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General | 12 Months Ended
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Dec. 28, 2013
General [Abstract] |
GENERAL | GENERAL (a) NATURE OF OPERATIONS Darling International Inc., a Delaware corporation ("Darling", and together with its subsidiaries, the “Company”), is a leading provider of rendering, used cooking oil and bakery residual recycling and recovery solutions to the U.S. and Canadian food industry. Darling collects and recycles animal by-products, bakery residual and used cooking oil from poultry and meat processors, commercial bakeries, grocery stores, butcher shops, and food service establishments and provides grease trap cleaning services to many of the same establishments. The Company operates over 130 processing and transfer facilities located throughout the United States and Canada to process raw materials into finished products such as protein (primarily meat and bone meal ("MBM") and poultry meal ("PM")), hides, fats (primarily bleachable fancy tallow ("BFT"), poultry grease ("PG") and yellow grease ("YG")) and bakery by-products ("BBP") as well as a range of branded and value-added products. The Company sells these products domestically and internationally, primarily to producers of animal feed, pet food, fertilizer, bio-fuels and other consumer and industrial ingredients including oleo-chemicals, soaps and leather goods for use as ingredients in their products or for further processing. As further discussed in Note 2, on October 28, 2013, Darling completed the acquisition of substantially all of the assets of Rothsay ("Rothsay"), a division of Maple Leaf Foods, Inc. ("MFI"), a Canadian corporation, pursuant to an Acquisition Agreement between MFI and Darling dated August 23, 2013 (the "Rothsay Acquisition"). The Company's fiscal 2013 year end results include 9 weeks of contribution from the assets acquired in the Rothsay Acquisition. The Company's operations are currently organized into two segments: Rendering and Bakery. For additional information on the Company’s segments, see Note 21.
(b) | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(1) | Basis of Presentation
The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
(2) | Fiscal Year
The Company has a 52/53 week fiscal year ending on the Saturday nearest December 31. Fiscal years for the consolidated financial statements included herein are for the 52 weeks ended December 28, 2013, the 52 weeks ended December 29, 2012, and the 52 weeks ended December 31, 2011.
(3) | Cash and Cash Equivalents
The Company considers all short-term highly liquid instruments, with an original maturity of three months or less, to be cash equivalents.
(4) | Accounts Receivable and Allowance for Doubtful Accounts
The Company maintains allowances for doubtful accounts for estimated losses resulting from customers’ non-payment of trade accounts receivable owed to the Company. These trade receivables arise in the ordinary course of business from sales of raw material, finished product or services to the Company’s customers. The estimate of allowance for doubtful accounts is based upon the Company’s bad debt experience, prevailing market conditions, and aging of trade accounts receivable, among other factors. If the financial condition of the Company’s customers deteriorates, resulting in the customers’ inability to pay the Company’s receivables as they come due, additional allowances for doubtful accounts may be required.
(5) | Inventories
Inventories are stated at the lower of cost or market. Cost is primarily determined using the first-in, first-out (FIFO) method.
(6) | Long Lived Assets
Property, Plant and Equipment Property, plant and equipment are recorded at cost. Depreciation is computed by the straight-line method over the estimated useful lives of assets: 1) Buildings and improvements, 15 to 30 years; 2) Machinery and equipment, 3 to 10 years; 3) Vehicles, 3 to 8 years; and 4) Aircraft, 7 to 10 years. Maintenance and repairs are charged to expense as incurred and expenditures for major renewals and improvements are capitalized. Intangible Assets Intangible assets with indefinite lives, and therefore, not subject to amortization, consist of trade names acquired in the acquisition of Griffin Industries Inc. on December 17, 2010 (which was subsequently converted to a limited liability company) and its subsidiaries ("Griffin"). Intangible assets subject to amortization consist of: 1) collection routes which are made up of groups of suppliers of raw materials in similar geographic areas from which the Company derives collection fees and a dependable source of raw materials for processing into finished products; 2) permits that represent licensing of operating plants that have been acquired, giving those plants the ability to operate; 3) non-compete agreements that represent contractual arrangements with former competitors whose businesses were acquired; 4) trade names; and 5) royalty, consulting and leasehold agreements. Amortization expense is calculated using the straight-line method over the estimated useful lives of the assets ranging from: 5 to 21 years for collection routes; 10 to 20 years for permits; 3 to 7 years for non-compete covenants; and 4 to 15 years for trade names. Royalty, consulting and leasehold agreements are amortized over the term of the agreement.
(7) | Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed of
The Company reviews the carrying value of long-lived assets for impairment when events or changes in circumstances indicate that the carrying amount of an asset, or related asset group, may not be recoverable from estimated future undiscounted cash flows. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset or asset group to estimated undiscounted future cash flows expected to be generated by the asset or asset group. If the carrying amount of the asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount for which the carrying amount of the asset exceeds the fair value of the asset. In fiscal 2013, 2012 and 2011 no such events occurred requiring that the Company perform testing of its long-lived assets for impairment.
(8) | Goodwill
Goodwill and indefinite lived assets are tested for impairment annually as of the balance sheet date or more frequently if events or changes in circumstances indicate that the asset might be impaired. The Company follows a two-step process for testing impairment. First, the fair value of each reporting unit is compared to its carrying value to determine whether an indication of impairment exists. If impairment is indicated, then the fair value of the reporting unit’s goodwill is determined by allocating the unit’s fair value of its assets and liabilities (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination. The amount of impairment for goodwill is measured as the excess of its carrying value over its implied fair value. In fiscal 2013, 2012 and 2011, the fair values of the Company’s reporting units containing goodwill exceeded the related carrying values. Goodwill was approximately $701.6 million and $381.4 million at December 28, 2013 and December 29, 2012, respectively. See Note 7 for further information on the Company’s goodwill.
(9) | Environmental Expenditures
Environmental expenditures incurred to mitigate or prevent environmental impacts that have yet to occur and that otherwise may result from future operations are capitalized. Expenditures that relate to an existing condition caused by past operations and that do not contribute to current or future revenues are expensed or charged against established environmental reserves. Reserves are established when environmental impacts have been identified which are probable to require mitigation and/or remediation and the costs are reasonably estimable.
(10) | Income Taxes
The Company accounts for income taxes using the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company periodically assesses whether it is more likely than not that it will be able to realize its deferred income tax assets. In making this determination, the Company considers all available positive and negative evidence and makes certain assumptions. The Company considers, among other things, its deferred tax liabilities, the overall business environment, its historical earnings and losses, current industry trends and its outlook for taxable income in future years. The Company recognizes tax benefits from uncertain tax positions only if it is more likely than not that the tax position will be sustained upon examination by the relevant taxing authority. Adjustments are made to the reserves for uncertain tax positions when facts and circumstances change or additional information is available. Judgment is required to assess the impact of ongoing audits conducted by tax authorities in determining the Company’s consolidated income tax provision. The Company recognizes accrued interest and penalties on tax related matters as a component of income tax expense.
(11) | Earnings per Share
Basic income per common share is computed by dividing net income by the weighted average number of common shares including non-vested and restricted shares with participation rights outstanding during the period. Diluted income per common share is computed by dividing net income by the weighted average number of common shares outstanding during the period increased by dilutive common equivalent shares determined using the treasury stock method. As a result of the use of the weighted average number of shares outstanding during the period, the full effect of the issuance of 46,000,000 shares during the fourth quarter as discussed in Note 14, is not included in the below earnings per share calculations for fiscal 2013.
| Net Income per Common Share (in thousands)
|  | December 28, |  |  |  | December 29, |  |  |  | December 31, |
|  | 2013 |  |  |  | 2012 |  |  |  | 2011 |
| Income | Shares | Per-Share |  | Income | Shares | Per-Share |  | Income | Shares | Per-Share
Basic: |  |  |  |  |  |  |  |  |  |  |
Net income | $ | 108,967 |  | 119,526 | $ | 0.91 |  |  | $ | 130,770 |  | 117,592 | $ | 1.11 |  |  | $ | 169,418 |  | 114,924 | $ | 1.47 |
Diluted: |  |  |  |  |  |  |  |  |  |  |
Effect of dilutive securities |  |  |  |  |  |  |  |  |  |  |
Add: Option shares in the money and dilutive effect of nonvested stock | — |  | 848 | — |  |  | — |  | 806 | — |  |  | — |  | 972 | — |
Less: Pro-forma treasury shares | — |  | (450) | — |  |  | — |  | (309) | — |  |  | — | (371) | — |
Diluted: |  |  |  |  |  |  |  |  |  |  |
Net income | $ | 108,967 |  | 119,924 | $ | 0.91 |  |  | $ | 130,770 |  | 118,089 | $ | 1.11 |  |  | $ | 169,418 |  | 115,525 | $ | 1.47 |
For fiscal 2013, 2012 and 2011, respectively, 135,733, 207,890 and 63,272 outstanding stock options were excluded from diluted income per common share as the effect was antidilutive. For fiscal 2013, 2012 and 2011, respectively, 57,257, 105,486 and 330,268 non-vested stock were excluded from diluted income per common share as the effect was antidilutive.
(12) | Stock Based Compensation
The Company recognizes compensation expense in an amount equal to the fair value of the share-based payments (e.g., stock options and non-vested and restricted stock) granted to employees and non-employee directors or by incurring liabilities to an employee or other supplier (a) in amounts based, at least in part, on the price of the entity’s shares or other equity instruments, or (b) that require or may require settlement by issuing the entity’s equity shares or other equity instruments. Total stock-based compensation recognized in the statement of operations for the years ended December 28, 2013, December 29, 2012 and December 31, 2011 was approximately $9.4 million, $8.9 million and $3.9 million, respectively, which is included in selling, general and administrative expenses, and the related income tax benefit recognized was approximately $3.7 million, $3.5 million and $1.9 million, respectively. See Note 14 for further information on the Company’s stock-based compensation plans. The benefits of tax deductions in excess of recognized compensation expense are reported as a financing cash flow. For the year ended December 28, 2013, December 29, 2012 and December 31, 2011 the Company recognized $1.1 million, $2.7 million and $1.1 million as an increase in financing cash flows related to such deductions.
(13) | Use of Estimates
The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. If it is at least reasonably possible that the estimate of the effect on the financial statements of a condition, situation, or set of circumstances that exist at the date of the financial statements will change in the near term due to one or more future confirming events, and the effect of the change would be material to the financial statements, the Company will disclose the nature of the uncertainty and include an indication that it is at least reasonably possible that a change in the estimate will occur in the near term. If the estimate involves certain loss contingencies, the disclosure will also include an estimate of the probable loss or range of loss or state that an estimate cannot be made.
(14) | Financial Instruments
The carrying amount of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximates fair value due to the short maturity of these instruments. The Company's term loans and revolver borrowings outstanding at December 28, 2013, as described in Note 11 have a fair value based on market valuation from a third-party bank. At December 28, 2013, the Company's term loans had a fair value of approximately $341.7 million compared to a carrying amount of $340.0 million and the Company's revolving loans had a fair value of approximately $282.4 million compared to a carry amount of $286.7 million at December 28, 2013. The Company had no term and revolving borrowings outstanding at December 29, 2012. The carrying amount for the Company’s other debt is not deemed to be significantly different than the carrying value and all other financial instruments' fair values have been disclosed in Note 18.
(15) | Derivative Instruments
The Company makes limited use of derivative instruments to manage cash flow risks related to interest expense, natural gas usage, diesel fuel usage, inventory, forecasted sales and foreign currency exchange rates. The Company does not use derivative instruments for trading purposes. Interest rate swaps are entered into with the intent of managing overall borrowing costs by reducing the potential impact of increases in interest rates on floating-rate long-term debt. Natural gas swaps and options are entered into with the intent of managing the overall cost of natural gas usage by reducing the potential impact of seasonal weather demands on natural gas that increases natural gas prices. Heating oil swaps and options are entered into with the intent of managing the overall cost of diesel fuel usage by reducing the potential impact of seasonal weather demands on diesel fuel that increases diesel fuel prices. Inventory swaps and options are entered into with the intent of managing seasonally high concentrations of MBM, PM, BFT, PG, YG and BBP inventories by reducing the potential impact of changing prices. Corn options and future contracts are entered into with the intent of managing forecasted sales of BBP by reducing the impact of changing prices. Foreign currency forward contracts are entered into to mitigate the foreign exchange rate risk for transactions designated in a currency other than the Company's reporting currency. Entities are required to report all derivative instruments in the statement of financial position at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and, if so, on the reason for holding the instrument. If certain conditions are met, entities may elect to designate a derivative instrument as a hedge of exposures to changes in fair value, cash flows or foreign currencies. If the hedged exposure is a cash flow exposure, the effective portion of the gain or loss on the derivative instrument is reported initially as a component of other comprehensive income (outside of earnings) and is subsequently reclassified into earnings when the forecasted transaction affects earnings. Any amounts excluded from the assessment of hedge effectiveness as well as the ineffective portion of the gain or loss is reported in earnings immediately. If the derivative instrument is not designated as a hedge, the gain or loss is recognized in earnings in the period of change. Hedge accounting treatment ceases if or when the hedge transaction is no longer probable of occurring or the hedge relationship correlation no longer qualifies for hedge accounting. At December 28, 2013, the Company had natural gas swaps and corn options outstanding that qualified and were designated for hedge accounting as well as heating oil swaps and foreign currency forward contracts that did not qualify and were not designated for hedge accounting.
(16) | Revenue Recognition
The Company recognizes revenue on sales when products are shipped and the customer takes ownership and assumes risk of loss. Certain customers may be required to prepay prior to shipment in order to maintain payment protection against certain foreign and domestic sales. These amounts are recorded as unearned revenue and revenue is recognized when the products have shipped and the customer takes ownership and assumes risk of loss. The Company has formula arrangements with certain suppliers whereby the charge or credit for raw materials is tied to published finished product commodity prices after deducting a fixed processing fee incorporated into the formula and is recorded as a cost of sale by line of business. The Company recognizes revenue related to grease trap servicing and industrial residual removal in the fiscal month the trap service or industrial residual removal occurs.
(17) | Related Party Transactions
The Company announced on January 21, 2011 that a wholly-owned subsidiary of Darling entered into a limited liability company agreement with a wholly-owned subsidiary of Valero Energy Corporation ("Valero") to form Diamond Green Diesel Holdings LLC (the "DGD Joint Venture"). The Company has related party sale transactions with the DGD Joint Venture. Additionally, Darling through its wholly-owned subsidiary Griffin Industry LLC ("Griffin"), leases two real properties located in Butler, Kentucky and real properties located in each of Jackson, Mississippi and Henderson, Kentucky from Martom Properties, LLC, an entity owned in part by Martin W. Griffin, the Company’s Executive Vice President – Chief Operations Officer, North America. See Note 10 and Note 23 for further information on the Company's related party transactions.
(18) | Foreign Currency Translation and Remeasurement
Foreign currency translation is included as a component of accumulated other comprehensive income and reflects the adjustments resulting from translating the foreign currency denominated financial statements of foreign subsidiaries into U.S. dollars. The functional currency of the Company's foreign subsidiaries is the currency of the primary economic environment in which the entity operates, which is generally the local currency of the country. Accordingly, assets and liabilities of the foreign subsidiaries are translated to U.S. dollars at fiscal year end exchange rates. Income and expense items are translated at daily or average monthly exchange rates. Changes in exchange rates that affect cash flows and the related receivables or payables are recognized as transaction gains and losses in determining net income. The Company incurred net foreign currency translation losses of approximately $14.5 million in fiscal year 2013 and no currency translation in fiscal years 2012 and 2011. In addition, the Company incurred foreign currency gains in the statement of operations of approximately $28.1 million in fiscal 2013 with $27.5 million representing an unrealized gain on a hedge transaction, which is included in other assets on the balance sheet.
(19) | Reclassification
Certain prior year immaterial amounts have been reclassified to conform to the current year presentation.
(20) | Subsequent Events
The Company evaluates subsequent events from the end of the most recent fiscal year through the date the consolidated financial statements are issued.

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- Definition The entire disclosure for the organization, consolidation and basis of presentation of financial statements disclosure, and significant accounting policies of the reporting entity. May be provided in more than one note to the financial statements, as long as users are provided with an understanding of (1) the significant judgments and assumptions made by an enterprise in determining whether it must consolidate a VIE and/or disclose information about its involvement with a VIE, (2) the nature of restrictions on a consolidated VIE's assets reported by an enterprise in its statement of financial position, including the carrying amounts of such assets, (3) the nature of, and changes in, the risks associated with an enterprise's involvement with the VIE, and (4) how an enterprise's involvement with the VIE affects the enterprise's financial position, financial performance, and cash flows. Describes procedure if disclosures are provided in more than one note to the financial statements. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 275 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6927468&loc=d3e6003-108592 + Details
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