dar-20200926

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	September 26, 2020
	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 162,068,484 shares of common stock, $0.01 par value, outstanding at October 28, 2020.

DARLING INGREDIENTS INC. AND SUBSIDIARIES

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 26, 2020

TABLE OF CONTENTS


		Page No.
	PART I: FINANCIAL INFORMATION

Item 1.	FINANCIAL STATEMENTS
	Consolidated Balance Sheets	3
	September 26, 2020 (unaudited) and December 28, 2019

	Consolidated Statements of Operations (unaudited)	4
	Three and Nine Months Ended September 26, 2020 and September 28, 2019

	Consolidated Statements of Comprehensive Income/(Loss) (unaudited)	5
	Three and Nine Months Ended September 26, 2020 and September 28, 2019

	Consolidated Statement of Stockholders' Equity (unaudited)	6
	Nine Months Ended September 26, 2020 and September 28, 2019

	Consolidated Statements of Cash Flows (unaudited)	8
	Nine Months Ended September 26, 2020 and September 28, 2019

	Notes to Consolidated Financial Statements (unaudited)	9

Item 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	43

Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	64

Item 4.	CONTROLS AND PROCEDURES	66


	PART II: OTHER INFORMATION

Item 1.	LEGAL PROCEEDINGS	67

Item 1A.	RISK FACTORS	67

Item 6.	EXHIBITS	68

	Signatures	69

DARLING INGREDIENTS INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

September 26, 2020 and December 28, 2019

(in thousands, except share data)


	September 26, 2020		December 28, 2019
ASSETS	(unaudited)
Current assets:
Cash and cash equivalents	$	65,845	$	72,935
Restricted cash	110		110
Accounts receivable, less allowance for bad debts of $10,491 at September 26, 2020 and $8,802 at December 28, 2019	373,583		406,338
Inventories	406,805		362,957
Prepaid expenses	52,359		46,599
Income taxes refundable	3,940		3,317
Other current assets	28,532		25,032
Total current assets	931,174		917,288
Property, plant and equipment, less accumulated depreciation of $1,604,081 at September 26, 2020 and $1,438,388 at December 28, 2019	1,789,172		1,802,411
Intangible assets, less accumulated amortization of $532,124 at September 26, 2020 and $482,442 at December 28, 2019	474,793		526,394
Goodwill	1,239,343		1,223,291
Investment in unconsolidated subsidiaries	742,875		689,354
Operating lease right-of-use assets	142,269		124,726
Other assets	45,598		47,400
Deferred income taxes	15,762		14,394
	$	5,380,986	$	5,345,258
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$	26,185	$	90,996
Accounts payable, principally trade	206,998		239,252
Income taxes payable	19,013		8,895
Current operating lease liabilities	40,973		37,805
Accrued expenses	330,385		311,391
Total current liabilities	623,554		688,339
Long-term debt, net of current portion	1,448,019		1,558,429
Long-term operating lease liabilities	105,821		91,424
Other non-current liabilities	102,559		115,785
Deferred income taxes	265,844		247,931
Total liabilities	2,545,797		2,701,908
Commitments and contingencies
Stockholders’ equity:
Common stock, $0.01 par value; 250,000,000 shares authorized; 169,578,370 and 168,620,314 shares issued at September 26, 2020 and at December 28, 2019, respectively	1,696		1,686
Additional paid-in capital	1,589,479		1,560,897
Treasury stock, at cost; 7,511,271 and 4,845,203 shares at September 26, 2020 and at December 28, 2019, respectively	(143,826)		(75,022)
Accumulated other comprehensive loss	(325,608)		(321,847)
Retained earnings	1,652,179		1,400,105
Total Darling's stockholders’ equity	2,773,920		2,565,819
Noncontrolling interests	61,269		77,531
Total stockholders' equity	$	2,835,189	$	2,643,350
	$	5,380,986	$	5,345,258

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

DARLING INGREDIENTS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

Three and nine months ended September 26, 2020 and September 28, 2019

(in thousands, except per share data)

(unaudited)


	Three Months Ended				Nine Months Ended
	September 26, 2020		September 28, 2019		September 26, 2020		September 28, 2019
Net sales	$	850,569	$	842,049	$	2,552,084	$	2,504,477
Costs and expenses:
Cost of sales and operating expenses	638,368		652,923		1,917,623		1,948,552
Loss/(gain) on sale of assets	122		(2,669)		210		(20,845)
Selling, general and administrative expenses	89,993		83,549		276,379		249,569


Depreciation and amortization	85,730		80,407		253,711		239,057
Total costs and expenses	814,213		814,210		2,447,923		2,416,333
Equity in net income of Diamond Green Diesel	91,099		32,020		252,411		94,390
Operating income	127,455		59,859		356,572		182,534

Other expense:
Interest expense	(18,793)		(19,359)		(55,803)		(60,088)
Debt extinguishment costs	—		—		—		(12,126)
Foreign currency gain/(loss)	(1,239)		466		(709)		(654)

Other expense, net	(1,912)		(2,614)		(5,278)		(7,158)
Total other expense	(21,944)		(21,507)		(61,790)		(80,026)

Equity in net income/(loss) of other unconsolidated subsidiaries	906		(665)		2,467		(1,087)
Income before income taxes	106,417		37,687		297,249		101,421

Income tax expense	4,812		10,850		43,058		23,900

Net income	101,605		26,837		254,191		77,521

Net income attributable to noncontrolling interests	(480)		(1,116)		(2,117)		(7,530)

Net income attributable to Darling	$	101,125	$	25,721	$	252,074	$	69,991

Basic income per share	$	0.62	$	0.16	$	1.55	$	0.42
Diluted income per share	$	0.61	$	0.15	$	1.51	$	0.42

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

DARLING INGREDIENTS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)

Three and nine months ended September 26, 2020 and September 28, 2019

(in thousands)

(unaudited)


	Three Months Ended				Nine Months Ended
	September 26, 2020		September 28, 2019		September 26, 2020		September 28, 2019
Net income	$	101,605	$	26,837	$	254,191	$	77,521
Other comprehensive income/(loss), net of tax:
Foreign currency translation	37,854		(47,626)		(7,243)		(36,186)
Pension adjustments	648		859		1,943		2,576


Corn option derivative adjustments	(2,518)		553		(578)		575
Heating oil derivative adjustments	1,494		(1,683)		3,424		450
Foreign exchange derivative adjustments	1,412		(4,944)		(2,060)		(5,430)
Total other comprehensive income/(loss), net of tax	38,890		(52,841)		(4,514)		(38,015)
Total comprehensive income/(loss)	$	140,495	$	(26,004)	$	249,677	$	39,506
Comprehensive income attributable to noncontrolling interests	456		1,120		1,364		7,822
Comprehensive income/(loss) attributable to Darling	$	140,039	$	(27,124)	$	248,313	$	31,684

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

DARLING INGREDIENTS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Nine months ended September 26, 2020 and September 28, 2019

(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 28, 2019	163,775,111	$	1,686	$	1,560,897	$	(75,022)	$	(321,847)	$	1,400,105	$	2,565,819	$	77,531	$	2,643,350
Net income	—	—		—		—		—		85,510		85,510		581		86,091

Deductions to noncontrolling interests	—	—		3,271		—		—		—		3,271		(13,146)		(9,875)
Pension liability adjustments, net of tax	—	—		—		—		648		—		648		—		648

Heating oil derivative adjustment, net of tax	—	—		—		—		10,870		—		10,870		—		10,870
Corn option derivative adjustment, net of tax	—	—		—		—		136		—		136		—		136
Foreign exchange derivative adjustment, net of tax	—	—		—		—		(9,151)		—		(9,151)		—		(9,151)
Foreign currency translation adjustments	—	—		—		—		(65,147)		—		(65,147)		(89)		(65,236)
Issuance of non-vested stock	8,000	—		40		—		—		—		40		—		40
Stock-based compensation	—	—		10,778		—		—		—		10,778		—		10,778
Treasury stock	(2,372,876)	—		—		(60,082)		—		—		(60,082)		—		(60,082)
Issuance of common stock	447,729	5		868		—		—		—		873		—		873
Balances at March 28, 2020	161,857,964	$	1,691	$	1,575,854	$	(135,104)	$	(384,491)	$	1,485,615	$	2,543,565	$	64,877	$	2,608,442
Net income	—	—		—		—		—		65,439		65,439		1,056		66,495
Deductions to noncontrolling interest	—	—		—		—		—		—		—		(299)		(299)
Pension liability adjustments, net of tax	—	—		—		—		647		—		647		—		647
Heating oil derivative adjustment, net of tax	—	—		—		—		(8,940)		—		(8,940)		—		(8,940)
Corn option derivative adjustment, net of tax	—	—		—		—		1,804		—		1,804		—		1,804
Foreign exchange derivative adjustment, net of tax	—	—		—		—		5,679		—		5,679		—		5,679
Foreign currency translation adjustments	—	—		—		—		20,779		—		20,779		(640)		20,139
Issuance of non-vested stock	—	—		55		—		—		—		55		—		55
Stock-based compensation	—	—		4,693		—		—		—		4,693		—		4,693
Treasury stock	(72,540)	—		—		(1,572)		—		—		(1,572)		—		(1,572)
Issuance of common stock	172,852	1		1,210		—		—		—		1,211		—		1,211
Balances at June 27, 2020	161,958,276	$	1,692	$	1,581,812	$	(136,676)	$	(364,522)	$	1,551,054	$	2,633,360	$	64,994	$	2,698,354
Net income	—	—		—		—		—		101,125		101,125		480		101,605
Deductions to noncontrolling interest	—	—		—		—		—		—		—		(4,181)		(4,181)
Pension liability adjustments, net of tax	—	—		—		—		648		—		648		—		648
Heating oil derivative adjustment, net of tax	—	—		—		—		1,494		—		1,494		—		1,494
Corn option derivative adjustment, net of tax	—	—		—		—		(2,518)		—		(2,518)		—		(2,518)
Foreign exchange derivative adjustment, net of tax	—	—		—		—		1,412		—		1,412		—		1,412
Foreign currency translation adjustments	—	—		—		—		37,878		—		37,878		(24)		37,854
Issuance of non-vested stock	—	—		56		—		—		—		56		—		56
Stock-based compensation	—	—		3,580		—		—		—		3,580		—		3,580
Treasury stock	(220,652)	—		—		(7,150)		—		—		(7,150)		—		(7,150)
Issuance of common stock	329,475	4		4,031		—		—		—		4,035		—		4,035
Balances at September 26, 2020	162,067,099	$	1,696	$	1,589,479	$	(143,826)	$	(325,608)	$	1,652,179	$	2,773,920	$	61,269	$	2,835,189

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

DARLING INGREDIENTS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (CONTINUED)

Nine months ended September 26, 2020 and September 28, 2019

(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 29, 2018	164,660,598	$	1,681	$	1,536,157	$	(47,756)	$	(304,539)	$	1,087,505	$	2,273,048	$	62,773	$	2,335,821

Net income	—	—		—		—		—		18,012		18,012		1,628		19,640


Pension liability adjustments, net of tax	—	—		—		—		858		—		858		—		858


Foreign exchange derivative adjustment, net of tax	—	—		—		—		(1,937)		—		(1,937)		—		(1,937)
Foreign currency translation adjustments	—	—		—		—		(6,645)		—		(6,645)		1,759		(4,886)

Stock-based compensation	—	—		10,403		—		—		—		10,403		—		10,403
Treasury stock	(223,294)	—		—		(5,089)		—		—		(5,089)		—		(5,089)
Issuance of common stock	311,502	3		1,886		—		—		—		1,889		—		1,889
Balances at March 30, 2019	164,748,806	$	1,684	$	1,548,446	$	(52,845)	$	(312,263)	$	1,105,517	$	2,290,539	$	66,160	$	2,356,699
Net income/(loss)	—	—		—		—		—		26,258		26,258		4,786		31,044
Deductions to noncontrolling interests	—	—		—		—		—		—		—		(5,751)		(5,751)
Pension liability adjustments, net of tax	—	—		—		—		859		—		859		—		859
Heating oil derivative adjustments, net of tax	—	—		—		—		2,133		—		2,133		—		2,133
Corn option derivative adjustment, net of tax	—	—		—		—		22		—		22		—		22
Foreign exchange derivative adjustment, net of tax	—	—		—		—		1,451		—		1,451		—		1,451
Foreign currency translation adjustments	—	—		—		—		17,797		—		17,797		(1,471)		16,326
Stock-based compensation	—	—		3,849		—		—		—		3,849		—		3,849
Treasury stock	(131)	—		—		(3)		—		—		(3)		—		(3)
Issuance of common stock	375	—		6		—		—		—		6		—		6
Balances at June 29, 2019	164,749,050	$	1,684	$	1,552,301	$	(52,848)	$	(290,001)	$	1,131,775	$	2,342,911	$	63,724	$	2,406,635
Net income/(loss)	—	—		—		—		—		25,721		25,721		1,116		26,837
Deductions to noncontrolling interests	—	—		—		—		—		—		—		(445)		(445)
Pension liability adjustments, net of tax	—	—		—		—		859		—		859		—		859
Heating oil derivative adjustments, net of tax	—	—		—		—		(1,683)		—		(1,683)		—		(1,683)
Corn option derivative adjustment, net of tax	—	—		—		—		553		—		553		—		553

Foreign exchange derivative adjustment, net of tax	—	—		—		—		(4,944)		—		(4,944)		—		(4,944)
Foreign currency translation adjustments	—	—		—		—		(47,630)		—		(47,630)		4		(47,626)
Stock-based compensation	—	—		4,372		—		—		—		4,372		—		4,372
Treasury stock	(653,931)	—		—		(11,785)		—		—		(11,785)		—		(11,785)
Issuance of common stock	22,955	—		119		—		—		—		119		—		119
Balances at September 28, 2019	164,118,074	$	1,684	$	1,556,792	$	(64,633)	$	(342,846)	$	1,157,496	$	2,308,493	$	64,399	$	2,372,892

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

DARLING INGREDIENTS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine months ended September 26, 2020 and September 28, 2019

(in thousands)

(unaudited)


	September 26, 2020		September 28, 2019
Cash flows from operating activities:
Net Income	$	254,191	$	77,521
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	253,711		239,057
Loss (gain) on disposal of property, plant, equipment and other assets	210		(20,845)


Gain on insurance proceeds from insurance settlements	—		(1,371)
Deferred taxes	13,362		(4,765)
Increase (decrease) in long-term pension liability	(7,960)		1,122
Stock-based compensation expense	19,202		18,543

Write-off deferred loan costs	2,419		4,721
Deferred loan cost amortization	4,242		4,435
Equity in net income of Diamond Green Diesel and other unconsolidated subsidiaries	(254,878)		(93,303)
Distributions of earnings from Diamond Green Diesel and other unconsolidated subsidiaries	207,165		57,118
Changes in operating assets and liabilities, net of effects from acquisitions:
Accounts receivable	36,083		20,388
Income taxes refundable/payable	8,282		8,058
Inventories and prepaid expenses	(43,980)		(34,371)
Accounts payable and accrued expenses	(10,832)		(19,799)
Other	(10,804)		6,173
Net cash provided by operating activities	470,413		262,682
Cash flows from investing activities:
Capital expenditures	(184,919)		(245,092)
Acquisitions, net of cash acquired	—		(1,431)
Investment in unconsolidated subsidiary	—		(2,000)

Gross proceeds from disposal of property, plant and equipment and other assets	1,291		15,402
Proceeds from insurance settlement	—		1,371
Payments related to routes and other intangibles	(3,712)		(3,150)
Net cash used in investing activities	(187,340)		(234,900)
Cash flows from financing activities:
Proceeds from long-term debt	24,085		511,985
Payments on long-term debt	(171,640)		(566,107)
Borrowings from revolving credit facility	390,971		325,485
Payments on revolving credit facility	(415,800)		(332,884)
Net cash overdraft financing	(33,385)		27,858
Deferred loan costs	(3,688)		(7,027)
Issuance of common stock	67		39
Repurchase of common stock	(55,044)		(11,740)
Minimum withholding taxes paid on stock awards	(7,980)		(3,247)
Acquisition of noncontrolling interest	(8,784)		—
Distributions to noncontrolling interests	(6,253)		(4,500)
Net cash used in financing activities	(287,451)		(60,138)
Effect of exchange rate changes on cash	(2,712)		(5,732)
Net decrease in cash, cash equivalents and restricted cash	(7,090)		(38,088)
Cash, cash equivalents and restricted cash at beginning of period	73,045		107,369
Cash, cash equivalents and restricted cash at end of period	$	65,955	$	69,281
Supplemental disclosure of cash flow information:
Accrued capital expenditures	$	(2,202)	$	3,978
Cash paid during the period for:
Interest, net of capitalized interest	$	39,481	$	49,727
Income taxes, net of refunds	$	24,868	$	21,475
Non-cash operating activities
Operating lease right of use asset obtained in exchange for new lease liabilities	$	44,479	$	16,425
Non-cash financing activities
Debt issued for assets	$	21	$	—

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

DARLING INGREDIENTS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

September 26, 2020

(unaudited)

(1)General

The accompanying consolidated financial statements for the three and nine month periods ended September 26, 2020 and September 28, 2019, 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 28, 2019.

(2)Summary of Significant Accounting Policies

(a)Basis of Presentation

The consolidated financial statements include the accounts of Darling and its consolidated subsidiaries. Noncontrolling interests represent the outstanding ownership interest in the Company's consolidated subsidiaries that are not owned by the Company. In the accompanying Consolidated Statements of Operations, the noncontrolling interest in net income of the consolidated subsidiaries is shown as an allocation of the Company's net income and is presented separately as “Net income attributable to noncontrolling interests.” In the Company's Consolidated Balance Sheets, noncontrolling interests represent the ownership interests in the Company consolidated subsidiaries' net assets held by parties other than the Company. These ownership interests are presented separately as “Noncontrolling interests” within “Stockholders' Equity.” All 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 September 26, 2020, and include the 13 and 39 weeks ended September 26, 2020, and the 13 and 39 weeks ended September 28, 2019.

The Company considers all short-term highly liquid instruments, with an original maturity of three months or less, to be cash equivalents. Cash balances are recorded net of book overdrafts when a bank right-of-offset exists. All other book overdrafts are recorded in accounts payable and the change in the related balance is reflected in operating activities on the Consolidated Statement of Cash Flows. In addition, the Company has bank overdrafts, which are considered a form of short-term financing with changes in the related balance reflected in financing activities in the Consolidated Statement of Cash Flows.

Restricted cash represents amounts required to be set aside to cover self-insurance claims and collateral for environmental claims.

(d) Accounts Receivable and Allowance for Doubtful Accounts

The Company maintains allowances for doubtful accounts for estimated losses resulting from customers’ non-payment of trade accounts receivable owed to the Company. These trade receivables arise in the ordinary course of business from sales of finished product or services to the Company’s customers. The estimate of

allowance for doubtful accounts is based upon the Company’s bad debt experience adjusted for differences in asset-specific risk characteristic, current economic conditions, and forecasts of future economic conditions. If the financial condition of the Company’s customers deteriorates, resulting in the customers’ inability to pay the Company’s receivables as they come due, additional allowances for doubtful accounts may be required.

The Company has entered into agreements with third party banks to factor certain of the Company's trade receivables in order to enhance working capital by turning trade receivables into cash faster. Under these agreements, the Company sells certain selected customers’ trade receivables to third party banks without recourse for cash less a nominal fee. For the three months ended September 26, 2020 and September 28, 2019, the Company sold approximately $76.2 million and $53.1 million of its trade receivables and incurred approximately $0.2 million and $0.3 million in fees, which are recorded as interest expense, respectively. For the nine months ended September 26, 2020 and September 28, 2019, the Company sold approximately $247.0 million and $136.3 million of its trade receivables and incurred approximately $0.9 million and $0.8 million in fees, which are recorded as interest expense, respectively.

(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 and recognized when control of the promised finished product is transferred to the Company's customer. See Note 19 (Revenue) to the Company's Consolidated Financial Statements included herein.

(f) Foreign Currency Translation and Remeasurement

Foreign currency translation is included as a component of accumulated other comprehensive loss and reflects the adjustments resulting from translating the foreign currency denominated financial statements of foreign subsidiaries into U.S. dollars. The functional currency of the Company's foreign subsidiaries is the currency of the primary economic environment in which the entity operates, which is generally the local currency of the country. Accordingly, assets and liabilities of the foreign subsidiaries are translated into U.S. dollars at fiscal period end exchange rates, including intercompany foreign currency transactions that are of long-term investment nature. Income and expense items are translated at average exchange rates occurring during the period. Changes in exchange rates that affect cash flows and the related receivables or payables are recognized as transaction gains/(losses) in determining net income. The Company incurred net foreign currency translation losses of approximately $6.5 million and $36.5 million for the nine months ended September 26, 2020 and September 28, 2019, respectively.

(g) Leases

The Company accounts for leases in accordance with Accounting Standard Codification (“ASC”) Topic 842, leases. The Company determines if an arrangement is a lease at inception for which the Company recognizes the right-of-use (“ROU”) asset and a lease liability at the lease commencement date. For operating leases, the lease liability is initially and subsequently measured at the present value of the unpaid lease payments at the lease commencement date. In determining the lease liability, the Company applies a discount rate to the minimum lease payments within each lease. ASC 842 requires the Company to use the rate of interest that a lessee would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. To estimate the Company's incremental borrowing rate over various terms, a comparable market yield curve consistent with the Company's credit quality is determined. The lease term for all of the Company's leases include the noncancellable period of the lease plus any additional periods covered by either a Company option to extend the lease that the Company is reasonably certain to exercise or when a triggering event occurs. The Company has elected to not recognize a ROU asset and lease liability with an initial term of 12 months or less at lease commencement. Current operating leases are included on the Company's balance sheet as a ROU asset, current operating lease liabilities and long-term operating lease liabilities. For finance leases, the lease liability is initially measured in the same manner and date as for the operating leases, and is subsequently measured at amortized cost using the effective interest method. Finance leases are included in property, plant and equipment, current portion of long-term debt and long-term debt, net of current portion, but are not significant to the Company.

The ROU asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for lease payments made at or before the lease commencement date, plus any direct costs incurred less any lease incentives received. For operating leases, the ROU asset is subsequently measured throughout the lease term at the carrying amount of the lease liability, plus initial direct costs, plus (minus) any prepaid (accrued) lease payments, less the unamortized balance of the lease incentives received. Some leases payments contain rent escalation clauses (including index-based escalations), initially measured using the index at the lease commencement date. The Company recognizes minimum rental expense on a straight-line basis based on the fixed components of the lease arrangement.

The Company uses the long-lived assets impairment guidance in ASC subtopic 360-10, Property, Plant and Equipment - Overall, to determine whether the ROU asset is impaired, and if so, the amount of the impairment loss to recognize. The Company monitors for events or changes in circumstances that require a reassessment of one of its leases. When a reassessment results in the remeasurement of a lease liability, a corresponding adjustment is made to the carrying amount of the corresponding ROU asset unless doing so would reduce the carrying amount of the ROU asset to an amount less than zero. In that case, the amount of the adjustment that would result in a negative ROU asset balance is recorded in the consolidated statement of operations.

(h) 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 current global COVID-19 pandemic, and related government imposed movement restrictions and initiatives implemented to reduce the global transmission of COVID-19, 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 nine months ended September 26, 2020, the Company has not observed any impairments of the Company's assets or a significant change in their fair value due to the COVID-19 pandemic.

(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
			September 26, 2020					September 28, 2019
	Income		Shares	Per Share		Income		Shares	Per Share
Basic:
Net Income attributable to Darling	$	101,125	162,264	$	0.62	$	25,721	164,747	$	0.16
Diluted:
Effect of dilutive securities:
Add: Option shares in the money and dilutive effect of non-vested stock awards			6,543					5,725
Less: Pro forma treasury shares			(1,810)					(2,206)
Diluted:
Net income attributable to Darling	$	101,125	166,997	$	0.61	$	25,721	168,266	$	0.15


	Net Income per Common Share (in thousands, except per share data)
	Nine Months Ended
			September 26, 2020					September 28, 2019
	Income		Shares	Per Share		Income		Shares	Per Share
Basic:
Net Income attributable to Darling	$	252,074	162,631	$	1.55	$	69,991	164,846	$	0.42
Diluted:
Effect of dilutive securities:
Add: Option shares in the money and dilutive effect of non-vested stock awards			6,391					5,885
Less: Pro forma treasury shares			(2,048)					(2,278)
Diluted:
Net income attributable to Darling	$	252,074	166,974	$	1.51	$	69,991	168,453	$	0.42

For the three months ended September 26, 2020 and September 28, 2019, respectively, 550,934 and 839,979 outstanding stock options were excluded from diluted income per common share as the effect was antidilutive. For the three months ended September 26, 2020 and September 28, 2019, respectively, 342,003 and 462,841 shares of non-vested stock and stock equivalents were excluded from diluted income per common share as the effect was antidilutive.

For the nine months ended September 26, 2020 and September 28, 2019, respectively, 550,934 and 641,399 outstanding stock options were excluded from diluted income per common share as the effect was antidilutive. For the nine months ended September 26, 2020 and September 28, 2019, respectively, 474,520 and 557,900 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 (the “DGD Joint Venture”). The DGD Joint Venture is owned 50% / 50% with Valero and was formed to design, engineer, construct and operate a renewable diesel plant (the “DGD Facility”) located adjacent to Valero's refinery in Norco, Louisiana. The DGD Joint Venture reached mechanical completion and began the production of renewable diesel in late June 2013 and is currently capable of processing approximately 20,000 barrels per day of input feedstock to produce renewable diesel fuel and certain other co-products. Effective May 1, 2019, the limited liability company agreement was amended and restated for the purpose of updating the agreement in certain respects, including to remove certain provisions that were no longer relevant and to add new provisions relating to the DGD Joint Venture’s ongoing expansion project to construct a new, parallel facility located next to the existing facility.

was determined that the DGD Joint Venture has evolved into an integral and integrated part of the Company's ongoing operations. The Company determined this justifies a more meaningful and transparent presentation of equity in net income of the DGD Joint Venture as a component of the Company's operating income.

Selected financial information for the Company's DGD Joint Venture is as follows (in thousands):


(in thousands)	September 30, 2020		December 31, 2019
Assets:
Total current assets	$	465,669	$	668,026
Property, plant and equipment, net	1,039,802		713,489
Other assets	32,813		30,710
Total assets	$	1,538,284	$	1,412,225
Liabilities and members' equity:
Total current portion of long term debt	$	506	$	341
Total other current liabilities	98,618		75,802
Total long term debt	8,839		8,742
Total other long term liabilities	3,875		4,422
Total members' equity	1,426,446		1,322,918
Total liabilities and members' equity	$	1,538,284	$	1,412,225


	Three Months Ended				Nine Months Ended
(in thousands)	September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019
Revenues:
Operating revenues	$	346,276	$	262,118	$	1,000,717	$	859,647
Expenses:
Total costs and expenses less depreciation, amortization and accretion expense	153,406		183,022		462,364		633,109
Depreciation, amortization and accretion expense	10,772		15,242		33,660		38,574
Total costs and expenses	164,178		198,264		496,024		671,683
Operating income	182,098		63,854		504,693		187,964
Other income	415		506		1,076		1,781
Interest and debt expense, net	(315)		(320)		(947)		(965)
Net income	$	182,198	$	64,040	$	504,822	$	188,780

As of September 26, 2020, under the equity method of accounting, the Company has an investment in the DGD Joint Venture of approximately $713.2 million on the consolidated balance sheet. The Company has recorded an equity in net income of approximately $91.1 million and $32.0 million for the three months ended September 26, 2020 and September 28, 2019, respectively. The Company has recorded an equity in net income of approximately $252.4 million and $94.4 million for the nine months ended September 26, 2020 and September 28, 2019, respectively. In December 2019, the blender tax credits for calendar year 2018 and 2019 were retroactively reinstated by the U.S. Congress. In addition, blenders tax credits were extended for calendar years 2020, 2021 and 2022. For the three and nine months ended September 30, 2019, the DGD Joint Venture results do not include any blenders tax credits, while in the three and nine months ended September 30, 2020, the DGD Joint Venture recorded approximately $79.9 million and $232.1 million of blenders tax credits, respectively. In the nine months ended September 26, 2020, the Company received dividend distributions of approximately $205.2 million 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 and Dispositions

In December 2019, the Company began to consolidate EnviroFlight, LLC due to a loan issued by the Company, which resulted in more control by the Company based on variable interest entity literature. In January 2020, the Company acquired the other 50% minority interest in EnviroFlight, LLC from the other joint venture partner for approximately

$8.8 million, along with the purchase of intellectual property of approximately $3.4 million for a total of approximately $12.2 million, thereby increasing the Company's ownership interest in EnviroFlight, LLC to 100%.

In October 2020, a wholly-owned international subsidiary of the Company completed the acquisition of all the shares of a Belgium privately owned group of rendering companies for approximately $29.4 million. The acquisition is expected to provide synergies to the Company's Belgium operations in the Feed Segment.

(5) Inventories

A summary of inventories follows (in thousands):


	September 26, 2020		December 28, 2019
Finished product	$	235,134	$	199,799
Work in process	92,201		81,841
Raw material	35,039		41,964
Supplies and other	44,431		39,353
	$	406,805	$	362,957

(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):


	September 26, 2020		December 28, 2019
Indefinite Lived Intangible Assets
Trade names	$	53,855	$	52,733
	53,855		52,733
Finite Lived Intangible Assets:
Routes	375,801		382,263
Permits	483,444		483,593
Non-compete agreements	3,163		3,840
Trade names	65,670		65,670
Royalty, consulting, land use rights and leasehold	24,984		20,737
	953,062		956,103
Accumulated Amortization:
Routes	(187,162)		(169,050)
Permits	(298,046)		(272,213)
Non-compete agreements	(2,791)		(3,111)
Trade names	(37,802)		(32,890)
Royalty, consulting, land use rights and leasehold	(6,323)		(5,178)
	(532,124)		(482,442)
Total Intangible assets, less accumulated amortization	$	474,793	$	526,394

Gross intangible routes, permits, trade names, non-compete agreements and other intangibles decreased in fiscal 2020 as a result of approximately $5.8 million of fully amortized asset retirements partially offset by an increase from foreign currency translation. Amortization expense for the three and nine months ended September 26, 2020 and September 28, 2019, was approximately $18.4 million, $18.5 million, $54.5 million and $55.3 million, respectively.

(7) Goodwill

Changes in the carrying amount of goodwill (in thousands):


	Feed Ingredients		Food Ingredients		Fuel Ingredients		Total
Balance at December 28, 2019
Goodwill	$	793,457	$	329,654	$	116,555	$	1,239,666
Accumulated impairment losses	(15,914)		(461)		—		(16,375)
	777,543		329,193		116,555		1,223,291



Foreign currency translation	3,749		9,229		3,074		16,052
Balance at September 26, 2020
Goodwill	797,206		338,883		119,629		1,255,718
Accumulated impairment losses	(15,914)		(461)		—		(16,375)
	$	781,292	$	338,422	$	119,629	$	1,239,343

(8) Accrued Expenses

Accrued expenses consist of the following (in thousands):


	September 26, 2020		December 28, 2019
Compensation and benefits	$	107,986	$	107,324
Accrued ad valorem, and franchise taxes	38,533		30,231
Accrued operating expenses	62,681		67,194

Other accrued expense	121,185		106,642
	$	330,385	$	311,391

(9) Leases

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842). The Company adopted the new standard on December 30, 2018 and is using the effective date as the Company's date of initial application and consequently, financial information will not be updated and the disclosures required under this ASU will not be provided for dates and periods before December 30, 2018. The Company has elected the package of expedients, which permits the Company not to reassess under the new standard the Company's prior conclusions about lease identification, lease classification and initial direct costs. The Company did not elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter not being applicable to the Company.

The Company leases certain real and personal property, a large portion of the Company's fleet of tractors, all of its rail cars, some IT equipment and other transportation equipment under non-cancelable operating leases. The Company's office leases include certain lease and non-lease components, where the Company has elected to exclude the non-lease components from the calculation of the lease liability and ROU asset. The Company has finance leases, which are not significant to the Company and not separately disclosed in detail.

The components of operating lease expense included in cost of sales and operating expenses and selling, general and administrative expenses were as follows (in thousands):


	Three Months Ended				Nine Months Ended
	September 26, 2020		September 28, 2019		September 26, 2020		September 28, 2019
Operating lease expense	$	12,401	$	11,589	$	35,696	$	36,417
Short-term lease costs	6,904		4,903		18,729		10,653
Total lease cost	$	19,305	$	16,492	54,425		47,070

Other information (in thousands, except lease terms and discount rates):


	Nine Months Ended
	September 26, 2020			September 28, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	37,654		$	35,325

	September 26, 2020			December 28, 2019
Operating right-of-use assets, net	$	142,269		$	124,726

Operating lease liability, current	$	40,973		$	37,805
Operating lease liability, non-current	105,821			91,424
Total operating lease liabilities	$	146,794		$	129,229

Weighted average remaining lease term - operating leases	6.30 years			6.46 years
Weighted average discount rate - operating leases	4.22		%	4.55		%

Future annual minimum lease payments and capital lease commitments as of September 26, 2020 are as follows (in thousands):


Period Ending Fiscal	Operating Leases		Capital Leases
2020 (excluding the nine months ended September 26, 2020)	$	13,724	$	19
2021	41,068		16
2022	29,886		16
2023	25,085		10
2024	18,797		8
Thereafter	33,261		1
	$	161,821	$	70
Less amounts representing interest	$	(15,027)	(5)
Lease obligations included in current and long-term liabilities	$	146,794	$	65

As of September 26, 2020, the Company also has additional operating leases that have not yet commenced, primarily for rail car and tractors, with fixed payments over their noncancellable terms of $6.4 million. These operating leases will commence in 2020 and 2021 with noncancellable terms of 2 years to 10 years.

(10) Debt

Debt consists of the following (in thousands):


	September 26, 2020		December 28, 2019
Amended Credit Agreement:
Revolving Credit Facility	$	15,000	$	39,000

Term Loan B	350,000		495,000
Less unamortized deferred loan costs	(4,689)		(7,696)
Carrying value Term Loan B	345,311		487,304

5.25% Senior Notes due 2027 with effective interest of 5.47%	500,000		500,000
Less unamortized deferred loan costs	(5,943)		(6,494)
Carrying value 5.25% Senior Notes due 2027	494,057		493,506

3.625% Senior Notes due 2026 - Denominated in euro with effective interest of 3.83%	598,997		574,096
Less unamortized deferred loan costs - Denominated in euro	(6,519)		(6,982)
Carrying value 3.625% Senior Notes due 2026	592,478		567,114

Other Notes and Obligations	27,358		62,501
	1,474,204		1,649,425
Less Current Maturities	26,185		90,996
	$	1,448,019	$	1,558,429

As of September 26, 2020, the Company had other notes and obligations of $27.4 million that consist of various overdraft facilities of approximately $8.5 million, a China working capital line of credit of approximately $17.7 million and other debt of approximately $1.2 million.

Effective September 18, 2020, the Company, and certain of its subsidiaries entered into an amendment (the “Sixth Amendment”) with its lenders to the Amended Credit Agreement. Among other things, the Sixth Amendment (i) extended the maturity date of the revolving credit facility under the Amended Credit Agreement from December 16, 2021 to September 18, 2025, (ii) increased the leverage ratio applicable to achieving the lowest applicable margin on borrowing under the revolving credit facility from 1.0 to 1.5, (iii) eliminated or modified certain of the negative covenants to increase the allowances for certain actions, including the incurrence of debt and investments, (iv) limited guarantees from, and security with respect to, entities organized outside of the United States and Canada to a limited group of foreign subsidiary holding companies, (v) included a collateral release mechanism, subject to the consent of the term loan B lenders, upon the Company achieving certain investment grade credit ratings, and (vi) made other market updates and changes.

Effective December 18, 2017, the Company, and certain of its subsidiaries entered into an amendment (the “Fifth Amendment”) with its lenders to the Amended Credit Agreement. Among other things, the Fifth Amendment (i) refinanced the term B loans under the Amended Credit Agreement with new term B loans in an aggregate principal amount of $525.0 million with a maturity date of December 18, 2024; (ii) adjusted the applicable margin pricing on borrowings under the term B loan; (iii) modified certain of the negative covenants to increase the allowances for certain actions, including debt and investments; and (iv) made other updates and changes.

Effective December 16, 2016, the Company, and certain of its subsidiaries entered into an amendment (the “Fourth Amendment”) with its lenders to the Amended Credit Agreement. Among other things, the Fourth Amendment (i) adjusted the applicable margin pricing grid on borrowings under the revolving credit facility which adjusts based on the Company's total leverage ratio as set forth in the Amended Credit Agreement; (ii) eliminated the secured leverage ratio financial maintenance covenant so that from and after the effective date of the Fourth Amendment the Company’s financial covenants consist of maintaining a total leverage ratio not to exceed 5.50 to 1.00 and maintaining an interest coverage ratio of not less than 3.00 to 1.00; (iii) modified certain of the negative covenants to include a senior leverage ratio incurrence-based test and to increase the allowances for certain actions, including debt, investments and restricted payments; and (iv) made other updates and changes.

The Company's Amended Credit Agreement provides for senior secured credit facilities in the aggregate principal amount of $1.53 billion comprised of (i) the Company's $525.0 million term loan B facility and (ii) the Company's $1.0 billion five-year revolving credit facility (up to $150.0 million of which is available for a letter of credit sub-facility and $50.0 million of which is available for a swingline sub-facility) (collectively, the “Senior Secured Credit Facilities”). The Amended Credit Agreement also permits Darling and the other borrowers thereunder to incur ancillary facilities provided by any revolving lender party to the Senior Secured Credit Facilities (with certain restrictions). Up to $970.0 million of the revolving loan facility is available to be borrowed by (x) Darling in U.S. dollars, Canadian dollars, euros and other currencies to be agreed and available to each applicable lender, (y) Darling Canada in Canadian dollars and (z) Darling NL and Darling Ingredients International Holding B.V. (“Darling BV”), in Canadian dollars, euros and other currencies to be agreed and available to each applicable lender. The remaining $30.0 million must be borrowed in U.S. dollars. The revolving credit facility will mature on September 18, 2025. The revolving credit facility will be used for working capital needs, general corporate purposes and other purposes not prohibited by the Amended Credit Agreement.

The interest rate applicable to any borrowings under the revolving credit facility will equal either LIBOR/euro interbank offered rate/CDOR plus 1.75% per annum or base rate/Canadian prime rate plus 0.75% per annum, subject to certain step-ups or step-downs based on the Company's total leverage ratio. The interest rate applicable to any borrowings under the term loan B facility will equal the base rate plus 1.00% or LIBOR plus 2.00%.

As of September 26, 2020, the Company had $15.0 million outstanding under the revolver at base rate plus a margin of 0.75% per annum for a total of 4.00% per annum. The Company had $350.0 million outstanding under the term loan B facility at LIBOR plus a margin of 2.00% per annum for a total of 2.15% per annum. As of September 26, 2020, the Company had availability of $934.3 million under the Amended Credit Agreement taking into account amounts borrowed, ancillary facilities and letters of credit issued of $3.9 million. The Company also has foreign bank guarantees that are not part of the Company's Amended Credit Agreement in the amount of approximately $10.7 million at September 26, 2020. The Company capitalized $4.3 million of deferred loan costs in the third quarter of fiscal 2020 in connection with the Sixth Amendment.

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.

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).

As of September 26, 2020, the Company believes it is in compliance with all of the financial covenants under the Amended Credit Agreement, as well as all of the other covenants contained in the Amended Credit Agreement, the 5.25% Indenture and the 3.625% Indenture.

(11) Income Taxes

The Company has provided income taxes for the three and nine month periods ended September 26, 2020 and September 28, 2019, based on its estimate of the effective tax rate for the entire 2020 and 2019 fiscal years. The Company’s estimated annual effective tax rate is based on forecasts of income by jurisdiction, permanent differences between book and tax income, the relative proportion of income and losses by jurisdiction, and statutory income tax rates. Discrete events such as the assessment of the ultimate outcome of tax audits, audit settlements, recognizing previously unrecognized tax benefits due to the lapsing of statutes of limitation, recognizing or derecognizing deferred tax assets due to projections of income or loss and changes in tax laws are recognized in the period in which they occur.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company expects to have access to its offshore earnings with no material U.S. tax impact. Therefore, the Company does not consider earnings from its foreign subsidiaries to be permanently reinvested offshore.

The Company periodically assesses whether it is more likely than not that it will generate sufficient taxable income to realize its deferred income tax assets. In making this determination, the Company considers all available positive and negative evidence and makes certain assumptions. The Company considers, among other things, its deferred tax liabilities, the overall business environment, its historical earnings and losses, current industry trends and its outlook for future years.

Unrecognized tax benefits represent the difference between tax positions taken or expected to be taken in a tax return and the benefits recognized for financial statement purposes. As of September 26, 2020, the Company had $4.8 million of gross unrecognized tax benefits and $0.1 million of related accrued interest and penalties. The Company’s gross unrecognized tax benefits are not expected to decrease within the next twelve months.

On March 27, 2020, the CARES Act (the “Act”) was enacted in response to the COVID-19 pandemic. In addition, governments around the world have enacted or implemented various forms of tax relief measures in response to the

economic conditions in the wake of COVID-19. The Company is continuing to evaluate the impact of the Act and changes to income tax laws and regulations in other jurisdictions and currently does not expect they will materially impact the Company.

On July 20, 2020, the U.S. Treasury Department released final regulations regarding the Global Intangible Low-Tax Income (“GILTI”) regime related to the High-Tax Exclusion (“HTE”). The final regulations allow taxpayers to exclude certain high-taxed income of a controlled foreign corporation from their GILTI computation on an elective basis. The final regulations apply to tax years of foreign corporations that begin on or after July 23, 2020. However, taxpayers may also retroactively apply the GILTI HTE to taxable years of foreign corporations that begin after December 31, 2017 and before July 23, 2020. Darling has applied the new GILTI HTE rules to its recently filed 2019 tax return and estimated annual effective tax rate for the 2020 fiscal year.

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 Company follows FASB authoritative guidance for reporting and presentation of comprehensive income/(loss) and its components. Other comprehensive income/(loss) is derived from adjustments that reflect pension adjustments, corn option adjustments, foreign exchange forward adjustments, heating oil swap adjustments and foreign currency translation adjustments.

In the first nine months of fiscal 2020, the Company's DGD Joint Venture entered into heating oil derivatives that were deemed to be cash flow hedges. As a result, the Company has accrued the other comprehensive income/(loss) portion belonging to Darling with an offset to the investment in DGD as required by FASB ASC Topic 323.

The components of other comprehensive income/(loss) and the related tax impacts for the three and nine months ended September 26, 2020 and September 28, 2019 are as follows (in thousands):


	Three Months Ended
	Before-Tax				Tax (Expense)				Net-of-Tax
	Amount				or Benefit				Amount
	September 26, 2020		September 28, 2019		September 26, 2020		September 28, 2019		September 26, 2020		September 28, 2019
Defined benefit pension plans
Amortization of prior service (cost)/benefit	$	9	$	9	$	(2)	$	(2)	$	7	$	7
Amortization of actuarial loss	854		1,146		(213)		(294)		641		852

Total defined benefit pension plans	863		1,155		(215)		(296)		648		859








Corn option derivatives
Gain/(loss) reclassified to net income	229		206		(57)		(54)		172		152
Gain/(loss) activity recognized in other comprehensive income/(loss)	(3,588)		542		898		(141)		(2,690)		401
Total corn option derivatives	(3,359)		748		841		(195)		(2,518)		553
Heating oil derivatives
Gain/(loss) activity recognized in other comprehensive income/(loss)	1,992		(2,268)		(498)		585		1,494		(1,683)
Total heating oil derivatives	1,992		(2,268)		(498)		585		1,494		(1,683)
Foreign exchange derivatives
Gain/(loss) reclassified to net income	(5,317)		1,178		385		(362)		(4,932)		816
Gain/(loss) activity recognized in other comprehensive income/(loss)	7,486		(8,405)		(1,142)		2,645		6,344		(5,760)
Total foreign exchange derivatives	2,169		(7,227)		(757)		2,283		1,412		(4,944)

Foreign currency translation	39,237		(48,954)		(1,383)		1,328		37,854		(47,626)

Other comprehensive income/(loss)	$	40,902	$	(56,546)	$	(2,012)	$	3,705	$	38,890	$	(52,841)


	Nine Months Ended
	Before-Tax				Tax (Expense)				Net-of-Tax
	Amount				or Benefit				Amount
	September 26, 2020		September 28, 2019		September 26, 2020		September 28, 2019		September 26, 2020		September 28, 2019
Defined benefit pension plans
Amortization of prior service (cost)/benefit	$	25	$	27	$	(6)	$	(7)	$	19	$	20
Amortization of actuarial loss	2,562		3,439		(638)		(883)		1,924		2,556

Total defined benefit pension plans	2,587		3,466		(644)		(890)		1,943		2,576








Corn option derivatives
Gain/(loss) reclassified to net income	1,168		169		(292)		(44)		876		125
Gain/(loss) activity recognized in other comprehensive income/(loss)	(1,939)		609		485		(159)		(1,454)		450
Total corn option derivatives	(771)		778		193		(203)		(578)		575
Heating oil derivatives
Gain/(loss) activity recognized in other comprehensive income/(loss)	4,565		606		(1,141)		(156)		3,424		450
Total heating oil derivatives	4,565		606		(1,141)		(156)		3,424		450
Foreign exchange derivatives
Gain/(loss) reclassified to net income	(10,564)		1,465		1,690		(473)		(8,874)		992
Gain/(loss) activity recognized in other comprehensive income/(loss)	8,112		(9,485)		(1,298)		3,063		6,814		(6,422)
Total foreign exchange derivatives	(2,452)		(8,020)		392		2,590		(2,060)		(5,430)

Foreign currency translation	(5,798)		(37,695)		(1,445)		1,509		(7,243)		(36,186)

Other comprehensive income/(loss)	$	(1,869)	$	(40,865)	$	(2,645)	$	2,850	$	(4,514)	$	(38,015)

The following table presents the amounts reclassified out of each component of other comprehensive (income)/loss, net of tax for the three and nine months ended September 26, 2020 and September 28, 2019 as follows (in thousands):


	Three Months Ended				Nine Months Ended
	September 26, 2020		September 28, 2019		September 26, 2020		September 28, 2019		Statement of Operations Classification
Derivative instruments

Foreign exchange contracts	$	5,317	$	(1,178)	$	10,564	$	(1,465)	Net sales

Corn option derivatives	(229)		(206)		(1,168)		(169)		Cost of sales and operating expenses
	5,088		(1,384)		9,396		(1,634)		Total before tax
	(328)		416		(1,398)		517		Income taxes
	4,760		(968)		7,998		(1,117)		Net of tax
Defined benefit pension plans
Amortization of prior service cost	$	(9)	$	(9)	$	(25)	$	(27)	(a)
Amortization of actuarial loss	(854)		(1,146)		(2,562)		(3,439)		(a)

	(863)		(1,155)		(2,587)		(3,466)		Total before tax
	215		296		644		890		Income taxes
	(648)		(859)		(1,943)		(2,576)		Net of tax
Total reclassifications	$	4,112	$	(1,827)	$	6,055	$	(3,693)	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 September 26, 2020 as follows (in thousands):


	Nine Months Ended September 26, 2020
	Foreign Currency		Derivative		Defined Benefit
	Translation		Instruments		Pension Plans		Total
Accumulated Other Comprehensive loss December 28, 2019, attributable to Darling, net of tax	$	(282,338)	$	(5,505)	$	(34,004)	$	(321,847)
Other comprehensive income/(loss) before reclassifications	(7,243)		8,784		—		1,541
Amounts reclassified from accumulated other comprehensive loss	—		(7,998)		1,943		(6,055)

Net current-period other comprehensive income/(loss)	(7,243)		786		1,943		(4,514)
Noncontrolling interest	(753)		—		—		(753)
Accumulated Other Comprehensive loss September 26, 2020, attributable to Darling, net of tax	(288,828)		$	(4,719)	$	(32,061)	$	(325,608)

(13) Stockholders' Equity

Fiscal 2020 Long-Term Incentive Opportunity Awards (2020 LTIP). On January 6, 2020, the Compensation Committee (the “Committee”) of the Company's Board of Directors adopted the 2020 LTIP pursuant to which they awarded certain of the Company's key employees, 550,934 stock options and 224,481 performance share units (the “PSUs”) under the Company's 2017 Omnibus Incentive Plan. The stock options vest 33.33% on the first, second and third anniversaries of the grant date. The PSUs are tied to a three-year forward-looking performance period and will be earned based on the Company's average return on capital employed (“ROCE”), as calculated in accordance with the terms of the award agreement, relative to the average ROCE of the Company's performance peer group companies, with the earned award to be determined in the first quarter of fiscal 2023, after the final results for the relevant performance period are determined. The PSUs were granted at a target of 100%, but each PSU will reduce or increase depending on the Company's ROCE relative to that of the performance peer group companies and is also subject to the application of a total shareholder return (“TSR”) cap/collar modifier depending on the Company's TSR during the performance period relative to that of the performance peer group companies.

During the first quarter of fiscal 2020, the Company repurchased approximately $55.0 million of its common stock in the open market and no common stock was repurchased in the second or third quarter of fiscal 2020. On August 3,

2020, the Company’s Board of Directors approved the extension for an additional two years of its previously announced share repurchase program and refreshed the amount of the program back up to its original amount of an aggregate of $200.0 million of the Company's Common Stock depending on market conditions. As of September 26, 2020, the Company had approximately $200.0 million remaining under the share repurchase program initially approved in August 2017 and subsequently extended to August 13, 2022.

(14) Employee Benefit Plans

The Company has retirement and pension plans covering a substantial number of its domestic and foreign employees. Most retirement benefits are provided by the Company under separate final-pay noncontributory and contributory defined benefit and defined contribution plans for all salaried and hourly employees (excluding those covered by union-sponsored plans) who meet service and age requirements. Although various defined benefit formulas exist for employees, generally these are based on length of service and earnings patterns during employment. Effective January 1, 2012, the Company's Board of Directors authorized the Company to proceed with the restructuring of its domestic retirement benefit program to include the closing of Darling's salaried and hourly defined benefit plans to new participants as well as the freezing of service and wage accruals thereunder effective December 31, 2011 (a curtailment of these plans for financial reporting purposes) and the enhancing of benefits under the Company's domestic defined contribution plans. The Company-sponsored domestic hourly union plan has not been curtailed; however, several locations of the Company-sponsored domestic hourly union plan have been curtailed as a result of collective bargaining renewals for those sites.

Net pension cost for the three and nine months ended September 26, 2020 and September 28, 2019 includes the following components (in thousands):


	Pension Benefits				Pension Benefits
	Three Months Ended				Nine Months Ended
	September 26, 2020		September 28, 2019		September 26, 2020		September 28, 2019
Service cost	$	764	$	664	$	2,268	$	2,025
Interest cost	1,425		1,698		4,283		5,122
Expected return on plan assets	(2,042)		(1,816)		(6,113)		(5,452)
Amortization of prior service cost	9		9		25		27
Amortization of net loss	854		1,146		2,562		3,439


Net pension cost	$	1,010	$	1,701	$	3,025	$	5,161

The Company's funding policy for employee benefit pension plans is to contribute annually not less than the minimum amount required nor more than the maximum amount that can be deducted for federal and foreign income tax purposes. Contributions are intended to provide not only for benefits attributed to service to date, but also for those expected to be earned in the future. Based on actuarial estimates at September 26, 2020, the Company expects to contribute approximately $4.9 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 nine months ended September 26, 2020 and September 28, 2019 of approximately $10.3 million and $2.7 million, respectively.

The Company participates in various multiemployer pension plans which provide defined benefits to certain employees covered by labor contracts. These plans are not administered by the Company and contributions are determined in accordance with provisions of negotiated labor contracts to meet their pension benefit obligations to their participants. The Company's contributions to each multiemployer plan represent less than 5% of the total contributions to each 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 two plans have certified as endangered or yellow zone as defined by the Pension Protection Act of 2006.

The Company has received notices of withdrawal liability from five U.S. multiemployer plans in which it participated. During the second quarter of fiscal 2020, the Company settled one of the withdrawal liabilities for approximately $2.5 million. As of September 26, 2020, the Company has an aggregate accrued liability of approximately $2.7 million representing the present value of scheduled withdrawal liability payments on the remaining multiemployer

plans that have given notices 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 and energy costs and the risk of changes in interest rates and foreign currency exchange rates.

The Company makes limited use of derivative instruments to manage cash flow risks related to natural gas usage, diesel fuel usage, inventory, forecasted sales and foreign currency exchange rates. The Company does not use derivative instruments for trading purposes. Natural gas swaps and options are entered into with the intent of managing the overall cost of natural gas usage by reducing the potential impact of seasonal weather demands on natural gas that increases natural gas prices. Heating oil swaps and options are entered into with the intent of managing the overall cost of diesel fuel usage by reducing the potential impact of seasonal weather demands on diesel fuel that increases diesel fuel prices. Soybean meal options are entered into with the intent of managing the impact of changing prices for poultry meal sales. Corn options and future contracts are entered into with the intent of managing U.S. forecasted sales of bakery by-products (“BBP”) by reducing the impact of changing prices. Foreign currency forward 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 September 26, 2020, the Company had corn option contracts and foreign exchange forward and option contracts outstanding that qualified and were designated for hedge accounting as well as corn forward contracts and foreign currency forward contracts that did not qualify and were not designated for hedge accounting.

Entities are required to report all derivative instruments in the statement of financial position at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and, if so, on the reason for holding the instrument. If certain conditions are met, entities may elect to designate a derivative instrument as a hedge of exposures to changes in fair value, cash flows or foreign currencies. If the hedged exposure is a cash flow exposure, the gain or loss on the derivative instrument is reported initially as a component of other comprehensive income (outside of earnings) and is subsequently reclassified into earnings when the forecasted transaction affects earnings. Any amounts excluded from the assessment of hedge effectiveness are reported in earnings immediately. If the derivative instrument is not designated as a hedge, the gain or loss is recognized in earnings in the period of change.

Cash Flow Hedges

In fiscal 2019 and fiscal 2020, the Company entered into corn option contracts on the Chicago Board of Trade that are designated as cash flow hedges. Under the terms of the corn option contracts, the Company hedged a portion of its U.S. forecasted sales of BBP into the fourth quarter of fiscal 2021. At September 26, 2020 and December 28, 2019, the aggregate fair value of these corn option contracts was approximately $0.2 million and $0.4 million, respectively. These amounts are included in other current assets, accrued expenses, noncurrent assets and noncurrent liabilities 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 2019 and fiscal 2020, 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 2022. At September 26, 2020 and December 28, 2019, the aggregate fair value of these foreign exchange contracts was approximately $0.1 million and $1.3 million, respectively. The September 26, 2020 amounts are included in other current assets, accrued expense and noncurrent assets on the balance sheet, with an offset recorded in accumulated other comprehensive loss. The December 28, 2019 amounts are included in other current assets, accrued expense and noncurrent assets on the balance sheet, with an offset recorded in accumulated other comprehensive loss.

As of September 26, 2020, 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):


Functional Currency		Contract Currency
Type	Amount	Type	Amount
Brazilian real	25,116	Euro	3,970
Brazilian real	1,380,739	U.S. dollar	312,563

Euro	44,794	U.S. dollar	52,350
Euro	39,191	Polish zloty	175,000
Euro	4,962	Japanese yen	610,249
Euro	9,953	Chinese renminbi	80,042
Euro	15,354	Australian dollar	24,850
Euro	4,118	British pound	3,730
Euro	33	Canadian dollar	50
Euro	4,789	Brazilian real	30,000
Polish zloty	19,226	Euro	4,295
British pound	77	Euro	84

Japanese yen	205,545	U.S. dollar	1,944
U.S. dollar	864	Japanese yen	90,000
U.S. dollar	94,415	Euro	80,000

The Company estimates the amount that will be reclassified from accumulated other comprehensive loss at September 26, 2020 into earnings over the next 12 months will be approximately $6.5 million. As of September 26, 2020, 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 nine months ended September 26, 2020 and September 28, 2019 (in thousands):


		Loss or (Gain) Recognized in Income on Derivatives Not Designated as Hedges
		Three Months Ended				Nine Months Ended
Derivatives not designated as hedging instruments	Location	September 26, 2020		September 28, 2019		September 26, 2020		September 28, 2019

Foreign exchange	Foreign currency loss	$	(1,957)	$	95	$	(1,995)	$	1,632
Foreign exchange	Net sales	(566)		1,244		57		1,306
Foreign exchange	Cost of sales and operating expenses	111		(567)		(946)		(661)
Foreign exchange	Selling, general and administrative expense	1,187		1,915		8,091		2,437
Corn options and futures	Net sales	(914)		881		876		619
Corn options and futures	Cost of sales and operating expenses	754		(2,509)		(2,332)		(1,866)
Heating oil swaps and options	Net sales	—		—		(38)		—
Heating Oil swaps and options	Cost of sales and operating expenses	—		—		—		(506)


Total		$	(1,385)	$	1,059	$	3,713	$	2,961

At September 26, 2020, the Company had forward purchase agreements in place for purchases of approximately $27.7 million of natural gas and diesel fuel. These forward purchase agreements have no net settlement provisions and the Company intends to take physical delivery of the underlying product. Accordingly, the forward purchase agreements are not subject to the requirements of fair value accounting and the Company has elected to account for these as normal purchases as defined in the FASB authoritative guidance.

(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 September 26, 2020 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 September 26, 2020 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	$	5,535	$	—	$	5,535	$	—
Total Assets	$	5,535	$	—	$	5,535	$	—

Liabilities:
Derivative instruments	$	7,366	$	—	$	7,366	$	—
5.25% Senior notes	522,400		—		522,400		—
3.625% Senior notes	605,406		—		605,406		—
Term loan B	348,250		—		348,250		—
Revolver debt	14,700		—		14,700		—
Total Liabilities	$	1,498,122	$	—	$	1,498,122	$	—


			Fair Value Measurements at December 28, 2019 Using
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
(In thousands of dollars)	Total		(Level 1)		(Level 2)		(Level 3)
Assets:
Derivative instruments	$	4,140	$	—	$	4,140	$	—
Total Assets	$	4,140	$	—	$	4,140	$	—

Liabilities:
Derivative instruments	$	1,593	$	—	$	1,593	$	—
5.25% Senior notes	531,850		—		531,850		—
3.625% Senior notes	605,327		—		605,327		—
Term loan B	497,475		—		497,475		—
Revolver debt	38,805		—		38,805		—
Total Liabilities	$	1,675,050	$	—	$	1,675,050	$	—

Derivative assets and liabilities consist of the Company’s corn future contracts and foreign currency contracts, which represents the difference between observable market rates of commonly quoted intervals for similar assets and liabilities in active markets and the fixed swap rate considering the instruments term, notional amount and credit risk. See Note 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 carrying amount of the Company's other debt is not deemed to be significantly different from the fair value and all other instruments have been recorded at fair value.

The fair value of the senior notes, term loan B and revolver debt is based on market quotation from third-party banks.

(17) 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 September 26, 2020 and December 28, 2019, the reserves for insurance, environmental, litigation and tax contingencies reflected on the balance sheet in accrued expenses and other non-current liabilities were approximately $64.4 million and $70.5 million, respectively. The Company has insurance recovery receivables of approximately $26.2 million as of September 26, 2020 and December 28, 2019, related to the insurance contingencies. The Company's management believes these reserves for contingencies are reasonable and sufficient based upon present governmental regulations and information currently available to management; however, there can be no assurance that final costs related to these contingencies will not exceed current estimates. The Company believes that the likelihood is remote that any additional liability from the lawsuits and claims that may not be covered by insurance would have a material effect on the Company's financial position, results of operations or cash flows.

Lower Passaic River Area. In December 2009, the Company, along with numerous other entities, received notice from the United States Environmental Protection Agency (“EPA”) that the Company (as alleged successor-in-interest to The Standard Tallow Corporation) is considered a potentially responsible party (a “PRP”) with respect to alleged contamination in the lower 17-mile area of the Passaic River which is part of the Diamond Alkali Superfund Site located in Newark, New Jersey. The Company’s designation as a PRP is based upon the operation of former plant sites located in Newark and Kearny, New Jersey by The Standard Tallow Corporation, an entity that the Company acquired in 1996. In the letter, EPA requested that the Company join a group of other parties in funding a remedial investigation and feasibility study at the site. As of the date of this report, the Company has not agreed to participate in the funding group. In March 2016, the Company received another letter from EPA notifying the Company that it had issued a Record of Decision (the “ROD”) selecting a remedy for the lower 8.3 miles of the lower Passaic River area at an estimated cost of $1.38 billion. The EPA letter makes no demand on the Company and lays out a framework for remedial design/remedial action implementation in which the EPA will first seek funding from major PRPs. The letter indicates that the EPA has sent the letter to over 100 parties, which include large chemical and refining companies, manufacturing companies, foundries, plastic companies, pharmaceutical companies and food and consumer product companies. The EPA has already offered early cash out settlements to 20 of the other PRPs and has stated that other parties who did not discharge any of the eight contaminants of concern identified in the ROD (the “COCs”) may also be eligible for cash out settlements and conducted a settlement analysis using a third-party allocator. The Company participated in this allocation process as it asserts that it is not responsible for any liabilities of its former subsidiary The Standard Tallow Corporation, which was legally dissolved in 2000, and that, in any event, The Standard Tallow Corporation did not discharge any of the COCs. In November 2019, the Company received a cash out settlement offer from the EPA in the amount of $0.6 million ($0.3 million for each of the former plant sites in question) for liabilities relating to the lower 8.3 miles of the lower Passaic River area. The Company has accepted this settlement offer, which is now subject to the EPA's administrative approval process, which includes publication and a public comment period. On September 30, 2016, Occidental Chemical Corporation (“OCC”) entered into an agreement with the EPA to perform the remedial design for the cleanup plan for the lower 8.3 miles of the Passaic River. On June 30, 2018, OCC filed a complaint in the United States District Court for the District of New Jersey against over 100 companies, including the Company, seeking cost recovery or contribution for costs under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) relating to various investigations and cleanups OCC has conducted or is conducting in connection with the Passaic River. According to the complaint, OCC has incurred or is incurring costs which include the estimated cost to complete the remedial design for the cleanup plan for the lower 8.3 miles of the Passaic River. OCC is also seeking a declaratory judgment to hold the defendants liable for their proper shares of future response costs, including the remedial action for the lower 8.3 miles of the Passaic River. The Company, along with 40 of the other defendants, had previously received a release from OCC of its CERCLA contribution claim of $165 million associated with the costs to design the remedy for the lower 8.3 miles of the Passaic River. Furthermore, in the event the settlement with the EPA described above is consummated, it could preclude certain of the claims alleged by OCC against the Company. The Company's ultimate liability, if any, for investigatory costs, remedial costs and/or natural resource damages in connection with the lower Passaic River area cannot be determined at this time; however, as of the date of this report, the Company has found no definitive evidence that the former Standard Tallow Corporation plant sites contributed any of the COCs to the Passaic River and, therefore, there is nothing that leads the Company to believe that this matter will have a material effect on the Company's financial position, results of operations or cash flows.

Environmental Enforcement Matter. In our quarterly report on Form 10-Q for the quarter ended March 28, 2020, we reported that we were working with the Office of the Attorney General of the State of New Jersey (the “New Jersey

AG”) to resolve the penalty portion of a claim brought by the New Jersey AG. We resolved this matter with the New Jersey AG in October 2020 for an agreed amount of $297,500.

(18) 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.

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

Feed Ingredients

Feed Ingredients consists principally of (i) the Company's U.S. ingredients business, including the Company's fats and proteins, used cooking oil, trap grease and food residuals collection businesses, the Rothsay ingredients business, the ingredients and specialty products businesses conducted by Darling Ingredients International under the Sonac name (proteins, fats, and plasma products) and (ii) the Company's bakery residuals business. Feed Ingredients operations process animal by-products and used cooking oil into fats, proteins and hides.

Food Ingredients

Food Ingredients consists principally of (i) the collagen business conducted by Darling Ingredients International under the Rousselot name, (ii) the natural casings and meat-by-products business conducted by Darling Ingredients International under the CTH name and (iii) certain specialty products businesses conducted by Darling Ingredients International under the Sonac name, which primarily consists of an edible fat business.

Fuel Ingredients

The Company's Fuel Ingredients segment consists of (i) the portion of the Company's biofuel business related to its investment in the DGD Joint Venture (ii) the Company's biofuel business conducted under the Dar Pro® and Rothsay names and (iii) the bioenergy business conducted by Darling Ingredients International under the Ecoson and Rendac names.

Business Segments (in thousands):


	Feed Ingredients		Food Ingredients		Fuel Ingredients		Corporate		Total
Three Months Ended September 26, 2020
Net Sales	$	483,025	$	291,842	$	75,702	$	—	$	850,569
Cost of sales and operating expenses	361,576		226,745		50,047		—		638,368
Gross Margin	121,449		65,097		25,655		—		212,201

Loss/(gain) on sale of assets	167		16		(61)		—		122
Selling, general and administrative expenses	49,028		23,366		5,038		12,561		89,993


Depreciation and amortization	53,764		20,648		8,633		2,685		85,730
Equity in net income of Diamond Green Diesel	—		—		91,099		—		91,099
Segment operating income/(loss)	18,490		21,067		103,144		(15,246)		127,455

Equity in net income of other unconsolidated subsidiaries	906		—		—		—		906
Segment income/(loss)	19,396		21,067		103,144		(15,246)		128,361

Total other expense									(21,944)
Income before income taxes									$	106,417


	Feed Ingredients		Food Ingredients		Fuel Ingredients		Corporate		Total
Three Months Ended September 28, 2019
Net Sales	$	496,978	$	276,467	$	68,604	$	—	$	842,049
Cost of sales and operating expenses	379,792		214,643		58,488		—		652,923
Gross Margin	117,186		61,824		10,116		—		189,126

Loss/(gain) on sale of assets	(2,429)		(253)		13		—		(2,669)
Selling, general and administrative expenses	47,319		22,811		912		12,507		83,549


Depreciation and amortization	50,182		19,743		7,895		2,587		80,407
Equity in net income of Diamond Green Diesel	—		—		32,020		—		32,020
Segment operating income/(loss)	22,114		19,523		33,316		(15,094)		59,859

Equity in net loss of other unconsolidated subsidiaries	(665)		—		—		—		(665)
Segment income/(loss)	21,449		19,523		33,316		(15,094)		59,194

Total other expense									(21,507)
Income before income taxes									$	37,687


	Feed Ingredients		Food Ingredients		Fuel Ingredients		Corporate		Total
Nine Months Ended September 26, 2020
Net Sales	$	1,499,340	$	841,070	$	211,674	$	—	$	2,552,084
Cost of sales and operating expenses	1,117,931		652,334		147,358		—		1,917,623
Gross Margin	381,409		188,736		64,316		—		634,461

Loss/(gain) on sale of assets	293		(30)		(53)		—		210
Selling, general and administrative expense	153,459		71,406		10,645		40,869		276,379


Depreciation and amortization	159,968		60,925		24,705		8,113		253,711
Equity in net income of Diamond Green Diesel	—		—		252,411		—		252,411
Segment operating income/(loss)	67,689		56,435		281,430		(48,982)		356,572

Equity in net income of other unconsolidated subsidiaries	2,467		—		—		—		2,467
Segment income/(loss)	70,156		56,435		281,430		(48,982)		359,039

Total other expense									(61,790)
Income before income taxes									$	297,249

Segment assets at September 26, 2020	$	2,604,359	$	1,300,097	$	1,117,186	$	359,344	$	5,380,986


	Feed Ingredients		Food Ingredients		Fuel Ingredients		Corporate		Total
Nine Months Ended September 28, 2019
Net Sales	$	1,480,244	$	830,466	$	193,767	$	—	$	2,504,477
Cost of sales and operating expenses	1,143,606		643,091		161,855		—		1,948,552
Gross Margin	336,638		187,375		31,912		—		555,925

Loss/(gain) on sale of assets	(7,343)		(13,518)		16		—		(20,845)
Selling, general and administrative expense	142,615		68,129		583		38,242		249,569


Depreciation and amortization	148,271		59,115		24,055		7,616		239,057
Equity in net income of Diamond Green Diesel	—		—		94,390		—		94,390
Segment operating income/(loss)	53,095		73,649		101,648		(45,858)		182,534

Equity in net loss of other unconsolidated subsidiaries	(1,087)		—		—		—		(1,087)
Segment income/(loss)	52,008		73,649		101,648		(45,858)		181,447

Total other expense									(80,026)
Income before income taxes									$	101,421

Segment assets at December 28, 2019	$	2,653,363	$	1,345,526	$	1,087,701	$	258,668	$	5,345,258

(19) 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 following tables present the Company revenues disaggregated by geographic area and major product types by reportable segment for the three and nine months ended September 26, 2020 and September 28, 2019 (in thousands):


	Three Months Ended September 26, 2020
	Feed Ingredients		Food Ingredients		Fuel Ingredients		Total
Geographic Area
North America	$	390,182	$	66,554	$	5,678	$	462,414
Europe	85,803		152,372		70,024		308,199
China	4,310		43,491		—		47,801
South America	—		11,711		—		11,711
Other	2,730		17,714		—		20,444
Net sales	$	483,025	$	291,842	$	75,702	$	850,569

Major product types
Fats	$	153,496	$	35,108	$	—	$	188,604
Used cooking oil	45,659		—		—		45,659
Proteins	190,663		—		—		190,663
Bakery	44,402		—		—		44,402
Other rendering	39,041		—		—		39,041
Food ingredients	—		238,651		—		238,651
Bioenergy	—		—		70,024		70,024
Biofuels	—		—		5,678		5,678
Other	9,764		18,083		—		27,847
Net sales	$	483,025	$	291,842	$	75,702	$	850,569


	Nine Months Ended September 26, 2020
	Feed Ingredients		Food Ingredients		Fuel Ingredients		Total
Geographic Area
North America	$	1,236,963	$	171,517	$	12,069	$	1,420,549
Europe	244,712		468,285		199,605		912,602
China	10,087		128,490		—		138,577
South America	—		24,377		—		24,377
Other	7,578		48,401		—		55,979
Net sales	$	1,499,340	$	841,070	$	211,674	$	2,552,084

Major product types
Fats	$	484,287	$	100,423	$	—	$	584,710
Used cooking oil	132,274		—		—		132,274
Proteins	596,784		—		—		596,784
Bakery	129,467		—		—		129,467
Other rendering	125,669		—		—		125,669
Food ingredients	—		676,970		—		676,970
Bioenergy	—		—		199,605		199,605
Biofuels	—		—		12,069		12,069
Other	30,859		63,677		—		94,536
Net sales	$	1,499,340	$	841,070	$	211,674	$	2,552,084


	Three Months Ended September 28, 2019
	Feed Ingredients		Food Ingredients		Fuel Ingredients		Total
Geographic Area Revenues
North America	$	411,566	$	53,483	$	11,176	$	476,225
Europe	76,526		150,647		57,428		284,601
China	6,413		43,447		—		49,860
South America	—		13,154		—		13,154
Other	2,473		15,736		—		18,209
Net sales	$	496,978	$	276,467	$	68,604	$	842,049

Major product types
Fats	$	150,018	$	33,186	$	—	$	183,204
Used cooking oil	45,793		—		—		45,793
Proteins	196,912		—		—		196,912
Bakery	51,570		—		—		51,570
Other rendering	40,444		—		—		40,444
Food ingredients	—		221,091		—		221,091
Bioenergy	—		—		57,428		57,428
Biofuels	—		—		11,176		11,176
Other	12,241		22,190		—		34,431
Net sales	$	496,978	$	276,467	$	68,604	$	842,049


	Nine Months Ended September 28, 2019
	Feed Ingredients		Food Ingredients		Fuel Ingredients		Total
Geographic Area Revenues
North America	$	1,223,253	$	157,097	$	26,530	$	1,406,880
Europe	235,381		450,106		167,237		852,724
China	14,318		133,368		—		147,686
South America	—		37,944		—		37,944
Other	7,292		51,951		—		59,243
Net sales	$	1,480,244	$	830,466	$	193,767	$	2,504,477

Major product types
Fats	$	438,436	$	99,109	$	—	$	537,545
Used cooking oil	136,498		—		—		136,498
Proteins	603,110		—		—		603,110
Bakery	141,641		—		—		141,641
Other rendering	122,581		—		—		122,581
Food ingredients	—		666,235		—		666,235
Bioenergy	—		—		167,237		167,237
Biofuels	—		—		26,530		26,530
Other	37,978		65,122		—		103,100
Net sales	$	1,480,244	$	830,466	$	193,767	$	2,504,477

Revenue from Contracts with Customers

The Company has two primary revenue streams. Finished product revenues are recognized when control of the promised finished product is transferred to the Company's customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for the finished product. Service revenues are recognized in net sales when the service occurs.

Fats and Proteins. Fats and Proteins include the Company's global activities related to the collection and processing of beef, poultry and pork animal by-products into finished products of non-food grade oils, food grade fats and protein meal. Fats and proteins net sales are recognized when the Company ships the finished product to the customer and control has been transferred.

Used Cooking Oil. Used cooking oil includes collection and processing of used cooking oil into finished products of non-food grade fats. Used cooking oil net sales are recognized when the Company ships the finished product to the customer and control has been transferred.

Bakery. Bakery includes collection and processing of bakery residuals into finished product including Cookie Meal®, an animal feed ingredient primarily used in poultry and swine rations. Bakery net sales are recognized when the Company ships the finished product to the customer and control has been transferred.

Other Rendering. Other rendering include hides, pet food products, and service charges. Hides and pet food net sales are recognized when the Company ships the finished product to the customer and control has been transferred. Service revenues are recognized when the service has occurred.

Food Ingredients. Food ingredients includes collection and processing of pigskin, hide, bone and fish into finished product. It also includes harvesting, sorting and selling of hog and sheep casings as well as harvesting, purchasing and processing of hog, sheep and beef meat for pet food industry. Collagen and CTH meat and casings net sales are recognized when the Company ships the finished product to the customer and control has been transferred.

Bioenergy. Bioenergy includes Ecoson, which converts organic sludge and food waste into biogas and Rendac, which collects fallen stock and animal waste for a fee and processes these materials into fats and meals that can only be used as low grade energy or fuel for boilers and cement kilns. Net sales are recognized when the finished product is shipped to the customer and control has been transferred. Service revenues are recognized in net sales when the service has occurred.

Biofuels. Biofuels includes the North American processing of rendered animal fats, recycled cooking oils and third party additives to produce diesel fuel. Biofuel net sales are recognized when the finished product is shipped to the customer and control has been transferred.

Other. Other includes grease trap collection and environmental services to food processors in the Feed Ingredients segment and Sonac Bone and Sonac Heparin in the Food Ingredients segment. Net sales are recognized when the Company ships the finished product to the customer and control has been transferred. Service revenues are recognized in net sales when the service has occurred.

Long-Term Performance Obligations. The Company from time to time enters into long-term contracts to supply certain volumes of finished products to certain customers. Revenue recognized to date in 2020 under these long-term supply contracts was approximately $32.9 million, with the remaining performance obligations to be recognized in future periods (generally 3 years) of approximately $191.4 million.

(20) 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 September 26, 2020 and September 28, 2019, the Company has recorded sales to the DGD Joint Venture of approximately $69.0 million and $47.3 million, respectively. For the nine months ended September 26, 2020 and September 28, 2019, the Company has recorded sales to the DGD Joint Venture of approximately $203.4 million and $149.5 million, respectively. At September 26, 2020 and December 28, 2019, the Company has $10.0 million and $17.8 million in outstanding receivables due from the DGD Joint Venture, respectively. In addition, the Company has eliminated approximately $4.2 million and $6.8 million of additional sales for the three months ended September 26, 2020 and September 28, 2019, respectively to defer the Company's portion of profit of approximately $0.8 million and $1.0 million on those sales relating to inventory assets remaining on the DGD Joint Venture's balance sheet at September 26, 2020 and September 28, 2019, 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 “DGD Loan Agreement”) with the DGD Joint Venture. The DGD Lenders have 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 DGD Loan Agreement are at the applicable annum rate equal to the sum of (a) the LIBO Rate (meaning Reuters BBA Libor Rates Page 3750) on such day plus (b) 2.50%. The DGD Loan Agreement matures on April 29, 2021, unless extended by agreement of the parties. As of September 26, 2020, no amounts are owed to Darling Green under the DGD Loan Agreement.

Guarantee Agreement

In February 2020, in connection with the DGD Joint Venture’s expansion project at its Norco, LA facility, it has entered into two agreements (the “IMTT Terminaling Agreements”) with International-Matex Tank Terminals (“IMTT”), pursuant to which the DGD Joint Venture will move raw material and finished product to and from the IMTT terminal facility by pipeline, thereby providing better logistical capabilities. As a condition to entering into the IMTT Terminaling Agreements, IMTT required that the Company and Valero guarantee their proportionate share, up to $50 million each, of the DGD Joint Venture’s obligations under the IMTT Terminaling Agreements (the “Guarantee”), subject to the conditions provided for in the IMTT Terminaling Agreements. The Company has not recorded any liability as a result of the Guarantee, as the Company believes the likelihood of having to make any payments under the Guarantee is remote.

(21) New Accounting Pronouncements

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform Topic 848, Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The update provides optional guidance for a limited period of time to ease the potential burden in accounting for (or reorganizing the effects of) contract modifications on financial reporting, caused by reference rate reform. This ASU is effective for all entities as of March 12, 2020 through December 31, 2022. The adoption of this ASU in the first quarter of fiscal 2020 did not have a material impact on the Company's consolidated financial statements.

In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes. This ASU amends Topic 740 Income Taxes, which eliminates certain exceptions in accounting for income taxes, improves consistency in application and clarifies existing guidance. The standard is effective for fiscal years beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating the impact of this standard.

In August 2018, the FASB issued ASU No. 2018-14, Changes to the Disclosure Requirements for Defined Benefit Plans. This ASU amends Subtopic 715-20, Compensation - Retirement Benefits - Defined Benefit Plans - General, which modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans by removing and adding certain disclosures for these plans. The standard is effective for fiscal years ending after December 15, 2020, with early adoption permitted. While the adoption of this standard will impact the Company's disclosure, the Company does not expect it will materially impact the Company's consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-13, Changes to the Disclosure Requirements for Fair Value Measurements. This ASU amends Topic 820, Fair Value Measurement, which changes the disclosure requirements for fair value measurements by removing, adding and modifying certain disclosures. The standard is effective for fiscal years beginning after December 15, 2019 and for interim periods therein, with early adoption permitted. The adoption of this ASU at the beginning of fiscal year 2020 did not have a material impact on the Company's consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04 Simplifying the Test for Goodwill Impairment. This ASU amends Topic 350, Intangibles-Goodwill and Other, which will simplify the goodwill impairment calculation by eliminating Step 2 from the current goodwill impairment test. Under the new guidance, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The ASU eliminates existing guidance that requires an entity to determine goodwill impairment by calculating the implied fair value of goodwill by hypothetically assigning the fair value of a reporting unit to all of the assets and liabilities as if that reporting unit had been acquired in a business combination. This ASU is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. The adoption of this ASU at the beginning of fiscal 2020 did not have a material impact on the Company's consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. Under ASU 2016-13, existing guidance on reporting credit losses for trade and other receivables and available for sale debt securities will be replaced with a new forward-looking “expected loss” model that generally will result in the earlier recognition of allowances for losses. This ASU is effective for fiscal years beginning after December 15, 2019 and interim periods therein. The initial adoption of this ASU at the beginning of fiscal year 2020 did not have a material impact on the Company's consolidated financial statements.

(22) Guarantor Financial Information

The Company's 5.25% Notes and 3.625% Notes (see Note 10 (Debt) to the Company's Consolidated Financial Statements included herein) are guaranteed on a senior unsecured basis by the following Notes Guarantors, each of which is a 100% directly or indirectly owned subsidiary of Darling and which constitute all of Darling's existing restricted subsidiaries that are Credit Agreement Guarantors (other than Darling's foreign subsidiaries, Darling Global Finance B.V., which issued the 3.625% Notes and is discussed further below, or any receivables entity): Darling National LLC, Griffin Industries LLC and its subsidiary Craig Protein Division, Inc., Darling Global Holdings Inc., Rousselot Inc., Rousselot Dubuque Inc., Sonac USA LLC and Rousselot Peabody Inc. In addition, the 3.625% Notes, which were issued by Darling Global Finance B.V., a wholly-owned indirect subsidiary of Darling, are guaranteed on a senior unsecured basis by Darling. The Notes Guarantors, and Darling in the case of the 3.625% Notes, fully and unconditionally guaranteed the 5.25% Notes and 3.625% Notes on a joint and several basis. The following financial statements present condensed consolidated financial data for (i) Darling, (ii) the combined Notes Guarantors, (iii) the combined other subsidiaries of the Company that did not guarantee the 5.25% Notes or the 3.625% Notes (the “Non-guarantors”), and (iv) eliminations necessary to arrive at the Company's consolidated financial statements, which include condensed consolidated balance sheets as of September 26, 2020 and December 28, 2019, and the condensed consolidated statements of operations, the condensed consolidated statements of comprehensive income/(loss) for the three and nine months ended September 26, 2020 and September 28, 2019 and the condensed consolidated statements of cash flows for the nine months ended September 26, 2020 and September 28, 2019. Separate financial information is not presented for Darling Global Finance B.V. since it was formed as a special purpose finance subsidiary for the purpose of issuing euro-denominated notes such as the 3.625% Notes and therefore does not have any substantial operations or assets.

Condensed Consolidated Balance Sheet

As of September 26, 2020

(in thousands)


	Parent		Guarantors		Non-guarantors		Eliminations		Consolidated
ASSETS
Cash and cash equivalents	$	717	$	24	$	65,104	$	—	$	65,845
Restricted cash	103		—		7		—		110
Accounts receivable	39,557		738,574		732,110		(1,136,658)		373,583
Inventories	22,371		96,942		287,492		—		406,805
Income taxes refundable	1,557		—		2,383		—		3,940
Prepaid expenses	27,212		2,496		22,651		—		52,359
Other current assets	3,257		(4,072)		34,502		(5,155)		28,532
Total current assets	94,774		833,964		1,144,249		(1,141,813)		931,174
Investment in subsidiaries	5,739,060		1,283,699		844,045		(7,866,804)		—
Property, plant and equipment, net	432,303		512,587		844,282		—		1,789,172
Intangible assets, net	40,172		148,029		286,592		—		474,793
Goodwill	49,902		490,748		698,693		—		1,239,343
Investment in unconsolidated subsidiaries	—		—		742,875		—		742,875
Operating lease right-of-use asset	85,490		30,174		26,605		—		142,269
Other assets	39,192		134		99,320		(93,048)		45,598
Deferred taxes	—		—		15,762		—		15,762
	$	6,480,893	$	3,299,335	$	4,702,423	$	(9,101,665)	$	5,380,986
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current portion of long-term debt	$	6,503	$	11	$	24,826	$	(5,155)	$	26,185
Accounts payable	1,166,310		26,363		150,976		(1,136,651)		206,998
Income taxes payable	2,118		—		16,895		—		19,013
Current operating lease liability	21,679		10,752		8,542		—		40,973
Accrued expenses	107,147		28,786		194,459		(7)		330,385
Total current liabilities	1,303,757		65,912		395,698		(1,141,813)		623,554
Long-term debt, net of current portion	947,431		22		593,614		(93,048)		1,448,019
Long-term operating lease liability	69,276		19,158		17,387		—		105,821
Other noncurrent liabilities	68,474		—		34,085		—		102,559
Deferred income taxes	144,236		—		121,608		—		265,844
Total liabilities	2,533,174		85,092		1,162,392		(1,234,861)		2,545,797
Total stockholders’ equity	3,947,719		3,214,243		3,540,031		(7,866,804)		2,835,189
	$	6,480,893	$	3,299,335	$	4,702,423	$	(9,101,665)	$	5,380,986

Condensed Consolidated Balance Sheet

As of December 28, 2019

(in thousands)


	Parent		Guarantors		Non-guarantors		Eliminations		Consolidated
ASSETS
Cash and cash equivalents	$	551	$	26	$	72,358	$	—	$	72,935
Restricted cash	103		—		7		—		110
Accounts receivable	51,097		702,945		518,614		(866,318)		406,338
Inventories	26,893		86,609		249,455		—		362,957
Income taxes refundable	1,106		—		2,211		—		3,317
Prepaid expenses	20,888		2,241		23,470		—		46,599
Other current assets	5,399		(2,326)		40,872		(18,913)		25,032
Total current assets	106,037		789,495		906,987		(885,231)		917,288
Investment in subsidiaries	5,365,956		1,366,635		844,043		(7,576,634)		—
Property, plant and equipment, net	434,237		524,577		843,597		—		1,802,411
Intangible assets, net	44,404		170,581		311,409		—		526,394
Goodwill	49,902		490,748		682,641		—		1,223,291
Investment in unconsolidated subsidiaries	—		—		689,354		—		689,354
Operating lease right-of-use asset	74,005		31,243		19,478		—		124,726
Other assets	35,456		134		61,974		(50,164)		47,400
Deferred income taxes	—		—		14,394		—		14,394
	$	6,109,997	$	3,373,413	$	4,373,877	$	(8,512,029)	$	5,345,258
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current portion of long-term debt	$	40,916	$	10	$	68,983	$	(18,913)	$	90,996
Accounts payable	893,490		29,535		182,484		(866,257)		239,252
Income taxes payable	(10)		—		8,905		—		8,895
Current operating lease liability	20,454		10,510		6,841		—		37,805
Accrued expenses	116,758		32,861		161,833		(61)		311,391
Total current liabilities	1,071,608		72,916		429,046		(885,231)		688,339
Long-term debt, net of current portion	1,040,974		30		567,589		(50,164)		1,558,429
Long-term operating lease liability	58,970		20,281		12,173		—		91,424
Other noncurrent liabilities	80,409		—		35,376		—		115,785
Deferred income taxes	122,109		—		125,822		—		247,931
Total liabilities	2,374,070		93,227		1,170,006		(935,395)		2,701,908
Total stockholders’ equity	3,735,927		3,280,186		3,203,871		(7,576,634)		2,643,350
	$	6,109,997	$	3,373,413	$	4,373,877	$	(8,512,029)	$	5,345,258

Condensed Consolidated Statements of Operations

For the three months ended September 26, 2020

(in thousands)


	Parent		Guarantors		Non-guarantors		Eliminations		Consolidated
Net sales	$	173,659	$	309,837	$	416,297	$	(49,224)	$	850,569
Cost and expenses:
Cost of sales and operating expenses	134,887		249,004		303,701		(49,224)		638,368
Loss/(gain) on sale of assets	89		119		(86)		—		122
Selling, general and administrative expenses	42,103		11,520		36,370		—		89,993


Depreciation and amortization	17,167		26,362		42,201		—		85,730
Total costs and expenses	194,246		287,005		382,186		(49,224)		814,213
Equity in net income of Diamond Green Diesel	—		—		91,099		—		91,099
Operating income/(loss)	(20,587)		22,832		125,210		—		127,455

Interest expense	(13,152)		(37)		(5,604)		—		(18,793)

Foreign currency gains/(losses)	(93)		3		(1,149)		—		(1,239)

Other expense, net	(1,336)		(562)		(14)		—		(1,912)
Equity in net income of other unconsolidated subsidiaries	—		—		906		—		906
Earnings in investments in subsidiaries	135,357		—		—		(135,357)		—
Income/(loss) before taxes	100,189		22,236		119,349		(135,357)		106,417
Income tax expense/(benefit)	(936)		360		5,388		—		4,812
Net income attributable to noncontrolling interests	—		—		(480)		—		(480)
Net income/(loss) attributable to Darling	$	101,125	$	21,876	$	113,481	$	(135,357)	$	101,125

Condensed Consolidated Statements of Operations

For the nine months ended September 26, 2020

(in thousands)


	Parent		Guarantors		Non-guarantors		Eliminations		Consolidated
Net sales	$	540,493	$	930,788	$	1,225,680	$	(144,877)	$	2,552,084
Cost and expenses:
Cost of sales and operating expenses	419,771		741,292		901,437		(144,877)		1,917,623
Loss/(gain) on sale of assets	127		174		(91)		—		210
Selling, general and administrative expenses	135,114		35,061		106,204		—		276,379


Depreciation and amortization	51,428		79,178		123,105		—		253,711
Total costs and expenses	606,440		855,705		1,130,655		(144,877)		2,447,923
Equity in net income of Diamond Green Diesel	—		—		252,411		—		252,411
Operating income/(loss)	(65,947)		75,083		347,436		—		356,572

Interest expense	(39,378)		(139)		(16,286)		—		(55,803)

Foreign currency losses	(603)		(22)		(84)		—		(709)

Other expense, net	(4,076)		(1,191)		(11)		—		(5,278)
Equity in net income of other unconsolidated subsidiaries	—		—		2,467		—		2,467
Earnings in investments in subsidiaries	346,144		—		—		(346,144)		—
Income/(loss) before taxes	236,140		73,731		333,522		(346,144)		297,249
Income tax expense/(benefit)	(15,934)		10,680		48,312		—		43,058
Net income attributable to noncontrolling interests	—		—		(2,117)		—		(2,117)
Net income/(loss) attributable to Darling	$	252,074	$	63,051	$	283,093	$	(346,144)	$	252,074

Condensed Consolidated Statements of Operations

For the three months ended September 28, 2019

(in thousands)


	Parent		Guarantors		Non-guarantors		Eliminations		Consolidated
Net sales	$	164,488	$	330,655	$	403,749	$	(56,843)	$	842,049
Cost and expenses:
Cost of sales and operating expenses	130,498		273,238		306,030		(56,843)		652,923
Gain on sale of assets	(86)		(2,343)		(240)		—		(2,669)
Selling, general and administrative expenses	41,225		12,319		30,005		—		83,549


Depreciation and amortization	15,071		25,317		40,019		—		80,407
Total costs and expenses	186,708		308,531		375,814		(56,843)		814,210
Equity in net income of Diamond Green Diesel	—		—		32,020		—		32,020
Operating income/(loss)	(22,220)		22,124		59,955		—		59,859

Interest expense	(13,862)		(52)		(5,445)		—		(19,359)

Foreign currency gains/(losses)	(30)		(4)		500		—		466

Other expense, net	(2,026)		(431)		(157)		—		(2,614)
Equity in net income/(loss) of other unconsolidated subsidiaries	(1,172)		—		507		—		(665)
Earnings in investments in subsidiaries	52,697		—		—		(52,697)		—
Income/(loss) before taxes	13,387		21,637		55,360		(52,697)		37,687
Income tax expense/(benefit)	(12,334)		6,472		16,712		—		10,850
Net income attributable to noncontrolling interests	—		—		(1,116)		—		(1,116)
Net income/(loss) attributable to Darling	$	25,721	$	15,165	$	37,532	$	(52,697)	$	25,721

Condensed Consolidated Statements of Operations

For the nine months ended September 28, 2019

(in thousands)


	Parent		Guarantors		Non-guarantors		Eliminations		Consolidated
Net sales	$	481,645	$	986,390	$	1,206,999	$	(170,557)	$	2,504,477
Cost and expenses:
Cost of sales and operating expenses	384,408		813,491		921,210		(170,557)		1,948,552
Gain on sale of assets	(44)		(7,331)		(13,470)		—		(20,845)
Selling, general and administrative expenses	129,218		35,042		85,309		—		249,569


Depreciation and amortization	43,668		76,594		118,795		—		239,057
Total costs and expenses	557,250		917,796		1,111,844		(170,557)		2,416,333
Equity in net income of Diamond Green Diesel	—		—		94,390		—		94,390
Operating income/(loss)	(75,605)		68,594		189,545		—		182,534

Interest expense	(42,967)		(108)		(17,013)		—		(60,088)
Debt extinguishment costs	(12,126)		—		—		—		(12,126)
Foreign currency losses	(31)		(3)		(620)		—		(654)

Other income/(expense), net	(4,878)		(2,407)		127		—		(7,158)
Equity in net income/(loss) of other unconsolidated subsidiaries	(3,090)		—		2,003		—		(1,087)
Earnings in investments in subsidiaries	176,004		—		—		(176,004)		—
Income/(loss) before taxes	37,307		66,076		174,042		(176,004)		101,421
Income tax expense/(benefit)	(32,684)		15,571		41,013		—		23,900
Net income attributable to noncontrolling interests	—		—		(7,530)		—		(7,530)
Net income/(loss) attributable to Darling	$	69,991	$	50,505	$	125,499	$	(176,004)	$	69,991

Condensed Consolidated Statements of Comprehensive Income/(Loss)

For the three months ended September 26, 2020

(in thousands)


	Parent		Guarantors		Non-guarantors		Eliminations		Consolidated
Net income/(loss)	$	101,605	$	21,876	$	113,481	$	(135,357)	$	101,605
Other comprehensive income/(loss), net of tax:
Foreign currency translation	(732)		—		38,586		—		37,854
Pension adjustments	518		—		130		—		648


Corn option derivative adjustments	(2,518)		—		—		—		(2,518)
Heating oil derivative adjustments	—		—		1,494		—		1,494
Foreign exchange derivative adjustments	—		—		1,412		—		1,412

Total other comprehensive income/(loss), net of tax	(2,732)		—		41,622		—		38,890
Total comprehensive income/(loss)	98,873		21,876		155,103		(135,357)		140,495
Total comprehensive income attributable to noncontrolling interest	—		—		456		—		456
Total comprehensive income/(loss) attributable to Darling	$	98,873	$	21,876	$	154,647	$	(135,357)	$	140,039

Condensed Consolidated Statements of Comprehensive Income/(Loss)

For the nine months ended September 26, 2020

(in thousands)


	Parent		Guarantors		Non-guarantors		Eliminations		Consolidated
Net income/(loss)	$	254,191	$	63,051	$	283,093	$	(346,144)	$	254,191
Other comprehensive income/ (loss), net of tax:
Foreign currency translation	(1,445)		(128,994)		123,196		—		(7,243)
Pension adjustments	1,554		—		389		—		1,943


Corn option derivative adjustments	(578)		—		—		—		(578)
Heating oil derivative adjustments	—		—		3,424		—		3,424
Foreign exchange derivative adjustments	—		—		(2,060)		—		(2,060)

Total other comprehensive income/(loss), net of tax	(469)		(128,994)		124,949		—		(4,514)
Total comprehensive income/(loss)	253,722		(65,943)		408,042		(346,144)		249,677
Total comprehensive income attributable to noncontrolling interest	—		—		1,364		—		1,364
Total comprehensive income/(loss) attributable to Darling	$	253,722	$	(65,943)	$	406,678	$	(346,144)	$	248,313

Condensed Consolidated Statements of Comprehensive Income/(Loss)

For the three months ended September 28, 2019

(in thousands)


	Parent		Guarantors		Non-guarantors		Eliminations		Consolidated
Net income/(loss)	$	26,837	$	15,165	$	37,532	$	(52,697)	$	26,837
Other comprehensive income/(loss), net of tax:
Foreign currency translation	1,328		—		(48,954)		—		(47,626)
Pension adjustments	767		—		92		—		859


Corn option derivative adjustments	553		—		—		—		553
Heating oil derivative adjustments	—		—		(1,683)		—		(1,683)
Foreign exchange derivative adjustment	—		—		(4,944)		—		(4,944)

Total other comprehensive income/(loss), net of tax	2,648		—		(55,489)		—		(52,841)
Total comprehensive income/(loss)	29,485		15,165		(17,957)		(52,697)		(26,004)
Total comprehensive income attributable to noncontrolling interest	—		—		1,120		—		1,120
Total comprehensive income/(loss) attributable to Darling	$	29,485	$	15,165	$	(19,077)	$	(52,697)	$	(27,124)

Condensed Consolidated Statements of Comprehensive Income/(Loss)

For the nine months ended September 28, 2019

(in thousands)


	Parent		Guarantors		Non-guarantors		Eliminations		Consolidated
Net income/(loss)	$	77,521	$	50,505	$	125,499	$	(176,004)	$	77,521
Other comprehensive income/(loss), net of tax:
Foreign currency translation	1,509		—		(37,695)		—		(36,186)
Pension adjustments	2,300		—		276		—		2,576


Corn option derivative adjustments	575		—		—		—		575
Heating oil derivative adjustments	—		—		450		—		450
Foreign exchange derivative adjustments	—		—		(5,430)		—		(5,430)

Total other comprehensive income/(loss), net of tax	4,384		—		(42,399)		—		(38,015)
Total comprehensive income/(loss)	81,905		50,505		83,100		(176,004)		39,506
Total comprehensive income attributable to noncontrolling interest	—		—		7,822		—		7,822
Total comprehensive income/(loss) attributable to Darling	$	81,905	$	50,505	$	75,278	$	(176,004)	$	31,684

Condensed Consolidated Statements of Cash Flows

For the nine months ended September 26, 2020

(in thousands)


	Parent		Guarantors		Non-guarantors		Eliminations		Consolidated
Cash flows from operating activities:

Net income/(loss)	$	254,191	$	63,051	$	283,093	$	(346,144)	$	254,191
Earnings in investments in subsidiaries	(346,144)		—		—		346,144		—
Other operating cash flows	357,187		(16,471)		(124,494)		—		216,222
Net cash provided by operating activities	265,234		46,580		158,599		—		470,413

Cash flows from investing activities:
Capital expenditures	(44,730)		(46,848)		(93,341)		—		(184,919)

Investment in subsidiaries and affiliates	(18,784)		—		—		18,784		—

Note receivable from affiliates	42,884		—		(42,884)		—		—
Gross proceeds from sale of property, plant and equipment and other assets	30		273		988		—		1,291

Payments related to routes and other intangibles	(3,416)		—		(296)		—		(3,712)
Net cash provided/(used) in investing activities	(24,016)		(46,575)		(135,533)		18,784		(187,340)

Cash flows from financing activities:
Proceeds for long-term debt	—		—		24,085		—		24,085
Payments on long-term debt	(145,003)		(7)		(26,630)		—		(171,640)
Borrowings from revolving facilities	248,000		—		142,971		—		390,971
Payments on revolving facilities	(272,000)		—		(143,800)		—		(415,800)
Net cash overdraft financing	(5,417)		—		(27,968)		—		(33,385)

Deferred loan costs	(3,688)		—		—		—		(3,688)
Issuances of common stock	67		—		—		—		67
Repurchase of treasury stock	(55,044)		—		—		—		(55,044)
Contributions from parent	—		—		18,784		(18,784)		—
Minimum withholding taxes paid on stock awards	(7,967)		—		(13)		—		(7,980)

Acquisition of noncontrolling interest	—		—		(8,784)		—		(8,784)
Distributions to noncontrolling interests	—		—		(6,253)		—		(6,253)
Net cash used in financing activities	(241,052)		(7)		(27,608)		(18,784)		(287,451)

Effect of exchange rate changes on cash	—		—		(2,712)		—		(2,712)

Net increase/(decrease) in cash, cash equivalents and restricted cash	166		(2)		(7,254)		—		(7,090)
Cash, cash equivalents and restricted cash at beginning of period	654		26		72,365		—		73,045
Cash, cash equivalents and restricted cash at end of period	$	820	$	24	$	65,111	$	—	$	65,955

Condensed Consolidated Statements of Cash Flows

For the nine months ended September 28, 2019

(in thousands)


	Parent		Guarantors		Non-guarantors		Eliminations		Consolidated
Cash flows from operating activities:
Net income/(loss)	$	77,521	$	50,505	$	125,499	$	(176,004)	$	77,521
Earnings in investments in subsidiaries	(176,004)		—		—		176,004		—
Other operating cash flows	189,575		(2,763)		(1,651)		—		185,161
Net cash provided by operating activities	91,092		47,742		123,848		—		262,682

Cash flows from investing activities:
Capital expenditures	(88,639)		(61,337)		(95,116)		—		(245,092)
Acquisitions	(1,157)		—		(274)		—		(1,431)
Investment in subsidiaries and affiliates	(2,393)		(393)		—		786		(2,000)

Note receivable from affiliates	38,274		—		(38,274)		—		—
Gross proceeds from sale of property, plant and equipment and other assets	380		12,223		2,799		—		15,402
Proceeds from insurance settlements	—		1,371		—		—		1,371
Payments related to routes and other intangibles	(131)		—		(3,019)		—		(3,150)
Net cash provided/(used) in investing activities	(53,666)		(48,136)		(133,884)		786		(234,900)

Cash flows from financing activities:
Proceeds for long-term debt	500,000		—		11,985		—		511,985
Payments on long-term debt	(545,872)		(5)		(20,230)		—		(566,107)
Borrowings from revolving credit facility	176,000		—		149,485		—		325,485
Payments on revolving credit facility	(152,000)		—		(180,884)		—		(332,884)
Net cash overdraft financing	5,951		—		21,907		—		27,858

Deferred loan costs	(7,027)		—		—		—		(7,027)
Issuances of common stock	39		—		—		—		39
Repurchase of treasury stock	(11,740)		—		—		—		(11,740)
Contributions from parent	—		393		393		(786)		—
Minimum withholding taxes paid on stock awards	(3,230)		—		(17)		—		(3,247)


Distributions to noncontrolling interests	—		—		(4,500)		—		(4,500)
Net cash provided/(used) in financing activities	(37,879)		388		(21,861)		(786)		(60,138)

Effect of exchange rate changes on cash	—		—		(5,732)		—		(5,732)

Net decrease in cash, cash equivalents and restricted cash	(453)		(6)		(37,629)		—		(38,088)
Cash, cash equivalents and restricted cash at beginning of period	1,098		32		106,239		—		107,369
Cash, cash equivalents and restricted cash at end of period	$	645	$	26	$	68,610	$	—	$	69,281

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,” in Item 1A of this report under the heading “Risk Factors” 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 28, 2019, filed with the SEC on February 25, 2020 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 fuel ingredients, 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 and Europe 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 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 and North 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 biodiesel and renewable diesel, 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 September 26, 2020 included herein, (ii) 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, (iii) the conversion of organic sludge and food waste into biogas in Europe, (iv) the processing of manure into natural bio-phosphate in Europe, and (v) the conversion of animal fats and recycled greases into biodiesel in North America.

Corporate Activities principally include unallocated corporate overhead expenses, acquisition-related expenses, interest expense net of interest income, and other non-operating income and expenses.

Observations on the Effects of COVID-19

In December 2019, a novel coronavirus disease (“COVID-19”) was reported and in January 2020, the World Health Organization (“WHO”) declared it a Public Health Emergency of International Concern. On February 28, 2020, the WHO raised its assessment of the COVID-19 threat from high to very high at a global level due to the continued increase in the number of cases and affected countries, and on March 11, 2020, the WHO characterized COVID-19 as a pandemic. Additionally, various federal, state and local government-imposed movement restrictions and initiatives have been implemented to reduce the global transmission of COVID-19, including reduced or eliminated food services, the promotion of social distancing and the adoption of remote working policies.

To date, these restrictions have not had a material impact on the Company’s operations, as the Company operates in industries that are deemed “critical” and “essential” under the rules imposing these restrictions. In addition, the Company has implemented operational guidelines throughout the Company's organization consistent with the applicable governmental and regulatory policies in the geographies the Company operates intended to protect the Company's employees and prevent the spread of the virus in the Company's workplace, and to date, all of the Company's facilities are operational. The Company believes the severity and duration of the COVID-19 pandemic is uncertain and such uncertainty will likely continue throughout the remainder of the Company's fiscal year. Among the items that could have a significant impact on the Company's future results is a reduction in the Company's raw material supply due to disruptions in the operations of the Company's third-party suppliers. Accordingly, while to date the Company has experienced no material negative effects on the Company's business and results of operations as a result of the current COVID-19 outbreak, the situation remains dynamic and subject to rapid and possibly material change, including but not limited to changes that may materially affect the operations of the Company's supply chain partners and finished product customers, which ultimately could result in material negative effects on the Company's business and results of operations. The Company’s raw material supplies are globally diverse. During the second quarter, the Company experienced various disruptions in raw material supplies and sales of its specialty collagens and gelatins, both of which returned to more normalized levels during the third quarter. However, it is possible that COVID-19 might cause similar disruptions to the Company's business and operations in the future.

DGD has also implemented operational guidelines in its organization, and to date, COVID-19 has not had a material impact on DGD’s operations. We expect that biofuel regulations and mandates will continue supporting renewable diesel demand; however, a prolonged or significant decline in overall fuel demand could negatively impact the sales and profitability of DGD’s business.

The extent to which COVID-19 impacts the Company’s and DGD's results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions to contain the virus or treat its impact, among others. For additional information regarding the risks associated with COVID-19, see the important information in Item 1A. Risk Factors below, under the caption “Pandemics, epidemics or disease outbreaks, such as the novel coronavirus (“COVID-19”), may disrupt our business, including, among other things, our supply chain and production processes, each of which could materially affect our operations, liquidity, financial condition and results of operations.”

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 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 28, 2019.

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, biodiesel, 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, natural gas 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, Japanese yen 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.

In 2019, the Company continued to evaluate operational developments and the impact of anticipated significant expansion of the DGD Joint Venture. This evaluation was impactful to the consideration of how the Company most appropriately reflects its share of equity income from the DGD Joint Venture. Based on the Company's analysis, it was determined that the DGD Joint Venture has evolved into an integral and integrated part of the Company's ongoing operations. The Company determined this justifies a more meaningful and transparent presentation of equity in net income of the DGD Joint Venture as a component of the Company's operating income.

Results of Operations

Three Months Ended September 26, 2020 Compared to Three Months Ended September 28, 2019

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.

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, 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. revenue performance against business plan benchmarks. In Europe, 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 third quarter of fiscal 2020, 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 third quarter of fiscal 2020, compared to average Jacobsen and Reuters prices for the third quarter of fiscal 2019 are as follows:

Avg. Price
3rd Quarter
2020

Avg. Price
3rd Quarter
2019

Increase/(Decrease)

%
Increase/(Decrease)

Jacobsen:

MBM (Illinois)

$ 212.91/ton

$ 216.29/ton

$ (3.38)/ton

(1.6)

Feed Grade PM (Mid-South)

$ 226.07/ton

$ 234.60/ton

$ (8.53)/ton

(3.6)

Pet Food PM (Mid-South)

$ 581.80/ton

$ 411.77/ton

$ 170.03/ton

41.3

Feather meal (Mid-South)

$ 267.91/ton

$ 333.43/ton

$ (65.52)/ton

(19.7)

BFT (Chicago)

$ 29.04/cwt

$ 30.50/cwt

$ (1.46)/cwt

(4.8)

YG (Illinois)

$ 19.48/cwt

$ 24.53/cwt

$ (5.05)/cwt

(20.6)

Corn (Illinois)

$ 3.55/bushel

$ 4.16/bushel

$(0.61)/bushel

(14.7)

Reuters:

Palm Oil (CIF Rotterdam)

$ 690.00/MT

$ 533.00/MT

$ 157.00/MT

29.5

Soy meal (CIF Rotterdam)

$ 379.00/MT

$ 339.00/MT

$ 40.00/MT

11.8

The following table shows the average Jacobsen and Reuters prices for the third quarter of fiscal 2020, compared to average Jacobsen and Reuters prices for the second quarter of fiscal 2020.

Avg. Price
3rd Quarter
2020

Avg. Price
2nd Quarter
2020

Increase/(Decrease)

%
Increase/(Decrease)

Jacobsen:

MBM (Illinois)

$ 212.91/ton

$ 290.42/ton

$ (77.51)/ton

(26.7)

Feed Grade PM (Mid-South)

$ 226.07/ton

$ 269.07/ton

$ (43.00)/ton

(16.0)

Pet Food PM (Mid-South)

$ 581.80/ton

$ 679.08/ton

$ (97.28)/ton

(14.3)

Feather meal (Mid-South)

$ 267.91/ton

$ 300.90/ton

$ (32.99)/ton

(11.0)

BFT (Chicago)

$ 29.04/cwt

$ 29.95/cwt

$ (0.91)/cwt

(3.0)

YG (Illinois)

$ 19.48/cwt

$ 20.18/cwt

$ (0.70)/cwt

(3.5)

Corn (Illinois)

$ 3.55/bushel

$ 3.26/bushel

$ 0.29/bushel

8.9

Reuters:

Palm Oil (CIF Rotterdam)

$ 690.00/MT

$ 562.00/MT

$ 128.00/MT

22.8

Soy meal (CIF Rotterdam)

$ 379.00/MT

$ 352.00/MT

$ 27.00/MT

7.7

Segment Results

Segment operating income for the three months ended September 26, 2020 was $127.5 million, which reflects an increase of $67.6 million or 112.9% as compared to the three months ended September 28, 2019.


(in thousands, except percentages)	Feed Ingredients			Food Ingredients			Fuel Ingredients			Corporate			Total
Three Months Ended September 26, 2020
Net Sales	$	483,025		$	291,842		$	75,702		$	—		$	850,569
Cost of sales and operating expenses	361,576			226,745			50,047			—			638,368
Gross Margin	121,449			65,097			25,655			—			212,201

Gross Margin %	25.1		%	22.3		%	33.9		%	—		%	24.9		%

Loss/(gain) on sale of assets	167			16			(61)			—			122
Selling, general and administrative expenses	49,028			23,366			5,038			12,561			89,993


Depreciation and amortization	53,764			20,648			8,633			2,685			85,730
Equity in net income of Diamond Green Diesel	—			—			91,099			—			91,099
Segment operating income/(loss)	18,490			21,067			103,144			(15,246)			127,455

Equity in net income of other unconsolidated subsidiaries	906			—			—			—			906
Segment income/(loss)	19,396			21,067			103,144			(15,246)			128,361


(in thousands, except percentages)	Feed Ingredients			Food Ingredients			Fuel Ingredients			Corporate			Total
Three Months Ended September 28, 2019
Net Sales	$	496,978		$	276,467		$	68,604		$	—		$	842,049
Cost of sales and operating expenses	379,792			214,643			58,488			—			652,923
Gross Margin	117,186			61,824			10,116			—			189,126

Gross Margin %	23.6		%	22.4		%	14.7		%	—		%	22.5		%

Loss/(gain) on sale of assets	(2,429)			(253)			13			—			(2,669)
Selling, general and administrative expenses	47,319			22,811			912			12,507			83,549


Depreciation and amortization	50,182			19,743			7,895			2,587			80,407
Equity in net income of Diamond Green Diesel	—			—			32,020			—			32,020
Segment operating income/(loss)	22,114			19,523			33,316			(15,094)			59,859

Equity in net loss of other unconsolidated subsidiaries	(665)			—			—			—			(665)
Segment income/(loss)	21,449			19,523			33,316			(15,094)			59,194

Feed Ingredients Segment

Raw material volume. Overall, in the three months ended September 26, 2020, the raw material processed by the Company's Feed Ingredients segment totaled 2.18 million metric tons, a decrease of approximately 0.2% as compared to the three months ended September 28, 2019.

Sales. During the three months ended September 26, 2020, net sales for the Feed Ingredients segment were $483.0 million as compared to $497.0 million during the three months ended September 28, 2019, a decrease of approximately $14.0 million or (2.8)%. Net sales for fats were approximately $153.5 million and $150.0 million for the three months ended September 26, 2020 and September 28, 2019, respectively. Protein net sales were approximately $190.7 million and $196.9 million for the three months ended September 26, 2020 and September 28, 2019, respectively. Other rendering net sales, which include hides, pet food and service charges, were approximately $39.0 million and $40.4 million for the three months ended September 26, 2020 and September 28, 2019, respectively. Total rendering net sales were approximately $383.2 million and $387.3 million for the three months ended September 26, 2020 and September 28, 2019, respectively. Used cooking oil net sales were approximately $45.7 million and $45.9 million for the three months ended September 26, 2020 and September 28, 2019, respectively. Bakery net sales were approximately $44.4 million and $51.6 million for the three months ended September 26, 2020 and September 28, 2019, respectively, and other sales, which includes trap services, net sales were approximately $9.7 million and $12.2 million for the three months ended September 26, 2020 and September 28, 2019, respectively.

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 September 28, 2019	$	150.0	$	196.9	$	40.4	$	387.3	$	45.9	$	51.6	$	12.2	$	497.0
Increase/(decrease) in sales volumes	6.6		(8.1)		—		(1.5)		(3.8)		(0.3)		—		(5.6)
Increase/(decrease) in finished product prices	(4.1)		(0.6)		—		(4.7)		3.6		(6.9)		—		(8.0)
Increase due to currency exchange rates	1.0		2.5		0.8		4.3		—		—		—		4.3
Other change	—		—		(2.2)		(2.2)		—		—		(2.5)		(4.7)
Total change	3.5		(6.2)		(1.4)		(4.1)		(0.2)		(7.2)		(2.5)		(14.0)
Net sales three months ended September 26, 2020	$	153.5	$	190.7	$	39.0	$	383.2	$	45.7	$	44.4	$	9.7	$	483.0

Margins. In the Feed Ingredients segment for the three months ended September 26, 2020, the gross margin percentage increased to 25.1% as compared to 23.6% for the comparable period of fiscal 2019. The increase is primarily due to lower raw material costs that more than offset lower finished product prices as compared to fiscal 2019.

Segment operating income. Feed Ingredients operating income for the three months ended September 26, 2020 was $18.5 million, a decrease of $3.6 million or (16.3)% as compared to the three months ended September 28, 2019. The decrease is due to higher selling, general and administrative costs, an increase in losses on sales of assets in the current period, and higher depreciation that more than offset positive margins from lower raw material costs as compared to the same period in fiscal 2019.

Food Ingredients Segment

Raw material volume. Overall, for the three months ended September 26, 2020, the raw material processed by the Company's Food Ingredients segment totaled 264,000 metric tons, an increase of approximately 1.7% as compared to the three months ended September 28, 2019.

Sales. Overall sales increased in the Food Ingredients segment primarily due to higher sales volumes in the collagen markets and higher edible fat prices.

Margins. In the Food Ingredients segment for the three months ended September 26, 2020, the gross margin percentage decreased to 22.3% as compared to 22.4% during the comparable period of fiscal 2019.

Segment operating income. Food Ingredients operating income was $21.1 million for the three months ended September 26, 2020, an increase of $1.6 million or 8.2% as compared to the three months ended September 28, 2019. The increase is primarily due to higher sales volumes in North America and South American collagen markets and higher fat prices in the edible fat market that more than offset the impact of a weaker Brazilian real and lower volumes in European and China markets as a result of the COVID-19 outbreak.

Fuel Ingredients Segment

Raw material volume. Overall, in the three months ended September 26, 2020, the raw material processed by the Company's Fuel Ingredients segment totaled 324,000 metric tons, an increase of approximately 5.0%, as compared to the three months ended September 28, 2019.

Sales. Overall 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 September 26, 2020, the gross margin percentage increased to 33.9% as compared to 14.7% for the comparable period of fiscal 2019. The increase is primarily related to improved demand in Europe in fiscal 2020 as compared to fiscal 2019.

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 September 26, 2020 was $103.1 million, an increase of $69.8 million or 209.6% as compared to the same period in fiscal 2019. The increase is primarily due to increased current year net income at the DGD Joint Venture from the inclusion of blenders tax credits as compared to no blenders tax credits in the prior year and increased margins that more than offset recent declines in the Company's North American biodiesel operations.

Foreign Currency Exchange

During the third quarter of fiscal 2020, the euro strengthened and the Canadian dollar weakened against the U.S. dollar as compared to the same period in fiscal 2019. Using actual results for the three months ended September 26, 2020 and using the prior year's average currency rate for the three months ended September 28, 2019, foreign currency translation would result in a decrease in operating income of approximately $3.7 million. The average rates assumptions used in this calculation were the actual fiscal average rates for the three months ended September 26, 2020 of €1.00:USD$1.17 and CAD$1.00:USD$0.75 as compared to the average rates for the three months ended September 28, 2019 of €1.00:USD$1.11 and CAD$1.00:USD$0.76, respectively.

Corporate Activities

Selling, General and Administrative Expenses. Selling, general and administrative expenses were $12.6 million during the three months ended September 26, 2020, compared to $12.5 million during the three months ended September 28, 2019, an increase of $0.1 million. The increase is primarily due to higher corporate related benefits and insurance costs that more than offset a decrease in travel related costs, legal costs and other overall costs.

Depreciation and Amortization. Depreciation and amortization charges increased slightly by $0.1 million to $2.7 million during the three months ended September 26, 2020, as compared to $2.6 million during the three months ended September 28, 2019. The increase is related to increased leasehold improvements at the corporate office.

Interest Expense. Interest expense was $18.8 million during the three months ended September 26, 2020, compared to $19.4 million during the three months ended September 28, 2019, a decrease of $0.6 million. The decrease is primarily due to lower interest from the Term loan A and Term loan B as a result of the Term loan A being paid off in 2019 and lower interest rates on the Term loan B that more than offset an increase in deferred loan cost expense as a result of a partial pay-down on the Term loan B and the amendment of the Company's Amended Credit Agreement.

Foreign Currency Gain/(Loss). Foreign currency losses were $1.2 million for the three months ended September 26, 2020 as compared to foreign currency gains of $0.5 million for the three months ended September 28, 2019. The loss in foreign currency is due primarily to an increase in losses on the revaluation of non-functional currency assets and liabilities as compared to the same period in fiscal 2019.

Other Expense, net. Other expense was $1.9 million in the three months ended September 26, 2020, compared to other expense of $2.6 million for the three months ended September 28, 2019. The decrease in other expense was

primarily due to a decrease in the non-service component of pension expense as compared to the same period in fiscal 2019.

Equity in Net Income/(Loss) in Investment of Other Unconsolidated Subsidiaries. This represents the Company's pro rata share of the net income/(loss) from foreign unconsolidated subsidiaries.

Income Taxes. The Company recorded income tax expense of $4.8 million for the three months ended September 26, 2020, compared to $10.9 million of income tax expense recorded in the three months ended September 28, 2019, a decrease of $6.1 million. The effective tax rate for the three months ended September 26, 2020 was 4.5%. The effective tax rate for the three months ended September 26, 2020 differed from the statutory rate of 21% due to the relative mix of earnings among jurisdictions with different tax rates (including foreign withholding taxes and state income taxes), biofuel tax incentives, compensation related expenses not deductible for tax purposes and discrete items, including the recognition of a previously unrecognized tax benefit and the favorable impact of the GILTI HTE income tax regulations. The effective tax rate for the three months ended September 28, 2019 was 28.8%. The effective tax rate for the three months ended September 28, 2019 differed from the statutory rate of 21% due to the relative mix of earnings among jurisdictions with different tax rates (including foreign withholding taxes and state income taxes) and compensation related expenses not deductible for tax purposes. The Company's effective tax rate excluding discrete items is 13.2% for the three months ended September 26, 2020, compared to 30.1% for the three months ended September 28, 2019.

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, goodwill and long-lived asset impairment, interest expense, (income)/loss from discontinued operations, net of tax, 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.

As a result, 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, 5.25% Notes and 3.625% Notes that were outstanding at September 26, 2020. 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, 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.

Reconciliation of Net Income to (Non-GAAP) Adjusted EBITDA and (Non-GAAP) Pro Forma Adjusted EBITDA

Third Quarter 2020 As Compared to Third Quarter 2019


	Three Months Ended
(dollars in thousands)	September 26, 2020		September 28, 2019
Net income attributable to Darling	$	101,125	$	25,721
Depreciation and amortization	85,730		80,407
Interest expense	18,793		19,359
Income tax expense	4,812		10,850
Foreign currency loss/(gain)	1,239		(466)
Other expense, net	1,912		2,614

Equity in net income of Diamond Green Diesel	(91,099)		(32,020)
Equity in net loss/(income) of unconsolidated subsidiaries	(906)		665
Net income attributable to non-controlling interests	480		1,116
Darling's Adjusted EBITDA	$	122,086	$	108,246

Foreign currency exchange impact (1)	(3,702)		—
Pro forma Adjusted EBITDA to Foreign Currency (Non-GAAP)	$	118,384	$	108,246

DGD Joint Venture Adjusted EBITDA (Darling's Share)	$	96,435	$	39,548

Darling plus Darling's share of DGD Joint Venture Adjusted EBITDA	$	218,521	$	147,794

(1) The average rates assumption used in this calculation was the actual fiscal average rate for the three months ended September 26, 2020 of €1.00:USD$1.17 and CAD$1.00:USD$0.75 as compared to the average rate for the three months ended September 28, 2019 of €1.00:USD$1.11 and CAD$1.00:USD$0.76, respectively.

For the three months ended September 26, 2020, the Company generated Adjusted EBITDA of $122.1 million, as compared to $108.2 million for the three months ended September 28, 2019.

On a Pro forma Adjusted EBITDA to Foreign Currency (Non-GAAP) basis, the Company generated $118.4 million in the three months ended September 26, 2020, as compared to $108.2 million in the same period in fiscal 2019.

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). See Note 3 (Investment in Unconsolidated Subsidiaries) to the Company's Consolidated Financial Statements included herein for financial information regarding the DGD Joint Venture.

Nine Months Ended September 26, 2020 Compared to Nine Months Ended September 28, 2019

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.

Finished Product Commodity Prices

During the first nine months of fiscal 2020, 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 nine months of fiscal 2020, compared to average Jacobsen and Reuters prices for the first nine months of fiscal 2019 are as follows:

Avg. Price
First Nine Months
2020

Avg. Price
First Nine Months
2019

Increase/(Decrease)

%
Increase/(Decrease)

Jacobsen:

MBM (Illinois)

$ 246.81/ton

$ 231.13/ton

$ 15.68/ton

6.8

Feed Grade PM (Mid-South)

$ 240.29/ton

$ 247.34/ton

$ (7.05)/ton

(2.9)

Pet Food PM (Mid-South)

$ 600.44/ton

$ 560.27/ton

$ 40.17/ton

7.2

Feather meal (Mid-South)

$ 283.77/ton

$ 375.89/ton

$ (92.12)/ton

(24.5)

BFT (Chicago)

$ 30.56/cwt

$ 28.90/cwt

$ 1.66/cwt

5.7

YG (Illinois)

$ 20.86/cwt

$ 22.55/cwt

$ (1.69)/cwt

(7.5)

Corn (Illinois)

$ 3.57/bushel

$ 3.94/bushel

$ (0.37)/bushel

(9.4)

Reuters:

Palm Oil (CIF Rotterdam)

$ 659.00/MT

$ 533.00/MT

$ 126.00/MT

23.6

Soy meal (CIF Rotterdam)

$ 363.00/MT

$ 346.00/MT

$ 17.00/MT

4.9

Segment Results

Segment operating income for the nine months ended September 26, 2020 was $356.6 million, which reflects an increase of $174.1 million or 95.4% as compared to the nine months ended September 28, 2019.


(in thousands, except percentages)	Feed Ingredients			Food Ingredients			Fuel Ingredients			Corporate			Total
Nine Months Ended September 26, 2020
Net Sales	$	1,499,340		$	841,070		$	211,674		$	—		$	2,552,084
Cost of sales and operating expenses	1,117,931			652,334			147,358			—			1,917,623
Gross Margin	381,409			188,736			64,316			—			634,461

Gross Margin %	25.4		%	22.4		%	30.4		%	—		%	24.9		%

Loss/(gain) on sale of assets	293			(30)			(53)			—			210
Selling, general and administrative expenses	153,459			71,406			10,645			40,869			276,379


Depreciation and amortization	159,968			60,925			24,705			8,113			253,711
Equity in net income of Diamond Green Diesel	—			—			252,411			—			252,411
Segment operating income/(loss)	67,689			56,435			281,430			(48,982)			356,572

Equity in net income of other unconsolidated subsidiaries	2,467			—			—			—			2,467
Segment income/(loss)	70,156			56,435			281,430			(48,982)			359,039


(in thousands, except percentages)	Feed Ingredients			Food Ingredients			Fuel Ingredients			Corporate			Total
Nine Months Ended September 28, 2019
Net Sales	$	1,480,244		$	830,466		$	193,767		$	—		$	2,504,477
Cost of sales and operating expenses	1,143,606			643,091			161,855			—			1,948,552
Gross Margin	336,638			187,375			31,912			—			555,925

Gross Margin %	22.7		%	22.6		%	16.5		%	—		%	22.2		%

Loss/(gain) on sale of assets	(7,343)			(13,518)			16			—			(20,845)
Selling, general and administrative expenses	142,615			68,129			583			38,242			249,569


Depreciation and amortization	148,271			59,115			24,055			7,616			239,057
Equity in net income of Diamond Green Diesel	—			—			94,390			—			94,390
Segment operating income/(loss)	53,095			73,649			101,648			(45,858)			182,534

Equity in net loss of other unconsolidated subsidiaries	(1,087)			—			—			—			(1,087)
Segment income/(loss)	52,008			73,649			101,648			(45,858)			181,447

Feed Ingredients Segment

Raw material volume. Overall, in the nine months ended September 26, 2020, the raw material processed by the Company's Feed Ingredients segment totaled 6.58 million metric tons, an increase of approximately 0.8% as compared to the nine months ended September 28, 2019.

Sales. During the nine months ended September 26, 2020, net sales for the Feed Ingredients segment were $1,499.3 million as compared to $1,480.2 million during the nine months ended September 28, 2019, an increase of approximately $19.1 million or 1.3%. Net sales for fats were approximately $484.3 million and $438.4 million for the nine months ended September 26, 2020 and September 28, 2019, respectively. Protein net sales were approximately $596.8 million and $603.1 million for the nine months ended September 26, 2020 and September 28, 2019, respectively. Other rendering net sales, which include hides, pet food and service charges, were approximately $125.6 million and $122.6 million for the nine months ended September 26, 2020 and September 28, 2019, respectively. Total rendering net sales were approximately $1,206.7 million and $1,164.1 million for the nine months ended September 26, 2020 and September 28, 2019, respectively. Used cooking oil net sales were approximately $132.3 million and $136.5 million for the nine months ended September 26, 2020 and September 28, 2019, respectively. Bakery net sales were approximately $129.5 million and $141.6 million for the nine months ended September 26, 2020 and September 28, 2019, respectively, and other sales, which includes trap services, net sales were approximately $30.8 million and $38.0 million for the nine months ended September 26, 2020 and September 28, 2019, respectively.

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 nine months ended September 28, 2019	438.4		603.1		122.6		$	1,164.1	136.5		141.6		38.0		$	1,480.2
Increase/(decrease) in sales volumes	25.5		(1.6)		—		23.9		(9.9)		(2.6)		—		11.4
Increase/(decrease) in finished product prices	21.5		(3.0)		—		18.5		5.8		(9.5)		—		14.8
Increase/(decrease) due to currency exchange rates	(1.1)		(1.7)		0.6		(2.2)		(0.1)		—		—		(2.3)
Other change	—		—		2.4		2.4		—		—		(7.2)		(4.8)
Total change	45.9		(6.3)		3.0		42.6		(4.2)		(12.1)		(7.2)		19.1
Net sales nine months ended September 26, 2020	$	484.3	$	596.8	$	125.6	$	1,206.7	$	132.3	$	129.5	$	30.8	$	1,499.3

Margins. In the Feed Ingredients segment for the nine months ended September 26, 2020, the gross margin percentage increased to 25.4% as compared to 22.7% for the same period of fiscal 2019. The increase is primarily due to an overall increase in fat prices, lower raw material costs and higher fat sales volumes as compared to fiscal 2019.

Segment operating income. Feed Ingredients operating income for the nine months ended September 26, 2020 was $67.7 million, an increase of $14.6 million or 27.5% as compared to the nine months ended September 28, 2019. This was due to higher overall fat prices, higher fat sales volumes and lower raw material costs that more than offset higher selling, general and administrative costs, higher depreciation and amortization and gains on sale of assets in the prior year.

Food Ingredients Segment

Raw material volume. Overall, for the nine months ended September 26, 2020, the raw material processed by the Company's Food Ingredients segment totaled 791,000 metric tons, a decrease of approximately 2.2% as compared to the nine months ended September 28, 2019.

Sales. Overall sales increased in the Food Ingredients segment primarily due to higher sales prices in collagen and edible fat sales markets.

Margins. In the Food Ingredients segment for the nine months ended September 26, 2020, the gross margin percentage decreased to 22.4% as compared to 22.6% during the comparable period of fiscal 2019. Lower margins are due to a decrease in the sales mix for collagen that more than offset higher fat prices.

Segment operating income. Food Ingredients operating income was $56.4 million for the nine months ended September 26, 2020, a decrease of $17.2 million or (23.4)% as compared to the nine months ended September 28, 2019. The decrease is primarily due to the gain on the sale of assets in China reported last year and lower sales volumes in the European, South American and China collagen markets as a result of the COVID-19 outbreak in the current year. Despite increased fat sales prices, the Company processed lower volumes as a result of export of raw materials to Asian food markets due to African Swine Flu (ASF) and the impact of a weak Brazilian real as compared to the same period in fiscal 2019.

Fuel Ingredients Segment

Raw material volume. Overall, in the nine months ended September 26, 2020, the raw material processed by the Company's Fuel Ingredients segment totaled 955,000 metric tons, an increase of approximately 2.8%, as compared to the nine months ended September 28, 2019.

Sales. Overall 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 nine months ended September 26, 2020, the gross margin percentage increased to 30.4% as compared to 16.5% for the comparable period of fiscal 2019. The increase is primarily related to improved demand in Europe in fiscal 2020 as compared to fiscal 2019.

Segment operating income. The Company's Fuel Ingredients segment operating income (inclusive of the equity contribution from the DGD Joint Venture) for the nine months ended September 26, 2020 was $281.4 million, an increase of $179.8 million or 177.0% as compared to the same period in fiscal 2019. The increase is primarily due to increased current year net income at the DGD Joint Venture from the inclusion of blenders tax credits and increased margins as compared to no blenders tax credits in the prior year.

Foreign Currency Exchange

During the first nine months of fiscal 2020, the euro rates were equal while the Canadian dollar weakened slightly against the U.S. dollar as compared to the same period in fiscal 2019. Using actual results for the nine months ended September 26, 2020 and using the prior year's average currency rate for the nine months ended September 28, 2019, foreign currency translation would result in an increase in operating income of approximately $0.4 million. The average rates assumptions used in this calculation were the actual fiscal average rates for the nine months ended September 26, 2020 of €1.00:USD$1.12 and CAD$1.00:USD$0.74 as compared to the average rates for the nine months ended September 28, 2019 of €1.00:USD$1.12 and CAD$1.00:USD$0.75, respectively.

Corporate Activities

Selling, General and Administrative Expenses. Selling, general and administrative expenses were $40.9 million during the nine months ended September 26, 2020, compared to $38.2 million during the nine months ended September 28, 2019, an increase of $2.7 million. The increase is primarily due to higher corporate related benefits and insurance costs that more than offset decreases in travel related costs, legal costs and other overall costs.

Depreciation and Amortization. Depreciation and amortization charges increased by $0.5 million to $8.1 million during the nine months ended September 26, 2020, as compared to $7.6 million during the nine months ended September 28, 2019. The increase is related to increased leasehold improvements at the corporate office.

Interest Expense. Interest expense was $55.8 million during the nine months ended September 26, 2020, compared to $60.1 million during the nine months ended September 28, 2019, a decrease of $4.3 million. The decrease is primarily due to lower interest from the Term loan A and Term loan B as a result of the Term loan A being paid off in 2019 and lower interest rates on the Term loan B that more than offset an increase in revolver interest and an increase in deferred loan cost expense as a result of a partial pay-down of the Term loan B and the amendment of the Company's Amended Credit Agreement.

Foreign Currency Gain/(Loss). Foreign currency losses were $0.7 million for the nine months ended September 26, 2020 as compared to foreign currency losses of $0.7 million for the nine months ended September 28, 2019.

Other Expense, net. Other expense was $5.3 million in the nine months ended September 26, 2020, compared to other expense of $7.2 million for the nine months ended September 28, 2019. The decrease in other expense was primarily

due to a decrease in the non-service component of pension expense that more than offset a decrease in interest income as compared to the same period in fiscal 2019.

Equity in Net Income/(Loss) in Investment of Other Unconsolidated Subsidiaries. This represents the Company's pro rata share of the net income/(loss) from foreign unconsolidated subsidiaries.

Income Taxes. The Company recorded income tax expense of $43.1 million for the nine months ended September 26, 2020, compared to $23.9 million of income tax expense recorded in the nine months ended September 28, 2019, an increase of $19.2 million. The effective tax rate for the nine months ended September 26, 2020 was 14.5%. The effective tax rate for the nine months ended September 26, 2020 differed from the statutory rate of 21% due to the relative mix of earnings among jurisdictions with different tax rates (including foreign withholding taxes and state income taxes), biofuel tax incentives, compensation related expenses not deductible for tax purposes and discrete items, including the recognition of a previously unrecognized tax benefit and the favorable impact of the GILTI HTE income tax regulations. The effective tax rate for the nine months ended September 28, 2019 was 23.6%. The effective tax rate for the nine months ended September 28, 2019 differed from the statutory rate of 21% due to the relative mix of earnings among jurisdictions with different tax rates (including foreign withholding taxes and state income taxes), compensation related expenses not deductible for tax purposes and discrete items, including the favorable settlement of an audit and recognition of a deferred tax asset for which no tax benefit had previously been recorded. The Company's effective tax rate excluding discrete items is 18.2% for the nine months ended September 26, 2020, compared to 28.2% for the nine months ended September 28, 2019.

Non-U.S. GAAP Measures

For a 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 September 26, 2020 Compared to the Three Months Ended September 28, 2019 - Non-U.S. GAAP Measures.”

Reconciliation of Net Income to (Non-GAAP) Adjusted EBITDA and (Non-GAAP) Pro Forma Adjusted EBITDA

First Nine Months of Fiscal 2020 As Compared to First Nine Months of Fiscal 2019


	Nine Months Ended
(dollars in thousands)	September 26, 2020		September 28, 2019
Net income attributable to Darling	$	252,074	$	69,991
Depreciation and amortization	253,711		239,057
Interest expense	55,803		60,088
Income tax expense	43,058		23,900
Foreign currency loss	709		654
Other expense, net	5,278		7,158
Debt extinguishment costs	—		12,126
Equity in net income of Diamond Green Diesel	(252,411)		(94,390)
Equity in net (income)/loss of unconsolidated subsidiaries	(2,467)		1,087
Net income attributable to non-controlling interests	2,117		7,530
Darling's Adjusted EBITDA	$	357,872	$	327,201

Foreign currency exchange impact (1)	407		—
Pro forma Adjusted EBITDA to Foreign Currency (Non-GAAP)	$	358,279	$	327,201

DGD Joint Venture Adjusted EBITDA (Darling's Share)	$	269,177	$	113,270

Darling plus Darling's share of DGD Joint Venture Adjusted EBITDA	$	627,049	$	440,471

(1) The average rates assumption used in this calculation was the actual fiscal average rate for the nine months ended September 26, 2020 of €1.00:USD$1.12 and CAD$1.00:USD$0.74 as compared to the average rate for the nine months ended September 28, 2019 of €1.00:USD$1.12 and CAD$1.00:USD$0.75, respectively.

For the nine months ended September 26, 2020, the Company generated Adjusted EBITDA of $357.9 million, as compared to $327.2 million for the nine months ended September 28, 2019, which included a gain on a land sale in China of approximately $13.1 million.

On a Pro forma Adjusted EBITDA to Foreign Currency (Non-GAAP) basis, the Company generated $358.3 million in the nine months ended September 26, 2020, as compared to $327.2 million in the same period in fiscal 2019.

FINANCING, LIQUIDITY AND CAPITAL RESOURCES

Credit Facilities

Indebtedness

Certain Debt Outstanding at September 26, 2020. On September 26, 2020, debt outstanding under the Company's Amended Credit Agreement, the Company's 5.25% Notes and the Company's 3.625% Notes consists of the following (in thousands):


Senior Notes:
5.25 % Notes due 2027	$	500,000
Less unamortized deferred loan costs	(5,943)
Carrying value of 5.25% Notes due 2027	$	494,057

3.625 % Notes due 2026 - Denominated in euros	$	598,997
Less unamortized deferred loan costs	(6,519)
Carrying value of 3.625% Notes due 2026	$	592,478

Amended Credit Agreement:
Term Loan B	$	350,000
Less unamortized deferred loan costs	(4,689)
Carrying value of Term Loan B	$	345,311

Revolving Credit Facility:
Maximum availability	$	1,000,000
Ancillary Facilities	46,812
Borrowings outstanding	15,000
Letters of credit issued	3,891
Availability	$	934,297

Other Debt	$	27,358

During the first nine months of fiscal 2020, the U.S. dollar weakened as compared to the euro. Using the euro based debt outstanding at September 26, 2020 and comparing the closing balance sheet rate at September 26, 2020 to the balance sheet rate at December 28, 2019, the U.S. dollar debt balances of euro based debt increased by approximately $24.6 million at September 26, 2020. The closing balance sheet rate assumption used in this calculation was the actual fiscal closing balance sheet rate at September 26, 2020 of €1.00:USD$1.163100 as compared to the closing balance sheet rate at December 28, 2019 of €1.00:USD$1.114750.

Senior Secured Credit Facilities. On January 6, 2014, Darling, Darling International Canada Inc. (“Darling Canada”) and Darling International NL Holdings B.V. (“Darling NL”) entered into a Second Amended and Restated Credit Agreement (as subsequently amended, the “Amended Credit Agreement”), restating its then existing Amended and Restated Credit Agreement dated September 27, 2013, with the lenders from time to time party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, and the other agents from time to time party thereto. Effective September 18, 2020, the Company, and certain of its subsidiaries entered into an amendment (the “Sixth Amendment”) with its lenders to the Amended Credit Agreement. Among other things, the Sixth Amendment (i) extended the maturity date of the revolving credit facility under the Credit Agreement from December 16, 2021 to September 18, 2025, (ii) increased the leverage ratio

applicable to achieving the lowest applicable margin on borrowings under the revolving credit facility from 1.0 to 1.5, (iii) eliminated or modified certain of the negative covenants to increase the allowances for certain actions, including the incurrence of debt and investments, (iv) limited guarantees from, and security with respect to, entities organized outside of the United States and Canada to a limited group of foreign subsidiary holding companies, (v) included a collateral release mechanism, subject to the consent of the term loan B lenders, upon the Company achieving certain investment grade credit ratings, and (vi) made other market updates and changes. For more information regarding the Amended Credit Agreement see Note 10 (Debt) to the Company's Consolidated Financial Statements included herein.

•As of September 26, 2020, the Company had availability of $934.3 million under the revolving credit facility, taking into account that the Company had $15.0 million in outstanding borrowings, $46.8 million in ancillary facilities and letters of credit issued of $3.9 million.

•As of September 26, 2020, the Company has borrowed all $525.0 million under the terms of the term loan B facility and repaid approximately $175.0 million, which when repaid, cannot be reborrowed. The term loan B facility is repayable in quarterly installments of 0.25% of the aggregate principal amount of the relevant term loan B facility on the last day of each March, June, September and December of each year commencing on the last day of each month falling on or after the last day of the first full quarter following December 18, 2017, and continuing until the last day of each quarter period ending immediately prior to December 18, 2024; and one final installment in the amount of the relevant term loan B facility then outstanding, due on December 18, 2024. The term loan B facility will mature on December 18, 2024.

•The interest rate applicable to any borrowings under the revolving credit facility will equal either LIBOR/euro interbank offered rate/CDOR plus 1.75% per annum or base rate/Canadian prime rate plus 0.75% per annum, subject to certain step-downs or step-ups 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%.

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).

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

The classification of long-term debt in the Company’s September 26, 2020 consolidated balance sheet is based on the contractual repayment terms of 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 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 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 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. 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 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 28, 2019 as filed with the SEC on February 25, 2020.

Working Capital and Capital Expenditures

On September 26, 2020, the Company had working capital of $307.6 million and its working capital ratio was 1.49 to 1 compared to working capital of $228.9 million and a working capital ratio of 1.33 to 1 on December 28, 2019. As of September 26, 2020, the Company had unrestricted cash of $65.8 million and funds available under the revolving credit facility of $934.3 million, compared to unrestricted cash of $72.9 million and funds available under the revolving credit facility of $911.9 million at December 28, 2019. The Company diversifies its cash investments by limiting the amounts deposited with any one financial institution.

Net cash provided by operating activities was $470.4 million for the first nine months ended September 26, 2020, as compared to net cash provided by operating activities of $262.7 million for the first nine months ended September 28, 2019, an increase of $207.7 million due primarily to an increase in net income of approximately $176.7 million, an increase in distributions from unconsolidated subsidiaries of approximately $150.1 million, changes in operating assets and liabilities that includes an increase in accounts receivable of approximately $15.7 million, a decrease in inventories and prepaid expenses of approximately $9.6 million, a decrease in accounts payable and accrued expenses of approximately $9.0 million and a decrease in other of approximately $17.0 million primarily from hedging activity. Cash used by investing activities was $187.3 million for the first nine months ended September 26, 2020, compared to $234.9 million for the first nine months ended September 28, 2019, a decrease in cash used by investing activities of $47.6 million, primarily due to a decrease in capital asset spending. Net cash used by financing activities was $287.5 million for the first nine months ended September 26, 2020, compared to net cash used by financing activities of $60.1 million for the first nine months ended September 28, 2019, an increase in net cash used by financing activities of $227.4 million, primarily due to payment of outstanding debt and the repurchase of our common stock in the first nine months ended September 26, 2020 as compared to the first nine months ended September 28, 2019.

Capital expenditures of $184.9 million were made during the first nine months of fiscal 2020, compared to $245.1 million in the first nine months of fiscal 2019, for a net decrease of $60.2 million or 24.6%. The Company had previously expected to spend approximately $306.0 million in capital expenditures in fiscal 2020; however, due to the COVID-19 outbreak and the government-imposed movement and work restrictions, the Company initiated a temporary reduction in non-essential capital expenditures until the uncertainty surrounding the COVID-19 outbreak improves. The Company intends to finance these costs using cash flows from operations. Capital expenditures related to compliance with environmental regulations were $26.2 million and $26.0 million during the first nine months ended September 26, 2020 and September 28, 2019, respectively.

Accrued Insurance and Pension Plan Obligations

Based upon the annual actuarial estimate, current accruals and claims paid during the first nine months of fiscal 2020, the Company has accrued approximately $12.2 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 September 26, 2020. 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 $1.3 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 $3.6 million under its foreign pension plans in the next twelve months. 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 nine months ended September 26, 2020 of approximately $7.4 million. Additionally, the Company has made required and tax deductible discretionary contributions to its foreign pension plans for the first nine months ended September 26, 2020 of approximately $2.9 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 current COVID-19 outbreak, 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. With respect to the other U.S. multiemployer pension plans in which the Company participates and which are not individually significant, five plans have certified as critical or red zone and two have certified as endangered or yellow zone as defined by the PPA. The Company has received notices of withdrawal liability from five U.S. multiemployer pension plans in which it participated. During the second quarter of fiscal 2020, the Company settled one of the withdrawal liabilities for approximately $2.5 million. As a result, the Company has an accrued aggregate liability of approximately $2.7 million representing the present value of scheduled withdrawal liability payments under the remaining multiemployer plans that have given notices 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 PPA, the amounts could be material.

DGD Joint Venture

The Company announced on January 21, 2011 that a wholly-owned subsidiary of Darling entered into a limited liability company agreement (as subsequently amended, the “DGD LLC Agreement”) with Valero to form the DGD Joint Venture. The DGD Joint Venture is owned 50% / 50% with Valero and was formed to design, engineer, construct and operate the DGD Facility located adjacent to Valero's refinery in Norco, Louisiana. The DGD Joint Venture reached mechanical completion and began the production of renewable diesel in late June 2013 and is currently capable of processing approximately 20,000 barrels per day of input feedstock to produce renewable diesel fuel and certain other co-products. Effective May 1, 2019, the DGD LLC Agreement was amended and restated for the purpose of updating the agreement in certain respects, including to remove certain provisions that were no longer relevant and to add new provisions relating to the DGD Joint Venture’s ongoing expansion project to construct a new, parallel facility located next to the current facility, as further described below.

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 “DGD Loan Agreement”) with the DGD Joint Venture. The DGD Lenders have committed to make loans available to the DGD Joint Venture in the total amount of $50.0 million with each lender committed to $25.0 million of the total commitment. Any borrowings by the DGD Joint Venture under the DGD Loan Agreement are at the applicable annum rate equal to the sum of (a) the LIBO Rate (meaning Reuters BBA Libor Rates Page 3750) on such day plus (b) 2.50%. The DGD Loan Agreement matures on April 29, 2021, unless extended by agreement of the parties. As of September 26, 2020, no amounts are owed to the DGD Lenders under the DGD Loan Agreement.

Based on the sponsor support agreements executed in connection with the initial construction of the DGD Facility, the Company contributed a total of approximately $111.7 million for completion of the DGD Facility including the Company's portion of cost overruns and working capital funding. As of September 26, 2020, under the equity method of

accounting, the Company has an investment in the DGD Joint Venture of approximately $713.2 million included on the consolidated balance sheet.

In August 2018, the DGD Joint Venture completed an expansion project that increased the DGD Facility's annual production capacity from 160 million gallons of renewable diesel to 275 million gallons and expanded outbound logistics for servicing the many developing low carbon fuel markets around North America and worldwide. In November 2018, the joint venture partners approved the DGD Joint Venture moving forward with another expansion project to construct a new, parallel facility (the “New Facility”) located next to the current facility. The New Facility is expected to grow the DGD Joint Venture’s annual production capacity by an additional 400 million gallons from the current capacity of 275 million gallons of renewable diesel to 675 million gallons of renewable diesel and provide the capability to separate naphtha for sale into low carbon fuel markets. In addition, the expansion project includes expanded inbound and outbound logistics for servicing the many developing low carbon fuel markets around North America and worldwide. The DGD Joint Venture estimates completion and startup of the New Facility in the fourth quarter of 2021, and the total cost of the expansion project, including the naphtha production and improved logistics capability, is estimated to be approximately $1.1 billion. Based on forecasted margins as of the date of this report, the expansion project is expected to be substantially funded by DGD Joint Venture cash flow; however, the DGD LLC Agreement provides that until such time as the New Facility is complete and operational, the joint venture partners shall be required to make capital contributions or, if they agree, loans, to the DGD Joint Venture should the excess available cash in the DGD Joint Venture, as determined on specified dates and in accordance with the provisions contained in the DGD LLC Agreement, fall below $50 million.

In April 2019, the joint venture partners adopted a distribution policy that, unless earlier terminated by the partners, will remain in place through the construction and completion of the New Facility. Pursuant to the distribution policy, the DGD Joint Venture will make quarterly distributions to the partners to the extent that distributable cash (as determined in accordance with the policy) exceeds $50 million and the DGD Joint Venture’s forward looking cash forecast. During the nine months ended September 26, 2020, the DGD Joint Venture made a total of $205.2 million in distributions to each partner.

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 2019, a large portion of Darling’s total U.S. finished fats products were sold to the DGD Facility as feedstock for renewable diesel. In 2019, DGD was Darling’s largest finished product customer in terms of sales, with Darling recording sales of approximately $208.7 million to DGD.

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 nationwide to transporting the refined fats to the DGD facility 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 Company's Midwest network of facilities ability to collect and deliver feedstocks to DGD via water, rail or truck from a centralized location. 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 DGD Joint Venture as operating income.

In September 2019, the Company announced that the DGD Joint Venture was initiating an advanced engineering and development cost review for construction of a new renewable diesel plant to be located in Port Arthur, Texas. The proposed facility under review would be designed to produce 400 million gallons of renewable diesel annually as well as 40 million gallons of renewable naphtha. The final investment decision on the project is expected in 2021, subject to

further engineering, obtaining necessary permits, and approval by the boards of the Company and Valero. If the decision is made to move forward, new plant construction could begin in 2021, with expected operations commencing in 2024.

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 current COVID-19 outbreak 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 2020 and thereafter. The Company reviews the appropriate use of unrestricted cash periodically. As of the date of this report, 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 expansion project or potential investments in additional renewable diesel and/or biodiesel 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 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 $200.0 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, 2022, unless further extended or shortened by the Board of Directors. During the first nine months of fiscal 2020, the Company repurchased approximately $55.0 million of its common stock in the open market. As of September 26, 2020, the Company had approximately $200.0 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 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 or other factors could cause the Company to fail to meet management's expectations or could cause liquidity concerns.

OFF BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS

Based upon the underlying purchase agreements, the Company has commitments to purchase $102.9 million of commodity products consisting of approximately $71.4 million of finished products, approximately $27.7 million of natural gas and diesel fuel and approximately $3.8 million of other commitments during the next two years, which are not included in liabilities on the Company’s balance sheet at September 26, 2020. These purchase agreements are entered into in the normal course of the Company’s business and are not subject to derivative accounting. The commitments will be recorded on the balance sheet of the Company when delivery of these commodities occurs and ownership passes to the Company during the remainder of fiscal 2020, 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 bank guarantees that are not a part of the Company's Amended Credit Agreement at September 26, 2020 (in thousands):


Other commercial commitments:
Standby letters of credit	$	3,891
Standby letters of credit (ancillary facility)	24,334
Foreign bank guarantees	10,702
Total other commercial commitments:	$	38,927

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 28, 2019, filed with the SEC on February 25, 2020.

Based on the Company’s annual impairment testing at October 26, 2019, the fair values of the Company’s reporting units containing goodwill exceeded the related carrying value. However, based on the Company's annual impairment testing at October 26, 2019, the fair value of four of the Company's eight reporting units was less than 30% in excess of its carrying value and one reporting unit (Canada Feed) was less than 10% of the estimated fair value with goodwill of approximately $174.9 million as of September 26, 2020, which was substantially less than the percentage by which the other reporting units with goodwill exceeded their carrying values. The Company determined the fair value of reporting units with the assistance of a valuation expert who assisted the Company primarily using the Income Approach to determine the fair value of the Company's reporting units. Key assumptions that impacted the discounted cash flow model were raw material volumes, gross margins, terminal growth rates and discount rates. It is possible, depending upon a number of factors that are not determinable at this time or within the control of the Company, that the fair value of these four reporting units could decrease in the future and result in an impairment to goodwill. The amount of goodwill allocated to these four reporting units was approximately $511.8 million as of September 26, 2020. The Company's management believes the biggest risk to these reporting units is decreasing finished product prices impacting gross margins and an economic slowdown that would impact raw material suppliers. The Company has experienced no material negative effects on its business and results of operation as a result of the current COVID-19 pandemic. However, the Company's North American biodiesel margins continue to experience challenges. No impairment triggering events were identified, the valuation of the Company’s reporting units could be negatively impacted in future periods by the COVID-19 pandemic, the severity and duration of which is uncertain.

NEW ACCOUNTING PRONOUNCEMENTS

In January 2017, the FASB issued ASU No. 2017-04 Simplifying the Test for Goodwill Impairment. This ASU amends Topic 350, Intangibles-Goodwill and Other, which will simplify the goodwill impairment calculation by eliminating Step 2 from the current goodwill impairment test. Under the new guidance, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The ASU eliminates existing guidance that requires an entity to determine goodwill impairment by calculating the implied fair value of goodwill by hypothetically assigning the fair value of a reporting unit to all of the assets and liabilities as if that reporting unit had been acquired in a business combination. This ASU is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. The adoption of this ASU at the beginning of fiscal year 2020 did not have a material impact on the Company's consolidated financial statements.

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 and 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.

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 worldwide government policies 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 ASF in China and elsewhere; the occurrence of pandemics, epidemics or disease outbreaks, such as the current 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 and issues relating to the announced expansion 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; 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; 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, climate conditions, 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 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 28, 2019. 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 natural gas usage, diesel fuel usage, inventory, forecasted sales and foreign currency exchange rates. The Company does not use derivative instruments for trading purposes. Natural gas swaps and options are entered into with the intent of managing the overall cost of natural gas usage by reducing the potential impact of seasonal weather demands on natural gas that increases natural gas prices. Heating oil swaps and options are entered into with the intent of managing the overall cost of diesel fuel usage by reducing the potential impact of seasonal weather demands on diesel fuel that increases diesel fuel prices. Soybean meal options are entered into with the intent of managing the impact of changing prices for poultry meal sales. Corn options and future contracts are entered into with the intent of managing U.S. forecasted sales of 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. The interest rate swaps and the natural gas swaps are subject to the requirements of FASB authoritative guidance. Some of the Company's natural gas and diesel fuel instruments are not subject to the requirements of FASB authoritative guidance because some of the natural gas and diesel

fuel instruments qualify as normal purchases as defined in FASB authoritative guidance. At September 26, 2020, the Company had corn option contracts and foreign exchange forward and option contracts outstanding that qualified and were designated for hedge accounting as well as corn forward contracts and foreign currency forward contracts that did not qualify and were not designated for hedge accounting.

In fiscal 2020 and fiscal 2019, the Company entered into corn option contracts on the Chicago Board of Trade that are designated as cash flow hedges. Under the terms of the corn option contracts, the Company hedged a portion of its U.S. forecasted sales of BBP into the fourth quarter of fiscal 2021. As of September 26, 2020, the aggregate fair value of these corn option contracts was approximately $0.2 million. These amounts are included in other current assets, accrued expenses, noncurrent assets and noncurrent liabilities 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 2020 and fiscal 2019, 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 2022. As of September 26, 2020, the aggregate fair value of these foreign exchange contracts was approximately $0.1 million and is included in other current assets, noncurrent assets and other accrued expenses on the balance sheet, with an offset recorded in accumulated other comprehensive loss.


Functional Currency		Contract Currency		Range of	U.S.
Type	Amount	Type	Amount	Hedge rates	Equivalent
Brazilian real	25,116	Euro	3,970	5.95 - 6.55	$	4,496
Brazilian real	1,380,739	U.S. dollar	312,563	3.35 - 6.25	312,563

Euro	44,794	U.S. dollar	52,350	1.09 - 1.19	52,350
Euro	39,191	Polish zloty	175,000	4.40 - 4.53	45,584
Euro	4,962	Japanese yen	610,249	117.16 - 125.99	5,772
Euro	9,953	Chinese renminbi	80,042	8.02 - 8.18	11,576
Euro	15,354	Australian dollar	24,850	1.62	17,859
Euro	4,118	British pound	3,730	0.84 - 0.92	4,790
Euro	33	Canadian dollar	50	1.53	38
Euro	4,789	Brazilian real	30,000	6.26	5,570
Polish zloty	19,226	Euro	4,295	4.46 - 4.48	4,917
British pound	77	Euro	84	0.92	98

Japanese yen	205,545	U.S. dollar	1,944	104.57 - 107.16	1,944
U.S. dollar	864	Japanese yen	90,000	104.11	864
U.S. dollar	94,415	Euro	80,000	1.17 - 1.19	94,415

					$	562,836

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 September 26, 2020.

Additionally, the Company had corn forward contracts that are marked to market because they did not qualify for hedge accounting at September 26, 2020. These contracts have an aggregate fair value of approximately $0.2 million and are included in other current assets and accrued expenses at September 26, 2020.

As of September 26, 2020, the Company had forward purchase agreements in place for purchases of approximately $27.7 million of natural gas and diesel fuel and approximately $3.8 million of other commitments during the next two years. As of September 26, 2020, the Company had forward purchase agreements in place for purchases of approximately $71.4 million of finished product in fiscal 2020.

Foreign Exchange

The Company now 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, British pound, Canadian dollar, Australian dollar, Chinese renminbi, Brazilian real, 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. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

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 other than SOX control changes related to the upgrade of accounting software at its international operations that has materially affected, or is reasonably likely to materially affect the Company's internal control over financial reporting.

DARLING INGREDIENTS INC. AND SUBSIDIARIES

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 26, 2020

PART II: Other Information

Item 1. LEGAL PROCEEDINGS

The information required by this Item 1 is contained within Note 17 (Contingencies) on pages 25 through 27 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 risk set forth below and the risk factors described in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 28, 2019, which could materially affect our business, financial condition or future results. The risks and uncertainties described below 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.

Pandemics, epidemics or disease outbreaks, such as the novel coronavirus (“COVID-19”), may disrupt our business, including, among other things, our supply chain and production processes, each of which could materially affect our operations, liquidity, financial condition and results of operations.

The actual or perceived effects of a disease outbreak, epidemic, pandemic or similar widespread public health concern, such as COVID-19, could negatively affect our operations, liquidity, financial condition and results of operations. While to date we have experienced no material negative effects on our business and results of operations as a result of the current COVID-19 outbreak, the situation remains dynamic and subject to rapid and possibly material change, including but not limited to changes that may materially affect the operations of our supply chain partners and finished product customers, which ultimately could result in material negative effects on our business and results of operations.

The spread of pandemics, epidemics or disease outbreaks such as COVID-19 may disrupt our third-party business partners’ ability to meet their obligations to us, which may negatively affect our operations. These third parties include those who supply our raw materials and other necessary operating materials and logistics and transportation services providers. Ports and other channels of entry may be closed or operate at only a portion of capacity, as workers may be prohibited or otherwise unable to report to work, and means of transporting products within regions or countries may be limited for the same reason. As a result of the current COVID-19 outbreak, transport restrictions related to quarantines or travel bans have been put in place and global supply may become constrained, each of which may cause the price of certain raw materials used in our products to increase and/or we may experience disruptions to our operations. In addition, COVID-19 and similar outbreaks may affect the prices and demand for our finished products.

Workforce limitations and travel restrictions resulting from pandemics, epidemics or disease outbreaks such as COVID-19 and related government actions may affect many aspects of our business. If a significant percentage of our workforce is unable to work, including because of illness or travel or government restrictions in connection with pandemics or disease outbreaks, our operations and financial reporting capabilities may be negatively affected. In addition, pandemics or disease outbreaks could result in a widespread health crisis that could adversely affect the economies and financial markets of many countries, resulting in an economic downturn that could affect our raw material supply and our customers’ demand for our finished products.

Our efforts to manage and mitigate these factors may be unsuccessful, and the effectiveness of these efforts depends on factors beyond our control, including the duration and severity of any pandemic, epidemic or disease outbreak, as well as third party actions taken to contain its spread and mitigate public health effects.

The risks described above also apply to DGD and its business and operations.

Item 6. EXHIBITS

The following exhibits are filed herewith:


			31.1			Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, of Randall C. Stuewe, the Chief Executive Officer of the Company.
			31.2			Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, of Brad Phillips, the Chief Financial Officer of the Company.
			32			Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of Randall C. Stuewe, the Chief Executive Officer of the Company, and of Brad Phillips, the Chief Financial Officer of the Company.
			101			Interactive Data Files Pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets as of September 26, 2020 and December 28, 2019; (ii) Consolidated Statements of Operations for the three and nine months ended September 26, 2020 and September 28, 2019; (iii) Consolidated Statements of Comprehensive Income/(Loss) for the three and nine months ended September 26, 2020 and September 28, 2019; (iv) Consolidated Statements of Stockholders' Equity for the nine months ended September 26, 2020 and September 28, 2019; (v) Consolidated Statements of Cash Flows for the nine months ended September 26, 2020 and September 28, 2019; (vi) Notes to the Consolidated Financial Statements.
			104			Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

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:	November 3, 2020	By:	/s/ Brad Phillips
			Brad Phillips
			Chief Financial Officer
			(Principal Financial Officer and Duly Authorized Officer)