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SIDLEY AUSTIN LLP 1501 K STREET, N.W. WASHINGTON, DC 20005 +1 202 736 8000 +1 202 736 8711 FAX
AMERICA•ASIA PACIFIC•EUROPE |
+1 202 736 8387 SBARROS@SIDLEY.COM
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November 8, 2024
VIA EDGAR CORRESPONDENCE
Ms. Melissa Gilmore
Division of Corporation Finance
United States Securities and Exchange Commission
Mail Stop 4628
100 F Street, N.E.
Washington, DC 20549-4628
| Re: | Darling Ingredients Inc. | |
| Form 10-K for the Fiscal Year Ended December 30, 2023 | ||
| Filed February 28, 2024 | ||
| Form 8-K Furnished July 25, 2024 | ||
| Response to SEC Comment Letter Dated November 4, 2024 | ||
| File No. 001-13323 |
Dear Ms. Gilmore:
On behalf of Darling Ingredients Inc., a Delaware corporation (the “Company”), we are submitting the following responses to the SEC Staff’s comments made in its letter of November 4, 2024 (the “Comment Letter”) addressed to the Company in connection with the Company’s Form 10-K filed on February 28, 2024 (the “2023 Form 10-K”),the Company’s Form 8-K furnished on July 25, 2024 (the “Form 8-K”) and the Response Letter Dated November 1, 2024.
For convenience, the Staff’s comments have been reproduced in bold text in this letter with the Company’s responses thereto below each corresponding comment.
Response Letter Dated November 1, 2024
Company Response to Staff Comment 4, page 5
1. We note your response to prior comment 4 where segment adjusted EBITDA and combined adjusted EBITDA are reconciled to segment income (loss), which is operating income adjusted by equity in net income of other unconsolidated subsidiaries, and DGD adjusted EBITDA is reconciled to operating income. Please revise future disclosures to reconcile them to net income (loss). The comment also applies to earnings slide presentations furnished in Forms 8-K. Refer to Question 103.02 of the SEC Staff’s Compliance and Disclosure Interpretations on Non- GAAP Financial Measures.
As requested by the Staff, the Company will revise its earnings press release and earnings slide presentation beginning with its Q4 2024 earnings release to provide tables that reconcile the differences between non-GAAP financial measures Segment Adjusted EBITDA and Combined Adjusted EBITDA to net income (loss) for each segment. Since this change will not be implemented until the Q4 2024 earnings press release and earnings slide presentation, the Company prepared a reconciliation table related to its Q2 2024 segment tables as an example of such a presentation that it plans to utilize in its Q4 2024 earnings press release and earnings slide presentation, as well as all future earnings press releases and earnings slide presentations, as presented below:
Earnings Press Release
Segment Financial Tables (in thousands)
| Feed Ingredients |
Food Ingredients |
Fuel Ingredients |
Corporate | Total | ||||||||||||||||
| Three Months Ended June 29, 2024 |
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| Total net sales |
$ | 934,147 | $ | 378,841 | $ | 142,304 | $ | — | $ | 1,455,292 | ||||||||||
| Cost of sales and operating expenses |
737,871 | 276,760 | 113,790 | — | 1,128,421 | |||||||||||||||
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| Gross margin |
196,276 | 102,081 | 28,514 | — | 326,871 | |||||||||||||||
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| Loss (gain) on sale of assets |
205 | 37 | (20 | ) | — | 222 | ||||||||||||||
| Selling, general and administrative expenses |
74,015 | 28,844 | 8,409 | 18,463 | 129,731 | |||||||||||||||
| Restructuring and asset impairment charges |
— | — | — | — | — | |||||||||||||||
| Acquisition and integration costs |
— | — | — | 1,130 | 1,130 | |||||||||||||||
| Change in fair value of contingent consideration |
(33,122 | ) | — | — | — | (33,122 | ) | |||||||||||||
| Depreciation and amortization |
86,444 | 27,372 | 8,723 | 2,066 | 124,605 | |||||||||||||||
| Equity in net income of Diamond Green Diesel |
— | — | 44,197 | — | 44,197 | |||||||||||||||
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| Segment operating income/(loss) |
$ | 68,734 | $ | 45,828 | $ | 55,599 | $ | (21,659 | ) | $ | 148,502 | |||||||||
| Equity in net income of other unconsolidated subsidiaries |
3,017 | — | — | — | 3,017 | |||||||||||||||
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| Segment income/(loss) |
$ | 71,751 | $ | 45,828 | $ | 55,599 | $ | (21,659 | ) | $ | 151,519 | |||||||||
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| Segment Adjusted EBITDA (Non-GAAP) |
$ | 122,056 | $ | 73,200 | $ | 20,125 | $ | (18,463 | ) | $ | 196,918 | |||||||||
| DGD Adjusted EBITDA (Darling’s Share) (Non-GAAP) |
— | — | 76,642 | — | 76,642 | |||||||||||||||
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| Combined Adjusted EBITDA (Non-GAAP) |
$ | 122,056 | $ | 73,200 | $ | 96,767 | $ | (18,463 | ) | $ | 273,560 | |||||||||
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| Reconciliation of Net Income/(loss) to (Non-GAAP) Segment Adjusted EBITDA and (Non-GAAP) Combined Adjusted EBITDA: |
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| Net income attributable to Darling |
$ | 71,751 | $ | 45,828 | $ | 55,599 | $ | (94,312 | ) | $ | 78,866 | |||||||||
| Net income attributable to noncontrolling interests |
— | — | — | 2,499 | 2,499 | |||||||||||||||
| Income tax expense |
— | — | — | 774 | 774 | |||||||||||||||
| Interest expense |
— | — | — | 69,225 | 69,225 | |||||||||||||||
| Foreign currency gain |
— | — | — | (413 | ) | (413 | ) | |||||||||||||
| Other expense, net |
— | — | — | 568 | 568 | |||||||||||||||
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| Segment income/(loss) |
$ | 71,751 | $ | 45,828 | $ | 55,599 | $ | (21,659 | ) | $ | 151,519 | |||||||||
| Acquisition and integration costs |
— | — | — | 1,130 | 1,130 | |||||||||||||||
| Change in fair value of contingent consideration |
(33,122 | ) | — | — | — | (33,122 | ) | |||||||||||||
| Depreciation and amortization |
86,444 | 27,372 | 8,723 | 2,066 | 124,605 | |||||||||||||||
| Equity in net income of Diamond Green Diesel |
— | — | 44,197 | — | 44,197 | |||||||||||||||
| Equity in net income of other unconsolidated subsidiaries |
3,017 | — | — | — | 3,017 | |||||||||||||||
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| Segment Adjusted EBITDA (Non-GAAP) |
$ | 122,056 | $ | 73,200 | $ | 20,125 | $ | (18,463 | ) | $ | 196,918 | |||||||||
| DGD Adjusted EBITDA (Darling’s Share) (Non-GAAP) * |
— | — | 76,642 | — | 76,642 | |||||||||||||||
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| Combined Adjusted EBITDA (Non-GAAP) |
$ | 122,056 | $ | 73,200 | $ | 96,767 | $ | (18,463 | ) | $ | 273,560 | |||||||||
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| * | See reconciliation of DGD Net Income to (Non-GAAP) DGD Adjusted EBITDA below the DGD Statement of Operations |
Diamond Green Diesel Joint Venture
Operating Financial Results
For the Three and Six Months Ended June 30, 2024 and June 30, 2023
(in thousands, unaudited)
| Three Months Ended | Six Months Ended | |||||||||||||||||||||||
| June 30, 2024 |
June 30, 2023 |
$ Change Favorable (Unfavorable) |
June 30, 2024 |
June 30, 2023 |
$ Change Favorable (Unfavorable) |
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| Revenues: |
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| Operating revenues |
$ | 1,184,076 | $ | 2,246,111 | $ | (1,062,035 | ) | $ | 2,595,191 | $ | 3,926,161 | $ | (1,330,970 | ) | ||||||||||
| Expenses: |
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| Total costs and expenses less lower of cost or market inventory valuation adjustment and depreciation, amortization and accretion expense |
1,014,927 | 1,751,315 | 736,388 | 2,174,283 | 3,172,719 | 998,436 | ||||||||||||||||||
| Lower of cost or market (LCM) inventory valuation adjustment |
15,866 | — | (15,866 | ) | 37,504 | — | (37,504 | ) | ||||||||||||||||
| Depreciation, amortization and accretion expense |
61,910 | 58,315 | (3,595 | ) | 127,200 | 116,922 | (10,278 | ) | ||||||||||||||||
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| Total costs and expenses |
1,092,703 | 1,809,630 | 716,927 | 2,338,987 | 3,289,641 | 950,654 | ||||||||||||||||||
| Operating income |
91,373 | 436,481 | (345,108 | ) | 256,204 | 636,520 | (380,316 | ) | ||||||||||||||||
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| Other income |
6,058 | 2,121 | 3,937 | 9,278 | 4,162 | 5,116 | ||||||||||||||||||
| Interest and debt expense, net |
(9,037 | ) | (12,674 | ) | 3,637 | (20,279 | ) | (26,080 | ) | 5,801 | ||||||||||||||
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| Income before income tax expense |
88,394 | 425,928 | (337,534 | ) | 245,203 | 614,602 | (369,399 | ) | ||||||||||||||||
| Income tax benefit |
— | — | — | (29 | ) | — | 29 | |||||||||||||||||
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| Net income |
$ | 88,394 | $ | 425,928 | $ | (337,534 | ) | $ | 245,232 | $ | 614,602 | $ | (369,370 | ) | ||||||||||
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| Reconciliation of DGD Net Income to (Non-GAAP) DGD Adjusted EBITDA: |
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| Net income |
$ | 88,394 | $ | 425,928 | $ | (337,534 | ) | $ | 245,232 | $ | 614,602 | $ | (369,370 | ) | ||||||||||
| Income tax benefit |
— | — | — | (29 | ) | — | 29 | |||||||||||||||||
| Interest and debt expense, net |
9,037 | 12,674 | (3,637 | ) | 20,279 | 26,080 | (5,801 | ) | ||||||||||||||||
| Other income |
(6,058 | ) | (2,121 | ) | (3,937 | ) | (9,278 | ) | (4,162 | ) | (5,116 | ) | ||||||||||||
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| Operating income |
$ | 91,373 | $ | 436,481 | $ | (345,108 | ) | $ | 256,204 | $ | 636,520 | $ | (380,316 | ) | ||||||||||
| Depreciation, amortization and accretion expense |
61,910 | 58,315 | (3,595 | ) | 127,200 | 116,922 | (10,278 | ) | ||||||||||||||||
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| DGD Adjusted EBITDA (Non-GAAP) |
153,283 | 494,796 | 341,513 | 383,404 | 753,442 | 370,038 | ||||||||||||||||||
| Darling’s Share 50% |
50 | % | 50 | % | 50 | % | 50 | % | ||||||||||||||||
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| DGD Adjusted EBITDA (Darling’s Share) (Non-GAAP) |
$ | 76,642 | $ | 247,398 | $ | 170,757 | $ | 191,702 | $ | 376,721 | $ | 185,019 | ||||||||||||
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Earnings Slide Presentation
Presented below is a revised reconciliation of the Feed Segment that reconciles from Net Income (loss) to Segment Adjusted EBITDA for Q2 2024 that the Company plans to follow the format of in its Q4 2024 earnings slide presentation as well as all future earnings slide presentations:
| US $ (in millions, unaudited) | Q2 2024 | Q2 2023 | YTD 2024 | YTD 2023 | ||||||||||||
| Net Sales |
$ | 934,147 | $ | 1,141,661 | $ | 1,823,995 | $ | 2,379,155 | ||||||||
| Cost of sales & operating expenses |
737,871 | 876,413 | 1,443,640 | 1,826,485 | ||||||||||||
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| Gross margin |
$ | 196,276 | $ | 265,248 | $ | 380,355 | $ | 552,670 | ||||||||
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| Loss (gain) on sale of assets |
205 | 322 | 337 | -20 | ||||||||||||
| Selling, general and administrative expenses |
74,015 | 77,406 | 151,153 | 152,097 | ||||||||||||
| Restructuring and asset impairment charges |
— | — | — | 92 | ||||||||||||
| Change in fair value of contingent consideration |
-33,122 | -7,499 | -58,371 | -7,499 | ||||||||||||
| Depreciation and amortization |
86,444 | 82,575 | 174,013 | 172,895 | ||||||||||||
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| Segment operating income |
68,734 | 112,444 | 113,223 | 235,105 | ||||||||||||
| Equity in net income of other unconsolidated subsidiaries |
3,017 | 1,849 | 5,327 | 1,969 | ||||||||||||
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| Segment Income |
$ | 71,751 | $ | 114,293 | $ | 118,550 | $ | 237,074 | ||||||||
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| Segment Adjusted EBITDA (Non-GAAP) |
$ | 122,056 | $ | 187,520 | $ | 228,865 | $ | 400,593 | ||||||||
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| Raw material processed (mmts) |
3.1 | 3.1 | 6.2 | 6.3 | ||||||||||||
| Reconciliation of Net Income (Loss) to (Non-GAAP) Segment Adjusted EBITDA: |
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| Segment Income * |
$ | 71,751 | $ | 114,293 | $ | 118,550 | $ | 237,074 | ||||||||
| Equity in net income of other unconsolidated |
(3,017 | ) | (1,849 | ) | (5,327 | ) | (1,969 | ) | ||||||||
| Restructuring and asset impairment charges |
— | — | — | 92 | ||||||||||||
| Change in fair value of contingent consideration |
(33,122 | ) | (7,499 | ) | (58,371 | ) | (7,499 | ) | ||||||||
| Depreciation and amortization |
86,444 | 82,575 | 174,013 | 172,895 | ||||||||||||
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| Segment Adjusted EBITDA (Non-GAAP) |
$ | 122,056 | $ | 187,520 | $ | 228,865 | $ | 400,593 | ||||||||
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| * | When presented by Segment, no adjustments are necessary to reconcile Segment Income to Net Income for the Feed Segment. |
Presented below is a revised reconciliation of the Food Segment that reconciles from Net Income (loss) to Segment Adjusted EBITDA for Q2 2024 that the Company plans to follow the format of in its Q4 2024 earnings slide presentation as well as all future earnings slide presentations:
| US $ (in millions, unaudited) | Q2 2024 | Q2 2023 | YTD 2024 | YTD 2023 | ||||||||||||
| Net Sales |
$ | 378,841 | $ | 476,093 | $ | 770,123 | $ | 872,485 | ||||||||
| Cost of sales & operating expenses |
276,760 | 371,095 | 574,905 | 661,210 | ||||||||||||
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| Gross margin |
$ | 102,081 | $ | 104,998 | $ | 195,218 | $ | 211,275 | ||||||||
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| Loss (gain) on sale of assets |
37 | 2 | -257 | -19 | ||||||||||||
| Selling, general and administrative expenses |
28,844 | 33,684 | 60,588 | 66,806 | ||||||||||||
| Restructuring and asset impairment charges |
— | 896 | — | 5,328 | ||||||||||||
| Depreciation and amortization |
27,372 | 28,445 | 56,240 | 42,918 | ||||||||||||
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| Segment Income |
$ | 45,828 | $ | 41,971 | $ | 78,647 | $ | 96,242 | ||||||||
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| Segment Adjusted EBITDA (Non-GAAP) |
$ | 73,200 | $ | 71,312 | $ | 134,887 | $ | 144,488 | ||||||||
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| Raw material processed (mts) |
304,700 | 331,300 | 604,500 | 595,600 | ||||||||||||
| Reconciliation of Net Income (Loss) to (Non-GAAP) Segment Adjusted EBITDA: |
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| Segment Income * |
$ | 45,828 | $ | 41,971 | $ | 78,647 | $ | 96,242 | ||||||||
| Restructuring and asset impairment charges |
— | 896 | — | 5,328 | ||||||||||||
| Depreciation and amortization |
27,372 | 28,445 | 56,240 | 42,918 | ||||||||||||
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| Segment Adjusted EBITDA (Non-GAAP) |
$ | 73,200 | $ | 71,312 | $ | 134,887 | $ | 144,488 | ||||||||
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| * | When presented by Segment, no adjustments are necessary to reconcile Segment Income to Net Income for the Food Segment. |
Presented below is a revised reconciliation of the Fuel Segment that reconciles from Net Income (loss) to Segment Adjusted EBITDA and Combined Adjusted EBITDA for Q2 2024 that the Company plans to follow the format of in its Q4 2024 earnings slide presentation as well as all future earnings slide presentations:
| US $ (in millions, unaudited) | Q2 2024 | Q2 2023 | YTD 2024 | YTD 2023 | ||||||||||||
| Net Sales |
$ | 142,304 | $ | 139,867 | $ | 281,473 | $ | 297,153 | ||||||||
| Cost of sales & operating expenses |
113,790 | 112,194 | 226,542 | 238,980 | ||||||||||||
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| Gross margin |
$ | 28,514 | $ | 27,673 | $ | 54,931 | $ | 58,173 | ||||||||
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| Gain on sale of assets |
(20 | ) | (65 | ) | (432 | ) | (29 | ) | ||||||||
| Selling, general & administrative expenses |
8,409 | 4,971 | 17,154 | 11,163 | ||||||||||||
| Depreciation & amortization |
8,723 | 8,567 | 17,390 | 16,960 | ||||||||||||
| Equity in net income of Diamond Green Diesel |
44,197 | 212,964 | 122,616 | 307,301 | ||||||||||||
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| Segment Income |
$ | 55,599 | $ | 227,164 | $ | 143,435 | $ | 337,380 | ||||||||
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| Segment Adjusted EBITDA (Non-GAAP) |
$ | 20,125 | $ | 22,767 | $ | 38,209 | $ | 47,039 | ||||||||
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| Raw material processed (mt)* |
362,000 | 346,500 | 718,900 | 696,200 | ||||||||||||
| Reconciliation of Net Income (Loss) to (Non-GAAP) Segment Adjusted EBITDA: |
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| Segment Income * |
$ | 55,599 | $ | 227,164 | $ | 143,435 | $ | 337,380 | ||||||||
| Depreciation and amortization |
8,723 | 8,567 | 17,390 | 16,960 | ||||||||||||
| Equity in net income of Diamond Green Diesel |
(44,197 | ) | (212,964 | ) | (122,616 | ) | (307,301 | ) | ||||||||
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| Segment Adjusted EBITDA (Non-GAAP) |
$ | 20,125 | $ | 22,767 | $ | 38,209 | $ | 47,039 | ||||||||
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| * | When presented by Segment, no adjustments are necessary to reconcile Segment Income to Net Income for the Fuel Segment. |
| Reconciliation of DGD Net Income to (Non-GAAP) DGD Adjusted EBITDA: |
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| Net income |
$ | 88,394 | $ | 425,928 | $ | 245,232 | $ | 614,602 | ||||||||
| Income tax benefit |
— | — | (29 | ) | — | |||||||||||
| Interest and debt expense, net |
9,037 | 12,674 | 20,279 | 26,080 | ||||||||||||
| Other income |
(6,058 | ) | (2,121 | ) | (9,278 | ) | (4,162 | ) | ||||||||
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| Operating Income |
$ | 91,373 | $ | 436,481 | $ | 256,204 | $ | 636,520 | ||||||||
| Depreciation, amortization and accrued expense |
61,910 | 58,315 | 127,200 | 116,922 | ||||||||||||
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| DGD Adjusted EBITDA (Non-GAAP) |
153,283 | 494,796 | 383,404 | 753,442 | ||||||||||||
| Darling’s Share 50% |
50 | % | 50 | % | 50 | % | 50 | % | ||||||||
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| DGD Adjusted EBITDA (Darling’s Share) (Non-GAAP) |
$ | 76,642 | $ | 247,398 | $ | 191,702 | $ | 376,721 | ||||||||
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| Segment Adjusted EBITDA (Non-GAAP) |
$ | 20,125 | $ | 22,767 | $ | 38,209 | $ | 47,039 | ||||||||
| DGD Adjusted EBITDA (Darling’s Share) (Non-GAAP) |
$ | 76,642 | $ | 247,398 | $ | 191,702 | $ | 376,721 | ||||||||
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| Combined Adjusted EBITDA (Non-GAAP) |
$ | 96,767 | $ | 270,165 | $ | 229,911 | $ | 423,760 | ||||||||
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Additionally, the Company plans to further revise the following disclosures on the use of non-GAAP measures in the Company’s future earnings press releases and earnings slide presentations to reconcile them to net income/(loss) as outlined below:
Segment Adjusted EBITDA is not a recognized accounting measurement under GAAP; it should not be considered as an alternative to net income/(loss), as a measure of operating results, or as an alternative to cash flow as a measure of liquidity.It is presented here not as an alternative to net income (loss), but rather as a measure of the segment’s operating performance.Segment Adjusted EBITDA consists of net income/(loss) plus depreciation and amortization, restructuring and asset impairment charges, acquisition and integration costs, change in fair value of contingent consideration, foreign currency loss/(gain), net income/(loss) attributable to noncontrolling interests, interest expense, income tax provision, other income/(expense), equity in net (income)/loss of unconsolidated subsidiaries and equity in net (income)/loss of Diamond Green Diesel. Management believes that Segment Adjusted EBITDA is useful in evaluating the segment’s operating performance because the calculation of Segment Adjusted EBITDA generally eliminates non-cash and certain other items for reasons unrelated to overall operating performance and also believes this information is useful to investors.
DGD Adjusted EBITDA is not reflected in the Adjusted EBITDA or the Pro forma Adjusted EBITDA to Foreign Currency.DGD Adjusted EBITDA is not a recognized accounting measure under GAAP; it should not be considered as an alternative to net income/(loss) or equity in net income/(loss) of Diamond Green Diesel, as a measure of operating results, or as an alternative to cash flow as a measure of liquidity and is not intended to be a presentation in accordance with GAAP. The Company calculates DGD Adjusted EBITDA by taking DGD’s net income/(loss) plus income tax expense/(benefit), interest and debt expense, net, and DGD’s depreciation, amortization and accretion expense less other income.Management believes that DGD Adjusted EBITDA is useful in evaluating the Company’s operating performance because the calculation of DGD Adjusted EBITDA generally eliminates non-cash and certain other items at DGD unrelated to overall operating performance and also believes this information is useful to investors. The Company calculates Darling’s Share of DGD Adjusted EBITDA by taking DGD Adjusted EBITDA and then multiplying by 50% to get Darling’s Share of DGD’s Adjusted EBITDA.
Should you have any questions regarding the foregoing, please contact the undersigned at (202) 736-8387.
Very truly yours,
/s/ Sonia G. Barros
Sonia G. Barros
| Cc: | John F. Sterling, Executive Vice President—General Counsel and Secretary, Darling Ingredients, Inc. |
Brian J. Fahrney, Sidley Austin LLP