Darling Ingredients(US:DAR)2019-02-27 21:49Indebtedness and Financial Condition - The company may incur substantial additional indebtedness in the future, including secured indebtedness under senior secured credit facilities, despite existing restrictions[185]. - The risks associated with the company's indebtedness could intensify if additional debt is incurred, potentially impacting the ability to service existing debt[187]. - The company's ability to make scheduled payments on debt obligations is dependent on financial condition and operating performance, which are influenced by various external factors[188]. - Insufficient cash flows may force the company to reduce or delay investments, seek additional capital, or restructure debt obligations[189]. - The company's subsidiaries, particularly those operating outside the United States, significantly impact the ability to generate cash flow for debt repayment[192]. - Regulatory restrictions in countries like China may limit the ability of subsidiaries to provide cash to the company, affecting overall financial health[192]. Regulatory and Compliance Risks - The company is subject to stringent regulations under the Food Safety Modernization Act, which may impose additional operational requirements and affect the import of raw materials[207]. - The FDA's mandatory recall authority could impact the company's operations if any products are deemed adulterated or misbranded, potentially leading to financial repercussions[198]. - Any contamination issues related to pathogens like Salmonella could adversely affect demand for the company's products and harm its reputation and financial condition[209]. - The company operates under various international regulations regarding food safety, including the EU's TSE Regulation and Animal By-Products Regulation, which impose strict import requirements and feed bans[211]. - Currently, certain EU Member States are classified as having a controlled BSE risk, which could negatively impact the company's operations if classifications change[211]. - The company is subject to stringent environmental, health, and safety regulations, which may require significant capital expenditures to ensure compliance[217]. - The company must comply with complex data protection laws, such as the GDPR, which could result in regulatory and operational risks if mishandled[230]. Market and Operational Risks - The emergence of animal-related diseases, such as African Swine Fever, has negatively impacted production and demand for the company's products in affected regions[195]. - Changes in consumer preferences in the food and pet food industries could lead to reduced demand and price reductions for the company's products[215]. - The company may incur significant costs related to product liability claims, recalls, and adverse public relations, which could affect its financial condition and reputation[212]. - The company may experience interruptions in manufacturing or distribution due to work stoppages at its operating facilities[239]. - The company faces risks related to reputational damage from social media campaigns concerning the feed and food ingredient production industries[253]. Financial Performance and Stock - The market price of the company's common stock has been volatile, influenced by factors such as ingredient price fluctuations and operating results[272][274]. - The company has not paid any dividends on its common stock since January 3, 1989, and has no current plans to do so, with future dividend payments subject to financial conditions and board discretion[280]. - Future sales of common stock or issuance of equity could dilute existing shareholders' interests and negatively impact the market price of the common stock[275][276]. - The company's common stock is subordinate to existing and future indebtedness, which may limit the ability to pay dividends and affect investment returns[277][279]. Strategic and Operational Initiatives - The company is in the process of implementing a new ERP system, which involves substantial expenditures and carries risks that could disrupt business operations[225]. - The company regularly reviews potential acquisitions but may face challenges in identifying suitable candidates or completing acquisitions on favorable terms[250]. - The company has engaged in multiple acquisitions, including Rothsay and VION Ingredients, which are expected to significantly increase depreciation and amortization, impacting operating and net income[264][266]. - The company may divest certain brands or businesses that do not meet strategic objectives, which could adversely affect results of operations[252]. - The company may incur substantial costs related to potential closures or divestitures of manufacturing facilities, which could adversely affect business operations and financial condition[267]. Pension and Insurance Liabilities - The company may incur increased contributions to underfunded U.S. multiemployer pension plans due to a decline in asset values and reduced active participation[244]. - The company maintains property, business interruption, and casualty insurance, but such coverage may not fully cover all operational risks[247]. Legal and Intellectual Property Risks - The company is subject to various lawsuits and regulatory proceedings that may materially adversely affect its business and financial condition[241]. - The company faces risks related to the protection of its intellectual property, which could impair competitiveness and limit growth if not adequately protected[256][258]. - The company may face legal proceedings related to alleged infringement of intellectual property rights, which could result in costly litigation and divert management resources[259]. Currency and Commodity Risks - The company is exposed to foreign currency exchange risks due to acquisitions of foreign entities and transactions in currencies other than the functional currency[469]. - The company has limited use of derivative instruments, primarily for managing cash flow risks related to natural gas and diesel fuel usage[470]. - The company entered into foreign exchange forward contracts to hedge a portion of its forecasted sales, with an aggregate fair value of approximately $1.6 million[471]. - The company had corn options and forward contracts with an aggregate fair value of approximately $1.1 million as of December 29, 2018[474]. - The company’s finished products are predominantly commodities sold at prevailing market prices, affected by seasonal factors[469]. - As of December 29, 2018, the company had forward purchase agreements for approximately $25.2 million of natural gas and diesel fuel[475]. - The company’s fixed rate debt obligations include 5.375% Notes and 3.625% Notes, with a weighted average fixed rate of approximately 4.43%[476]. - A 1% increase in interest rates is estimated to increase the company's annual interest expense by approximately $6.0 million[476]. - The aggregate fair value of foreign exchange forward contracts as of December 29, 2018, was approximately $2.1 million[473].