Derivatives

9 Months Ended

Sep. 28, 2024

Derivative Instruments and Hedging Activities Disclosure [Abstract]

The Company’s operations are exposed to market risks relating to commodity prices that affect the Company’s cost of raw materials, finished product prices, energy costs and the risk of changes in interest rates and foreign currency exchange rates.

The Company makes limited use of derivative instruments to manage cash flow risks related to interest rates, natural gas usage, diesel fuel usage, inventory, forecasted sales and foreign currency exchange rates. The Company does not use derivative instruments for trading purposes. Interest rate swaps are entered into with the intent of managing overall borrowing costs by reducing the potential impact of increases in interest rates on floating-rate long-term debt. Natural gas swaps and options are entered into with the intent of managing the overall cost of natural gas usage by reducing the potential impact of seasonal weather demands on natural gas that increases natural gas prices. Heating oil swaps and

options are entered into with the intent of managing the overall cost of diesel fuel usage by reducing the potential impact of seasonal weather demands on diesel fuel that increases diesel fuel prices. Soybean meal forwards and options are entered into with the intent of managing the impact of changing prices for poultry meal sales. Corn options and future contracts are entered into with the intent of managing U.S. forecasted sales of bakery by-products (“BBP”) by reducing the impact of changing prices. Foreign currency forward and option contracts are entered into to mitigate the foreign exchange rate risk for transactions designated in a currency other than the local functional currency.

At September 28, 2024, the Company had corn option and forward contracts, foreign exchange forward contracts and interest rate swaps outstanding that qualified and were designated for hedge accounting as well as corn option and forward contracts and foreign currency forward contracts that did not qualify and were not designated for hedge accounting.

In fiscal 2024 and 2023, the Company’s DGD Joint Venture entered into heating oil derivatives that were deemed to be cash flow hedges. As a result, the Company has accrued the other comprehensive income/(loss) portion belonging to Darling with an offset to the investment in DGD as required by FASB ASC Topic 323.

Cash Flow Hedges

In the first quarter of fiscal 2023, the Company entered into interest rate swaps that are designated as cash flow hedges. The notional amount of these swaps totaled $900.0 million. Under the contracts, the Company is obligated to pay a weighted average rate of 4.007% while receiving the 1-month SOFR rate. Under the terms of the interest rate swaps, the Company hedged a portion of its variable rate debt into the first quarter of 2026. At September 28, 2024 and December 30, 2023, the aggregate fair value of these interest rate swaps was approximately $3.4 million and $3.7 million, respectively. These amounts are included in other current assets, accrued expenses and noncurrent liabilities on the balance sheet, with an offset recorded in accumulated other comprehensive loss.

In the first quarter of fiscal 2023, the Company also entered into cross currency swaps that are designated as cash flow hedges. The notional amount of these swaps was €519.2 million. Under the contracts, the Company is obligated to pay a 4.6% euro denominated fixed rate while receiving a weighted average U.S. dollar fixed rate of 5.799%. Under the terms of the cross currency swaps, the Company hedged its intercompany notes receivable into the first quarter of 2025. Accordingly, changes in the fair value of the cash flow hedge are initially recorded as gains and/or losses as a component of accumulated other comprehensive loss. We immediately reclassify from accumulated other comprehensive loss to earnings an amount to offset the remeasurement recognized in earnings associated with the respective intercompany loan. Additionally, we reclassify amounts from accumulated other comprehensive income/(loss) associated with the interest rate differential between the U.S. dollar and the Euro to interest income. At September 28, 2024 and December 30, 2023, the aggregate fair value of these cross currency swaps was approximately $15.5 million and $10.8 million, respectively. At September 28, 2024, these amounts are included in accrued expenses on the balance sheet, with an offset recorded in accumulated other comprehensive loss. At December 30, 2023, these amounts are included in other current assets and noncurrent liabilities on the balance sheet, with an offset recorded in accumulated other comprehensive loss.

In the second and third quarters of fiscal 2024, the Company entered into corn option and forward contracts on the Chicago Board of Trade that are designated as cash flow hedges. Under the terms of the corn option contracts, the Company hedged a portion of its U.S. forecasted sales of BBP into the second quarter of fiscal 2025. At September 28, 2024 and December 30, 2023, the aggregate fair value of these corn option contracts was approximately $0.7 million and zero, respectively. The amounts are included in other current assets and accrued expenses on the balance sheet, with an offset recorded in accumulated other comprehensive loss.

In fiscal 2023 and fiscal 2024, the Company entered into foreign exchange forward contracts that are designated as cash flow hedges. Under the terms of the foreign exchange contracts, the Company hedged a portion of its forecasted sales in currencies other than the functional currency through the fourth quarter of fiscal 2025. At September 28, 2024 and December 30, 2023, the aggregate fair value of these foreign exchange contracts was approximately $6.9 million and $15.9 million, respectively. These amounts are included in other current assets, other long term assets, accrued expenses and other non-current liabilities on the balance sheet, with an offset recorded in accumulated other comprehensive loss.

The Company may enter into soybean meal forward contracts and heating oil swap and option contracts from time to time. There were not any open designated soybean meal forward or heating oil swap and option contracts entered into by the Company at September 28, 2024 and December 30, 2023, respectively.

As of September 28, 2024, the Company had the following designated and non-designated outstanding forward and option contract amounts that were entered into to hedge foreign currency transactions in currencies other than the functional currency and forecasted transactions in currencies other than the functional currency (in thousands):


Functional Currency		Contract Currency
Type	Amount	Type	Amount
Brazilian real	505,977	Euro	81,943
Brazilian real	2,062,326	U.S. dollar	371,815

Euro	58,012	U.S. dollar	64,621
Euro	71,038	Polish zloty	303,946
Euro	10,979	Japanese yen	1,757,858
Euro	29,648	Chinese renminbi	231,820
Euro	17,912	Australian dollar	29,450
Euro	4,446	British pound	3,721



Polish zloty	60,733	Euro	14,187
British pound	136	Euro	163
British pound	275	U.S. dollar	367
Japanese yen	106,948	U.S. dollar	743
U.S. dollar	94	Japanese yen	13,476
U.S. dollar	562,340	Euro	519,182
Australian dollar	179	Euro	110

The Company estimates the amount that will be reclassified from accumulated other comprehensive loss at September 28, 2024 into earnings over the next 12 months for all cash flow hedges will be approximately $11.3 million. As of September 28, 2024, 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 28, 2024 and September 30, 2023 (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 28, 2024		September 30, 2023		September 28, 2024		September 30, 2023

Foreign exchange	Foreign currency loss/(gain)	$	(1,459)	$	(237)	$	(2,309)	$	(1,473)
Foreign exchange	Net sales	(298)		709		344		(268)
Foreign exchange	Cost of sales and operating expenses	173		(329)		(126)		(449)
Foreign exchange	Selling, general and administrative expenses	(1,289)		1,096		8,283		(2,962)
Corn options and futures	Net sales	106		373		652		1,755
Corn options and futures	Cost of sales and operating expenses	319		(35)		(1,917)		(2,643)


Heating Oil swaps and options	Selling, general and administrative expenses	—		—		—		49
Soybean meal	Net sales	—		179		—		487

Total		$	(2,448)	$	1,756	$	4,927	$	(5,504)

At September 28, 2024, the Company had forward purchase agreements in place for purchases of approximately $145.7 million of natural gas and diesel fuel. The Company intends to take physical delivery of the commodities

under the forward purchase agreements and accordingly, these contracts are not subject to the requirements of fair value accounting because they qualify as normal purchases.