ITEM 1A. RISK FACTORS
An investment in Darling involves substantial risks. In consultation with your financial, tax and legal advisors, you should carefully consider, among other matters, the following risks described in, as well as the other information contained in or incorporated by reference into, this report. If any of the events described in the following risk factors actually occur, our business, financial condition, prospects or results of operations could be materially adversely affected, the market price of our common stock could decline and you may lose all or part of your investment in the common stock. The risks and uncertainties described below 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. The risks described below also include forward-looking statements and our actual results may differ substantially from those discussed in these forward-looking statements. See the section entitled “Forward-Looking Statements” in this report.
Summary of Risk Factors
The following is a summary of some of the risks and uncertainties that could materially and adversely affect our business, operating results, financial condition and the actual outcome of matters as to which forward-looking statements are made in this report. In addition to the summary below, you should carefully review the detailed risk factors discussed later in this section.
Risks and uncertainties that may affect, or have affected, our business, operating results and financial condition include, but are not limited to, the following:
• The prices of many of our products are subject to significant volatility associated with commodities markets;
• Our business is dependent on the procurement of raw materials, which is a competitive aspect of our business;
• The DGD Joint Venture subjects us to a number of risks;
• Our renewable energy businesses, including the DGD Joint Venture, are highly dependent on government programs, incentives and regulatory frameworks, which are subject to change and uncertainty;
• We are highly dependent on natural gas, diesel fuel and electricity, the prices of which can be volatile, and such dependency could materially adversely affect our business;
• A significant percentage of our revenue is attributable to a limited number of suppliers and customers;
• Certain of our operating facilities are highly dependent upon a single or a few suppliers;
• We face risks associated with our international activities, which could negatively affect our sales to customers in foreign countries and our operations and assets in such countries;
• Seasonal factors and weather, including the physical impacts of climate related changes, can impact the availability, quality and volume of raw materials that we process and negatively affect our operations;
• If we or our customers are the subject of product liability or other claims or product recalls, we may incur significant and unexpected costs and our business reputation could be adversely affected;
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• In certain markets we are highly dependent upon a single operating facility and various events beyond our control could cause an interruption in the operation of our facilities, which could adversely affect our business in those markets;
• We may incur losses and additional costs as a result of our hedging transactions;
• Media campaigns related to feed and food ingredient production or fuel production present reputational and other risks;
• An impairment in the carrying value of our goodwill or other intangible assets may have a material adverse effect on our results of operations;
• Our operations are subject to extensive and evolving environmental, health and safety laws and regulations, and we could incur significant costs to comply with these requirements or be subject to sanctions or held liable for damages, including environmental damages;
• Our business may be negatively impacted by the occurrence of any disease correctly or incorrectly linked to animals;
• Our business may be affected by the impact of animal related disease, such as BSE, and by other food safety or food regulatory issues;
• P andemics, epidemics or disease outbreaks, 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;
• We may be subject to work stoppages at our operating facilities, which could cause interruptions in the manufacturing or distribution of our products;
• Certain U.S. multiemployer defined benefit pension plans to which we contribute are underfunded and these plans may require minimum funding contributions or we may be subject to liabilities due to a termination of, or our withdrawal from, such plans;
• Our substantial indebtedness could adversely affect our financial condition;
• Despite our existing level of indebtedness, we and our subsidiaries could substantially increase our indebtedness, which could further exacerbate the risks to our financial condition described above;
• We may not generate sufficient cash to service all of our debt and may be forced to take other actions to satisfy our debt obligations, which may not be successful;
• Our ability to make payments on our debt depends in part on the performance of our subsidiaries, including our non-guarantor subsidiaries, and their ability to transfer funds to members of our group liable to make payments on our debt;
• The market price of our common stock has been and may continue to be volatile, which could cause the value of your investment to decline;
• Our ability to pay any dividends on our common stock may be limited and, consequently, your ability to achieve a return on your investment will depend on appreciation in the price of our common stock;
• Future sales of our common stock or the issuance of other equity may adversely affect the market price of our common stock;
• Our common stock is an equity security and is subordinate to our existing and future indebtedness;
• The issuance of shares of preferred stock could adversely affect holders of common stock, which may negatively impact your investment;
• We may incur material costs and liabilities in complying with government regulations;
• Downturns and volatility in global economies and commodity and credit markets could materially adversely affect our business, results of operations and financial condition;
• We may not successfully identify and complete acquisitions or joint ventures on favorable terms or achieve anticipated synergies relating to any acquisitions or joint ventures, and such acquisitions or joint ventures could result in unknown liabilities, unforeseen operating difficulties and expenditures and require significant management resources;
• Our business may be adversely impacted by fluctuations in foreign currency exchange rates, which could affect our ability to comply with our financial covenants;
• Large capital projects can take many years to complete, and market conditions could deteriorate over time, negatively impacting project returns;
• Changes in consumer preference could negatively impact our business;
• If we experience difficulties or a significant disruption in our information systems or if we fail to implement new systems and software successfully, our business could be materially adversely affected;
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• Increased information technology security threats and more sophisticated computer crime pose a risk to our systems, networks, products and services, while data privacy and cybersecurity laws continue to proliferate presenting heightened regulatory risk;
• Artificial intelligence could subject the Company to loss through various internal and external risks;
• Our success is dependent on our key personnel;
• We could have a material weakness in our internal control over financial reporting that would require remediation;
• Changes in our tax rates or exposure to additional income tax liabilities could impact our profitability;
• Litigation or regulatory proceedings may materially adversely affect our business, results of operations and financial condition;
• Our European pension funds may require minimum funding contributions;
• The insurance coverage that we maintain may not cover, or fully cover, all operational risks, and if the number or severity of claims for which we are self-insured increases, if we are required to accrue or pay additional amounts because the claims prove to be more severe than our recorded liabilities, if our insurance premiums increase or if we are unable to obtain insurance at acceptable rates or at all, our financial condition and results of operations may be materially adversely affected;
• We may divest certain of our brands or businesses from time to time, which could adversely affect us;
• Terrorist attacks or acts of war may cause damage or disruption to us and our employees, facilities, information systems, security systems, suppliers and customers, which could materially and adversely affect our net sales, costs and expenses and financial condition;
• We may be unable to protect our intellectual property rights;
• Our products, processes, methods, and equipment may infringe upon the intellectual property rights of others, which may cause us to incur unexpected costs or prevent us from selling our products;
• The healthcare reform legislation in the United States and its implementing regulations could impact the healthcare benefits we are required to provide our employees in the United States and cause our compensation costs to increase, potentially reducing our net income and adversely affecting our cash flows;
• We may incur significant charges and experience disruptions or losses of customer and/or supplier relationships in the event we close or divest all or part of a manufacturing plant or facility; and
• We may not be able to achieve our climate, sustainability or other such goals, targets or objectives.
Risks Related to our Business
The prices of many of our products are subject to significant volatility associated with commodities markets.
Our principal finished products in our Feed Ingredients segment include MBM, PM, BFT, YG, PG, BBP and hides, which are commodities. We also manufacture and sell a number of other products that are derived from animal by-products and many of which are commodities or compete with commodities. The prices of these commodities are quoted on, or derived from prices quoted on, established commodity markets. Accordingly, our results of operations will be affected by fluctuations in the prevailing market prices of these finished products or of other commodities that may be substituted for our products by our customers. Historically, market prices for commodity grains, fats and food stocks have fluctuated in response to a number of factors, including global changes in supply and demand resulting from changes in local and global economic conditions, global government agriculture programs, energy policies of U.S. and foreign governments, and international agricultural trading policies, the impact of disease outbreaks on protein sources and the potential effect on supply and demand, as well as weather conditions during the growing and harvesting seasons. A significant decrease in the market price of any of our products or of other commodities that may be substituted for our products would have a material adverse effect on our results of operations and cash flow. Furthermore, 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 lapse of time between the procurement of the raw materials and the sale of the finished goods. Increases in the market prices of raw materials would require us to raise prices for our premium, value-added and branded products to avoid margin deterioration. We may not be able to implement future price increases in response to increases in the market prices of raw materials, and any such price increases may have adverse impacts on future sales volumes. Our results of operations could be materially and adversely affected in the future by this volatility. Furthermore, an increased preference by meat processors for alternative feed ingredients, such as all vegetable diets in the case of poultry producers, could negatively impact the prices of certain of our finished products that would need to be sold to alternative markets and destinations.
The prices available for the Company’s Food Ingredients segment’s collagen, edible fats and natural casings products are influenced by other competing ingredients, including plant-based and synthetic hydrocolloids and artificial casings. In the
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collagen operation, in particular, 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’s collagen and casings is generally 30 to 60 days, which is substantially longer than the Company’s Feed Ingredients segment’s 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 during the period from when the raw materials were procured until the finished goods are sold.
The Company’s Fuel Ingredients segment, which converts fats and oils into biofuels (including renewable diesel and SAF), organic sludge and food waste into biogas, and fallen stock into low-grade energy sources, is impacted by world energy prices for oil, electricity and natural gas, as well as potential competition from the adoption of non-rendered feedstock in biofuel markets.
The Company’s results of operations in its Feed, Food and Fuel Ingredients segments are also impacted by U.S. and foreign tariffs and trade restrictions that affect trade flows, supply and demand and market prices for the Company’s raw materials and finished products.
Our business is dependent on the procurement of raw materials, which is a competitive aspect of our business.
Our management believes that the most competitive aspect of our business is the procurement of raw materials rather than the sale of finished products. Many of our raw materials are derived directly or indirectly from animal by-products, which results in the following challenges:
• In North America, consolidation within the meat processing industry has resulted in bigger and more efficient slaughtering operations, the majority of which utilize “captive” rendering (rendering operations integrated with the meat or poultry packing operation).
• Concurrently, there has been limited to no growth in the number of small U.S. meat processors, which have historically been a dependable source of supply for non-captive or independent U.S. renderers, such as us.
• The slaughter rates in the U.S. and international meat processing industry are subject to decline during poor economic conditions when consumers generally reduce their consumption of protein, and as a result, during such periods of decline, the availability, quantity and quality of raw materials available to independent renderers, such as us, decreases. In addition, raw material volumes are subject to decline due to government regulations limiting animal production.
• In addition, the Company has seen an increase in the use of used cooking oil in the production of biofuels, which has increased competition for the collection of used cooking oil from restaurants and other food service establishments and contributed to an increase in the frequency and magnitude of theft of used cooking oil in the United States.
• Furthermore, a decline in the general performance of the global economy (including a decline in consumer confidence and inflation) and an inability of consumers and companies to obtain credit in the financial markets could have a negative impact on our raw material volume, such as through the forced closure of any of our raw material suppliers. A significant decrease in available raw materials or a closure of a significant number of raw material suppliers could materially and adversely affect our business, results of operations and financial condition, including the carrying value of certain of our assets.
The rendering industry is highly fragmented and both the rendering and bakery residual industries are very competitive. We compete with other rendering businesses and alternative methods of disposal of animal by-products, bakery residue and used cooking oil provided by trash haulers, waste management companies and biofuel companies, as well as the alternative of illegal disposal. See Item 1. “ Competition. ” In addition, U.S. restaurants experience theft of used cooking oil, the frequency and magnitude of which increases with the rise in value of used cooking oil. Depending on market conditions, we either charge a collection fee to offset a portion of the cost incurred in collecting raw material, collect on a no pay/no charge basis or pay for the raw material. To the extent suppliers of raw materials look to alternate methods of disposal, whether as a result of our collection fees being deemed too expensive, the payments we offer being deemed too low or otherwise, our raw material supply and/or collection fee revenues will decrease, which could materially and adversely affect our business, results of operations and financial condition. In addition, the amount of raw material acquired, which has a direct impact on the amount of finished goods produced, can also have a material effect on our gross margin reported, as the Company has a substantial amount of fixed operating costs. In addition, we utilize an extensive vehicle fleet to collect and transport raw material, for which we compete with other industries for qualified drivers, which from time to time are in short supply. Our failure to hire and retain a sufficient number of truck drivers to operate our fleet could negatively impact our ability to collect and transport raw materials in an efficient and cost-effective manner.
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A majority of the Company’s U.S. volume of animal by-product raw materials, including its significant U.S. accounts, and substantially all of the Company’s U.S. bakery feed raw materials, are acquired on a “formula basis,” which allows us to adjust our costs of materials based on changes in the price of our finished products, and are in most cases set forth in contracts with our suppliers. Such contracts generally provide for multi-year terms. The formulas provided in these contracts are reviewed and modified during their term and upon renewal of the contracts to maintain acceptable risk allocations between us and our suppliers related to movements in commodity prices. Changes to these formulas or the inability to renew such contracts could have a material adverse effect on our business, results of operations and financial condition. A majority of the Company’s Canadian volume of animal by-product raw materials are acquired on a monthly fixed-price basis with suppliers, while the remainder are acquired on a “formula basis.” A majority of Darling Ingredients International’s volume of animal by-product raw materials are acquired at spot or quarterly fixed prices.
The DGD Joint Venture subjects us to a number of risks.
In January 2011, one of our wholly-owned subsidiaries, entered into a limited liability company agreement (as subsequently amended, the “DGD LLC Agreement”) with a wholly-owned subsidiary of Valero to form the DGD Joint Venture, which was formed to design, engineer, construct and operate the DGD St. Charles Plant. Since that time, the DGD Joint Venture has completed several expansion projects and currently operates the DGD St. Charles Plant and the DGD Port Arthur Plant. As of January 3, 2026, under the equity method of accounting, we had an investment in the DGD Joint Venture of approximately $2.1 billion included on the Consolidated Balance Sheet. Nonetheless, the DGD Joint Venture may not continue to be profitable, may not continue to make distributions or allow us to continue to make a return on our investment, or could result in a negative return on our investment.
The DGD Joint Venture’s operations are conducted through a joint venture with Valero. Accordingly, we share control with our joint venture partner over certain economic, legal and business interests of the DGD Joint Venture, who may have economic, business, o r legal interests, opportunities, or goals that are inconsistent with, or different from, our opportunities, goals, and interests, or may have different liquidity needs or financial condition characteristics than our own, be subject to different legal or contractual obligations than we are, or be unable to meet their obligations. For instance, while we share certain management rights with our joint venture partner under the DGD LLC Agreement, we do not have full control of every aspect of the DGD Joint Venture’s business and certain significant decisions concerning the DGD Joint Venture require certain approvals from our joint venture partner, including, among others, the acquisition or disposition of assets above a certain value threshold, making certain changes to the DGD Joint Venture’s business plan, raising debt or equity capital, the DGD Joint Venture’s distribution policy, and entering into particular transactions. Failure by us or our joint venture partner to adequately manage the risks associated with the DGD Joint Venture and any differences in views among us and our joint venture partner could prevent or delay actions that are in the best interests of us or the DGD Joint Venture and could have a material adverse effect on our, or the DGD Joint Venture’s, financial condition, results of operations and liquidity. Furthermore, our equity in net income of the DGD Joint Venture, which is based on our 50% interest in the unconsolidated earnings of the standalone DGD Joint Venture financial statements, may not always match our joint venture partner’s consolidated results and presentation. In addition, the DGD LLC Agreement limits our ability to freely transfer or sell our interest in the DGD Joint Venture.
The DGD Joint Venture is subject to and dependent on governmental energy policies and programs, such as the National Renewable Fuel Standard Program (“RFS”) and low carbon fuel standards (“LCFS”) (such as those in place in the state of California), which positively impact the demand for and price of renewable diesel. Any changes to, a failure to enforce or a discontinuation of any of these programs could have a material adverse effect on the DGD Joint Venture. Further, these programs are regularly subject to expirations and renewals which, at any time, could be delayed or not renewed, and other administrative and political review which could result in limitations or other policy adjustments by the respective administrations overseeing them. See the section entitled “Risk Factors - Risks Related to our Business-Our renewable energy businesses, including the DGD Joint Venture, are highly dependent on government programs, incentives and regulatory frameworks, which are subject to change and uncertainty.”
Additionally, there may be new entrants into the biofuels industry or new technologies developed that could meet demand for lower-carbon transportation fuels and modes of transportation in a more efficient or less costly manner than our technologies and products, which could also have a material adverse effect on the DGD Joint Venture. For instance, several other companies have made, or announced interest in making, investments in biofuel projects. Should these projects develop, the DGD Joint Venture would face competition from them for feedstocks and customers, which could strain margins on the products it sells and limit the growth and profitability of the DGD Joint Venture. It is not possible at this time to predict the ultimate form, timing, or extent of any such developments; however, a reduction in the demand for the DGD Joint Venture’s products as a result of any of the foregoing events could materially and adversely affect our business, financial condition, results of operations, and liquidity.
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The DGD Joint Venture’s production plants are its principal operating assets and are subject to planned and unplanned downtime and interruptions. Its operations could also be subject to significant interruption if one of its plants were to experience a major accident or mechanical failure, be damaged by severe weather or natural disasters (such as hurricanes) or man-made disasters (such as cybersecurity incidents or acts of terrorism), or otherwise be forced to shut down or curtail operations. If any of its plants, or related pipelines or terminals, were to experience an interruption in operations, our earnings could be materially and adversely affected (to the extent not recoverable through insurance) because of lost productivity and repair and other costs.
In addition, the operation of a joint venture such as this involves a number of risks that could harm our business and result in the DGD Joint Venture not performing as expected, such as:
• problems integrating or developing operations, personnel, technologies or products;
• the unanticipated breakdown or failure of equipment or processes, including any unforeseen issues that may arise in connection with the operation of the DGD Facilities or completion and startup of any expansion or capital projects or the possibility of equipment failure as a result of materials degradation;
• the inaccuracy of our assumptions about prices or demand for the biofuels (including renewable diesel and SAF) that the DGD Joint Venture produces;
• unforeseen engineering or environmental issues, including new or more stringent environmental regulations affecting operations;
• unforeseen capital contributions required under the DGD LLC Agreement;
• the inaccuracy of our assumptions about the timing and amount of anticipated revenues and operating costs including feedstock prices;
• the diversion of management time and resources;
• difficulties in obtaining and maintaining permits and other regulatory issues, potential license revocations and changes in legal requirements;
• adverse changes in government policies, programs and/or mandates around the world that benefit biofuels, including, without limitation, reductions, dilutions or terminations of government credits, incentives and/or subsidies for biofuels or programs or mandates requiring biofuel use;
• changes in supply and demand for biofuels, including potential overproduction of biofuels against demand resulting in diminished returns and potential dilution of government credits, incentives and/or subsidies;
• difficulties in establishing and maintaining relationships with suppliers and end user customers;
• the risk that one or more competitive new biofuel (including renewable diesel and SAF) plants are constructed that use different technologies from the DGD Joint Venture and result in the marketing of products that are more effective as a substitute for carbon-based fuels or less expensive than the products marketed by the DGD Joint Venture;
• U.S. and foreign tariffs, trade restrictions and nationalistic protections in biofuel policies favoring local production over imports could impact prices, margins and end market opportunities for the biofuels the DGD Joint Venture produces;
• U.S. and foreign tariffs on biofuels and biofuel feedstocks could also have an inverse effect where biofuel imports into certain countries could be beneficially positioned from a margin standpoint over local production;
• performance below expected levels of output or efficiency;
• disruptions in the ability of the pipelines, vessels, or railroads to transport feedstocks or products because of weather events (such as hurricanes), accidents, derailment, collision, fire, explosion, government regulations, or third-party actions;
• reliance by the DGD Joint Venture on Valero and its adjacent refinery facility for many services and processes;
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• possible impairment of the acquired assets, including intangible assets, in connection with the occurrence of any other risks associated with the DGD Joint Venture;
• possible third-party claims of intellectual property infringement;
• inability to source sufficient feedstocks for the operation or having to increase utilization of feedstocks that produce lower margin product; and
• being forced to sell our equity interests in the DGD Joint Venture pursuant to buy/sell provisions in the DGD LLC Agreement such that we would no longer continue to realize the benefits of the DGD Joint Venture.
If any of these risks described above were to materialize and the operations of the DGD Joint Venture were significantly disrupted, it could have a material adverse effect on our business, financial condition and results of operations.
Our renewable energy businesses, including the DGD Joint Venture, are highly dependent on government programs, incentives and regulatory frameworks, which are subject to change and uncertainty.
Demand for and profitability of our biofuels (including renewable diesel and SAF), biogases and green electricity, including those of DGD, depend in significant part on government programs, mandates, tax credits and incentives in the U.S. and other jurisdictions, including renewable fuel standards, low carbon fuel programs and clean fuel tax credits. These programs are complex, subject to frequent legislative, regulatory and administrative change, and dependent on agency interpretation, guidance enforcement priorities and funding.
Programs like RFS and LCFS, compliance and tax credits for biofuels and mandates for biofuel use, both in the United States and abroad, are subject to revision and change which may impact the demand for our finished products and margins. Support from the programs and credits plays an important role in the makeup of margins for the DGD Joint Venture, and, accordingly, we are exposed to volatility in the market price of these credits, including LCFS credits and RINs (which act as compliance credits under the RFS). We cannot predict the future prices of RINs, LCFS credits or other credits, nor can we predict changes or continued implementation of policies that support these programs.
The EPA created the RFS program pursuant to the Energy Policy Act of 2005 and the Energy Independence and Security Act of 2007. Under the RFS program, the EPA is required by statute to set annual quotas for the volume of renewable fuels that must be blended into petroleum-based transportation fuels consumed in the U.S. 14 months prior to the compliance year. The quotas are set by class of renewable fuel (e.g., biomass-based diesel, cellulosic biofuel, advanced biofuel, and total renewable fuel) and are collectively referred to as the renewable volume obligation (“RVO”). The RVO must be met by obligated parties, who are the producers and importers of the petroleum-based transportation fuels consumed in the U.S. Obligated parties demonstrate compliance annually by retiring the appropriate number of renewable identification numbers (“RINs”) associated with each class of renewable fuel to satisfy their RVO. A RIN is a compliance credit that is assigned to each gallon of qualifying renewable fuel produced in, or imported into, the U.S. under the RFS program. RINs are obtained by blending those renewable fuels into petroleum based transportation fuels, and obligated parties can also achieve compliance by purchasing RINs in the open market.
Pursuant to the requirements established by the Energy Independence and Security Act of 2007, the finalized 2010 RFS regulation mandated the domestic use of biomass-based diesel (biodiesel, renewable diesel or renewable jet fuel) of 1.0 billion gallons in 2012 and a minimum of 1.0 billion gallons of biomass-based diesel for subsequent years. This amount is subject to increase by the Administrator of the EPA. The volume mandates for 2022 were 2.76 billion gallons for biomass-based diesel, 5.63 billion RINs for advanced biofuel, and 20.63 billion RINs for total renewable fuel.
In June of 2023, the EPA published a final rule that established required RFS volumes for 2023, 2024, and 2025. For biomass-based diesel, the EPA set 2.82 billion gallons for 2023, 3.04 billion gallons for 2024, and 3.35 billion gallons for 2025. For the advanced biofuel category, the EPA set 5.94 billion RINs for 2023, 6.54 billion RINs for 2024, and 7.33 billion RINs for 2025. For total renewable fuel, the EPA set 20.94 billion RINs for 2023, 21.54 billion RINs for 2024, and 22.33 billion RINs for 2025.
For RFS compliance purposes, RINs satisfy the biomass-based diesel requirement, the overall advanced biofuel requirement, and the total renewable fuel requirement. In order to generate a RIN, each type of fuel from each type of feedstock is required to reduce greenhouse gas (“GHG”) emissions by levels specified in the regulation. The EPA has determined that biodiesel or renewable diesel produced from waste oils, fats, and greases exceed the 50% threshold established by the regulation to generate advanced biofuel and biomass-based diesel RINs.
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In January 2025, the Clean Fuels Production Credit (“CFPC”) introduced under the IR Act became effective through 2027, and replaced the blender tax credit that was in effect in prior years. Under the CFPC, non-aviation transportation fuel receives a tax credit equal to either $0.20/gallon or $1.00/gallon (adjusted for inflation each calendar year) multiplied by the fuel’s emission reduction percentage. In order to start with the $1.00 per gallon baseline, the fuel must be produced at a qualifying facility that meets the prevailing wage and apprenticeship requirements before being sold in a certain manner. Under the CFPC, SAF receives a tax credit equal to either $0.35/gallon or $1.75/gallon (adjusted for inflation each calendar year) multiplied by the fuel’s emission reduction percentage. In order to start with the $1.75 per gallon baseline, SAF must be produced in the United States at a qualifying facility that meets the prevailing wage and apprenticeship requirements before being sold for use in an aircraft. In contrast to the blender tax credit, the CFPC requires that production of eligible fuels must take place in the United States. On July 4, 2025, the One Big Beautiful Bill Act (the “OBBBA”) was enacted in the U.S. The OBBBA extended the CFPC for two years through 2029 and, beginning in 2026, reduces the maximum credit rate for SAF to $1.00/gallon (adjusted for inflation each calendar year) and specifies that transportation fuels must be derived from feedstocks produced or grown in the U.S., Mexico or Canada to be eligible.
Government incentives related to renewable fuels were material to our results of operations in fiscal 2025, so any legal challenges or changes to, a failure to enforce, reductions in the mandated volumes under, or suspending or discontinuing any of these programs could have a negative impact on our business and results of operations.
For example, the transition from the blender tax credit to the CFPC on January 1, 2025 introduced a number of risks that could negatively impact the results of operations of the DGD Joint Venture and cause a material and adverse impact to the Company. These include, but are not limited to: credit eligibility and compliance risks for failure to satisfy qualification, prevailing wage and apprenticeship and other certification and documentation requirements which could reduce credit values or void credits; regulatory risks because the U.S. Treasury has yet to provide final CFPC regulations, and credits earned since January 1, 2025 must be determined based on currently available information from Treasury; and credit transfer risks, including the development of markets to sell the credits, the strength of any such markets and the viability of the credits with respect to discounts to credit values on sales, and potential Company indemnities with respect to credit sales which introduce the risk of reimbursing buyers for any later credit adjustments including potential penalties, interest and tax gross-ups which could be material.
We are highly dependent on natural gas, diesel fuel and electricity, the prices of which can be volatile, and such dependency could materially adversely affect our business.
Our operations are highly dependent on the use of natural gas, diesel fuel and electricity and a disruption in any of them could have a material adverse effect on the business and results of operations of the affected facility. We consume significant volumes of natural gas to operate boilers in our plants, which generate steam to heat raw materials, and natural gas prices represent a significant cost of facility operations included in cost of sales. We also consume significant volumes of diesel fuel to operate our fleet of vehicles used to collect raw materials, and diesel fuel prices represent a significant component of cost of collection expenses included in cost of sales. Prices for both natural gas and diesel fuel can be volatile, partially due to conflicts around the world, such as the ongoing Russian-Ukraine war and conflicts in the Middle East, and inflation, and therefore, represent an ongoing challenge to our operating results. Despite our efforts to manage these costs and hedge our exposure to changes in fuel prices through our formula pricing, and from time to time, derivatives, a material increase in prices for natural gas and/or diesel fuel over a sustained period of time could materially adversely affect our business, results of operations and financial condition. We also require a significant amount of electricity in operating certain of our facilities, a significant increase in the cost of which could have a material adverse effect on the business and results of operations of the affected facility. Additionally, the availability of natural gas, diesel fuel and electricity can be affected by numerous events such as weather (e.g., hurricanes and periods of considerable heat or cold), pipeline and other logistics interruptions, electric grid outages, cybersecurity incidents, intermittent electricity generation, hostilities, sanctions and supply and demand imbalances.
A significant percentage of our revenue is attributable to a limited number of suppliers and customers.
In fiscal year 2025, the Company’s top ten customers for finished products accounted for approximately 40% of product sales. In addition, the Company’s top ten raw material suppliers accounted for approximately 27% of its raw material supply in the same period. Disruptions or modifications to, or termination of, our relationship with any of our significant suppliers or customers, or financial difficulties experienced by any of our suppliers or customers that lead to curtailment or termination of their operations, could cause our businesses to suffer significant financial losses and could have a material adverse effect on our business, earnings, financial condition and/or cash flows.
Certain of our operating facilities are highly dependent upon a single or a few suppliers.
Certain of our operating facilities are highly dependent on one or a few suppliers. Should any of these suppliers choose alternate methods of disposal, cease their operations, have their operations interrupted by casualty, curtail their operations or
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otherwise cease using our collection services, these operating facilities may be materially and adversely affected, which could materially and adversely affect our business, results of operations and financial condition.
We face risks associated with our international activities, which could negatively affect our sales to customers in foreign countries and our operations and assets in such countries.
We conduct foreign operations in Europe, South America, Canada, Asia and Australia. While we expect that our geographical diversity reduces our exposure to risks in any one country or part of the world, it also subjects us to various risks and uncertainties relating to international sales and operations, including:
• imposition of tariffs, quotas, trade barriers and other trade protection measures imposed by the United States or foreign countries, or retaliatory trade protection measures, impacting import costs in the U.S. or foreign countries of poultry, beef and pork products, gelatin and collagen products, fats and oils, biofuels, and/or any of the Company’s other finished products, and related uncertainty and volatility in U.S. and global financial and economic conditions and commodity markets, declining consumer confidence, significant inflation and diminished expectations for the economy, as well as the imposition of operating, import or export licensing requirements;
• issues associated with intellectual property protections for the Company’s products and operations, such as defense of our intellectual property in foreign countries and/or, as the Company expands globally, use of our intellectual property on competing products in certain countries where our intellectual property is not registered;
• imposition of border restrictions by foreign countries with respect to the import of poultry, beef and pork products due to animal disease or other perceived health or safety issues;
• change in existing trade agreements, such as the United States-Mexico-Canada Agreement (“USMCA”), which could negatively impact our business;
• impact of currency exchange rate fluctuations between the U.S. dollar and foreign currencies, particularly the euro, the Brazilian real, the Canadian dollar, the Chinese renminbi, the British pound, the Japanese yen, the Australian dollar and the Polish zloty, which may reduce the U.S. dollar value of the revenues, profits and cash flows we receive from non-U.S. markets or of our assets in non-U.S. countries or increase our supply costs, as measured in U.S. dollars in those markets;
• exchange controls and other limits on our ability to import raw materials, import or export finished products or to repatriate earnings from overseas, such as exchange controls in effect in China, that may limit our ability to repatriate earnings from foreign countries;
• different regulatory structures (including creditor rights that may be different than in the United States) and unexpected changes in regulatory environments (including, without limitation, in China), including changes resulting in potentially adverse tax consequences or imposition of onerous trade restrictions, price controls, industry controls, animal and human food safety controls, employee welfare schemes or other government controls;
• political or economic instability, social or labor unrest or changing macroeconomic conditions (such as high inflation rates) or other changes in political, economic or social conditions in the respective jurisdictions;
• changes in tax laws or to tax rates in any of the jurisdictions in which we operate and adverse outcomes from tax audits;
• compliance with, and enforcement of, a variety of complex U.S. and non-U.S. laws, treaties and regulations, including, without limitation, anti-bribery and anti-corruption laws such as the U.S. Foreign Corrupt Practices Act (the “FCPA”), the U.K. Bribery Act of 2010, anti-corruption laws of the EU Member States, the Brazilian corporate anti-corruption law and similar anti-corruption legislation in many jurisdictions in which we or our joint venture partners operate, as well as economic and trade sanctions enforced by the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”), the European Union (“EU”) institutions, the EU Member States’ authorities, or other governmental entities; and
• distribution costs, disruptions in shipping or reduced availability or increased costs of freight transportation, including, without limitation, due to strikes or port closures which could impact movement of raw materials and finished products.
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These risks and uncertainties could jeopardize or limit our ability to transact business in one or more of our international markets or in other developing markets and may have a material adverse effect on our business, results of operations, cash flows and financial condition. In addition, from time to time certain of our international operations make contractual prepayments to raw material suppliers in the ordinary course of business, which may subject the Company to financial risk should any such supplier experience financial difficulties (e.g., bankruptcy) or cease operations.
Seasonal factors and weather, including the physical impacts of climate related changes, can impact the availability, quality and volume of raw materials that we process and negatively affect our operations.
There is global concern that carbon dioxide and other GHG in the atmosphere may have an adverse impact on global temperatures, weather patterns and the frequency of extreme weather and natural disasters. We are subject to physical, operational, transitional and financial risks associated with any such climate related changes and global, regional and local weather conditions, as well as legal, regulatory and market responses to climate change. Certain jurisdictions in which we operate have either imposed, or are considering imposing, new or increasingly stringent legal and regulatory requirements to reduce or mitigate the potential effects of climate change, including regulation and reduction of GHG and potential carbon pricing programs. These new or increasingly stringent legal or regulatory requirements could result in significantly increased costs of compliance and additional investments in facilities and equipment, and reduced raw material supplies in areas where these requirements limit or eliminate livestock operations. Our risk management process includes assessment of climate related regulatory risks, but we may be unable to predict the scope, nature and timing of any new or increasingly stringent environmental laws and regulations or the ultimate impact of such laws and regulations on our business or financial results. We continue to monitor existing and proposed laws and regulations in the jurisdictions in which we operate and consider actions we may take to potentially mitigate the unfavorable impact, if any, of such laws or regulations.
Furthermore, there is legislation (and additional legislation has been introduced) regulating practices related to the causes and impacts of climate change as well as supply chain control and compliance with human rights. For example, in December 2022 the EU adopted Directive (EU) 2022/2464, also known as the Corporate Sustainability Reporting Directive (“CSRD”), which requires reporting on sustainability-related issues. In addition, in June 2024 the EU adopted Directive (EU) 2024/1760, also known as the Corporate Sustainability Due Diligence Directive (“CSDDD”), which requires risk-based supply chain due diligence and certain activities in the supply chain. In addition, there has been increased state-level legislation in the U.S., like California’s SB 261, which mandates certain companies doing business in California to disclose climate-related financial risks, and SB 253, which requires reporting of corporate greenhouse gas emissions. In both the EU and California the regulations have been delayed pending amendments and legal challenges, which increases the uncertainty around final impacts to the Company. The Company continues to monitor proposed changes to these and other proposed legislative and regulatory requirements related to sustainability issues in state and national jurisdictions. Compliance with CSRD, CSDDD, California’s SB 261 and SB 253, and other proposed or adopted legislative and regulatory requirements related to sustainability issues may require expenditures that could materially adversely affect our business, results of operations and financial condition. There has also been increased focus from our stakeholders, including consumers, customers, suppliers, employees and investors, on our sustainability practices. We expect that stakeholder expectations with respect to sustainability will continue to progress, which may necessitate additional resources to monitor, report on, and adjust our operations.
The quantity of raw materials available to us is impacted by seasonal factors, including holidays, when raw material volumes decline, and cold weather, which can impact the collection of raw materials. Warm weather can also adversely affect the quality of raw materials processed and our yield on production due to more rapid degradation. In addition to seasonal impacts, depending on the location of our facilities and those of our suppliers, our operations could be subject to weather impacts, including the physical impacts of climate changes, changes in rainfall patterns, water shortages, changing sea levels, changing storm patterns and intensities and changing temperature levels. Physical damage, flooding, excessive snowfall or drought resulting from changing climate patterns could adversely impact our costs and business operations, the availability and costs of our raw materials, and the supply and demand for our end products. These effects could be material to our results of operations, liquidity or capital resources. The quality and volume of the finished products that we are able to produce could be negatively impacted by unseasonable or severe weather or unexpected declines in the volume of raw materials available during holidays, which in turn could have a material adverse effect on our business, results of operations and financial condition. In addition, severe weather events may also impact our ability to collect or process raw materials or to transport finished products.
If we or our customers are the subject of product liability or other claims or product recalls, we may incur significant and unexpected costs and our business reputation could be adversely affected.
We and our customers for whom we manufacture products may be exposed to product liability or other claims, product recalls and adverse public relations if consumption or use of our products is alleged to cause injury or illness to humans or animals. In addition, we and our customers may be subject to product liability or other claims, product recalls, and adverse public relations resulting from developments relating to the discovery of unauthorized adulterations to food additives or other products or from allegations that our food ingredients or other products were mislabeled, were not produced in accordance with
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the customer’s specifications, contract requirements or regulatory standards and/or have not performed adequately in the end product, even where food safety or other product safety is not a concern. In some cases, we indemnify our customers for product liability and other claims related to our products. Product recalls in one jurisdiction may result in product recalls in other jurisdictions, as is the case in the EU, where the European Commission and the EU Member States exchange information about recalls. Our insurance may not cover or be adequate to cover all liabilities we incur in connection with product liability and/or other claims, whether or not legitimate, or product recalls, whether voluntary or mandatory, and we may not be able to maintain our existing insurance or obtain comparable insurance at a reasonable cost for such matters. A judgment against us or against one of our customers for whom we manufacture or provide products on a product liability or other claim, or our or their agreement to settle a product liability or other claim, or a product recall, could also result in substantial and unexpected expenditures, which would reduce operating income and cash flow. In addition, even if product liability or other claims against us or our customers for whom we manufacture products are not successful or are not fully pursued, defending these claims would likely be costly and time-consuming and may require significant management attention.
Product liability or other claims, product recalls or any other events that cause consumers to no longer associate our brands or those of our customers for whom we manufacture products with high quality and safety may result in adverse publicity and negatively impact our reputation and the value of our and their brands and lead to decreased demand for our products. In addition, as a result of any such claims against us or product recalls, we may be exposed to claims by our customers for damage to their reputations and brands. Product liability or other claims and product recalls may also lead to increased scrutiny or investigations by federal, state and foreign regulatory agencies of our operations and could have a material adverse effect on our brands, business, reputation, results of operations and financial condition.
In recent years the EU has adopted new mechanisms to allow (and encourage) claims by consumers, including in collective litigation forms. The civil liability risks in Europe in relation to misleading advertising are material and increasing. On December 8, 2024, Directive (EU) 2024/2853, the EU’s revised Product Liability Directive (“PLD”), which must be transposed into national legislation of the EU Member States by December 9, 2026, introduced a number of significant changes that increase liability risks for companies distributing their products to EU consumers. Direct civil enforcement before EU institutions or courts is not available, but EU law requires EU Member States to enhance consumer protection at the national level by requiring every EU Member State to allow consumer representative bodies to take civil claims on behalf of consumers for breaches of certain EU consumer laws.
In certain markets we are highly dependent upon a single operating facility and various events beyond our control could cause an interruption in the operation of our facilities, which could adversely affect our business in those markets.
Our facilities are subject to various federal, state, provincial and local laws, rules and regulations including environmental and other permitting requirements of the countries in which we operate and our facilities are located. Periodically, these permits may be reviewed and subject to amendment or withdrawal. Applications for an extension or renewal of various permits may be subject to challenge by community and environmental groups and others. In the event of a casualty, condemnation, work stoppage, permitting withdrawal or delay, severe weather event, cyber-attack or other unscheduled shutdown involving one of our facilities, in a majority of our markets we would utilize a nearby operating facility to continue to serve our customers in the affected market; however, in certain markets we do not have alternate operating facilities. If any of these events occur in such markets, we may experience an interruption in our ability to service our customers and to procure raw materials, and potentially an impairment of the value of that facility. Any of these circumstances may materially and adversely affect our business and results of operations in those markets. In addition, after an operating facility affected by such an event or unscheduled shutdown is restored, customers who in the interim choose to use alternative disposal services may not return to use our services.
We may incur losses and additional costs as a result of our hedging transactions.
Darling and the DGD Joint Venture have used and may continue to use commodity derivative instruments in the future to hedge their exposures to various types of financial risk. If these instruments are not effective or increase Darling’s or the DGD Joint Venture’s exposure to unexpected events or risks, Darling or the DGD Joint Venture may incur losses. In addition, both Darling or the DGD Joint Venture may be required to incur additional costs in connection with any future regulation of derivative instruments applicable to either or both.
Media campaigns related to feed and food ingredient production or fuel production present reputational and other risks.
Individuals or organizations can use social media platforms to publicize inappropriate or inaccurate stories or perceptions about the feed and food ingredient production industries, fuel production industry or our Company. Such practices could cause damage to the reputations of our Company and/or the feed and food ingredient production industries or fuel production industry in general. This damage could adversely affect our financial results.
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An impairment in the carrying value of our goodwill or other intangible assets may have a material adverse effect on our results of operations.
As of January 3, 2026, the Company had approximately $2.5 billion of goodwill. We are required to annually test goodwill to determine if impairment has occurred, as well as whenever events or changes in circumstances indicate that impairment may have occurred. If the testing performed indicates that impairment has occurred, we are required to record a non-cash impairment charge for the difference between the carrying value of the reporting unit, including goodwill, and the fair value of the reporting unit, including goodwill, in the period the determination is made. The testing of goodwill for impairment requires us to make significant estimates about our future performance and cash flows, as well as other assumptions. These estimates and assumptions can be affected by numerous factors, including changes in economic, industry or market conditions, changes in business operations or regulation, or changes in competition. Changes in these factors, or changes in actual performance compared with estimates of our future performance, may affect the fair value of goodwill, which may result in an impairment charge. We cannot accurately predict the amount and timing of any impairment of assets. Should the value of goodwill become impaired, there may be a material adverse effect on our results of operations.
Risks Related to Legal and Regulatory Compliance
Our operations are subject to extensive and evolving environmental, health and safety laws and regulations, and we could incur significant costs to comply with these requirements or be subject to sanctions or held liable for damages, including environmental damages.
Our operations subject us to stringent environmental, health and safety requirements in the various jurisdictions where we operate, including those governing air emissions and odor, wastewater discharges, storm water discharges, the management, storage and disposal of materials in connection with our facilities, occupational health and safety, facility registrations, certifications and inspections, Current Good Manufacturing Practices (“cGMP”), product packaging and labeling and our handling of hazardous materials and wastes, such as gasoline and diesel fuel used by our trucking fleet and operations. Failure to comply with these requirements could have significant consequences, including operational restrictions, recalls, penalties, injunctive relief, remediation, claims for personal injury and property and natural resource damages, other claims and negative publicity. Our operations require the control of air emissions and/or odor from various sources. Our operations also require treatment and permitted discharge of storm water and wastewater to publicly owned treatment works and/or the environment via surface waters or land application. We have incurred significant capital and operating expenditures to comply with environmental requirements, including for the upgrade of wastewater treatment facilities, and may continue to incur such costs in the future. Separately, we could also be subject to odor related claims, damages, violations and/or penalties in connection with our operations, including potential class action odor litigation.
We could be responsible for the remediation of environmental contamination and may be subject to associated liabilities and claims for personal injury and property and natural resource damages. We own or operate numerous properties, have been in business for many years and have acquired and disposed of properties and businesses over that time. During that time, we or other owners or operators may have generated or disposed of wastes or stored or handled other materials that are or may be considered hazardous or may have polluted the soil, surface water or groundwater at or around our facilities. Under some environmental laws, such as the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 in the United States (“CERCLA”), also known as the Superfund law, responsibility for the cost of cleanup of a contaminated site can be imposed upon current or former site owners and operators, or upon any party that sent waste to the site, regardless of the lawfulness of the activities that led to the contamination. Similar laws outside the United States impose liability for environmental cleanup, often under the polluter pays theory of liability but also based upon ownership in some circumstances. Such laws may require us to face extensive costs or penalties that would have a material adverse effect on our financial condition and results of operations. For example, we have received notices from the EPA relating to alleged sediment contamination in Newtown Creek in New York and alleged river sediment contamination in the Lower Passaic River area of New Jersey, and are party to a lawsuit filed by Occidental Chemical Corporation in which it seeks contribution for various investigative and cleanup costs it has incurred in connection with the alleged sediment contamination in the Lower Passaic River area of New Jersey. See Item 3. “ Legal Proceedings ” for additional information about the Lower Passaic River matter.
In addition, future developments, such as more aggressive enforcement policies, new laws or discoveries of currently unknown contamination conditions, may also require expenditures that may have a material adverse effect on our business and financial condition. For example, regulations are emerging regarding per- and polyfluoroalkyl substances (“PFAS”) continue to evolve due to potential health and environmental risks. In the U.S., the EPA has designated perfluorooctanoic acid (“PFOA”) and perfluorooctanesulfonic acid (“PFOS”) – as “hazardous substances” under CERCLA and adopted the primary drinking water standards for certain PFAS, with which public water systems must comply by 2029. The EPA is also advancing regulations to list certain PFAS as hazardous constituents under the Resource Conservation and Recovery Act (RCRA). EU legislators are taking steps to adopt a comprehensive legislative measure simultaneously restricting a large number of PFAS. In February 2023, the European Chemical Agency (“ECHA”) published a proposal to restrict 10,000+ PFAS under Annex XVII of
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Regulation (EC) No. 1907/2006 concerning the registration, evaluation, authorization and restriction of Chemicals (“REACH”). ECHA’s committees for Risk Assessment and Socio-Economic Analysis have been evaluating the proposal based on a sector-based approach to address the specificities of such substances, and a consolidated opinion will be sent to the European Commission, which will make the ultimate decision in consultation with the EU Member States. While Darling does not manufacture or use PFAS, the raw materials we process could contain PFAS as could the influent waters from city supply services and/or production wells. If PFAS is contained in these sources, it could persist in the outputs of our production, including wastewater treatment discharges, wastewater-derived residuals, and/or finished products. New or expanded regulation, enforcement actions, remediation obligations, product impacts or private litigation related to PFAS could result in material costs, operational disruptions or reputational harm.
In addition, increasing efforts to control emissions of GHG may impact our operations although the regulatory landscape is evolving. We operate in certain jurisdictions subject to the Paris Agreement, which mandates reduced GHG emissions in certain participating countries. However, at the federal level in the U.S., there have been certain changes. On February 12, 2026, the EPA repealed the 2009 endangerment finding, which was the legal basis for regulating GHG emissions under the Clean Air Act. The EPA also repealed all federal GHG emission standards for light-, medium-, and heavy-duty vehicles. However, it remains uncertain how these repeals will affect existing and future federal regulation of GHG emissions, and whether the EPA may revise, repeal or retain regulations that were based on the prior finding. While we await certainty on the effect of these repeals, state-level initiatives and the international focus on reporting of and reductions in GHG emissions, as well as investor and stakeholder expectations, may still require us to incur additional capital and operational expenditures to remain in compliance, which could impact our business, results of operations, and financial condition. The EPA has also proposed to eliminate its Greenhouse Gas Reporting Program for most industries, which would remove mandatory facility-level reporting requirements for several of our facilities. However, EPA regulations limiting exhaust emissions have become more restrictive, and the National Highway Traffic Safety Administration and the EPA have adopted regulations that govern fuel efficiency and GHG emissions. Compliance with these and similar regulations could increase the cost of new fleet vehicles and increase our operating expenses. In addition, compliance with future GHG regulations may require expenditures that could materially adversely affect our business, results of operations and financial condition.
We have approximately 15,000 employees world-wide and are subject to a wide range of local, provincial and national laws and regulations governing the health and safety of workers, including, for example, OSHA in the United States. We could be subject to potential fines and civil and, in egregious cases, criminal actions if we are found to be in violation of worker health and safety laws in any of these jurisdictions. Further, as such laws and regulations change, we may sometimes be required to commit to unplanned capital expenditures in order to continue to comply with workplace safety requirements at our facilities. In addition, we operate and maintain an extensive vehicle fleet to transport products to and from customer locations. Our fleets and drivers are subject to federal, state, local and foreign laws and licensing requirements applicable to commercial fleets, their cargo and their hours and methods of operation. Failure to comply with these laws and regulations in any location could materially adversely affect our business, results of operations, financial condition and reputation.
Risks Related to Global Disease Outbreaks or Pandemics
Our business may be negatively impacted by the occurrence of any disease correctly or incorrectly linked to animals.
The emergence of diseases such as swine influenza viruses (collectively known as “Swine Flu”) and highly pathogenic strains of avian influenza (collectively known as “Bird Flu”) and severe acute respiratory syndrome (“SARS”), including SARS-coronavirus 2, that are in or associated with animals and have the potential to also threaten humans has created concern that such diseases could spread and cause a regional or global pandemic. As of the date of this report, various strains of Bird Flu have been and continue to be reported in wild fowl and commercial poultry in Europe, North America, the Middle East and parts of Asia, and rare cases of human infection, including fatalities, have been reported.
In addition, other diseases that are highly contagious within a species, but do not affect other animals and are not transmissible to humans, such as the porcine epidemic diarrhea virus and African Swine Fever (“ASF”), may significantly impact production of the susceptible livestock or animal species in a country or region. ASF is a viral and highly contagious disease of pigs and wild boar, for which no cures or approved vaccines are available in the United States as of the date of this report. In the past few years, ASF has become widespread in multiple Chinese, Vietnamese and Philippine provinces and has been reported in Cambodia, Laos, Myanmar, Timor-Leste, Indonesia, Malaysia, and Thailand in South East Asia and the People's Democratic Republic of Korea, the Republic of Korea, Mongolia, Bhutan and India. In April 2021, the Chinese Ministry of Agriculture and Rural Affairs (“MARA”) issued the “Work plan for Regional Prevention and Control of African Swine Fever and Other Major Animal Diseases (Trial)”, which divided the entire country into five regions (South-Central, Eastern, Northern, South-West, and North-west). Pig movement is restricted and ASF-free zones were created. Only pigs from ASF-free zones, breeding pigs and piglets are allowed to move beyond their respective region. Such restrictions on the movement of pigs from one region to another may affect slaughter numbers within certain regions and thereby reduce volumes of raw material supplied to our locations that, within the same region, process blood and make collagen from pork skins.
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Additionally, the perception, real or implied, that blood meal and dried plasma powder may contribute to the spread of ASF, resulted in a temporary ban on the use of porcine plasma in pork feed which negatively affected demand for our products as ingredients in porcine animal feed in China. This ban has now been lifted and porcine plasma is once again allowed to be used in pork feed provided that certain newly established guidelines are met. ASF has also been reported in Eastern Europe since 2007. The disease has been detected in both domestic and feral pigs in several EU (primarily Eastern European) Member States in the past years, and the EU has taken measures to address the spread of ASF. In particular, based on the epidemiological situation of ASF, the areas affected by ASF in relevant EU Member States have been listed as restricted zones I, II and III in Annex I to the Commission Implementing Regulation (EU) 2023/594, as amended. The Implementing Regulation provides special control measures for ASF based on Regulation (EU) 2016/429 (“Animal Health Law”). On July 28, 2021, ASF was confirmed in the Dominican Republic and subsequently in Haiti on September 30, 2021. As a result of the occurrence of ASF in North America, the Animal and Plant Health Inspection Service (“APHIS”), on September 24, 2021, submitted plans to the WOAH for the declaration of a new ASF protection zone in Puerto Rico and the U.S. Virgin Islands. Although ASF has not been detected in Puerto Rico or the U.S. Virgin Islands, establishing such an ASF protection zone will add to existing efforts to prevent ASF from spreading into the United States and protect exports of pork related products. Because Puerto Rico and the U.S. Virgin Islands are territories of the U.S., export markets will close to all live pigs, pork meat and pork by-products produced in the U.S. if ASF finds its way into Puerto Rico or the U.S. Virgin Islands. Fortunately, the WOAH has established procedures for countries to recognize protection zones and limit bans of affected products to the protection zone and allow trade to continue with regions of the country outside of the protection zone. As of the date of this report, ASF has not been reported in the United States, Canada or South America. ASF does not infect humans and is not considered a food safety hazard. In addition, any reports, proven or perceived, that implicate animal feed or feed ingredients, including but not limited to animal by-products, as contributing to the spread of ASF or other contagious diseases could negatively affect demand for our products as ingredients in animal feeds in the affected country or region.
Although no global disease pandemic among humans has been linked to Bird Flu or other emerging diseases as of the date of this report, governments may be pressured to address these concerns, including by executive action such as temporarily closing certain businesses, including meat and animal processing facilities, within jurisdictions suspected of contributing to the spread of such diseases or by legislative or other policy action, such as prohibiting imports of animals, meat and animal by-products from countries or regions where the disease is detected or suspected. If any disease is correctly or incorrectly linked to animals and has a negative impact on meat or poultry consumption or animal production in any jurisdiction in which we operate, such occurrence could have a material negative impact on the volume of raw materials available to us or the demand for our finished products.
Our business may be affected by the impact of animal related disease, such as BSE, and by other food safety or food regulatory issues.
The FDA has put in place restrictions to prevent the spread of BSE, and certain foreign governments have also restricted exports of beef and beef products from the United States following the detection of BSE in the United States in December 2003. The sixth case of BSE was reported in a six-year-old mixed-breed beef cow in August, 2018, which was the second case of BSE since the WOAH characterized the United States’ BSE status as one of “negligible risk” in 2013. The seventh and most recent case of BSE was announced in May 2023 by the U.S. Department of Agriculture (“USDA”). According to the announcement, the animal was tested as part of USDA’s routine surveillance of cattle that are deemed unsuitable for slaughter. As such, this animal never entered slaughter channels and at no time presented a risk to the food supply or to human health in the United States. On May 24, 2022, the WOAH characterized Canada's BSE status as one of “negligible risk”. On December 17, 2021 the Canadian Food Inspection Agency confirmed a case of atypical BSE in an 8.5 year old cow in Alberta. However, the Canadian Food Inspection Agency reported zero cases of BSE in 2023. While these latest cases in the United States and Canada and previous cases were the atypical or sporadic form of BSE, which is not spread via feed and, therefore, did not affect the “negligible BSE risk” status of either country, continued concern about BSE in countries in which we operate now or in the future, may result in additional regulatory and market related challenges that may affect our operations or increase our operating costs.
With respect to human food, pet food and animal feed safety in the United States, the FDA Food Safety Modernization Act (“FSMA”) gives the FDA various authorities and directs the FDA to promulgate new regulations pursuant to the FSMA, as described in the section entitled “ Business—Regulations ” included in this report.
As a producer of meat-centric food products, our business depends on the continued availability of animal by-products and the acceptance of our products in human food, pet food, animal feed and fuel markets, and we are subject to risks associated with the outbreak of disease in pork, beef livestock, and poultry flocks, including Foot-and-Mouth Disease, Bird Flu, Salmonella and BSE. The outbreak of disease could adversely affect our supply of raw materials, increase the cost of production, and reduce operating margins. Additionally, the outbreak of disease may hinder our ability to market and sell products. We have developed business continuity plans for various disease scenarios, but these plans may not be effective in eliminating the negative effects of any such diseases on our operating results.
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We have followed regulations enacted under the FDA Food Safety Modernization Act (“FSMA”), as described in the section entitled “ Business—Regulations ” included in this report, throughout the rulemaking process and have implemented cGMPs, food safety plans and other procedures at our domestic facilities, which we believe comply with the applicable final rules for preventive controls for human food and animal feed. Similar procedures have been implemented at our foreign facilities for compliance with the Foreign Supplier Verification Programs rule. Such rulemaking and implementation of compliant procedures could, among other things, limit our ability to import necessary raw materials or finished products or require us to amend certain of our other operational policies and procedures. Unforeseen issues and requirements may arise as the FDA implements and enforces these and other final rules or promulgates other new regulations provided for by the FSMA or under new FDA policies put forward under the Trump Administration under the Food, Drug, and Cosmetic Act. For example, the Trump Administration is focused on efforts to remove certain chemicals, including food additives and color additives, from food products, and intends to propose rulemaking to change the regulatory pathway for generally recognized as safe (“GRAS”) substances in food, including by potentially eliminating the possibility for self-affirmation of the safety of such ingredients. In addition, the FDA has promoted and updated databases of information regarding contaminant levels in food, including tolerances, action levels and guidance levels. We may be required to comply with new laws and regulations, including those focused on our products, components of our products or labeling, which may increase costs or otherwise adversely impact our business.
The FDA has also established a Reportable Food Registry (“RFR”) pursuant to the Food and Drug Administration Amendments Act of 2007, and has defined a reportable food, which the manufacturer or distributor would be required to report in the RFR, to include materials used as ingredients in animal feeds and pet foods if there is a reasonable probability that the use of, or exposure to, such materials will cause serious adverse health consequences or death to humans or animals. Finalization of the RFR guidance documents and potential additional requirements relating to the RFR may impose additional requirements on us.
According to the “Compliance Policy Guide Sec. 690.800, Salmonella in Food for Animals,” any finished pet food contaminated with any species of Salmonella will be considered adulterated, and the FDA believes regulatory action is warranted in cases involving such pet foods because of the heightened risk to humans given the high likelihood of direct human contact with pet food. Finished animal feeds intended for pigs, poultry and other farmed animals, however, will be considered to be adulterated only if the feed is contaminated with a species of Salmonella that is considered to be pathogenic for the animal species for which the feed is intended. Any pathogen, such as Salmonella , that is correctly or incorrectly associated with our finished products could have a negative impact on the demand for our finished products and could have a material adverse effect on our business, reputation, results of operations or financial condition.
As a result of our international operations, we could be adversely affected by additional non-U.S. regulations regarding BSE and other food safety issues. For example, an enforceable ban on the feeding of restricted animal material to ruminant animals is in place in Australia as part of a comprehensive national program to prevent the entry and establishment of the BSE agent in Australia and inspections and audits are undertaken to ensure compliance. In addition, in the EU, harmonized rules have been adopted for the prevention, control and eradication of transmissible spongiform encephalopathies (“TSEs”), which includes BSE, in Regulation (EC) No 999/2001, as amended (“TSE Regulation”), and in Regulation (EC) No 1069/2009, as amended (“Animal By-Products Regulation”) and the creation or expansion of other food and feed hygiene regulations. The TSE Regulation establishes a similar “feed ban” which prohibits the use of certain animal proteins, including processed animal protein (“PAP”) and MBM, in feed for ruminants according to which only certain animal proteins considered to be safe (such as fishmeal) can be used, but under very strict conditions. Since 1994, a ban on feeding MBM to ruminants has been in place in the EU and expanded in 2001, with the prohibition of feeding all PAP to all farmed animals, subject to certain limited exceptions. In 2009, the BSE-related feed ban was supplemented with the prohibition of intra-species recycling for all food-producing animals. Other animal-derived products besides PAP, such as collagen derived from non-ruminants and hydrolyzed proteins derived from parts of non-ruminants or ruminant hides and skins, were not included in the feed ban. The feed ban has been lifted for pig and poultry PAP in the feed of aquaculture animals, and insect PAP (a new source of animal protein) in the feed of aquaculture animals. In 2021, the European Commission relaxed the “feed ban” to allow the feeding of non-ruminant farmed animals with insect PAP, reauthorize the feeding of poultry with pig PAP, the feeding of pigs with poultry PAP and allow the use of ruminant derived gelatin in feeds for non-ruminant farmed animals.
Darling Ingredients International may profit from the possible lifting of the ban for pigs and poultry, however, the introduction of changes to the feed ban and further restriction may adversely affect Darling Ingredients International, possibly restricting the allowed use of some of their products. The TSE Regulation applies to the production and placing on the market of live animals and products of animal origin on the EU market. The BSE status of EU Member States, non-EU members of the European Economic Area and other countries or regions (“Third Countries”) is to be determined by classification made by the WOAH into one of three BSE risk categories identified in the Regulation ( i.e ., negligible risk, controlled risk or undetermined risk), which are informed by risk assessments and surveillance monitoring. According to the Commission Decision of June 29, 2007, as amended, Greece is the only EU Member State classified as having a controlled BSE risk. The other EU Member
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States are classified as having a negligible BSE risk. Also, the United Kingdom (with the exception of Northern Ireland), as a former a member of the EU is classified as controlled BSE risk. A change in the BSE status of one or more EU Member States may have a negative impact on Darling Ingredients International. Under EU legislation, imported products from outside the EU must meet the same safety standards as products produced in EU Member States. The TSE Regulation imposes strict import requirements related to TSEs for live animals and animal by-products, which depend on the BSE status of Third Countries.
The Animal By-Products Regulation establishes rules intended to prevent the outbreak of certain diseases such as BSE. A BSE outbreak or other event viewed as hazardous to animal or human health could also lead to the adoption of more stringent rules on the use and disposal of animal by-products, which could require Darling Ingredients International to change its production processes and could have a material adverse effect on our business, results of operations or financial condition.
In addition, EU legislation applicable to the agri-food sector could create additional compliance requirements and enforcement risks for us. For example, Regulation (EU) 2019/1381, as amended (“Food Transparency Regulation”), strengthens transparency requirements in EU food law. The European Food Safety Authority (“EFSA”) must disclose scientific data, studies and other information supporting applications, including supplementary information supplied by applicants. EFSA is also tasked with establishing and managing a publicly accessible database of studies commissioned or carried out by business operators to support an application or notification in relation to which it must provide a scientific output. Business operators must notify EFSA of protected and detailed information concerning any study commissioned or carried out by them to support an application or a notification. Any potential disclosure of unfavorable studies and data as well as EFSA’s ultimate decision-making power to determine what constitutes confidential information (and therefore subject or not to transparency obligations) may result in adverse publicity, negatively impact our reputation and/or require us to disclose commercially sensitive information and data. In addition, Regulation (EC) 2017/625, as amended (“Official Controls Regulation”) requires that the EU Member States verify compliance with agri-food chain rules through official controls. To deter fraudulent practices, the Official Controls Regulation introduces more stringent rules for financial penalties, imposed by EU Member States, as well as new provisions to protect whistle-blowers to encourage and facilitate the reporting of non-compliance. More stringent and higher financial penalties may potentially result in significant and unexpected costs and enhanced provisions regarding whistle-blowers may result in more regulatory investigations and enforcement actions, both of which could have a material adverse effect on our business.
Pandemics, epidemics or disease outbreaks 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 could negatively affect our operations, liquidity, financial condition and results of operations.
The spread of pandemics, epidemics or disease outbreaks 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. Furthermore, transport restrictions related to quarantines or travel bans could be 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, any such outbreaks may affect the prices and demand for our finished products.
Workforce limitations and travel restrictions resulting from pandemics, epidemics or disease outbreaks 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 the DGD Joint Venture and its business and operations.
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Risks Related to our Labor Force
We may be subject to work stoppages at our operating facilities, which could cause interruptions in the manufacturing or distribution of our products.
While we currently have no international, national or multi-plant union contracts, as of January 3, 2026 approximately 14% of Darling’s U.S. employees, 51% of Canadian employees and 66% of Darling Ingredients International’s employees were covered by various collective bargaining agreements. Furthermore, local laws and regulations in certain jurisdictions in which we operate provide for worker groups with prescribed powers and rights with regard to working conditions, wages and similar matters. In jurisdictions where such groups do not exist, labor organizing activities could result in additional employees becoming unionized and higher ongoing labor costs. Darling’s collective bargaining agreements expire at varying times over the next five years. In contrast, Darling Ingredients International’s collective bargaining agreements generally have one to two year terms, while Canadian agreements generally have terms up to three years. Some of our collective bargaining agreements have already expired and are in the process of being renegotiated, but we may not be able to negotiate the terms of any expiring or expired agreement in a manner acceptable to us. If our workers were to engage in a strike, work stoppage, slowdown or other collective action in the future in any of our locations, we could experience a significant disruption of our operations, which could have a material adverse effect on our business, results of operations and financial condition. We may also be subject to general country strikes or work stoppages unrelated to our business or collective bargaining agreements that could have a direct or indirect adverse effect on our business, results of operation or financial condition.
Certain U.S. multiemployer defined benefit pension plans to which we contribute are underfunded and these plans may require minimum funding contributions or we may be subject to liabilities due to a termination of, or our withdrawal from, such plans.
We participate in various U.S. multiemployer pension plans which provide defined benefits to certain employees covered by labor contracts. These plans are not administered by us and contributions are determined in accordance with provisions of negotiated labor contracts to meet their pension benefit obligations to their participants. Based upon the most currently available information, certain of these multiemployer plans are or may be at risk of being underfunded due partially to a decline in the value of the assets supporting these plans, a reduction in the number of actively participating members for whom employer contributions are required and the level of benefits provided by the plans. In addition, the U.S. Pension Protection Act, which went into effect in January 2008, requires underfunded pension plans to improve their funding ratios within prescribed intervals based on the level of their underfunding. As a result, our required contributions to these plans may increase in the future. Furthermore, under current law, a termination of, our voluntary withdrawal from or a mass withdrawal of all contributing employers from any underfunded multiemployer defined benefit plan to which we contribute would require us to make payments to the plan for our proportionate share of such multiemployer plan’s unfunded vested liabilities, which could be significant and have an adverse effect on our financial condition. Also, if a multiemployer defined benefit plan fails to satisfy certain minimum funding requirements, the Internal Revenue Service (“IRS”) may impose a nondeductible excise tax of 5% on the amount of the accumulated funding deficiency for those employers not contributing their allocable share of the minimum funding to the plan. Requirements to pay increased contributions, withdrawal liability and excise taxes could negatively impact our liquidity and results of operations.
Risks Related to our Indebtedness
Our substantial indebtedness could adversely affect our financial condition.
As of January 3, 2026, our total debt, including trade debt, was approximately $3.9 billion. We also had undrawn commitments available for additional debt under our revolving credit facility of up to approximately $1.3 billion (after giving effect to approximately $601.2 million of revolver borrowing, $0.8 million of outstanding letters of credit and $73.6 million of ancillary facilities). Our substantial indebtedness could have important consequences, including:
• increasing the difficulty of satisfying our contractual and commercial commitments because of our obligations to our financial lenders;
• limiting our 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;
• diverting a substantial portion of our cash flows from operations to pay principal and interest on our debt instead of for other purposes, thereby reducing the amount of our cash flows from operations available for working capital, capital expenditures, acquisitions and other general corporate purposes;
• increasing our vulnerability to adverse economic, industry and business conditions;
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• exposing us to the risk of increased interest rates as certain of our debt has a variable rate of interest and as we refinance our debt that has a fixed rate of interest, which could increase our debt service obligations and negatively impact our net income and cash flows;
• increasing our exposure to changes in foreign exchange rate conversion to functional currency;
• limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
• placing us at a competitive disadvantage compared to other, less leveraged competitors; and
• increasing our cost of borrowing.
In addition, the indentures that govern our senior notes and the credit agreement governing our senior secured credit facilities contain covenants that limit our ability to engage in activities that may be in our long-term best interest. These covenants may negatively impact our ability to finance future operations, implement our business strategy, fund our capital needs or engage in other business activities that may be in our interest. Our failure to comply with those covenants could result in an event of default which, if not cured or waived, could result in the acceleration of all of our funded debt. See Item 7. “ Management Discussion and Analysis of Financial Condition and Results of Operations ” - “ Senior Secured Credit Facilities ,” “ 6% Senior Notes due 2030, ” “ 5.25% Senior Notes due 2027 ” and “ 4.5% Senior Notes due 2032 .”
Despite our existing level of indebtedness, we and our subsidiaries could substantially increase our indebtedness, which could further exacerbate the risks to our financial condition described above.
The indentures that govern our senior notes do not directly restrict our indebtedness. The credit agreement governing the senior secured credit facilities restricts our indebtedness, but these restrictions are subject to significant qualifications and exceptions, and the additional debt that we and our subsidiaries could incur in compliance with these restrictions could be substantial. To the extent that we or our subsidiaries increase our indebtedness, the risks associated with our indebtedness, including our possible inability to service our debt, could intensify. See Item 7. “ Management Discussion and Analysis of Financial Condition and Results of Operations ” - “ Senior Secured Credit Facilities, ” “ 6% Senior Notes due 2030, ” “ 5.25% Senior Notes due 2027 ” and “ 4.5% Senior Notes due 2032 .”
We may not generate sufficient cash to service all of our debt and may be forced to take other actions to satisfy our debt obligations, which may not be successful.
Our ability to make scheduled payments on or to refinance our debt obligations depends on our financial condition and operating performance, which are subject to prevailing economic and competitive conditions and to certain financial, business, legislative, regulatory and other factors beyond our control. We might not maintain sufficient cash flows from operating activities to pay the principal, premium, if any, and interest on our debt when due.
If our cash flows and capital resources are insufficient to service our debt obligations and to meet our other cash needs, we could be forced to reduce or delay investments and capital expenditures, dispose of material assets or operations, seek additional debt or equity capital, or restructure or refinance our debt. We may not be able to effect any such alternative measures on commercially reasonable terms or at all and, even if successful, such alternative actions may not allow us to meet our scheduled debt service obligations and our other cash needs. The credit agreement governing our senior secured credit facilities restricts our ability to use the proceeds from the disposition of assets, debt incurrence or sales of equity to repay other debt. We may not be able to consummate any such dispositions or to obtain debt or equity proceeds in amounts sufficient to service our debt obligations, and we may be restricted under the credit agreement from using any such amounts to service other debt obligations.
If we cannot make scheduled payments under any of the agreements governing our debt, we would default under such agreements, which could allow lenders under any credit facilities to terminate their commitments to loan money and could allow the applicable lenders or other debt holders to declare all outstanding principal and interest of such debt to be immediately due and payable, and, in the case of secured debt, to foreclose against the assets securing such debt and apply the proceeds from such foreclosure to repay amounts owed to them. Any of these events would likely in turn trigger cross-acceleration or cross-default provisions in our other debt instruments, which would allow the creditors under those instruments to exercise similar rights. If any of these actions are taken, we could be forced into restructuring, bankruptcy or liquidation.
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Our ability to make payments on our debt depends in part on the performance of our subsidiaries, including our non-guarantor subsidiaries, and their ability to transfer funds to members of our group liable to make payments on our debt.
We conduct a significant portion of our operations through our subsidiaries, a number of which operate outside the United States. Accordingly, repayment of our debt depends, to a significant extent, on the generation of cash flow by our subsidiaries and their ability to make such cash available to us. Unless they are guarantors of the debt, our subsidiaries do not have any obligation to pay amounts due on the debt or to make funds available for that purpose. Under certain circumstances, legal and contractual restrictions may limit our ability to obtain cash from our subsidiaries. For example, our subsidiaries that are organized under the laws of, and operate in, China currently have substantial regulatory restrictions on their ability to make cash available to us. While the credit agreement governing the senior secured credit facilities and potentially, the agreements governing certain of our other debt will limit the ability of certain of our subsidiaries to incur consensual restrictions on their ability to make other intercompany payments to us, these limitations are subject to certain significant qualifications and exceptions.
Risks Related to our Common Stock
The market price of our common stock has been and may continue to be volatile, which could cause the value of your investment to decline.
The market price of our common stock has been subject to volatility and, in the future, the market price of our common stock could fluctuate widely in response to numerous factors, many of which are beyond our control. In addition to the risk factors discussed in this report, the price and volume volatility of our common stock may be affected by:
• actual or anticipated fluctuations in ingredient prices;
• actual or anticipated variations in our operating results;
• our earnings releases and financial performance;
• changes in financial estimates or buy/sell recommendations by securities analysts;
• our ability to repay our debt;
• our access to financial and capital markets to refinance our debt;
• performance of our joint venture investments, including the DGD Joint Venture;
• our dividend policy;
• market conditions in the industry and the general state of the securities markets;
• investor perceptions of us and the industry and markets in which we operate;
• governmental legislation or regulation;
• governmental policies affecting biofuels and/or biofuel feedstocks;
• currency and exchange rate fluctuations that impact our earnings and balance sheet; and
• general economic and market conditions, such as U.S. or global reactions to economic developments, including regional recessions, inflation, currency devaluations or political unrest.
Our ability to pay any dividends on our common stock may be limited and, consequently, your ability to achieve a return on your investment will depend on appreciation in the price of our common stock.
We have not paid any dividends on our common stock since January 3, 1989 and we have no current plans to do so. Subject to certain limitations in the credit agreement governing our senior secured credit facilities, our current financing arrangements permit us to pay dividends and distributions. For example, our senior secured credit facilities restrict our ability to make payments of dividends in cash if certain coverage ratios are not met. Even if such coverage ratios are met, any determination to pay cash dividends on our common stock will be at the discretion of our board of directors and will be based upon our financial condition, operating results, capital requirements, plans for expansion, business opportunities, restrictions
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imposed by any of our financing arrangements, provisions of applicable law and any other factors that our board of directors determines are relevant at that point in time.
Future sales of our common stock or the issuance of other equity may adversely affect the market price of our common stock.
We are not restricted from issuing additional common stock, including securities that are convertible into or exchangeable for, or that represent the right to receive, common stock. The issuance of additional shares of our common stock or convertible securities, including our outstanding options, or otherwise, will dilute the ownership interest of our common stockholders.
Sales of a substantial number of shares of our common stock or other equity-related securities in the public market could depress the market price of our common stock and impair our ability to raise capital through the sale of additional equity securities. We cannot predict the effect that future sales of our common stock or other equity-related securities would have on the market price of our common stock.
Our common stock is an equity security and is subordinate to our existing and future indebtedness.
Shares of our common stock are equity interests and do not constitute debt. As such, the shares of common stock will rank junior to all of our debt, including our trade debt, and to other non-equity claims on us and our assets available to satisfy claims on us, including claims in bankruptcy, liquidation or similar proceedings. Certain of our existing debt restricts, and future indebtedness may restrict, payment of dividends on the common stock.
Unlike indebtedness, where principal and interest customarily are payable on specified due dates, in the case of common stock, (i) dividends are payable only when and if declared by our board of directors or a duly authorized committee of the board of directors and (ii) as a corporation, we are restricted under applicable Delaware law to making dividend payments and redemption payments only from legally available assets. Further, under our certificate of incorporation, there are no restrictions on our business or operations or on our ability to incur indebtedness or engage in any transactions arising as to our common stock, subject only to the voting rights available to stockholders generally.
In addition, our rights to participate in the assets of any of our subsidiaries upon any liquidation or reorganization of any subsidiary will be subject to the prior claims of that subsidiary’s creditors (except to the extent we may ourselves be a creditor of that subsidiary), including that subsidiary’s trade creditors and our creditors who have obtained or may obtain guarantees from the subsidiaries. As a result, our common stock will be subordinated to our and our subsidiaries’ obligations and liabilities, which currently include borrowings and guarantees. See Item 7. “ Management Discussion and Analysis of Financial Condition and Results of Operations ” - “ Senior Secured Credit Facilities ,” “6 % Senior Notes due 2030, ” “ 5.25% Senior Notes due 2027 ” and “4.5 % Senior Notes due 2032 .”
The issuance of shares of preferred stock could adversely affect holders of common stock, which may negatively impact your investment.
Our board of directors is authorized to cause us to issue classes or series of preferred stock without any action on the part of our stockholders. The board of directors also has the power, without stockholder approval, to set the terms of any such classes or series of preferred shares that may be issued, including the designations, preferences, limitations and relative rights senior to the rights of our common stock with respect to dividends or upon the liquidation, dissolution or winding up of our business and other terms. If we issue preferred shares in the future that have a preference over the common stock with respect to the payment of dividends or upon liquidation, dissolution or winding up, or if we issue preferred shares with voting rights that dilute the voting power of the common stock, the rights of holders of the common stock or the market price of the common stock could be adversely affected. As of the date of this report, we have no outstanding shares of preferred stock but we have available for issuance 1,000,000 authorized but unissued shares of preferred stock.
General Risks Related to our Company
We may incur material costs and liabilities in complying with government regulations.
We are subject to the rules and regulations of various governmental agencies in the United States, the EU, Brazil, Canada, China and the other countries in which Darling Ingredients International operates. These include rules and regulations administered by governmental agencies at the supranational, federal, state, provincial or local level. See Item 1. " Business - Regulations " for a listing of certain governmental agencies to which we are subject.
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The applicable rules, regulations and guidance promulgated by these and other agencies, which are likely to change over time, affect our operations and may influence our operating results at one or more facilities. Furthermore, the loss of or failure to obtain necessary federal, state, provincial or local permits and registrations at one or more of our facilities could halt or curtail operations at impacted facilities, which could result in impairment charges related to the affected facility and otherwise adversely affect our operating results. In addition, our failure to comply with applicable rules, regulations and guidance, including obtaining or maintaining required operating certificates or permits, could subject us to: (i) administrative penalties and injunctive relief; (ii) civil remedies, including fines, injunctions and product recalls; and/or (iii) adverse publicity. As a result, we may incur material costs and liabilities in connection with these rules, regulations and guidance.
Because of our international operations throughout much of the world, we could be adversely affected by violations of the FCPA and similar anti-bribery laws, as well as laws and regulations governing international transactions (such as the regulations administered by OFAC). Recent years have seen a substantial increase in the global enforcement of anti-corruption laws and economic sanctions laws and regulations. Our operations outside the United States, including in developing countries, could increase the risk of such violations. In addition, we may enter into joint ventures with joint venture partners who are domiciled in areas of the world with anti-bribery laws, regulations and business practices that differ from those in the United States. There is risk that our joint venture partners will violate the FCPA and other anti-bribery and anti-corruption laws and regulations, as well as OFAC and economic sanctions. While our policies mandate compliance with such laws and sanctions, our internal control policies and procedures may not always protect us from violations committed by our employees, joint venture partners or agents. Violations of the FCPA or other anti-bribery laws, or of OFAC or other economic sanctions laws, or allegations of such violations, could result in lengthy investigations and possibly disrupt our business, lead to criminal and/or civil legal proceedings brought by governmental agencies and/or third parties, result in material fines and legal and other costs and have a material adverse effect on our reputation, business, results of operations, cash flows and financial condition.
Given the competitive nature of our industry, we could be adversely affected by violations of various countries’ antitrust, competition and consumer protection laws. These laws generally prohibit companies and individuals from engaging in anticompetitive and unfair business practices, and our internal control policies and procedures may not protect us from violations or reckless or criminal acts committed by our employees, joint venture partners or agents.
Downturns and volatility in global economies and commodity and credit markets could materially adversely affect our business, results of operations and financial condition.
Our results of operations are materially affected by the conditions of the global economies and the credit, commodities and stock markets. Among other things, we may be adversely impacted if our domestic and international customers and suppliers are not able to access sufficient capital to continue to operate their businesses or to operate them at prior levels. High inflation, adverse changes in interest rates, a decline in consumer confidence or changing patterns in the availability and use of disposable income by consumers can negatively affect both our suppliers and customers. Declining discretionary consumer spending or the loss or impairment of a meaningful number of our suppliers or customers could lead to declines in either raw material availability or customer demand. Any tightening in credit supply could negatively affect our customers’ ability to pay for our products on a timely basis or at all and could result in a requirement for additional bad debt reserves. Although many of our customer contracts are formula-based, continued volatility in the commodities markets could negatively impact our revenues and overall profits. Counterparty risk on finished product sales can also impact revenue and operating profits when customers either are unable to obtain credit or refuse to take delivery of finished products due to market price declines.
We may not successfully identify and complete acquisitions or joint ventures on favorable terms or achieve anticipated synergies relating to any acquisitions or joint ventures, and such acquisitions or joint ventures could result in unknown liabilities, unforeseen operating difficulties and expenditures and require significant management resources.
We regularly review potential acquisitions of complementary businesses, services or products and evaluate joint venture opportunities, including the announced and proposed joint venture with Tessenderlo Group NV to combine the Company’s and Tessenderlo Group NV’s respective collagen and gelatin business units. However, we may be unable to identify suitable acquisition candidates or joint venture partners in the future. Even if we identify appropriate acquisition candidates or joint venture partners, we may be unable to complete or finance such acquisitions or joint ventures on favorable terms, if at all. In addition, the process of integrating an acquired business, service or product into our existing business and operations or forming a joint venture may result in unforeseen operating difficulties and expenditures. Integration of an acquired company or formation of a joint venture also may require significant management resources that otherwise would be available for the ongoing development of our business. Moreover, we may not realize the anticipated benefits of any acquisition, joint venture or strategic alliance and such transactions may not generate anticipated financial results. Future acquisitions could also require us to incur indebtedness, assume contingent liabilities or amortize expenses related to intangible assets, any of which could harm our business and/or negatively impact our results of operations. Finally, acquisitions and joint
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ventures may be structured in such a manner that would result in the assumption of unknown liabilities not disclosed by the counterparty or uncovered during pre-acquisition due diligence.
Our business may be adversely impacted by fluctuations in foreign currency exchange rates, which could affect our ability to comply with our financial covenants.
We carry out transactions in foreign currencies, primarily the euro, the Canadian dollar, the Chinese renminbi, the Brazilian real, the British pound, the Japanese yen, the Australian dollar and the Polish zloty. To the extent possible, we attempt to match revenues and expenses in each of the currencies in which we operate. However, we will still be exposed to currency fluctuations when we translate the results of our overseas operations into U.S. dollars, our reporting currency, in the preparation of our consolidated financial statements, which may affect our U.S. dollar-denominated results of operations and financial condition even if our underlying operations and financial condition, in local currency terms, remain unchanged. The currency hedging instruments we utilize from time to time to help protect us from adverse fluctuations in currency exchange rates may not successfully protect us from more pronounced swings in such exchange rates. Further, by utilizing these instruments we potentially forego any benefits that result from favorable fluctuations in exchange rates.
We also face risks arising from the possible future imposition of exchange controls and currency devaluations. Exchange controls may limit our ability to convert foreign currencies into U.S. dollars or to remit dividends and other payments by our foreign subsidiaries located in, or business conducted within, a country imposing such controls. Currency devaluations would result in a diminished value of funds denominated in the currency of the country instituting the devaluation.
Any fluctuations in exchange rates or the imposition of exchange controls or currency devaluation may adversely impact our ability to comply with the financial and other covenants under the documents governing our indebtedness, which could affect our ability to incur additional indebtedness, pay dividends, make investments or take other actions that might be in our best interest. Should our international operations continue to expand, they will represent a larger part of our business and such exchange rate fluctuations may have a greater impact on our business, financial condition and results of operations.
Large capital projects can take many years to complete, and market conditions could deteriorate over time, negatively impacting project returns.
We, including the DGD Joint Venture, may engage in capital projects based on the forecasted project economics and level of return on the capital to be employed in the project. Large-scale projects take many years to complete, and market conditions can change from our forecast. As a result, we may be unable to fully realize our expected returns, which could negatively impact our financial condition, results of operations, and cash flows.
Changes in consumer preference could negatively impact our business.
The food and pet food industries in general are subject to changing consumer trends, demands and preferences. Trends within the food and pet food industries change often, and failure to identify and react to changes in these trends could lead to, among other things, reduced demand and price reductions for our products or those of our customers for whom we manufacture products, and could have an adverse effect on our financial results.
If we experience difficulties or a significant disruption in our information systems or if we fail to implement new systems and software successfully, our business could be materially adversely affected.
We depend on information systems throughout our business to collect and process data that is critical to our operations and accurate financial reporting. Among other things, these information systems process incoming customer orders and outgoing supplier orders, manage inventory, and allow us to efficiently collect raw materials and distribute products, process and bill shipments to and collect cash from our customers, respond to customer and supplier inquiries, contribute to our overall internal control processes and compliance with laws and regulations around the world, maintain records of our property, plant and equipment, record and pay amounts due vendors and other creditors and manage our human resource function.
If we were to experience a disruption in our information systems that involve interactions with suppliers and customers, it could result in a loss of raw material supplies, sales and customers and/or increased costs, which could have a material adverse effect on our business, financial condition and results of operations. In addition, any such disruption could adversely affect our ability to meet our financial reporting obligations. We may also encounter difficulties in developing and implementing new systems or maintaining and upgrading existing systems and software. Such difficulties may lead to significant expenses or losses due to unexpected additional costs required to implement or maintain systems, disruption in business operations, loss of sales or profits, or required reimbursement of third parties for damages, and, as a result, may have a material adverse effect on our results of operations and financial condition. We could also experience impairment of our reputation if any of these events were to occur.
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Increased information technology security threats and more sophisticated computer crime pose a risk to our systems, networks, products and services, while data privacy and cybersecurity laws continue to proliferate presenting heightened regulatory risk.
We rely upon our information systems and networks in connection with a variety of business activities, and we collect and store sensitive data. Increased security threats to information systems and more sophisticated computer crime pose a risk to the security of our systems and networks and the confidentiality, availability and integrity of our data. We are the subject of cyber-attacks from time to time, and must invest resources to protect our systems and defend against and respond to incidents. A failure of or breach in technology security could expose us and our customers and suppliers to risks of misuse of information or systems, the compromising of confidential information, manipulation and destruction of data, defective products, production downtimes and operating disruptions, which in turn could adversely affect our reputation, competitive position, business and results of operations. In addition, such breaches in security could result in litigation, regulatory action and potential liability and the costs and operational consequences of implementing further data protection measures.
Cyber-attacks could be attempted on any of the Company’s external surfaces, such as internet access points or operational technology. Threat actors may gain access to the Company’s protected data, information and/or access credentials to initiate cyber-attacks or to sell or expose Company information using various schemes, including social engineering, phishing and/or artificial intelligence (“AI”), including deepfakes, as well as through data breaches, whether intentional or unintentional, including as a result of malicious insiders, insider errors, third parties who access the Company’s information, data transfers and/or data classification. The Company may face additional cybersecurity risks with respect to operational technologies, including those of acquired entities or assets. Cyber-attacks on operational technology surfaces could be initiated by threat actors or malicious insiders. Pathways for cyber-attacks or incidents on operational technology or in other parts of our networks or systems could also be initiated by a third party, such as a vendor or consultant, intentionally or unintentionally, who uses a compromised device to access our operational technology and transfers the compromise, such as malware or a virus. Cyber-attacks on operational technology could include attacks on various systems such as industrial control systems (ICS) or supervisory control and data acquisition (SCADA) systems for various purposes, such as control of operations, and can spread systemically beyond the point of entry due to the interconnectivity of such systems internally and with the internet. Cyber risks with legacy systems (including legacy systems inherited in acquisitions) could include structural weaknesses or vulnerabilities, and challenges with patches and upgrades necessary to defend against threat actors. Threat actors who penetrate the Company’s information systems may attempt to install malicious code (such as malware or ransomware) to gain control of systems, data, or information for the purpose of extracting a ransom; shutting down operations; initiating an equipment override to cause a fire, hazardous release or explosion; or exposing confidential or proprietary information. Cyber-attacks can also be executed within the various supply chains in which the Company operates, which could impact the availability of raw materials, transport of finished goods, port operations, markets, prices or product demand.
Furthermore, we are subject to complex and evolving laws and regulations regarding cybersecurity, privacy, know-your-customer requirements, data protection, cross-border data movement and other matters. Principles concerning the appropriate scope of consumer and commercial privacy vary considerably in different jurisdictions, and regulatory and public expectations regarding the definition and scope of consumer and commercial privacy may remain fluid. It is possible that these laws may be interpreted and applied by various jurisdictions in a manner inconsistent with our current or future practices or inconsistent with one another. If personal, confidential or proprietary information of customers or employees in our possession is mishandled or misused, we may face regulatory, reputational and operational risks which could have an adverse effect on our financial condition and results of operations. For example, the General Data Protection Regulation (“GDPR”) imposes stringent data protection requirements with respect to (among other things):
• accountability and transparency requirements, requiring controllers to demonstrate and record compliance with the GDPR and to provide detailed information to individuals regarding the processing of their personal data;
• requirements to process personal data lawfully, including specific requirements for obtaining valid consent where consent is the lawful basis for processing;
• obligations to comply with various data protection rights which can be exercised by individuals;
• an obligation to report certain personal data breaches to the competent data protection supervisory authority without undue delay (and no later than 72 hours) and to affected individuals; and
• obligations relating to international transfer of personal data.
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The GDPR also provides for significant penalties for noncompliance, and data protection supervisory authorities have the power under the GDPR to (among other things) impose significant fines for serious breaches and obtain corrective or injunctive relief. Individuals also have a right to compensation as a result of an organization’s breach of the GDPR which has affected them, for financial or non-financial losses (e.g., distress). Additionally, we are subject to the general data protection law in Brazil, which has similar requirements and restrictions as GDPR, as well as potential penalties and other enforcement mechanisms for noncompliance.
Additionally, in the EU, the EU Network and Information Systems Security 2 Directive (“NIS2”) (and the implementing laws within national EU Member States), which apply to the Company, imposes stringent cybersecurity and incident reporting requirements on “essential” and “important” entities. The NIS2 empowers the EU Member States to define all rules regarding penalties applicable to infringements, provided that they are effective, proportionate, and dissuasive, and provides that any maximum fines set by Member States for “essential” entities should be at least 10 million euros or 2% of total worldwide annual revenue, whichever is higher. In addition to monetary fines, other sanctions may include (i) a temporary suspension on providing services in the EU (by suspending relevant authorizations/certifications); (ii) an order to make public certain elements of the infringement and/or inform customers; and (iii) injunctions to immediately cease infringing conduct. Importantly, NIS2 also provides that senior members of staff can be held personally liable, and face administrative fines or be temporarily suspended from exercising managerial functions at the legal representative or chief executive officer level.
We may face difficulty in fully complying with these regulations and any failure to do so could subject us to significant monetary penalties, liabilities, and adverse publicity. In the United States, the California Consumer Privacy Act (“CCPA”), as amended by the California Privacy Rights Act (“CPRA”), is a far-reaching data privacy regime. In addition to California, several states have passed similar comprehensive data privacy laws, while other states continue to evaluate the enactment of data privacy and cybersecurity laws. California and other states are also expanding their laws to regulate the use of AI, including when AI is used to make decisions about individuals. These state laws and their regulations continue to evolve and be enacted at a rapid pace, which can make compliance difficult and costly. Additionally, the Federal Trade Commission (“FTC”) and many state attorneys general are interpreting existing federal and state consumer protection laws to apply to collection, use, dissemination and security of personal information. U.S. policymakers and regulators are also increasingly focused on the safe and trustworthy use of AI, with growing state-level adoption of AI-specific legislation, including in states such as Colorado, Utah and California. These developments may require changes to our business practices and increased compliance costs.
In addition, in August 2024, EU Regulation 2024/1689 on AI (“EU AI Act”) entered into force, with most rules going into effect in August 2026. The EU AI Act governs the development and deployment of AI placed on the EU market, used in the EU, or where the output is used or intended to be used within the EU. The EU AI Act aims to ensure the safe and ethical development of AI technologies, and establishes a risk-based regulatory framework, categorizing the use of AI systems into four levels according to the perceived level of risk. In case of non-compliance, the fine threshold is set at 35 million euros or 7% of total annual worldwide turnover, whichever is higher, and regulators have the power to remove non-compliant products from the EU market. Achieving compliance with the EU AI Act may require significant investments in adapting AI systems to meet regulatory requirements. This could include implementing enhanced data governance, ensuring human oversight, and providing detailed technical documentation, which may increase costs and deployment timelines.
The impact of these cybersecurity, privacy, and AI laws and orders on us and others in our industry is uncertain. We also may be required to expend significant resources to prepare for and comply with the evolving standards. We could be adversely affected if state, federal or international data privacy or cybersecurity laws or regulations are interpreted in a manner that would require changes in our business practices, or if governing jurisdictions interpret or implement their legislation or regulations in ways that negatively affect our business, financial condition and results of operations.
Artificial intelligence could subject the Company to loss through various internal and external risks.
The pace of AI advancements (including generative AI) and its complex and dynamic regulatory environment subjects the Company to a variety of risks. This includes risks to the privacy and security of the Company’s data, such as unauthorized disclosures of data which could be used to the detriment of the Company. Other risks include incorrect AI outputs which risk damage to our business and results of operations due to decisions or actions premised on such incorrect outputs, or damages associated with AI outputs that infringe on a third-party’s intellectual property. Furthermore, use of third-party AI platforms and models creates operational dependencies and potential risks to our business and results of operations in the event of service disruptions. AI also introduces tools that could be used for malicious purposes, such as advanced deceitful communication methods used to harm the Company. AI also subjects the Company to potential competitive disadvantages in its business and missed innovation opportunities.
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Our success is dependent on our key personnel.
Our success depends to a significant extent upon a number of key employees, including members of senior management. The loss of the services of one or more of these key employees could have a material adverse effect on our results of operations and prospects. We believe that our future success will depend in part on our ability to attract, motivate and retain skilled technical, managerial, marketing and sales personnel. Competition for these types of skilled personnel is intense and we may not be successful in attracting, motivating and retaining key personnel. Furthermore, our ability to do so has been and may continue to be impacted by challenges in the labor market, which has experienced and may continue to experience wage inflation, labor shortages, increased employee turnover, changes in availability of labor, including without limitation due to a shift toward remote work. The failure to hire and retain such personnel could materially adversely affect our business, results of operations and financial condition.
We could have a material weakness in our internal control over financial reporting that would require remediation.
Any future failures to maintain the effectiveness of our disclosure controls and procedures, including our internal control over financial reporting, could subject us to a loss of public confidence in our internal control over financial reporting and in the integrity of our financial statements and our public filings with the SEC and other governmental agencies, could harm our operating results or cause us to fail to meet our regulatory reporting obligations in a timely manner, and could require us to take corrective actions and remediations which could include a restatement of our financials.
Changes in our tax rates or exposure to additional income tax liabilities could impact our profitability.
We are subject to income taxes in the United States and in numerous other foreign jurisdictions. Significant judgment is required in determining our worldwide income tax provision, tax assets, and accruals for other taxes, and there are many transactions and calculations where the ultimate tax determination is uncertain. Our future effective tax rates could be adversely affected by changes in the mix of earnings by jurisdictions with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities and changes in tax laws or tax rates, such as the Section 45Z tax credit and implementation of the global minimum tax in the jurisdictions in which we operate. Furthermore, we are regularly subject to audit by tax authorities with respect to both income and other non-income taxes. Unfavorable audit results or tax rulings, or other changes resulting in significant additional tax liabilities, could have material adverse effects upon our earnings, cash flows, and financial condition.
Litigation or regulatory proceedings may materially adversely affect our business, results of operations and financial condition.
We are a party to various lawsuits, claims and loss contingencies arising in the ordinary course of business, including insured worker’s compensation, auto, and general liability claims, assertions by certain regulatory and governmental agencies related to various matters including labor and employment, employee benefits, occupational safety and health, wage and hour, compliance, sustainability, permitting requirements, environmental matters, including odor, air, wastewater and storm water discharges from the Company’s processing facilities and other federal, state and local issues, litigation involving tort, contract, statutory, labor, employment, and other claims, and tax matters. The outcome of litigation, particularly class action lawsuits, and regulatory proceedings is difficult to assess or quantify and could include injunctive or other such relief which impacts our ability to operate. Plaintiffs (including governmental agencies) in these types of lawsuits and proceedings may seek recovery of very large or indeterminate amounts, and the magnitude of the potential loss relating to such lawsuits or proceedings may remain unknown for substantial periods of time. The costs of responding to or defending future litigation or regulatory proceedings may be significant and any future litigation or regulatory proceedings may divert the attention of management away from our strategic objectives. There may also be adverse publicity associated with litigation or regulatory proceedings that may decrease customer confidence in our business, regardless of whether the allegations are valid or whether we are ultimately found liable. As a result, litigation or regulatory proceedings may have a material adverse effect on our business, results of operations and financial condition. For more information related to our litigation and regulatory proceedings, see Item 3. “ Legal Proceedings. ”
Our European pension funds may require minimum funding contributions.
In the UK and the EU, pension funds are generally subject to the Institution for Occupational Retirement Provision Directive (Directive 2003/41/EC) (the “IORP Directive”) as implemented in the relevant EU Member States and under corresponding UK pension regulatory regimes. The IORP Directive provides for certain general solvency requirements but allows EU Member States discretion to impose specific national requirements. As a result, the solvency of EU pension funds is mostly regulated on a national level. On December 23, 2016, the new IORP Directive (“IORP Directive II”) was published on the Official Journal of the European Union and entered into force on January 12, 2017. Though IORP Directive II did not make substantive changes to the solvency requirements under the original IORP Directive, it did implement enhanced governance and
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risk management standards, requirements relating to cross-border activity and cross-border transfers and disclosure obligations owed to participating employees, among others. EU Member States were required to implement IORP Directive II into national legislation by January 13, 2019, although implementation and enforcement of IORP Directive II continue to vary across EU Member States. We could be adversely affected if EU Member States interpret or implement IORP Directive II in ways that negatively affect our business, financial condition and results of operations. It is also possible that some EU Member States will impose stricter requirements than currently provided for under IORP Directive II, which may require us to expend significant resources to prepare for and comply with differing standards. We could be adversely affected if these stricter or differing standards require changes in our business practices.
The insurance coverage that we maintain may not cover, or fully cover, all operational risks, and if the number or severity of claims for which we are self-insured increases, if we are required to accrue or pay additional amounts because the claims prove to be more severe than our recorded liabilities, if our insurance premiums increase or if we are unable to obtain insurance at acceptable rates or at all, our financial condition and results of operations may be materially adversely affected.
We maintain property, business interruption and casualty insurance but such insurance may not cover all of the risks associated with the hazards of our business and is subject to limitations, including deductibles and maximum liabilities covered. We may incur losses beyond the limits, or outside the coverage, of our insurance policies, including liabilities for environmental remediation. Additionally, our worker’s compensation, auto and general liability policies contain significant deductibles or self-insured retentions. We develop bi-yearly and record quarterly an estimate of our projected insurance-related liabilities. We estimate the liabilities associated with the risks retained by us, in part, by considering historical claims experience, demographic and severity factors and other actuarial assumptions. Any actuarial projection of losses is subject to a degree of variability. If the number or severity of claims for which we are self-insured increases, we are required to accrue or pay additional amounts because the claims prove to be more severe than our original assessments, or we are unsuccessful obtaining insurance recoveries due to legal challenges by insurance carriers in relation to covered matters (such as business interruption) our financial condition and results of operations may be materially adversely affected. In addition, in the future, the types of insurance we obtain and the level of coverage we maintain may be inadequate or we may be unable to continue to maintain our existing insurance or obtain comparable insurance at a reasonable cost. Any such inadequacy of, or inability to obtain, insurance coverage could have a material adverse effect on our business, financial condition and results of operations. If an insurance carrier were to experience financial distress, insolvency or other circumstances that impair their ability to pay claims, we could be required to bear losses that would otherwise be covered under our insurance policies, which could have a material adverse effect on our financial condition and results of operations.
We may divest certain of our brands or businesses from time to time, which could adversely affect us.
We evaluate our business regularly and, from time to time, we may decide to divest ourselves of brands or businesses that do not meet our strategic objectives or do not meet our growth or profitability targets. Nonetheless, we may not be able to divest of a brand or business on favorable terms or without significant costs or that we will be able to achieve the anticipated benefits or cost savings from the divestitures. Any such divestitures may adversely affect our results of operations if we are unable to offset the dilutive impacts from the loss of revenue associated with the divested brands or businesses, or otherwise achieve the anticipated benefits or cost savings from the divestitures. Moreover, we may incur asset impairment charges related to divestitures that reduce our profitability. We also may determine that it is necessary to divest a brand or business but not find a market for such sale, which could result in the Company being forced to continue operation of the brand or business despite minimal or negative returns or to close the brand or business resulting in various fees and expenses and potential impairment charges.
Terrorist attacks or acts of war may cause damage or disruption to us and our employees, facilities, information systems, security systems, suppliers and customers, which could materially and adversely affect our net sales, costs and expenses and financial condition.
Terrorist attacks and other acts of war have contributed to economic instability in the United States and in certain other countries, and further acts of terrorism, bioterrorism, cyberterrorism, violence or war could affect the markets in which we operate, our business operations, our expectations and other forward-looking statements contained in this report. The potential for future terrorist attacks, responses to terrorist attacks and other acts of war or hostility, including the ongoing conflicts in the Middle East, Africa, North Korea and Ukraine, may cause economic and political uncertainties and cause our business to suffer in ways that cannot currently be predicted. Events such as those referred to above could cause or contribute to a general decline in investment valuations. In addition, terrorist attacks, particularly acts of bioterrorism, that directly impact our facilities or those of our suppliers or customers could have an impact on our sales, supply chain, production capability and costs and our ability to deliver our finished products.
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We may be unable to protect our intellectual property rights .
We maintain valuable patents, trademarks, service marks, copyrights, trade names, trade secrets, proprietary technologies and similar intellectual property, and consider our intellectual property to be of material value. Our efforts to protect our intellectual property and proprietary rights may not be sufficient. Patents may not be issued for any pending or future patent applications owned by or licensed to us, and the claims allowed under any issued patents may not be sufficiently broad to protect our technology. Any trademarks or issued patents owned by or licensed to us may be challenged, invalidated or circumvented, and the rights under these trademarks or patents may not provide us with competitive advantages. In addition, competitors may design around our technology or develop competing technologies. Intellectual property rights may also be unavailable or limited in some foreign countries, which could make it easier for competitors to capture market position in such countries by utilizing our trademarks and/or technologies that are similar to those developed or licensed by us. If we do not obtain sufficient protection for our intellectual property, or if we are unable to effectively protect our intellectual property rights, our competitiveness could be impaired, which would limit our growth and future revenue. Any litigation to enforce our intellectual property rights, protect our trade secrets or determine the validity and scope of the proprietary rights of others could result in substantial costs and diversion of resources and may not be successful.
Our products, processes, methods, and equipment may infringe upon the intellectual property rights of others, which may cause us to incur unexpected costs or prevent us from selling our products.
We have in the past and may in the future be subject to legal proceedings and claims in the ordinary course of our business, including claims of alleged infringement of patents, trademarks and other intellectual property rights of third parties by us or our customers. Any such claims, whether or not meritorious, could result in costly litigation and divert the efforts of our management. Moreover, should we be found liable for infringement, we may be required to enter into licensing agreements (which may not be available on acceptable terms or at all) or to pay damages and cease making or selling certain products or cease using certain trademarks with resultant losses in the brand equities and goodwill associated with such trademarks. Any of the foregoing could cause us to incur significant costs and prevent us from manufacturing or selling our products or utilizing our recognized trademarks and branding for our products and thereby materially adversely affect our business, results of operations and financial condition.
The healthcare reform legislation in the United States and its implementing regulations could impact the healthcare benefits we are required to provide our employees in the United States and cause our compensation costs to increase, potentially reducing our net income and adversely affecting our cash flows.
In March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act (collectively, the “ACA”), was signed into law in the United States. This healthcare reform legislation and its applicable implementing regulations contain provisions that could materially impact our healthcare costs, including the contributions we are required to make to our benefit plans. In particular, the requirement that we either offer our full-time employees healthcare coverage that satisfies the ACA’s affordability and minimum value standards or potentially be subject to a penalty became effective in calendar year 2015. In addition, beginning in 2016, we had to file information returns with the IRS regarding the health insurance coverage offered to our full-time employees in the prior calendar year and furnish to employees a statement that includes the same information provided to the IRS. Although we are no longer required to furnish to employees these statements (except at their request), we are still required to file the required returns with the IRS. While we have timely filed such returns and provided our employees with the required statements to date, failure to do so in the future could expose us to reporting penalties under applicable sections of the Internal Revenue Code. These provisions could reduce our net income and adversely affect our cash flows.
Since its enactment, the ACA has been subject to numerous legislative, regulatory and judicial changes. Although Congress has not repealed the ACA in its entirety, various provisions have been modified, delayed or repealed, including elimination of the federal individual mandate penalty and changes to employer- and insurer-related taxes, and premium subsidy levels have been expanded and extended through 2025. In addition, the ACA has been and continues to be subject to significant judicial challenges, including ongoing litigation regarding the requirement to provide certain preventive services without cost sharing. Future legislative, regulatory or judicial actions could further modify or invalidate portions of the ACA, which could affect the cost, structure or availability of health coverage and have an adverse effect on our business, financial condition and results of operations.
There is also uncertainty regarding any future healthcare reform that the administration or Congress may propose, if any, including whether any proposals will encompass or potentially alter the full-time employee healthcare coverage requirements and reporting obligations imposed on large employers like us. Any changes may likely take time to unfold, and we cannot predict the ultimate content, timing, or effect of any healthcare reform legislation or the impact of potential legislation or related proposals and policies on us. We cannot assure that healthcare coverage laws, as currently enacted or as
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repealed or amended in the future, will not adversely affect our business and financial results and we cannot predict how future federal or state legislative or administrative changes relating to healthcare reform will affect our business.
We may incur significant charges and experience disruptions or losses of customer and/or supplier relationships in the event we close or divest all or part of a manufacturing plant or facility.
We periodically assess our manufacturing operations in order to manufacture and distribute our products in the most efficient manner. Based on our assessments, we may make capital improvements to modernize certain units, move manufacturing or distribution capabilities from one plant or facility to another plant or facility, discontinue manufacturing or distributing certain products or close or divest all or part of a manufacturing plant or facility. The closure or divestiture of all or part of a manufacturing plant or facility could result in future charges and disruptions or losses of customer and/or supplier relationships that could be significant to our business, results of operations and financial condition.
We may not be able to achieve our climate, sustainability or other such goals, targets or objectives.
We have established, and expect to continue to establish, goals, targets, and other objectives related to climate, sustainability and other such matters, including, without limitation, reduction of our GHG emissions. Such statements reflect our current plans at the time they are made, and do not constitute a guarantee that they will be achieved. Our efforts to research, establish, accomplish, and accurately report on these goals, targets, and objectives could expose us to operational, reputational, financial, legal, and other risks. Our ability to achieve any stated goal, target, or objective is and will be subject to numerous factors and conditions, including, without limitation, available technology, costs and impacts, new or unforeseen climate events, operational challenges with GHG reduction work and changes in governmental incentives related to GHG reductions. Many of these factors and conditions are outside of our control, such as evolving regulatory or quasi-regulatory sustainability standards, differing requirements and the pace of changes in technology, and other factors that are not yet known. In addition, the methodologies and standards for collecting, calculating and estimating GHG emissions, reductions and avoidance are continuing to be developed and adapted, which could later necessitate changes or revisions to our goals, targets or objectives. Changes to our goals, targets or objectives may also be required due to other factors, such as the Company’s performance, cash flows, operational needs and objectives, or market factors.
We may face increased scrutiny from the investment community, other stakeholders, regulators, and the media related to our sustainability activities, including the goals, targets, and objectives that we announce, and our methodologies and timelines for pursuing them. If our sustainability practices do not meet investor or other stakeholder expectations and standards, which continue to evolve, our reputation, ability to attract or retain employees, and attractiveness as an investment or business partner could be negatively impacted. Similarly, our failure or perceived failure to pursue or fulfill our goals, targets, and objectives, to comply with ethical, environmental, sustainability or other standards, regulations, or expectations, or to satisfy various reporting standards with respect to these matters, within the timelines that we announce, or at all, could have the same negative impacts, as well as expose us to government enforcement actions and private litigation. Even if we achieve the goals, targets, and objectives we set, we may not realize all of the benefits that we expected at the time such goals, targets, and objectives were established.
