participant’s Separation from Service.
4.6    Vesting. A Participant shall become 100% vested in the Deferred Stock Units granted hereunder upon December 31 of the calendar year in which the Deferred Stock Units are earned, provided that the Participant has not incurred a Separation from Service prior to such date; provided, however, if the Participant has a Separation from Service for any reason prior to such December 31, the Participant shall become vested in a prorated portion of the Deferred Stock Units as of the date of such Separation from Service based on the number of days from January 1 to the date of Separation from Service divided by 365, and any Deferred Stock Units not so vested shall be forfeited; provided, further, if a Participant ceases to serve as a Chair of a Board Committee or as Lead Director prior to December 31, the Participant shall become vested in a prorated portion of the Deferred Stock Units attributable to such service based on the number of days from January 1 to the date the Participant ceased serving as Chair of a Board Committee or Lead Director divided by 365, and any Deferred Stock Units not so vested shall be forfeited.
4.7    Adjustment. All Deferred Stock Units provided under the Program are subject to adjustment in accordance with the provisions of Section 4.5 of the 2017 Plan.
4.8 Availability of Shares. If on any grant date, the number of shares of Common Stock which would otherwise be granted in the form of Deferred Stock Units granted under the Program shall exceed the number of shares of Common Stock then remaining available under the 2017 Plan, the available shares shall be allocated to Participants pro-rata in proportion to the number of shares subject to Deferred Stock Units that Participants would otherwise be entitled to receive, and the remaining portion of their Deferred Stock Unit grant shall be granted in the form of cash compensation, subject to the same payment terms as set forth in this Section 4.
5



5.General Provisions.
5.1Amendment, Suspension or Termination. Subject to the limitations contained in Article 14 of the 2017 Plan, the Board may, at any time amend, suspend or terminate the Program as it deems advisable and in the best interests of the Company.
5.2No Obligation to Reelect or Reappoint. Nothing in the Program or the 2017 Plan shall be deemed to create an obligation on the part of the Board to nominate a Participant for reelection by the Company’s stockholders or to fill any vacancy upon action of the Board.
5.3Unfunded Arrangement. The Program shall at all times be entirely unfunded and no provision shall at any time be made with respect to segregating assets of the Company for payment of any benefit hereunder. No Participant shall have any interest in any particular assets of the Company or its affiliates by reason of the right to receive a benefit under the Program and any such Participant shall have only the rights of an unsecured creditor of the Company with respect to any rights under the Program.
5.4Nontransferability. No interest hereunder shall be transferable other than by will, the laws of descent and distribution or pursuant to procedures approved by the Company related to the designation of a Beneficiary pursuant to Section 6.5 below. Except pursuant to the preceding sentence, no interest hereunder may be sold, transferred, assigned, pledged, hypothecated, encumbered or otherwise disposed of (whether by operation of law or otherwise) or be subject to execution, attachment or similar process. Upon any attempt to so sell, transfer, assign, pledge, hypothecate, encumber or otherwise dispose of any award, such award and all rights thereunder shall immediately become null and void.
5.5Designation of Beneficiary. The Participant may file with the Company a written designation (in a form and submitted in a manner acceptable to the Company) of one or more individuals, trustees, trusts or other entities as such holder’s beneficiary or beneficiaries (“Beneficiary”) in the event of the holder’s death.
6



5.6Withholding. In the event that federal, state, foreign or local taxes must be withheld from any distribution hereunder, (a) the Company shall deduct from any such distribution in cash the amount of such required withholding and (b) with respect to distributions in shares of Common Stock, subject to such rules and limitations as may be established by the Committee from time to time, withholding obligations, if any, shall be satisfied from one of the following elected by the Participant: (i) by cash payment by the Participant; (ii) through the surrender of shares of Common Stock already owned by the Participant that are acceptable to the Committee; or (iii) through the surrender of shares of Common Stock to which the Participant is otherwise entitled under the Program; provided, however, that such shares under this clause (iii) may be used to satisfy not more than the Company’s minimum statutory withholding obligation, if any (based on minimum statutory withholding rates for applicable tax purposes that are applicable to such taxable income) or such higher withholding rate that is permitted under applicable law and accounting rules.
5.7Administration. The Program and the 2017 Plan are administered by the Committee. The rights of Participants hereunder are expressly subject to the terms and conditions of the Program and the 2017 Plan, together with such guidelines as have been or may be adopted from time to time by the Committee.
5.8No Rights as Stockholder. Except as provided herein, Participants shall have no rights as a stockholder with respect to the Restricted Stock Units until the Common Stock subject to such Restricted Stock Units are distributed to the Participant.
5.9Interpretation. Any interpretation by the Committee of the terms and conditions of the Program, the 2017 Plan or any guidelines shall be final.
5.10    Governing Law. The Program and each award hereunder and all determinations made and actions taken pursuant thereto, to the extent not otherwise governed by the Code or the laws of the United States, shall be governed by the laws of the State of Delaware and construed in accordance therewith without giving effect to principles of conflicts of laws.
7

EX-31.1 6 ex311-20230701.htm SEC 302 CERTIFICATION Document


EXHIBIT 31.1
 
CERTIFICATION
 
 
I, Randall C. Stuewe, certify that:
 
1.I have reviewed this quarterly report on Form 10-Q of Darling Ingredients Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstance under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: August 8, 2023
 
 
      /s/  Randall C. Stuewe
   -----------------------------------------------
Randall C. Stuewe
Chief Executive Officer

EX-31.2 7 ex312-20230701.htm SEC 302 CERTIFICATION Document


EXHIBIT 31.2
 
CERTIFICATION
 
 
I, Brad Phillips, certify that:
 
1.I have reviewed this quarterly report on Form 10-Q of Darling Ingredients Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstance under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: August 8, 2023
 
 
      /s/  Brad Phillips
   -----------------------------------------------
Brad Phillips
Chief Financial Officer

EX-32 8 ex32-20230701.htm SEC 906 CERTIFICATION Document


 
EXHIBIT 32
 

 
 
CERTIFICATION PURSUANT TO
 
18 U.S.C. SECTION 1350,
 
AS ADOPTED PURSUANT TO
 
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
 

 
 
        In connection with the Quarterly Report of Darling Ingredients Inc. (the “Company”) on Form 10-Q for the period ending July 1, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Randall C. Stuewe, Chief Executive Officer of the Company and Brad Phillips, Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002 (the “Act”), that:
 
 
                 1.         The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
 
                 2.         The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
 
        This certification is being furnished solely for purposes of compliance with the Act.
 
 

 
    /s/  Randall C. Stuewe     /s/  Brad Phillips
  Randall C. Stuewe   Brad Phillips
  Chief Executive Officer   Chief Financial Officer
  Date: August 8, 2023   Date: August 8, 2023