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LAMB WESTON HOLDINGS, INC. filed this 10-K on July 27, 2022

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LAMB WESTON HOLDINGS, INC. - 10-K - 20220727 - PART_II

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is listed on the New York Stock Exchange under the ticker symbol “LW.” At July 18, 2022, there were 11,015 holders of record of our common stock. The majority of holders of Lamb Weston common stock are “street name” or beneficial holders, whose shares of record are held by banks, brokers, and other financial institutions.

Dividends

Our Board of Directors intends to continue to consider declaring and paying dividends on Lamb Weston common stock based on our financial condition and results of operations, as well as applicable covenants under our debt agreements. Our Board of Directors has no obligation under Delaware law or our amended and restated certificate of incorporation to declare or pay dividends, and dividends on Lamb Weston common stock are limited to legally available funds.

Purchases of Equity Securities by the Issuer

The following table presents information related to total shares purchased during the periods presented below:


							Approximate Dollar
					Total Number of		Value of Maximum
	Total Number		Average		Shares (or Units)		Number of Shares that
	of Shares (or		Price Paid		Purchased as Part of		May Yet be Purchased
	Units)		Per Share		Publicly Announced		Under Plans or Programs
Period	Purchased (a)		(or Unit)		Plans or Programs (b)		(in millions) (b)
February 28, 2022 through March 27, 2022		1,114	$	63.68		—	$	293.6
March 28, 2022 through April 24, 2022		72,675	$	67.70		72,365	$	288.7
April 25, 2022 through May 29, 2022		306,928	$	64.25		306,928	$	268.9
Total		380,717

(a)	Represents repurchased shares of our common stock under our publicly announced share repurchase program, which were repurchased at a weighted average price of $64.91, and shares withheld from employees to cover income and payroll taxes on equity awards that vested during the period.

(b)

On December 20, 2018, we announced that our Board of Directors had authorized a $250.0 million share repurchase program with no expiration date. On December 17, 2021, we announced that our Board of Directors had authorized the repurchase of an additional $250.0 million of our common stock under this program. Repurchases may be made at our discretion from time to time on the open market, subject to applicable laws, including pursuant to a repurchase plan administered in accordance with Rule 10b5-1 under the Securities Exchange Act of 1934, or through privately negotiated transactions.

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Performance Graph

The following graph and table compare the cumulative total return on our common stock with the cumulative total return of the Standard & Poor’s (“S&P”) 500 Index, the S&P 400 Packaged Food Index, which we consider to be our peer group, and the S&P 500 Packaged Food Index. This graph and table cover the period from May 26, 2017 through May 27, 2022 (the last trading day of our fiscal year). The graph and table assume that $100 was invested in our common stock, the S&P 500 Index, the S&P 400 Packaged Food Index, and the S&P 500 Packaged Food Index on May 26, 2017, and that all dividends were reinvested. The cumulative total return shown below are based on the last trading day in Lamb Weston’s fiscal year.


	May 26,		May 25,		May 24,		May 29,		May 28,		May 27,
	2017		2018		2019		2020		2021		2022
Lamb Weston	$	100	$	145	$	140	$	137	$	190	$	159
S&P 500 Index	$	100	$	115	$	122	$	134	$	188	$	188
S&P 400 Packaged Foods Index	$	100	$	99	$	124	$	118	$	138	$	133
S&P 500 Packaged Foods Index	$	100	$	84	$	94	$	101	$	120	$	125

The above performance graph and other information furnished under this Part II, Item 5 of this Form 10-K shall not be deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C, or to the provisions of Section 18, of the Securities Exchange Act of 1934, as amended.

ITEM 6. RESERVED

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis is intended to provide a summary of significant factors relevant to our financial performance and condition. The discussion and analysis should be read together with our consolidated financial statements and related notes in “Part II, Item 8. Financial Statements and Supplementary Data” of this Form 10-K. Results for the fiscal year ended May 29, 2022 are not necessarily indicative of results that may be attained in the future.

The following generally discusses fiscal 2022 and 2021 items and fiscal year comparisons between fiscal 2022 and 2021. Discussions of fiscal 2020 items and fiscal year comparisons between fiscal 2021 and 2020 that are not included in this Form 10-K can be found in “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended May 30, 2021, which we filed with the SEC on July 27, 2021.

Overview

Lamb Weston, along with our joint ventures, is a leading global producer, distributor, and marketer of value-added frozen potato products. We, along with our joint ventures, are the number one supplier of value-added frozen potato products in North America. We, along with our joint ventures, are also a leading supplier of value-added frozen potato products internationally, with a strong and growing presence in high-growth emerging markets. We, along with our joint ventures, offer a broad product portfolio to a diverse channel and customer base in over 100 countries. French fries represent the majority of our value-added frozen potato product portfolio.

Management’s discussion and analysis of our results of operations and financial condition, which we refer to in this filing as “MD&A,” is provided as a supplement to the consolidated financial statements and related notes included elsewhere in this Form 10-K to help provide an understanding of our financial condition, changes in financial condition and results of our operations. Our MD&A is based on financial data derived from the financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and certain other financial data (including product contribution margin on a consolidated basis, Adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”), Adjusted EBITDA including unconsolidated joint ventures, Adjusted Diluted earnings per share (“EPS”), and Adjusted Net Income) that is prepared using non-GAAP financial measures. Refer to “Non-GAAP Financial Measures” below for the definitions of product contribution margin, Adjusted EBITDA, Adjusted EBITDA including unconsolidated joint ventures, Adjusted Diluted EPS, and Adjusted Net Income, and a reconciliation of these non-GAAP financial measures to gross profit, net income or diluted EPS, as applicable.

Executive Summary

In fiscal 2022, we delivered a solid financial and operating performance in a highly challenging environment that was characterized by severe input and transportation cost inflation, a historically poor potato crop in the Pacific Northwest, and constraints in labor availability and logistics networks. We drove strong net sales growth by executing pricing actions and improving product and customer mix. These actions, along with our supply chain productivity initiatives, served to offset some, but not all, of the cost and operating headwinds that we faced throughout the year. Specifically, compared with the prior year:

●

Net sales increased 12% to $4,098.9 million

●

Income from operations decreased 6% to $444.4 million

●

Net income decreased 37% to $200.9 million and Adjusted Net Income decreased 4% to $304.1 million

●

Diluted EPS decreased 36% to $1.38 and Adjusted Diluted EPS decreased 4% to $2.08

●

Adjusted EBITDA including unconsolidated joint ventures decreased 3% to $725.7 million

●

Net cash provided by operating activities declined 24% to $418.1 million

Compared with fiscal 2021, the increase in net sales was primarily driven by higher price/mix and sales volumes. The increase in price/mix reflected the benefit of multiple product pricing actions across each of our business segments to offset input cost inflation, as well as higher prices charged for product delivery. The increase in sales volumes reflected

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higher shipments to restaurant and foodservice channels in North America as demand continued to rebound towards pre-pandemic levels. The increase was most pronounced in our Foodservice segment, which has a higher proportion of its sales to on-premise dining establishments, while shipments to our large chain quick service restaurant (“QSR”) and casual dining restaurant customers in the U.S., which are included in our Global segment, also increased. The sales volume increase was partially offset by lower export volumes, which are included in our Global segment, and lower shipments in our Retail segment. Our sales growth was also tempered by widespread industry supply chain constraints that resulted in lower production run-rates and throughput in our production facilities.

Outside of North America, the recovery in frozen potato demand varied and generally lagged U.S. demand. Shipments to customers in China fell as restaurant traffic and consumer demand was negatively affected by government-imposed restrictions geared towards reducing the spread of COVID-19-related variants, while shipments to other key markets in Asia and Oceania were negatively affected by global logistics constraints. In Europe, which is served by our LWM joint venture, sales volumes increased as restaurant traffic continued to improve, although earnings were negatively affected by inflation, production, and transportation challenges.

Gross profit in fiscal 2022 was flat compared to fiscal 2021, as favorable price/mix offset higher manufacturing and distribution costs on a per pound basis, while income from operations declined $30.4 million to $444.4 million as a result of higher selling, general and administrative (“SG&A”) expenses.

Compared to fiscal 2021, net income declined $116.9 million to $200.9 million, while Diluted EPS declined $0.78 to $1.38. Most of the declines were due to a $62.7 million (before and after-tax, or $0.43 per share) non-cash impairment charge associated with LWM’s announced intent, in the fourth quarter of fiscal 2022, to withdraw from its joint venture in Russia in response to the war in Ukraine, as well as a loss of $53.3 million ($40.5 million after-tax or $0.27 per share) associated with a transaction to lower the interest rates and extend the maturities on some outstanding debt (see Liquidity and Capital Resources below).

We generated full-year cash from operations of $418.1 million and cash flow after investing activities of $107.6 million. We ended the year with $525.0 million of cash and cash equivalents and no borrowings on our revolving credit facility. In addition, we returned $289.1 million to our stockholders, including $138.4 million in cash dividends and $150.7 million of share repurchases. In July 2022, we used approximately $42 million to acquire an additional forty percent interest in our joint venture in Argentina, LWAMSA, increasing our total ownership from fifty percent to ninety percent. Following the acquisition, we will consolidate LWAMSA’s results in our consolidated financial statements.

Outlook

In fiscal 2023, we expect price/mix to increase largely due to pricing actions that we began to implement in fiscal 2022 in an effort to mitigate manufacturing and distribution cost inflation. We also expect sales volumes to grow largely due to the expected continuation in the rise of U.S. demand for frozen potato products, although our volume growth may be tempered by production capacity and logistics constraints. In addition, we expect that U.S. restaurant traffic, demand, and volume growth may be increasingly volatile as consumers respond to the current inflationary environment. We expect the rate of recovery of demand in our key international markets will be mixed, and that our international shipments will continue to be tempered by limited shipping container availability and disruptions to ocean freight networks.

During the first half of fiscal 2023, we expect our gross margins will be pressured as compared to normalized seasonal rates as we continue to manage through significant inflation as well as higher raw potato costs on a per pound basis due to the impact of extreme summer heat that negatively affected the yield and quality of potato crops in the Pacific Northwest in the fall of 2021. We also expect our gross margins in the first half of fiscal 2023 will be pressured by ongoing industrywide operational challenges, including labor and commodities shortages, resulting from volatility in the broader supply chain. During the second half of fiscal 2023, we expect our gross margins will improve if the potato crop harvested in fall 2022 is in line with historical averages, we continue to successfully implement our pricing actions to offset input and transportation costs inflation, and we realize a broad easing of labor and logistics pressures that have been constraining our production and shipments. We expect overall SG&A to be higher as a result of increased compensation and benefits expenses and investments to improve our information technology infrastructure over the long-term, including our efforts to design and implement the next phase of a new ERP system.

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Results of Operations

We have four reportable segments: Global, Foodservice, Retail, and Other. We report net sales and product contribution margin by segment and on a consolidated basis. Product contribution margin, when presented on a consolidated basis, is a non-GAAP financial measure. Net sales and product contribution margin are the primary measures reported to our chief operating decision maker for purposes of allocating resources to our segments and assessing their performance. Product contribution margin represents net sales less cost of sales and advertising and promotion (“A&P”) expenses. Product contribution margin includes advertising and promotion expenses because those expenses are directly associated with the performance of our segments. For additional information on our reportable segments and product contribution margin, see “Non-GAAP Financial Measures” below and Note 13, Segments, of the Notes to Consolidated Financial Statements in “Part II, Item 8. Financial Statements and Supplementary Data” in this Form 10-K.

Fiscal Year Ended May 29, 2022 Compared to Fiscal Year Ended May 30, 2021

Net Sales and Product Contribution Margin


	Year Ended
	May 29,		May 30,		%
(in millions, except percentages)	2022		2021		Inc/(Dec)
Segment net sales
Global	$	2,064.2	$	1,911.5	8%
Foodservice		1,318.2		1,017.3	30%
Retail		594.6		603.4	(1%)
Other		121.9		138.7	(12%)
	$	4,098.9	$	3,670.9	12%

Segment product contribution margin
Global	$	252.2	$	306.2	(18%)
Foodservice		449.3		340.0	32%
Retail		109.4		120.2	(9%)
Other		2.2		47.8	(95%)
		813.1		814.2	0%
Add: Advertising and promotion expenses		18.9		17.8	6%
Gross profit	$	832.0	$	832.0	0%

Net Sales

Lamb Weston’s net sales for fiscal 2022 increased $428.0 million, or 12%, to $4,098.9 million, compared with $3,670.9 million in fiscal 2021. Price/mix increased 9%, primarily reflecting the benefit of pricing actions across each of our business segments to offset input, manufacturing, and transportation cost inflation, as well as favorable mix. Volume increased 3%, reflecting higher shipments to restaurant and foodservice channels in North America, partially offset by lower exports due to limited shipping container availability and disruptions to ocean freight networks, as well as lower shipments to retail channels. Our volume growth was tempered by an inability to fully serve customer demand due to widespread industry supply chain constraints, including labor and commodities shortages, that resulted in lower production run-rates and throughput in our production facilities.

Global net sales increased $152.7 million, or 8%, to $2,064.2 million, compared with $1,911.5 million in fiscal 2021. Price/mix increased 6% and volume increased 2%. The benefit of domestic and international product and freight pricing actions to offset inflation, as well as favorable mix, drove the increase in price/mix. A strong increase in sales volumes to North American large QSR and casual dining restaurant chain customers was partially offset by lower export shipments due to limited shipping container availability and disruptions to ocean freight networks.

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Foodservice net sales increased $300.9 million, or 30%, to $1,318.2 million, compared with $1,017.3 million in fiscal 2021. Volume and price/mix each increased 15%. The benefits of product and freight pricing actions taken throughout the year to offset inflation, as well as favorable mix, drove the increase in price/mix. The segment’s strong volume growth reflects the progressive recovery in demand in its restaurant and non-commercial channels, although growth was tempered by an inability to fully serve customer demand due to widespread industry supply chain constraints, including labor shortages, that resulted in lower production run-rates and throughput in our production facilities.

Retail net sales decreased $8.8 million, or 1%, to $594.6 million, compared with $603.4 million in fiscal 2021. Volume declined 8% while price/mix increased 7%. Lower shipments of private label products, resulting from incremental losses of certain low-margin business, as well as lower shipments of branded products, drove the sales volume decline. The decline in branded product volume reflected an inability to fully serve customer demand due to lower production run-rates and throughput in our production facilities. Product and freight pricing actions across the branded and private label portfolios to offset inflation, as well as improved mix, drove the increase in price/mix.

Net sales in our Other segment declined $16.8 million, or 12%, to $121.9 million, compared with $138.7 million in fiscal 2021. The decline primarily reflects lower volume in our vegetable business, reflecting the negative effect of the extreme summer heat on the yield and quality of the vegetable crops, partially offset by the benefit of pricing actions.

Gross Profit and Product Contribution Margin

Gross profit in fiscal 2022 was flat compared to fiscal 2021 at $832.0 million, as the benefits from higher price/mix and volume were offset by the impact of higher manufacturing and distribution costs on a per pound basis. The higher costs per pound primarily reflected double-digit cost inflation from key inputs, including: edible oils; ingredients such as grains and starches used in product coatings; packaging; labor; and higher transportation costs. The increase in costs per pound also reflected higher raw potato costs due to the impact of extreme summer heat that negatively affected the yield and quality of potato crops in the Pacific Northwest in fall 2021, the effects of labor and commodities shortages on production run-rates, as well as lower raw potato utilization rates. The increase in per pound costs was partially offset by securing changes to product specifications, portfolio simplification, and driving supply chain savings behind our Win as 1 productivity program. Gross profit also included a $28.9 million decrease in unrealized mark-to-market adjustments associated with commodity hedging contracts, which includes a $9.5 million loss in the current year, compared with a $19.4 million gain related to these items in the prior year.

Lamb Weston’s overall product contribution margin in fiscal 2022 declined $1.1 million to $813.1 million, compared with $814.2 million in fiscal 2021. The decline was largely due to a $1.1 million increase in A&P expenses as gross profit was flat (as described above).

Global product contribution margin declined $54.0 million, or 18%, to $252.2 million in fiscal 2022. Higher manufacturing and distribution costs per pound more than offset the benefit of favorable price/mix and higher sales volumes. Global segment cost of sales was $1,806.6 million, up 13% compared to fiscal 2021, primarily due to higher manufacturing and distribution costs and higher sales volumes.

Foodservice product contribution margin increased $109.3 million, or 32%, to $449.3 million in fiscal 2022. Favorable price, volume and mix drove the increase, and were partially offset by higher manufacturing and distribution costs per pound. Cost of sales was $863.8 million, up 28% compared to fiscal 2021, primarily due to higher manufacturing and distribution costs and higher sales volumes.

Retail product contribution margin declined $10.8 million, or 9%, to $109.4 million in fiscal 2022. Higher manufacturing and distribution costs per pound and lower sales volumes drove the decline, partially offset by favorable price/mix and a $0.8 million decrease in A&P expenses. Cost of sales was $477.1 million, up 1% compared to fiscal 2021, primarily due to higher manufacturing and distribution costs, partially offset by lower sales volumes.

Other product contribution margin declined $45.6 million to $2.2 million in fiscal 2022, as compared to $47.8 million in fiscal 2021. These amounts include a $10.4 million loss related to unrealized mark-to-market adjustments and realized settlements associated with commodity hedging contracts in fiscal 2022, and a $27.8 million gain related to the

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contracts in fiscal 2021. Excluding these mark-to-market adjustments, Other segment product contribution margin declined $7.4 million, largely due to higher manufacturing costs and lower sales volumes in our vegetable business.

Selling, General and Administrative Expenses

SG&A expenses were $387.6 million, up $30.4 million, or 9%, in fiscal 2022 compared with fiscal 2021. The increase was primarily due to higher compensation and benefits expense; higher travel, employee relations and in-person meeting expenses; higher information technology infrastructure costs, including expenses related to the planning and design of our new ERP system, and a $3.5 million contribution to the Lamb Weston charitable foundation. The increase in SG&A was partially offset by lower consulting expenses associated with improving our commercial and supply chain operations.

Interest Expense, Net

Interest expense, net was $161.0 million in fiscal 2022, an increase of $42.7 million compared with fiscal 2021. The increase reflects a $53.3 million ($40.5 million after-tax) loss on extinguishment of debt associated with the redemption of our previously outstanding senior notes due 2024 and 2026. Excluding this loss, interest expense, net declined $10.6 million, reflecting a lower weighted average interest rate. For more information, see Note 7, Debt and Financing Obligations, of the Notes to Consolidated Financial Statements in “Part II, Item 8. Financial Statements and Supplementary Data” in this Form 10-K.

Income Taxes

Our effective tax rate was 26.3% for fiscal 2022, compared to 22.2% in fiscal 2021. The difference between our effective tax rates in fiscal 2022 and 2021 is primarily due to the Russia impairment charge treated as a non-deductible permanent difference. Our effective tax rate varies from the U.S. statutory tax rate of 21% principally due to the impact of U.S. state taxes, foreign taxes, permanent differences, and discrete items, and was elevated in fiscal 2022 relative to our historical rate due to the Russia impairment charge. Excluding the Russia impairment charge, our effective tax rate for fiscal 2022 was 21.4%.

For further information on income taxes, see Note 3, Income Taxes, of the Notes to Consolidated Financial Statements in “Part II, Item 8. Financial Statements and Supplementary Data” in this Form 10-K.

Equity Method Investment Earnings (Loss)

We conduct meaningful business through unconsolidated joint ventures and include our share of the earnings (loss) based on our economic ownership interest in them. Lamb Weston’s share of earnings (loss) from its equity method investments was a loss of $10.7 million and earnings of $51.8 million for fiscal 2022 and 2021, respectively. Equity method investment earnings in fiscal 2022 included a $62.7 million non-cash impairment charge to write-off our portion of LWM’s net investment in Russia resulting from LWM’s announced intent to withdraw from its joint venture in response to the war in Ukraine. Equity method investment earnings also included a $26.5 million unrealized gain related to mark-to-market adjustments associated with currency and commodity hedging contracts in fiscal 2022 and an $11.3 million gain related to these items in fiscal 2021. The increase in mark-to-market adjustments in 2022 primarily relates to changes in the value of natural gas derivatives at LWM as commodity markets in Europe have experienced significant volatility.

Excluding the charge associated with the write-off of our portion of LWM’s net investment in Russia and the mark-to-market adjustments, earnings from equity method investments decreased $15.0 million compared to the prior year. The decrease reflects input cost inflation and higher manufacturing and distribution costs in both Europe and the U.S., partially offset by the benefit of favorable price/mix and higher sales volumes.

Liquidity and Capital Resources

We ended fiscal 2022 with $525.0 million of cash and cash equivalents and $994.6 million of availability on our revolving credit facility, which is net of outstanding letters of credit of $5.4 million. We believe we have sufficient liquidity to meet projected capital expenditures, service existing debt and meet working capital requirements for the next 12 months

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with current cash balances and cash from operations, supplemented as necessary by available borrowings under our existing revolving credit facility.

Cash Flows

Below is a summary table of our cash flows, followed by a discussion of the sources and uses of cash through operating, investing, and financing activities:


	For the Fiscal Years Ended May
(in millions)	2022		2021
Net cash flows provided by (used for):
Operating activities	$	418.1	$	553.2
Investing activities		(310.5)		(162.5)
Financing activities		(363.4)		(974.0)
		(255.8)		(583.3)
Effect of exchange rate changes on cash and cash equivalents		(2.7)		2.8
Net decrease in cash and cash equivalents	$	(258.5)	$	(580.5)

Operating Activities

During fiscal 2022, cash provided by operating activities decreased $135.1 million to $418.1 million, compared to $553.2 million for fiscal 2021. The decrease related to $130.4 million of cash used for unfavorable changes in working capital, and a $4.7 million decrease in net income, adjusted for non-cash income and expenses. Unfavorable changes in working capital primarily related to a decrease in accounts payable due to timing, an increase in receivables attributable to higher sales at the end of fiscal 2022, compared with the end of fiscal 2021, and higher finished goods inventories due to increased input costs and global disruption in freight networks. These unfavorable changes were partially offset by a favorable change in accrued liabilities, which was primarily due to a shift in the timing of accrued interest payments for our senior notes. Specifically, our senior notes due 2030 and 2032, which were issued in fiscal 2022, have payments due in the first quarter of fiscal 2023, whereas the now-redeemed senior notes due 2024 and 2026 had interest payments due in the fourth quarter of fiscal 2021. See “Result of Operations” in this MD&A for more information related to the decrease in income from operations.

Investing Activities

Investing activities used $310.5 million of cash in fiscal 2022, compared with $162.5 million in fiscal 2021. The increase primarily relates to our concentrated effort in the prior year to control spending during the early stages of the COVID-19 pandemic to preserve liquidity. In addition to maintenance capital expenditures, fiscal 2022 also reflected increased investments to support capacity expansion projects in Idaho and China.

We expect capital investments in fiscal 2023 to be approximately $475 million to $525 million, depending on timing of projects, which include among other items: construction of a previously announced french fry production line and plant modernization investments in Idaho, construction of a greenfield french fry processing facility in China, and capital investments to upgrade information systems and ERP infrastructure. These expenditures could increase or decrease as a result of a number of factors, including our financial results, future economic conditions, supply chain constraints for equipment, and our regulatory compliance requirements. At May 29, 2022, we had commitments for capital expenditures of $304.7 million.

In July 2022, we acquired an additional forty percent interest in our Argentina joint venture, LWAMSA, for approximately $42 million, increasing our total ownership of LWAMSA from fifty percent to ninety percent. Following this acquisition, we will consolidate LWAMSA’s results in our consolidated financial statements.

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Financing Activities

During fiscal 2022, cash used for financing activities decreased $610.6 million to $363.4 million, compared with $974.0 million used during fiscal 2021. During fiscal 2022, financing activities primarily related to issuing U.S. dollar-denominated senior notes and a RMB-denominated loan facility for combined net proceeds of $1,676.1 million, offset by $1,698.1 million of debt and financing obligation repayments, including cash used to redeem our previously outstanding senior notes due 2024 and 2026 (including the payment of a call premium of $39.6 million), and the payment of $138.4 million of cash dividends to common stockholders. In addition, we used $158.4 million of cash to repurchase 2,407,184 shares of our common stock at an average price of $62.59 and withheld 118,204 shares from employees to cover income and payroll taxes on equity awards that vested during the year. As of May 29, 2022, $268.9 million remained authorized for repurchase under our share repurchase program.

During fiscal 2021, we repaid the $495.0 million we borrowed under our revolving credit facility at the onset of the pandemic, and we repaid $305.5 million of other debt and financing obligations (including the repayment of the $271.9 million term loan facility that was scheduled to mature in November 2021). We also paid $135.3 million in cash dividends to common stockholders. During fiscal 2021, we repurchased 328,918 shares of our common stock at an average price of $78.19 and withheld 164,992 shares of common stock from employees to cover income and payroll taxes on equity awards that vested during the period.

For more information about our debt, including among other items, interest rates, maturity dates, and covenants, see Note 7, Debt and Financing Obligations, of the Notes to the Consolidated Financial Statements in “Part II, Item 8. Financial Statements and Supplementary Data” of this Form 10-K. At May 29, 2022, we were in compliance with all covenants contained in our credit agreements.

Investments in Joint Ventures

We conduct some of our business through three unconsolidated joint ventures and account for these investments using equity method accounting. For more information about our investments in joint ventures, see Note 4, Equity Method Investments, of the Notes to the Consolidated Financial Statements in “Part II, Item 8. Financial Statements and Supplementary Data” of this Form 10-K.

Obligations and Commitments

As part of our ongoing operations, we enter into arrangements that obligate us to make future payments under contracts such as debt agreements, lease agreements, potato supply agreements, and unconditional purchase obligations. The unconditional purchase obligation arrangements are entered into in the normal course of business in order to ensure adequate levels of sourced product are available.

A summary of our material cash requirements for our known contractual obligations as of May 29, 2022 are as follows:


(in millions)	Total		Payable within 12 Months
Long-term debt, including current portion (a)	$	2,745.0	$	31.3
Interest on long-term debt (b)		829.2		126.7
Leases (a)		157.8		26.4
Purchase obligations and capital commitments (a)		956.5		387.6
Total	$	4,688.5	$	572.0

(a)	See the below Notes to the Consolidated Financial Statements included in “Part II, Item 8. Financial Statements and Supplementary Data” of this Form 10-K for more information.

●

Long-term debt, including current portion. See Note 7, Debt and Financing Obligations, for more information on debt payments and the timing of expected future payments.

●

Leases. See Note 8, Leases, for more information on our operating and finance lease obligations and timing of expected future

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payments.

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Purchase obligations and capital commitments. See Note 14, Commitments, Contingencies, Guarantees, and Legal Proceedings, for more information on our purchase obligations and the timing of future payments and capital commitments in connection with the expansion and replacement of existing facilities and equipment.

(b)	Amounts represent estimated future interest payments assuming our long-term debt is held to maturity and using interest rates in effect as of May 29, 2022.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements as of May 29, 2022 that are reasonably likely to have a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures, or capital resources.

Critical Accounting Estimates

Management’s discussion and analysis of financial condition and results of operations are based upon the Company’s consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses, and related disclosures of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to our trade promotions, income taxes, and impairment, among others. We base our estimates on historical experiences combined with management’s understanding of current facts and circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Critical accounting estimates are those that are most important to the portrayal of our financial condition and operating results. These estimates require management’s most difficult, subjective, or complex judgments. We review the development, selection, and disclosure of our critical accounting estimates with the Audit and Finance Committee of our Board of Directors.

We have made appropriate accounting estimates based on the facts and circumstances available as of the reporting date. To the extent there are differences between these estimates and actual results, our consolidated financial statements may be affected.

Sales Incentives and Trade Promotion Allowances

We promote our products with advertising, consumer incentives, and trade promotions. Sales promotions include, but are not limited to, discounts, coupons, rebates, and volume-based incentives. The estimates for sales incentives are based principally on historical sales and redemption rates, influenced by judgments about current market conditions such as competitive activity in specific product categories.

Trade promotion programs include introductory marketing funds such as slotting fees, cooperative marketing programs, temporary price reductions, and other activities conducted by our customers to promote our products. The costs of these programs are recognized as a reduction to revenue with a corresponding accrued liability. The estimate of trade promotions is inherently difficult due to information limitations as the products move beyond distributors and through the supply chain to operators. Estimates made by management in accounting for these costs are based primarily on our historical experience with marketing programs, with consideration given to current circumstances and industry trends and include the following: quantity of customer sales, timing of promotional activities, current and past trade-promotion spending patterns, the interpretation of historical spending trends by customer and category, and forecasted costs for activities within the promotional programs.

The determination of sales incentive and trade promotion costs requires judgment and may change in the future as a result of changes in customer demand for our products, promotion participation, particularly for new programs related to the introduction of new products. Final determination of the total cost of promotion is dependent upon customers

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providing information about proof of performance and other information related to the promotional event. Because of the complexity of some of these trade promotions, the ultimate resolution may result in payments that are different from our estimates. As additional information becomes known, we may change our estimates. At May 29, 2022 and May 30, 2021, we had $41.2 million and $39.9 million, respectively, of accrued trade promotions payable recorded in “Accrued liabilities” on our Consolidated Balance Sheets.

Income Taxes

We compute the provision for income taxes using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating losses and tax credit carryforwards. We measure deferred tax assets and liabilities using the currently enacted tax rates that apply to taxable income in effect for the years in which those tax assets and liabilities are expected to be realized or settled.

Inherent in determining the annual tax rate are judgments regarding business plans, planning opportunities, and expectations about future outcomes. Management judgments are required for the following items:

●

Management reviews deferred tax assets for realizability. Valuation allowances are established when management believes that it is more likely than not that some portion of the deferred tax assets will not be realized. Changes in valuation allowances from period to period are included in the tax provision.

●

We establish accruals for unrecognized tax benefits when, despite the belief that our tax return positions are fully supported, we believe that an uncertain tax position does not meet the recognition threshold of Accounting Standards Codification (“ASC”) 740, Income Taxes. These contingency accruals are adjusted in light of changing facts and circumstances, such as the progress of tax audits, the expiration of the statute of limitations for the relevant taxing authority to examine a tax return, case law and emerging legislation. While it is difficult to predict the final outcome or timing of resolution for any particular matter, we believe that the accruals for unrecognized tax benefits at May 29, 2022, reflect the estimated outcome of known tax contingencies as of such date in accordance with accounting for uncertainty in income taxes under ASC 740.

●

We recognize the tax impact of including certain foreign earnings in U.S. taxable income as a period cost. We have not recognized deferred income taxes for local country income and withholding taxes that could be incurred on distributions of certain non-U.S. earnings or for outside basis differences in our subsidiaries, because we plan to indefinitely reinvest such earnings and basis differences. Remittances of non-U.S. earnings are based on estimates and judgments of projected cash flow needs, as well as the working capital and investment requirements of our non-U.S. and U.S. operations. Material changes in our estimates of cash, working capital, and investment needs in various jurisdictions could require repatriation of indefinitely reinvested non-U.S. earnings, which could be subject to applicable non-U.S. income and withholding taxes. While we believe the judgments and estimates discussed above and made by management are appropriate and reasonable under the circumstances, actual resolution of these matters may differ from recorded estimated amounts. Further information on income taxes is provided in Note 3, Income Taxes, of the Notes to Consolidated Financial Statements in “Part II, Item 8. Financial Statements and Supplementary Data” of this Form 10-K.

Impairment of Long-Lived Assets and Equity Method Investments

Long lived assets. Our manufacturing assets are shared across all reporting segments, which are grouped together for long-lived asset impairment assessment. We review these long-lived assets for impairment upon the occurrence of events or changes in circumstances which indicate that the carrying amount of the assets may not be fully recoverable, measured by comparing their net book value to the undiscounted projected future cash flows generated by their use. Impaired assets are recorded at their estimated fair value.

In evaluating impairment of long-lived assets, we consider events or changes in circumstances related to market prices, physical condition of assets, legal actions, construction costs, future operating cash flows, remaining depreciable

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lives, and potential asset disposal. At May 29, 2022 and May 30, 2021, we did not identify any triggering events that would indicate that the carrying amounts of our assets groups may not be recoverable.

Equity method investments. We conduct some of our business through unconsolidated joint ventures and include our share of the earnings based on our economic ownership interest in them. At May 29, 2022 and May 30, 2021, we held 50% equity interests in three potato processing joint ventures, including LWM, Lamb Weston RDO, and LWAMSA. These investments are accounted for under the equity method of accounting. We are required to assess our equity method investments for other-than-temporary impairment when events or circumstances suggest the carrying amount of the investment may be impaired. We perform our assessment of other-than-temporary impairment for each investment individually.

In evaluating other-than-temporary impairment of equity method investments, we consider events or changes in circumstances related to investee operating losses, investee future cash flows, and the ability to retain our investment in the investee. In May 2022, in response to the war in Ukraine, LWM announced its intent to withdraw from its investment in Russia and recorded a charge to write-off its net investment in the market. Our portion of the non-cash impairment charge was $62.7 million. There were no indications of other-than-temporary impairment in any of our other equity method investments.

New and Recently Issued Accounting Standards

For a listing of new and recently issued accounting standards, see Note 1, Nature of Operations and Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements in “Part II, Item 8. Financial Statements and Supplementary Data” of this Form 10-K.

Non-GAAP Financial Measures

To supplement the financial information included in this report, we have presented product contribution margin on a consolidated basis, Adjusted EBITDA, Adjusted EBITDA including unconsolidated joint ventures, Adjusted Diluted EPS, and Adjusted Net Income, each of which is considered a non-GAAP financial measure.

Product contribution margin is one of the primary measures reported to our chief operating decision maker for purposes of allocating resources to our segments and assessing their performance. Product contribution margin represents net sales less cost of sales and advertising and promotion expenses. Product contribution margin includes advertising and promotion expenses because those expenses are directly associated with the performance of our segments. Our management also uses Adjusted EBITDA, Adjusted EBITDA including unconsolidated joint ventures, Adjusted Diluted EPS, and Adjusted Net Income, to evaluate our performance excluding the impact of certain non-cash charges and other special items in order to have comparable financial results to analyze changes in our underlying business between reporting periods. We include these non-GAAP financial measures because management believes they are useful to investors in that they provide for greater transparency with respect to supplemental information used by management in its financial and operational decision making. We believe that the presentation of these non-GAAP financial measures, when used in conjunction with GAAP financial measures, is a useful financial analysis tool that can assist investors in assessing our operating performance and underlying prospects. These non-GAAP financial measures should be viewed in addition to, and not as alternatives for, GAAP financial measures. These non-GAAP financial measures may differ from similarly titled non-GAAP financial measures presented by other companies, and other companies may not define these non-GAAP financial measures the same way. These measures are not a substitute for their comparable GAAP financial measures, such as gross profit, net income or diluted earnings per share, as applicable, and there are limitations to using non-GAAP financial measures.

See “Results of Operations – Fiscal Year Ended May 29, 2022 Compared to Fiscal Year Ended May 30, 2021 – Net Sales and Product Contribution Margin” above for a reconciliation of product contribution margin on a consolidated basis to gross profit.

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The following table reconciles net income to Adjusted EBITDA and Adjusted EBITDA including unconsolidated joint ventures.


	For the Fiscal Years Ended May
(in millions)	2022 (a)		2021
Net income	$	200.9	$	317.8
Equity method investment (earnings) loss		10.7		(51.8)
Interest expense, net		161.0		118.3
Income tax expense		71.8		90.5
Income from operations		444.4		474.8
Depreciation and amortization		187.3		182.7
Adjusted EBITDA		631.7		657.5

Unconsolidated Joint Ventures
Equity method investment earnings (loss)		(10.7)		51.8
Interest expense, income tax expense, and depreciation and
amortization included in equity method investment earnings (loss)		42.0		39.1
Item impacting comparability
Write-off of net investment in Russia (a)		62.7		—
Add: Adjusted EBITDA from unconsolidated joint ventures		94.0		90.9

Adjusted EBITDA including unconsolidated joint ventures	$	725.7	$	748.4

(a)	In May 2022, LWM announced its intent to withdraw from its investment in Russia and wrote-off its net investment. Our portion of the non-cash impairment charge was $62.7 million.

The following table reconciles net income to Adjusted Net Income, and diluted EPS to Adjusted Diluted EPS:


	For the Fiscal Years Ended May
	2022		2021		2022 (a)		2021 (a)
(in millions, except per share amounts)	Net Income				Diluted EPS
As reported	$	200.9	$	317.8	$	1.38	$	2.16
Items impacting comparability:
Write-off of net investment in Russia (b)		62.7		—		0.43		—
Loss on extinguishment of debt (c)		40.5		—		0.27		—
Total items impacting comparability		103.2		—		0.70		—
Adjusted	$	304.1	$	317.8	$	2.08	$	2.16

(a)	Diluted weighted average common shares were 145.9 million and 147.1 million in fiscal 2022 and 2021, respectively.

(b)	See footnote (a) to the reconciliation of net income to Adjusted EBITDA and Adjusted EBITDA including unconsolidated joint ventures above for a discussion of the item impacting comparability.

(c)

The fiscal year ended May 29, 2022, includes a loss on the extinguishment of debt of $53.3 million ($40.5 million after-tax), which consists of a call premium of $39.6 million related to the redemption of our senior notes due 2024 and 2026 and the write-off of $13.7 million of debt issuance costs associated with those notes.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our operations are exposed to market risks from adverse changes in commodity prices affecting the cost of raw materials and energy, foreign currency exchange rates, and interest rates. In the normal course of business, we may periodically enter into derivatives to minimize these risks, but not for trading purposes. The effects of the COVID-19 pandemic and the disruptions in the global economy caused by the war in Ukraine have resulted in volatility and uncertainty in the markets in which we operate. At the time of this filing, we are unable to predict or determine the impacts that these events may continue to have on our exposure to market risk from commodity prices, foreign currency exchange rates and interest rates, among other factors. For additional discussion, refer to “Forward-Looking Statements,” “Liquidity and Capital Resources” within “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” as well as “Item 1A. Risk Factors” of this Form 10-K.

Based on our open commodity contract hedge positions as of May 29, 2022 and May 30, 2021, a hypothetical 10 percent decline in market prices applied to the fair value of the instruments would result in a charge to “Cost of sales” of $4.5 million ($3.5 million after-tax) and $7.7 million ($5.9 million after-tax), respectively. Additionally, based on our LWM joint venture’s open commodity contract hedge positions as of May 29, 2022 and May 30, 2021, a hypothetical 10 percent decline in market prices applied to the fair value of the instruments would result in a charge to “Equity method investment earnings” of $6.1 million ($4.6 million after-tax) and $1.5 million ($1.1 million after-tax), respectively. It should be noted that any change in the fair value of the contracts, real or hypothetical, would be substantially offset by an inverse change in the value of the underlying hedged item.

Including our joint ventures, we transact business in multiple currencies and are subject to currency exchange rate risk through investments and businesses owned and operated in foreign countries. At May 29, 2022 and May 30, 2021, we had no financial instruments to hedge foreign currency risk.

At May 29, 2022, we had $2,170.0 million of fixed-rate and $575.0 million of variable-rate debt outstanding. At May 30, 2021, we had $2,166.0 million of fixed-rate and $586.6 million of variable-rate debt outstanding. We have interest rate risk associated with our variable-rate debt. A one percent increase in interest rates related to variable-rate debt would result in an increase in interest expense and a corresponding decrease in income before taxes of $5.8 million annually ($4.5 million after-tax) and $5.9 million annually ($4.6 million after-tax) at May 29, 2022 and May 30, 2021, respectively.

For more information about our market risks, see Note 7, Debt and Financing Obligations, of the Notes to Consolidated Financial Statements in “Part II, Item 8. Financial Statements and Supplementary Data” of this Form 10-K.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


Reports of Independent Registered Public Accounting Firm (KPMG, LLP, Seattle, WA, PCAOB ID No. 185)		41
Consolidated Statements of Earnings for the fiscal years ended May 29, 2022, May 30, 2021, and May 31, 2020		44
Consolidated Statements of Comprehensive Income for the fiscal years ended May 29, 2022, May 30, 2021, and May 31, 2020		45
Consolidated Balance Sheets as of May 29, 2022 and May 30, 2021		46
Consolidated Statements of Stockholders’ Equity for the fiscal years ended May 29, 2022, May 30, 2021, and May 31, 2020		47
Consolidated Statements of Cash Flows for the fiscal years ended May 29, 2022, May 30, 2021, and May 31, 2020		48
Notes to Consolidated Financial Statements		49

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Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

Lamb Weston Holdings, Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Lamb Weston Holdings, Inc. and subsidiaries (the Company) as of May 29, 2022 and May 30, 2021, the related consolidated statements of earnings, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended May 29, 2022, and the related notes and consolidated financial statement schedule (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of May 29, 2022 and May 30, 2021, and the results of its operations and its cash flows for each of the fiscal years in the three-year period ended May 29, 2022, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of May 29, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated July 27, 2022 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

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Evaluation of certain sales incentives and trade promotion allowances

As discussed in Note 1 to the consolidated financial statements, the Company offers sales incentives and trade promotion allowances through various programs. The Company records accruals based on sales incentive agreements and expectations regarding customer participation and performance levels. Customer participation and performance levels are primarily based on historical sales and redemption rates, current customer sales, and industry trends.

We identified the evaluation of certain accruals for sales incentive and trade promotion allowances as a critical audit matter. Subjective and complex auditor judgment was required in evaluating these accruals as a result of the timing difference between when the product is delivered and when the incentive will be claimed by the end consumer, coupled with customer participation expectations. This specifically related to the impact of historical sales, payments, and redemption rates on the Company’s accrual.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s sales incentive and trade promotion allowance process, including the accrual methodology, and evaluation of the use of historic data. To evaluate the Company’s accrual for certain sales incentives and trade promotions allowances we (1) assessed the Company’s ability to accurately estimate its sales incentive accrual by comparing previously established accruals to actual settlements, (2) evaluated conditions in the current operating environment which may affect the use of historical sales, payments, and redemption rates as inputs to the projected accrual, (3) evaluated a sample of customer and end consumer incentive payments, which are the basis for certain portions of the Company’s accrual for sales incentives and trade promotions, based on volumes sold and the terms of the sales incentives to validate the accuracy of the payment made and the lag time between product invoice and incentive redemption, and (4) evaluated certain customer and end consumer incentive accruals based on volumes sold, historic payments, and the terms of the sales incentives to test the basis of the specific customer’s projected accrual.

/s/ KPMG LLP

We have served as the Company’s auditor since 2016.

Seattle, Washington

July 27, 2022

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Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

Lamb Weston Holdings, Inc.:

Opinion on Internal Control Over Financial Reporting

We have audited Lamb Weston Holdings, Inc. and subsidiaries’ (the Company) internal control over financial reporting as of May 29, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of May 29, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of May 29, 2022 and May 30, 2021, the related consolidated statements of earnings, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended May 29, 2022, and the related notes and consolidated financial statement schedule (collectively, the consolidated financial statements), and our report dated July 27, 2022 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ KPMG LLP

Seattle, Washington

July 27, 2022

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Lamb Weston Holdings, Inc.

Consolidated Statements of Earnings

(dollars in millions, except per share amounts)


	For the Fiscal Years Ended May
	2022		2021		2020
Net sales	$	4,098.9	$	3,670.9	$	3,792.4
Cost of sales		3,266.9		2,838.9		2,897.2
Gross profit		832.0		832.0		895.2
Selling, general and administrative expenses		387.6		357.2		338.3
Income from operations		444.4		474.8		556.9
Interest expense, net		161.0		118.3		108.0
Income before income taxes and equity method earnings (loss)		283.4		356.5		448.9
Income tax expense		71.8		90.5		112.3
Equity method investment earnings (loss)		(10.7)		51.8		29.3
Net income	$	200.9	$	317.8	$	365.9
Earnings per share:
Basic	$	1.38	$	2.17	$	2.50
Diluted	$	1.38	$	2.16	$	2.49
Weighted average common shares outstanding:
Basic		145.5		146.4		146.2
Diluted		145.9		147.1		147.1

See Notes to Consolidated Financial Statements.

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Lamb Weston Holdings, Inc.

Consolidated Statements of Comprehensive Income

(dollars in millions)


	For the Fiscal Years Ended May
	2022						2021						2020
			Tax						Tax						Tax
	Pre-Tax		(Expense)		After-Tax		Pre-Tax		(Expense)		After-Tax		Pre-Tax		(Expense)		After-Tax
	Amount		Benefit		Amount		Amount		Benefit		Amount		Amount		Benefit		Amount
Net income	$	272.7	$	(71.8)	$	200.9	$	408.3	$	(90.5)	$	317.8	$	478.2	$	(112.3)	$	365.9
Other comprehensive income (loss):
Reclassification of post-retirement benefits out of accumulated other comprehensive income (loss)		0.4		(0.1)		0.3		0.3		(0.1)		0.2		0.8		(0.3)		0.5
Unrealized pension and post-retirement benefit obligations gain (loss)		3.7		(0.8)		2.9		(3.2)		0.7		(2.5)		0.4		(0.1)		0.3
Unrealized currency translation gains (losses)		(51.0)		2.1		(48.9)		76.1		(3.8)		72.3		(17.4)		1.4		(16.0)
Other		0.8		(0.2)		0.6		—		—		—		—		—		—
Comprehensive income	$	226.6	$	(70.8)	$	155.8	$	481.5	$	(93.7)	$	387.8	$	462.0	$	(111.3)	$	350.7

See Notes to Consolidated Financial Statements.

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Lamb Weston Holdings, Inc.

Consolidated Balance Sheets

(dollars in millions, except share data)


	May 29,		May 30,
	2022		2021
ASSETS
Current assets:
Cash and cash equivalents	$	525.0	$	783.5
Receivables, less allowance for doubtful accounts of $1.1 and $0.9		447.3		366.9
Inventories		574.4		513.5
Prepaid expenses and other current assets		112.9		117.8
Total current assets		1,659.6		1,781.7
Property, plant and equipment, net		1,579.2		1,524.0
Operating lease assets		119.0		141.7
Equity method investments		257.4		310.2
Goodwill		318.0		334.5
Intangible assets, net		33.7		36.9
Other assets		172.9		80.4
Total assets	$	4,139.8	$	4,209.4

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and financing obligations	$	32.2	$	32.0
Accounts payable		402.6		359.3
Accrued liabilities		264.3		226.9
Total current liabilities		699.1		618.2
Long-term liabilities:
Long-term debt and financing obligations, excluding current portion		2,695.8		2,705.4
Deferred income taxes		172.5		159.7
Other noncurrent liabilities		211.9		245.5
Total long-term liabilities		3,080.2		3,110.6
Commitments and contingencies
Stockholders' equity:
Common stock of $1.00 par value, 600,000,000 shares authorized; 148,045,584 and 147,640,632 shares issued		148.0		147.6
Additional distributed capital		(813.3)		(836.8)
Retained earnings		1,305.5		1,244.6
Accumulated other comprehensive income (loss)		(15.6)		29.5
Treasury stock, at cost, 3,974,156 and 1,448,768 common shares		(264.1)		(104.3)
Total stockholders’ equity		360.5		480.6
Total liabilities and stockholders’ equity	$	4,139.8	$	4,209.4

See Notes to Consolidated Financial Statements.

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Lamb Weston Holdings, Inc.

Consolidated Statements of Stockholders’ Equity

(dollars in millions, except share data)


							Additional				Accumulated
	Common Stock,		Common		Treasury		Paid-in				Other		Total
	net of Treasury		Stock		Stock		(Distributed)		Retained		Comprehensive		Stockholders'
	Shares		Amount		Amount		Capital		Earnings		Income (Loss)		Equity
Balance at May 26, 2019		146,069,033	$	146.7	$	(39.3)	$	(890.3)	$	803.6	$	(25.3)	$	(4.6)
Adoption of ASC 842 leases		—		—		—		—		20.5		—		20.5
Dividends declared, $0.86 per share		—		—		—		—		(125.6)		—		(125.6)
Common stock issued		338,924		0.3		—		4.0		—		—		4.3
Stock-settled, stock-based compensation expense		—		—		—		22.8		—		—		22.8
Repurchase of common stock and common stock withheld to cover taxes		(369,064)		—		(28.9)		—		—		—		(28.9)
Other		—		—		—		0.6		0.2		—		0.8
Comprehensive income		—		—		—		—		365.9		(15.2)		350.7
Balance at May 31, 2020		146,038,893	$	147.0	$	(68.2)	$	(862.9)	$	1,064.6	$	(40.5)	$	240.0
Dividends declared, $0.93 per share		—		—		—		—		(136.2)		—		(136.2)
Common stock issued		646,881		0.6		—		3.5		—		—		4.1
Stock-settled, stock-based compensation expense		—		—		—		20.6		—		—		20.6
Repurchase of common stock and common stock withheld to cover taxes		(493,910)		—		(36.1)		—		—		—		(36.1)
Other		—		—		—		2.0		(1.6)		—		0.4
Comprehensive income		—		—		—		—		317.8		70.0		387.8
Balance at May 30, 2021		146,191,864	$	147.6	$	(104.3)	$	(836.8)	$	1,244.6	$	29.5	$	480.6
Dividends declared, $0.96 per share		—		—		—		—		(139.3)		—		(139.3)
Common stock issued		404,952		0.4		—		1.5		—		—		1.9
Stock-settled, stock-based compensation expense		—		—		—		21.3		—		—		21.3
Repurchase of common stock and common stock withheld to cover taxes		(2,525,388)		—		(159.8)		—		—		—		(159.8)
Other		—		—		—		0.7		(0.7)		—		—
Comprehensive income		—		—		—		—		200.9		(45.1)		155.8
Balance at May 29, 2022		144,071,428	$	148.0	$	(264.1)	$	(813.3)	$	1,305.5	$	(15.6)	$	360.5

See Notes to Consolidated Financial Statements.

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Lamb Weston Holdings, Inc.

Consolidated Statements of Cash Flows

(dollars in millions)


	For the Fiscal Years Ended May
	2022		2021		2020
Cash flows from operating activities
Net income	$	200.9	$	317.8	$	365.9
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of intangibles and debt issuance costs		192.1		187.8		182.3
Loss on extinguishment of debt		53.3		1.0		1.7
Stock-settled, stock-based compensation expense		21.3		20.6		22.8
Loss (earnings) of joint ventures in excess of distributions		29.9		(33.0)		(0.4)
Deferred income taxes		13.5		3.8		20.0
Other		(7.0)		10.7		15.6
Changes in operating assets and liabilities, net of acquisition:
Receivables		(76.3)		(21.0)		1.1
Inventories		(63.0)		(22.0)		15.3
Income taxes payable/receivable, net		11.6		(3.3)		2.7
Prepaid expenses and other current assets		(6.8)		(4.9)		(2.0)
Accounts payable		16.5		104.7		(34.9)
Accrued liabilities		32.1		(9.0)		(16.1)
Net cash provided by operating activities	$	418.1	$	553.2	$	574.0
Cash flows from investing activities
Additions to property, plant and equipment		(290.1)		(147.2)		(167.7)
Additions to other long-term assets		(16.3)		(16.1)		(40.7)
Acquisition of business, net of cash acquired		—		—		(116.7)
Investment in equity method investment		—		—		(22.6)
Other		(4.1)		0.8		1.7
Net cash used for investing activities	$	(310.5)	$	(162.5)	$	(346.0)
Cash flows from financing activities
Proceeds from issuance of debt		1,676.1		—		1,122.9
Repayments of debt and financing obligations		(1,698.1)		(305.5)		(336.3)
Dividends paid		(138.4)		(135.3)		(121.3)
Repurchase of common stock and common stock withheld to cover taxes		(158.4)		(36.1)		(28.9)
Payments of senior notes call premium		(39.6)		—		—
(Repayments) proceeds of short-term borrowings, net		—		(498.8)		490.5
Other		(5.0)		1.7		(1.9)
Net cash (used for) provided by financing activities	$	(363.4)	$	(974.0)	$	1,125.0
Effect of exchange rate changes on cash and cash equivalents		(2.7)		2.8		(1.2)
Net (decrease) increase in cash and cash equivalents		(258.5)		(580.5)		1,351.8
Cash and cash equivalents, beginning of period		783.5		1,364.0		12.2
Cash and cash equivalents, end of period	$	525.0	$	783.5	$	1,364.0

See Notes to Consolidated Financial Statements.

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Notes to Consolidated Financial Statements

1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Lamb Weston Holdings, Inc. (“we,” “us,” “our,” the “Company,” or “Lamb Weston”), along with our joint ventures, is a leading global producer, distributor, and marketer of value-added frozen potato products and is headquartered in Eagle, Idaho. We have four reportable segments: Global, Foodservice, Retail, and Other. See Note 13, Segments, for additional information on our reportable segments.

On November 9, 2016, Lamb Weston separated from Conagra Brands, Inc. (formerly, ConAgra Foods, Inc., “Conagra”) and became an independent publicly traded company through the pro rata distribution by Conagra of 100% of the outstanding common stock of Lamb Weston to Conagra stockholders.

Basis of Presentation

These Consolidated Financial Statements present the financial results of Lamb Weston for the fiscal years ended May 29, 2022, May 30, 2021, and May 31, 2020 (“fiscal 2022, 2021, and 2020”), and have been prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States of America (“U.S.”). The fiscal year of Lamb Weston ends the last Sunday in May. The fiscal years for the Consolidated Financial Statements presented consist of 52-week periods for fiscal 2022 and 2021, and a 53-week period for fiscal 2020.

The financial statements include all adjustments (consisting only of normal recurring adjustments) that we consider necessary for a fair presentation of such financial statements. Our consolidated financial statements include the accounts of Lamb Weston and all of our majority-owned subsidiaries. Intercompany investments, accounts, and transactions have been eliminated.

Certain amounts in the prior period consolidated financial statements have been reclassified to conform with the current period presentation.

The equity method of accounting is applied for investments when the Company has significant influence over the investee’s operations, or when the investee is structured with separate capital accounts and our investment is considered more than minor. Our equity method investments are described in Note 4, Equity Method Investments.

Use of Estimates

The preparation of the consolidated financial statements in conformity with GAAP requires us to make certain estimates and assumptions that affect the amounts reported in our consolidated financial statements and the accompanying notes. On an ongoing basis, we evaluate our estimates, including but not limited to those related to provisions for income taxes, estimates of sales incentives and trade promotion allowances, long-lived assets, and equity method investments. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. We adjust such estimates and assumptions when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in these estimates will be reflected in the consolidated financial statements in future periods.

Revenue from Contracts with Customers

Generally, we recognize revenue on a point-in-time basis when the customer takes title to the product and assumes the risks and rewards for the product. However, for customized products, which are products manufactured to customers’ unique specifications, we recognize revenue over time, utilizing an output method, which is generally as the products are produced. This is because once a customized product is manufactured pursuant to a purchase order, we have an enforceable right to payment for that product. Our Global segment sells the majority of our customized products, for which revenue is recognized when a purchase order is received to the extent the product has been manufactured, as opposed to sales of non-

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customized products, for which revenue is generally recognized upon shipment. As a result, the timing of the receipt of a purchase order may create quarterly fluctuations in this segment.

The nature of our contracts varies based on the business, customer type, and region; however, in all instances it is our customary business practice to receive a valid order from the customer, in which each party’s rights and related payment terms are clearly identifiable. Our payment terms are consistent with industry standards and generally include early pay discounts. Amounts billed and due from customers are short-term in nature and are classified as receivables, since payments are unconditional and only the passage of time is required before payments are due. As of May 29, 2022, and May 30, 2021, we had $122.7 million and $111.0 million, respectively, of unbilled receivables for customized products for which we have accelerated the recognition of revenue and recorded the amounts in “Receivables” on our Consolidated Balance Sheets. We generally do not offer financing to our customers. We also do not provide a general right of return. However, customers may seek to return defective or non-conforming products. Following a customer return, we may offer remedies, including cash refunds, credit towards future purchases, or product replacement. As a result, customers’ right of return and related refund or product liabilities are estimated and recorded as reductions in revenue.

We have contract terms that give rise to variable consideration including, but not limited to, discounts, coupons, rebates, and volume-based incentives. We estimate volume rebates based on the most likely amount method outlined in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers. We estimate early payment discounts and other customer trade incentives based principally on historical sales and coupon utilization and redemption rates, influenced by judgments about current market conditions such as competitive activity in specific product categories, which is consistent with the expected value method outlined in ASC 606. We have concluded that these methods result in the best estimate of the consideration we are entitled to from our customers. Because of the complexity of some of these trade promotions, however, the ultimate resolution may result in payments that are materially different from our estimates. As additional information becomes known, we may change our estimates. At May 29, 2022 and May 30, 2021, we had $41.2 million and $39.9 million, respectively, of sales incentives and trade promotions payable recorded in “Accrued liabilities” on our Consolidated Balance Sheets.

We have elected to present all sales taxes on a net basis, account for shipping and handling activities as fulfillment activities, recognize the incremental costs of obtaining a contract as expense when incurred if the amortization period of the asset we would recognize is one year or less, and not record interest income or interest expense when the difference in timing of control or transfer and customer payment is one year or less.

Advertising and Promotion

Advertising and promotion expenses totaled $18.9 million, $17.8 million, and $23.0 million in fiscal 2022, 2021, and 2020, respectively, and are included in “Selling, general and administrative expenses” in the Consolidated Statements of Earnings as the expenses are incurred.

Research and Development

Research and development costs are expensed as incurred and totaled $16.2 million, $12.9 million, and $15.4 million in fiscal 2022, 2021, and 2020, respectively, and are included in “Selling, general and administrative expenses” in the Consolidated Statements of Earnings.

Stock-Based Compensation

Compensation expense resulting from all stock-based compensation transactions is measured and recorded in the consolidated financial statements based on the grant date fair value of the equity instruments issued. Compensation expense is recognized over the period the employee or non-employee director provides service in exchange for the award. See Note 10, Stock-Based Compensation, for additional information.

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Cash and Cash Equivalents

Cash and all highly liquid investments with an original maturity of three months or less at the date of acquisition are classified as cash and cash equivalents and stated at cost, which approximates market value. We maintain various banking relationships with high quality financial institutions and believe we are not exposed to any significant credit risk for our cash and cash equivalents. We invest available cash in money market funds that are backed by U.S. Treasury securities and can be redeemed without notice.

Trade Accounts Receivable and Allowance for Doubtful Accounts

Trade accounts receivable are stated at the amount we expect to collect based on our past experience, as well as reliance on the Perishable Agricultural Commodities Act, which was enacted to help promote fair trade in the fruit and vegetable industry by establishing a code of fair business practices. The collectability of our accounts receivable is based upon a combination of factors. In circumstances where a specific customer is unable to meet its financial obligations (e.g., bankruptcy filings, substantial downgrading of credit sources), a specific reserve for bad debts is recorded against amounts due to the Company to reduce the net recorded receivable to the amount that we reasonably believe will be collected. For all other customers, reserves for bad debts are recognized based on forward-looking information to assess expected credit losses. If collection experience deteriorates, the estimate of the recoverability of amounts due could be reduced. We periodically review our allowance for doubtful accounts and adjustments to the valuation allowance are recorded as income or expense in “Selling, general and administrative expenses” in our Consolidated Statements of Earnings. Trade accounts receivable balances that remain outstanding after we have used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable.

Inventories

Inventories are valued at the lower of cost (determined using the first-in, first-out method) or net realizable value and include all costs directly associated with manufacturing products: materials, labor, and manufacturing overhead. The components of inventories were as follows:


	May 29,		May 30,
(in millions)	2022		2021
Raw materials and packaging	$	96.1	$	89.8
Finished goods		426.5		377.8
Supplies and other		51.8		45.9
Inventories	$	574.4	$	513.5

Leased Assets

Lease assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from these leases. Operating lease assets and liabilities are recognized at the commencement date of the lease based on the present value of the lease payments over the lease term. Our leases may include options to extend or terminate these leases. These options to extend are included in the lease term when it is reasonably certain that we will exercise that option. Some leases have variable payments, however, because they are not based on an index or rate, they are not included in lease assets and liabilities. Variable payments for leases of land and buildings primarily relate to common area maintenance, insurance, taxes, and utilities. Variable payments for equipment, vehicles, and leases within supply agreements primarily relate to usage, repairs, and maintenance. As the implicit rate is not readily determinable for most of our leases, we use an incremental borrowing rate to determine the initial present value of lease payments over the lease terms on a collateralized basis over a similar term, which is based on market and company specific information. This rate is updated quarterly for measurement of new lease liabilities. Leases having a lease term of twelve months or less are not recorded on the balance sheet and the related lease expense is recognized on a straight-line basis over the term of the lease. In addition, we account for lease and non-lease components as a single lease component for all of our leases. See Note 8, Leases, for more information.

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Property, Plant and Equipment

Property, plant and equipment are recorded at cost. Cost includes expenditures for major improvements and replacements and the amount of interest cost associated with significant capital additions. The amount of interest capitalized from construction in progress was $6.0 million, $1.9 million, and $2.6 million in fiscal 2022, 2021, and 2020, respectively. Repairs and maintenance costs are expensed as incurred. The components of property, plant and equipment were as follows:


	May 29,		May 30,
(in millions)	2022		2021
Land and land improvements	$	114.1	$	108.2
Buildings, machinery, and equipment		2,919.0		2,763.3
Furniture, fixtures, office equipment, and other		92.1		97.1
Construction in progress		156.1		122.5
Property, plant and equipment, at cost		3,281.3		3,091.1
Less accumulated depreciation		(1,702.1)		(1,567.1)
Property, plant and equipment, net	$	1,579.2	$	1,524.0

Depreciation is computed on a straight-line basis over the estimated useful lives of the respective classes of assets as follows:


Land improvements		2-30 years
Buildings		10-40 years
Machinery and equipment		5-20 years
Furniture, fixtures, office equipment, and other		3-15 years

We recorded $181.5 million, $177.7 million, and $175.3 million of depreciation expense in fiscal 2022, 2021, and 2020, respectively. At May 29, 2022 and May 30, 2021, purchases of property, plant and equipment included in accounts payable were $38.3 million and $23.1 million, respectively.

Long-Lived Asset Impairment

We review long-lived assets for impairment upon the occurrence of events or changes in circumstances which indicate that the carrying amount of the assets may not be fully recoverable, measured by comparing their net book value to the undiscounted projected future cash flows generated by their use. Impaired assets are recorded at their estimated fair value.

Goodwill and Other Identifiable Intangible Assets

We perform an annual impairment assessment of goodwill at the reporting unit level in the fourth quarter of each year, or more frequently if indicators of potential impairment exist. We have an option to evaluate goodwill for impairment by first performing a qualitative assessment of events and circumstances to determine whether it is more likely than not that the fair value of a reporting until is less than its carrying amount. If we determine that it is not more likely than not that the fair value of a reporting unit is less than its carrying amounts, then a quantitative goodwill impairment test is not required to be performed. The quantitative assessment requires us to estimate the fair value of our reporting units using a weighted approach based on discounted future cash flows, market multiples and transaction multiples. If the carrying amount of the reporting units is in excess of their estimated fair value, the reporting unit will record an impairment charge by the amount that the carrying amount exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill allocated to the reporting unit.

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We amortize acquisition-related intangible assets with finite lives over their estimated useful life. We perform a review of significant finite-lived identified intangible assets to determine whether facts and circumstances indicate that the carrying amount may not be recoverable. These reviews can be affected by various factors, including external factors such as industry and economic trends, and internal factors such as changes in our business strategy and our forecasts for our products lines.

See Note 5, Goodwill and Other Identifiable Intangible Assets, for additional information.

Fair Values of Financial Instruments

When determining fair value, we consider the principal or most advantageous market in which we would transact, as well as assumptions that market participants would use when pricing the asset or liability. Unless otherwise specified, we believe the carrying value of financial instruments approximates their fair value.

The three levels of inputs that may be used to measure fair value are:

Level 1—Quoted market prices in active markets for identical assets or liabilities. We evaluate security-specific market data when determining whether a market is active.

Level 2—Observable market-based inputs other than those included in Level 1, such as quoted prices for similar assets and liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets.

Level 3—Unobservable inputs for the asset or liability reflecting our own assumptions and best estimate of what inputs market participants would use in pricing the asset or liability.

See Note 11, Fair Value Measurements, for additional information.

Foreign Currency

Most of our foreign subsidiaries use the local currency of their respective countries as their functional currency. Assets and liabilities are translated at exchange rates prevailing at the balance sheet dates. Revenues and expenses are translated into U.S. dollars using daily and monthly average exchange rates. Gains and losses resulting from the translation of Consolidated Balance Sheets are recorded as a component of “Accumulated other comprehensive income (loss).”

Foreign currency transactions resulted in a loss of $3.3 million, a gain of $1.3 million, and a loss of $0.1 million in fiscal 2022, 2021, and 2020, respectively. These amounts were recorded in “Selling, general and administrative expenses” in the Consolidated Statements of Earnings.

Derivative Financial Instruments

We use derivatives and other financial instruments to hedge a portion of our commodity risks. We do not hold or issue derivatives and other financial instruments for trading purposes. Derivative instruments are reported in our Consolidated Balance Sheets at their fair values, unless the derivative instruments qualify for the normal purchase normal sale exception (“NPNS”) under GAAP and such exception has been elected. If the NPNS exception is elected, the fair values of such contracts are not recognized. Changes in derivative instrument values are recognized in “Cost of sales” in our Consolidated Statements of Earnings. We do not designate commodity derivatives to achieve hedge accounting treatment.

Income Taxes

We recognize current tax liabilities and assets based on an estimate of taxes payable or refundable in the current year for each of the jurisdictions in which we transact business. As part of the determination of our current tax liability, management exercises considerable judgment in evaluating positions taken in the tax returns. We recognize the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions

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are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.

We also recognize deferred tax assets and liabilities for the estimated future tax effects attributable to temporary differences (e.g., the difference in book basis versus tax basis of fixed assets resulting from differing depreciation methods). If appropriate, we recognize valuation allowances to reduce deferred tax assets to amounts that are more likely than not to be ultimately realized, based on our assessment of estimated future taxable income.

See Note 3, Income Taxes, for more information.

New and Recently Issued Accounting Pronouncements

In March 2020, the FASB issued Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848) Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This update provides optional guidance for a limited period of time to ease potential accounting impacts associated with transitioning away from reference rates that are expected to be discontinued, such as interbank offered rates and the London Interbank Offered Rate (“LIBOR”). This guidance includes practical expedients for contract modifications due to reference rate reform. Generally, contract modifications related to reference rate reform may be considered an event that does not require remeasurement or reassessment of a previous accounting determination at the modification date. Our current contracts that reference LIBOR include certain debt instruments. The amendments in this guidance are effective for eligible contract modifications through December 31, 2022. The adoption of this guidance is not expected to have a material impact on our consolidated financial statements.

There were no other accounting pronouncements recently issued that had or are expected to have a material impact on our financial statements.

2. EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per common share for the periods presented:


	For the Fiscal Years Ended May
(in millions, except per share amounts)	2022		2021		2020
Numerator:
Net income	$	200.9	$	317.8	$	365.9

Denominator:
Basic weighted average common shares outstanding		145.5		146.4		146.2
Add: Dilutive effect of employee incentive plans (a)		0.4		0.7		0.9
Diluted weighted average common shares outstanding		145.9		147.1		147.1

Earnings per share:
Basic	$	1.38	$	2.17	$	2.50
Diluted	$	1.38	$	2.16	$	2.49

(a)

Potential dilutive shares of common stock from employee incentive plans are determined by applying the treasury stock method to the assumed exercise of outstanding stock options and the assumed vesting of outstanding restricted stock units and performance awards. As of May 29, 2022 and May 30, 2021, we did not have any stock-based awards that were antidilutive. As of May 31, 2020, an insignificant number of stock-based awards were excluded from the computation of diluted earnings per share because they would be antidilutive.

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3. INCOME TAXES

Pre-tax income (loss), inclusive of equity method investment earnings, consisted of the following:


	For the Fiscal Years Ended May
(in millions)	2022		2021		2020
United States	$	287.9	$	352.0	$	462.0
Foreign		(15.2)		56.3		16.2
Total pre-tax income	$	272.7	$	408.3	$	478.2

The provision for income taxes included the following:


	For the Fiscal Years Ended May
(in millions)	2022		2021		2020
Current
U.S. federal	$	45.4	$	66.2	$	75.7
State and local		9.5		15.0		13.2
Foreign		3.4		5.5		3.4
Total current provision for taxes		58.3		86.7		92.3

Deferred
U.S. federal		10.0		(0.4)		18.6
State and local		(1.9)		1.2		4.4
Foreign		5.4		3.0		(3.0)
Total deferred provision for taxes	$	13.5	$	3.8	$	20.0
Total provision for taxes	$	71.8	$	90.5	$	112.3

A reconciliation of income tax expense using the 21% U.S. statutory tax rate on income from operations, including equity method earnings and before income taxes, compared with the actual provision for income taxes follows:


	For the Fiscal Years Ended May
(in millions)	2022		2021		2020
Provision computed at U.S. statutory rate	$	57.3	$	85.7	$	100.4
Increase (reduction) in rate resulting from:
State and local taxes, net of federal benefit		6.4		13.7		15.3
Effect of taxes on foreign operations		(0.7)		(4.7)		(4.4)
Write-off of net investment in Russia (a)		13.2		—		—
Other		(4.4)		(4.2)		1.0
Total income tax expense	$	71.8	$	90.5	$	112.3
Effective income tax rate (b)		26.3%		22.2%		23.5%

(a)	In connection with Lamb-Weston/Meijer v.o.f.’s (“LWM”) intent to withdraw from Russia, we reflected a $13.2 million tax detriment as any loss realized upon the sale of shares is a non-deductible permanent difference.

(b)	The effective income tax rate is calculated as the ratio of income tax expense to pre-tax income, inclusive of equity method investment earnings. Excluding the write-off of our portion of LWM’s net investment in Russia, our effective tax rate was 21.4% in fiscal 2022.

Income Taxes Paid

Income taxes paid, net of refunds, were $44.3 million, $84.1 million, and $82.5 million in fiscal 2022, 2021, and 2020, respectively.

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Deferred Income Taxes

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts for income tax purposes. Significant components of our deferred income tax assets and liabilities were as follows:


	May 29, 2022				May 30, 2021
(in millions)	Assets		Liabilities		Assets		Liabilities
Property, plant and equipment	$	—	$	189.4	$	—	$	187.1
Goodwill and other intangible assets		37.6		—		46.3		—
Compensation and benefit related liabilities		21.0		—		32.2		—
Net operating loss and credit carryforwards (a)		4.5		—		3.6		—
Accrued expenses and other liabilities		14.1		—		13.9		—
Inventory and inventory reserves		8.6		—		5.5		—
Lease obligations		26.9		—		32.0		—
Lease assets		—		25.1		—		30.3
Debt issuance costs		—		0.1		—		2.9
Equity method investments		—		3.4		—		4.7
Other		3.3		17.7		3.5		16.4
		116.0		235.7		137.0		241.4
Less: Valuation allowance (b)		(50.1)		—		(53.1)		—
Net deferred taxes (c)	$	65.9	$	235.7	$	83.9	$	241.4

(a)

At May 29, 2022, Lamb Weston had approximately $7.6 million of gross ($1.6 million after-tax) foreign net operating loss carryforwards, which will not expire. Lamb Weston also had a foreign tax credit carryforward of $1.2 million, which will expire by fiscal 2032, and a state business credit carryforward of $1.7 million, which will expire by fiscal 2036.

(b)	The valuation allowance is predominantly related to non-amortizable intangible assets. The net impact on income tax expense related to changes in the valuation allowance, including net operating loss carryforwards, was zero in fiscal 2022, 2021, and 2020.

(c)

Deferred tax assets of $2.7 million and $2.2 million as of May 29, 2022 and May 30, 2021, respectively, were presented in “Other assets.” Deferred tax liabilities of $172.5 million and $159.7 million as of May 29, 2022 and May 30, 2021, respectively, were presented in “Deferred income taxes” as “Long-term liabilities” on the Consolidated Balance Sheets. The deferred tax asset and liability net position is determined by tax jurisdiction.

The FASB allows companies to adopt an accounting policy to either recognize deferred taxes for global intangible low-taxed income (“GILTI”) or treat them as a tax cost in the year incurred. We have elected to recognize the tax on GILTI as a period expense in the period the tax is incurred. Under this policy, we have not provided deferred taxes on temporary differences that upon their reversal will affect the amount of income subject to GILTI in the period.

We have not established deferred income taxes on accumulated undistributed earnings and other basis differences for operations outside the U.S., as such earnings and basis differences are indefinitely reinvested. Determining the unrecognized deferred tax liability for these earnings is not practicable. Generally, no U.S. federal income taxes will be imposed on future distributions of foreign earnings under the current law. However, distributions to the U.S. or other foreign jurisdictions could be subject to withholding and other local taxes, and these taxes would not be material.

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Uncertain Tax Positions

The aggregate changes in the gross amount of unrecognized tax benefits, excluding interest and penalties consisted of the following:


	For the Fiscal Years Ended May
(in millions)	2022			2021	2020
Beginning balance	$	37.1	$	31.3	$	21.7
Decreases from positions established during prior fiscal years		—		—		—
Increases from positions established during current and prior fiscal years		9.5		8.7		10.3
Decreases relating to settlements with taxing authorities		(1.0)		(0.8)		—
Expiration of statute of limitations		(5.2)		(2.1)		(0.7)
Ending balance (a)	$	40.4	$	37.1	$	31.3

(a)

If we were to prevail on the unrecognized tax benefits recorded as of May 29, 2022 and May 30, 2021, it would result in a tax benefit of $34.3 million and $31.6 million, respectively, and a reduction in the effective tax rate. The ending balances exclude $7.3 million and $7.2 million of gross interest and penalties in fiscal 2022 and 2021, respectively. We accrue interest and penalties associated with uncertain tax positions as part of income tax expense.

Lamb Weston conducts business and files tax returns in numerous countries, states, and local jurisdictions. We do not have any significant open tax audits. Major jurisdictions where we conduct business generally have statutes of limitations ranging from three to five years. The expiration of statute of limitations could reduce the uncertain tax positions by approximately $5 million during the next 12 months.

Although the timing of the resolutions and/or closures of audits is highly uncertain, it is reasonably possible that certain U.S. federal, state, and non-U.S. tax audits may be concluded within the next 12 months, which could increase or decrease the balance of our gross unrecognized tax benefits. The estimated impact on income tax expense and net income is not expected to be significant.

4. EQUITY METHOD INVESTMENTS

Our equity method investments were as follows:


	May 29, 2022				May 30, 2021
	Carrying		Ownership		Carrying		Ownership
(in millions, except ownership interest)	Value		Interest		Value		Interest
LWM (a)	$	211.2		50%	$	263.3		50%
Lamb Weston Alimentos Modernos S.A. ("LWAMSA") (b)		26.1		50%		28.8		50%
Lamb-Weston/RDO Frozen ("Lamb Weston RDO") (c)		19.4		50%		17.4		50%
Other		0.7		50%		0.7		50%
	$	257.4			$	310.2

(a)	LWM is a joint venture with Meijer Frozen Foods B.V., headquartered in the Netherlands that manufactures and sells frozen potato products principally in Europe and the Middle East.

(b)	LWAMSA is a joint venture with Selprey S.A., a wholly owned subsidiary of Sociedad Comercial del Plata S.A., that is headquartered in Argentina. LWAMSA manufactures and sells frozen potato products principally in South America.

(c)	Lamb Weston RDO is a joint venture with RDO Frozen Co., that operates a potato processing facility in the U.S.

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Summarized combined financial information for our equity method investments were as follows:


	For the Fiscal Years Ended May
(in millions)	2022		2021		2020
Net sales	$	1,333.8	$	1,169.5	$	1,137.7
Gross profit		203.8		196.5		145.8
Income from operations		106.9		97.5		59.8
Net income (loss) (a)		(21.4)		103.9		58.7


	May 29,		May 30,
(in millions)	2022 (a)		2021
Current assets	$	557.3	$	516.1
Noncurrent assets		487.1		627.6
Current liabilities		374.9		366.3
Noncurrent liabilities		170.3		147.3

(a)	LWM recorded a $125.4 million charge to write-off its net investment in its joint venture in Russia, which is included in the fiscal 2022 net loss and the current and noncurrent assets and liabilities. Our portion of the non-cash impairment charge was $62.7 million.

We made the following sales to and purchases from our equity method affiliates, primarily for finished products sold to or purchased from our joint ventures. We also provided services, such as sales and marketing services, to our joint ventures that are recorded as a reduction to “Selling, general and administrative expenses” in our Consolidated Statements of Earnings. We also received dividends. The following table summarizes the activity with all our equity method affiliates:


	For the Fiscal Years Ended May
(in millions)	2022		2021		2020
Sales	$	14.3	$	15.3	$	27.8
Purchases		21.0		5.2		8.6
Services provided		15.6		19.3		17.6
Dividends received		19.2		18.8		29.0

As of May 29, 2022 and May 30, 2021, we had receivables included in “Receivables” on our Consolidated Balance Sheets from our joint ventures of $11.0 million (which includes a $5.0 million note to Lamb Weston RDO) and $6.3 million, respectively.

We have an agreement to share the costs of our global ERP system and related software and services with LWM. Under the terms of the agreement, LWM will pay us for the majority of its portion of the ERP costs in five equal annual payments, plus interest, beginning in the period the system is deployed at LWM. As of May 29, 2022 and May 30, 2021, LWM’s portion of the ERP costs totaled $23.4 million and $16.8 million, respectively. We had $20.5 million and $13.2 million of receivables recorded in ‘Other assets” on our Consolidated Balance Sheets at May 29, 2022 and May 30, 2021, respectively. We expect the total receivable from LWM to increase as development and implementation of the next phase of our ERP continues in fiscal 2023.

On July 5, 2022, we acquired an additional forty percent interest in LWAMSA for approximately $42 million, increasing our total ownership of LWAMSA from fifty percent to ninety percent. Following this acquisition, we will consolidate LWAMSA’s results in our consolidated financial statements.

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5. GOODWILL AND OTHER IDENTIFIABLE INTANGIBLE ASSETS

The following table presents changes in goodwill balances, by segment, for fiscal years 2022 and 2021:


(in millions)	Global		Foodservice		Retail		Other		Total
Balance at May 31, 2020	$	245.6	$	42.8	$	10.9	$	4.5	$	303.8
Foreign currency translation adjustment		30.7		—		—		—		30.7
Balance at May 30, 2021		276.3		42.8		10.9		4.5		334.5
Foreign currency translation adjustment		(16.5)		—		—		—		(16.5)
Balance at May 29, 2022	$	259.8	$	42.8	$	10.9	$	4.5	$	318.0

Other identifiable intangible assets were as follows:


	May 29, 2022							May 30, 2021
	Weighted							Weighted
	Average	Gross						Average	Gross
	Useful Life	Carrying		Accumulated		Intangible		Useful Life	Carrying		Accumulated		Intangible
(dollars in millions)	(in years)	Amount		Amortization		Assets, Net		(in years)	Amount		Amortization		Assets, Net
Non-amortizing intangible assets (a)	n/a	$	18.0	$	—	$	18.0	n/a	$	18.0	$	—	$	18.0
Amortizing intangible assets (b)	10		41.4		(25.7)		15.7	11		42.2		(23.3)		18.9
		$	59.4	$	(25.7)	$	33.7		$	60.2	$	(23.3)	$	36.9

(a)	Non-amortizing intangible assets represent brands and trademarks.

(b)

Amortizing intangible assets are principally comprised of licensing agreements, brands, and customer relationships. In addition, developed technology is recorded as “Other assets” on our Consolidated Balance Sheets. Amortization expense, including developed technology, was $5.8 million, $5.0 million, and $2.5 million in fiscal 2022, 2021, and 2020, respectively. Foreign intangible assets are affected by foreign currency translation.

Based on current intangibles subject to amortization, we expect intangible asset amortization expense, excluding developed technology, will be approximately $2.6 million and $2.0 million in fiscal 2023 and 2024, respectively, $1.8 million in fiscal 2025, 2026, and 2027, and approximately $5.7 million thereafter.

Impairment Testing

During the annual goodwill impairment test we performed in the fourth quarter of fiscal 2022, we assessed qualitative factors to determine whether it was more likely than not that the fair value of each reporting unit was less than its carrying value. Based on the results of the qualitative impairment test, we determined that it was not more likely than not that the fair value was less than the carrying value of our Global, Foodservice, Retail, and Other reporting units. Additionally, we completed our tests of our non-amortizing intangibles in the fourth quarter of fiscal 2022 and there was no indication of intangible asset impairment.

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6. ACCRUED LIABILITIES

The components of accrued liabilities were as follows:


	May 29,		May 30,
(in millions)	2022		2021
Compensation and benefits	$	81.0	$	83.2
Accrued interest		42.1		7.9
Accrued trade promotions		41.2		39.9
Dividends payable to shareholders		35.3		34.4
Current portion of operating lease obligations		22.4		29.1
Franchise, property, and sales and use taxes		10.4		11.3
Other		31.9		21.1
Accrued liabilities	$	264.3	$	226.9

7. DEBT AND FINANCING OBLIGATIONS

The components of our debt, including financing obligations, were as follows:


	May 29,		May 30,
(in millions)	2022		2021
Long-term debt:
Term A-1 loan facility, due June 2024	$	258.7	$	273.8
Term A-2 loan facility, due April 2025		296.6		312.8
RMB loan facility, due February 2027		19.7		—
4.625% senior notes, due November 2024		—		833.0
4.875% senior notes, due November 2026		—		833.0
4.875% senior notes, due May 2028		500.0		500.0
4.125% senior notes, due January 2030		970.0		—
4.375% senior notes, due January 2032		700.0		—
		2,745.0		2,752.6
Financing obligations:
Lease financing obligations due on various dates through 2040 (a)		7.0		7.3

Total debt and financing obligations		2,752.0		2,759.9
Debt issuance costs (b)		(24.0)		(22.5)
Current portion of long-term debt and financing obligations		(32.2)		(32.0)
Long-term debt and financing obligations, excluding current portion	$	2,695.8	$	2,705.4

(a)	The interest rates on our lease financing obligations ranged from 2.08% to 3.32% at May 29, 2022 and 2.49% to 4.10% at May 30, 2021, respectively. For more information on our lease financing obligations, see Note 8, Leases.

(b)

Excludes debt issuance costs of $3.3 million and $2.1 million as of May 29, 2022 and May 30, 2021, respectively, related to our Amended Revolving Credit Facility, which are recorded in “Other assets” on our Consolidated Balance Sheets. In fiscal 2022, 2021, and 2020, we recorded $4.8 million, $6.1 million, and $6.2 million, respectively, of amortization expense in “Interest expense” in our Consolidated Statements of Earnings. Fiscal 2022 also included a $13.7 million write-off of debt issuance costs associated with our senior notes due 2024 and 2026 which were redeemed.

Revolving Credit Facility

We are party to a senior secured credit agreement, dated as of November 9, 2016, with a syndicate of lenders. On August 11, 2021, we amended the credit agreement to, among other things, increase the aggregate principal amount of available revolving credit facility borrowings to $1.0 billion and extend the maturity date to August 11, 2026 (“Amended Revolving Credit Facility”). In addition, we may add incremental term loan facilities, increase commitments and/or add new revolving commitments in an aggregate principal amount of $650.0 million or greater based on conditions described

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in the agreement. Borrowings under the Amended Revolving Credit Facility bear interest at LIBOR, the Base Rate, the Alternative Currency Daily Rate, or the Alternative Currency Term Rate (each as defined in the Amended Revolving Credit Facility) plus an applicable rate ranging from 1.125% to 1.75% for LIBOR-based loans, Alternative Currency Daily Rate-based loans, and Alternative Currency Term Rate-based loans and from 0.125% to 0.75% for Base Rate-based loans, depending upon our consolidated net leverage ratio. In addition to paying interest, we pay an annual commitment fee for undrawn amounts at a rate of 0.15% to 0.25%, depending on our consolidated net leverage ratio. The Amended Revolving Credit Facility requires us to maintain a consolidated net leverage ratio no greater than 5.00 to 1.00, decreasing to 4.75 to 1.00 on February 23, 2025 through maturity; and an interest coverage ratio no less than 2.75 to 1.00.

The Amended Revolving Credit Facility also contains covenants that, subject to exceptions, limit our ability and the ability of our subsidiaries to, among other things, incur, assume or guarantee additional indebtedness, pay distributions on, redeem or repurchase capital stock or redeem or repurchase subordinated debt, make loans and investments, incur or suffer to exist liens, sell, transfer or otherwise dispose of assets, enter into agreements that restrict distributions or other payments from restricted subsidiaries to us, engage in transactions with affiliates, designate subsidiaries as unrestricted or restricted, and consolidate, merge, amalgamate or transfer all or substantially all of our assets. Upon the occurrence of an event of default, among other things, amounts outstanding under the credit facility may be accelerated and the commitments may be terminated. Our obligations under the Amended Revolving Credit Facility are unconditionally guaranteed by certain of our direct and indirect domestic subsidiaries on the terms set forth in the credit agreement. The credit agreement is secured by security interests and liens on substantially all of our and each of our subsidiary guarantor’s assets, unless Lamb Weston is rated investment grade by at least two of Fitch Ratings, Inc., Moody’s Investors Service, Inc., and Standard & Poor’s Ratings Services.

At May 29, 2022, we had no borrowings outstanding under our Amended Revolving Credit Facility. At May 29, 2022, we had $994.6 million of availability under the facility, which is net of outstanding letters of credit of $5.4 million. During the fifty-two weeks ended May 29, 2022, we had no borrowings under our revolving credit facility. For the period from June 1, 2020 through May 30, 2021, the weighted average interest rate for our outstanding borrowings under the revolving credit facility was 1.68%.

Term A-1 and A-2 Loan Facilities

On June 28, 2019, we entered into a credit agreement, among Lamb Weston, certain of our subsidiaries as guarantors, certain lenders, and Northwest Farm Credit Services, PCA, as administrative agent for the lenders, providing for a $300.0 million term loan facility and, under certain circumstances, the ability to add incremental facilities in an aggregate amount of up to $100.0 million (collectively, “Term A-1 Loan Facility”). Borrowings on the Term A-1 Loan Facility amortize in equal quarterly installments for a total of 5% annually, with the balance payable in June 2024.

Borrowings under the Term A-1 Loan Facility bear interest, before anticipated patronage dividends, at LIBOR or the Base Rate (as defined in the Term A-1 Loan Facility agreement) plus an applicable margin ranging from 1.625% to 2.375% for LIBOR-based loans and from 0.625% to 1.375% for Base Rate-based loans, depending upon our consolidated net leverage ratio. During the years ended May 29, 2022 and May 30, 2021, the average interest rate on the Term A-1 Loan Facility was approximately 1.86% and 1.77%, respectively. We have received and expect to continue receiving patronage dividends under the Term A-1 Loan Facility. After giving effect to expected patronage dividends, the effective average interest rate on the Term A-1 Loan Facility was approximately 0.98% and 0.95%, for the years ended May 29, 2022 and May 30, 2021, respectively.

On April 20, 2020, we amended the Term A-1 Loan Facility agreement to, among other things, provide for a new $325.0 million term loan facility (“Term A-2 Loan Facility”). Borrowings under the Term A-2 Loan Facility bear interest, before anticipated patronage dividends, at LIBOR or the Base Rate (as defined in the Term A-2 Loan Facility agreement) plus an applicable rate ranging from 1.850% to 2.600% for LIBOR-based loans and from 0.850% to 1.600% for Base Rate-based loans, depending on our consolidated net leverage ratio. Borrowings on the Term A-2 Loan Facility amortize in equal quarterly installments for a total of 5% annually, with the balance payable in April 2025. During the years ended May 29, 2022 and May 30, 2021, the average interest rate on the Term A-2 Loan Facility was approximately 2.15% and 2.34%, respectively. We have received and expect to continue receiving patronage dividends under the Term A-2 Loan

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Facility. After giving effect to expected patronage dividends, the effective average interest rate on the Term A-2 Loan Facility was approximately 1.33% and 1.53%, for the years ended May 29, 2022 and May 30, 2021, respectively.

The Term A-1 and A-2 Loan Facilities are unconditionally guaranteed by the same subsidiaries as the Amended Revolving Credit Facility. Borrowings under the Term A-1 and A-2 Loan Facilities may be prepaid without premium or penalty and once repaid, cannot be reborrowed.

On August 11, 2021, in connection with the Amended Revolving Credit Facility, we amended the credit agreement relating to our Term A-1 and A-2 Loan Facilities, to, among other things, modify the term loan facilities to make conforming changes to the covenants under the agreement. Under the amended Term A-1 and A-2 Loan Facilities, we are required to maintain a consolidated net leverage ratio no greater than 5.00 to 1.00, decreasing to 4.75 to 1.00 on February 23, 2025 through maturity; and an interest coverage ratio no less than 2.75 to 1.00.

RMB Loan Facility

On February 18, 2022, our wholly owned subsidiary, Ulanqab Lamb Weston Food Co., Ltd., entered into a facility agreement with certain lenders and HSBC Bank (China) Company Limited, Shanghai Branch, as the facility agent, providing for a RMB 1,079.0 million (approximately $161 million based on prevailing interest exchange rates on May 29, 2022) term loan facility (the “RMB Loan Facility”). Borrowings under the RMB Loan Facility bear interest at the prime rate for five-year loans published by the PRC National Interbank Funding Center plus 0.30%. The RMB Loan Facility matures on February 18, 2027. The RMB Loan Facility contains covenants that are standard for credit facilities originated in the People’s Republic of China, including, among others, covenants with regards to mergers and consolidations and asset sales, and is subject to acceleration upon various events of default. Payment obligations under the RMB Loan Facility are unconditionally guaranteed by Lamb Weston. The effective average interest rate on this facility was 4.75% for the year ended May 29, 2022.

4.875% Senior Notes due 2028

In May 2020, we issued $500.0 million aggregate principal amount of 4.875% senior notes due in 2028 (“2028 Notes”) pursuant to an indenture, dated as of May 12, 2020, among Lamb Weston, certain of our subsidiaries as guarantors and Wells Fargo Bank, National Association, as trustee. Our obligations under the 2028 Notes are unconditionally guaranteed on a senior unsecured basis by each of our subsidiaries that guarantee our obligations under the Amended Revolving Credit Facility and Term A-1 and A-2 Loan Facilities. The 2028 Notes bear interest at a rate of 4.875% per year and mature on May 15, 2028, unless earlier redeemed or repurchased. We capitalized approximately $6.2 million of debt issuance costs associated with this offering.

The 2028 Notes are senior unsecured obligations and rank equally with all of our current and future senior indebtedness (including the 2030 and 2032 Notes), rank senior to all our current and future subordinated indebtedness and are subordinated to all of our current and future secured indebtedness (including all borrowings with respect to the Amended Revolving Credit Facility and Term A-1 and A-2 Loan Facilities to the extent of the value of the assets securing such indebtedness). Interest on the 2028 Notes is due semiannually. Upon a change of control (as defined in the indenture governing the 2028 Notes), we must offer to repurchase the 2028 Notes at 101% of the principal amount of the notes, plus accrued and unpaid interest.

Prior to November 15, 2027, we may redeem the 2028 Notes, in whole at any time or in part, from time to time, at a price equal to 100% of the principal amount thereof, plus a make-whole premium, plus accrued and unpaid interest. On and after November 15, 2027, we may redeem all or any portion of the 2028 Notes, at once or over time, at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest.

The indenture governing the 2028 Notes contain covenants that, subject to exceptions, limit our ability and the ability of our restricted subsidiaries to, among other things: incur, assume or guarantee additional indebtedness; pay distributions on, redeem or repurchase capital stock or redeem or repurchase subordinated debt; make loans and investments; incur or suffer to exist liens; sell, transfer or otherwise dispose of assets; enter into agreements that restrict distributions or other payments from restricted subsidiaries to us; engage in transactions with affiliates; designate

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subsidiaries as unrestricted or restricted; and consolidate, merge, amalgamate or transfer all or substantially all of our assets. If in the future the 2028 Notes have an investment grade credit rating by both Moody’s Investors Services, Inc. and Standard & Poor’s Ratings Services, and no default or event of default has occurred and is continuing under the indenture, certain of these covenants will, thereafter, no longer apply to the 2028 Notes for so long as the 2028 Notes are rated investment grade by the two rating agencies. The indenture contains customary events of default that are substantially similar to the 2030 Notes and 2032 Notes discussed below.

4.125% Senior Notes due 2030 and 4.375% Senior Notes due 2032

On November 8, 2021, we issued (i) $970.0 million aggregate principal amount of 4.125% senior notes due 2030 (“2030 Notes”) and (ii) $700.0 million aggregate principal amount of 4.375% senior notes due 2032 (“2032 Notes” and, together with the 2030 Notes, the “Notes”) pursuant to indentures, dated as of November 8, 2021 (together, the “Indentures”), among Lamb Weston, as issuer, certain of our subsidiaries named therein as guarantors and Computershare Trust Company, N.A., as trustee. Our obligations under the Notes are unconditionally guaranteed on a senior unsecured basis by each of our subsidiaries that guarantee our obligations under our existing credit facilities.

Interest payments on the Notes are due semi-annually each January 31 and July 31, with the first interest payment due on July 31, 2022. The 2030 Notes and 2032 Notes will mature on January 31, 2030 and 2032, respectively, unless earlier redeemed or repurchased, and are subject to the terms and conditions set forth in the applicable Indenture.

We may redeem some or all of the Notes at the redemption prices and on the terms specified in the applicable Indenture. If we experience specific kinds of changes in control and certain negative actions are taken with respect to the ratings of the Notes of a series, we must offer to repurchase such Notes on the terms set forth in the applicable Indenture.

The Notes are effectively subordinated to all of our existing and future secured debt, rank equally with all of our existing and future senior debt and rank senior to all of our existing and future subordinated debt. The guarantees of the Notes are effectively subordinated to all of the guarantors’ existing and future secured debt, rank equally with all of their existing and future senior debt and rank senior to all of their existing and future subordinated debt. The Notes are structurally subordinated to all of the liabilities of our non-guarantor subsidiaries.

The Indentures limit our ability and the ability of our subsidiaries to, among other things, incur or suffer to exist liens and consolidate, merge, amalgamate or transfer all or substantially all of our assets. The Indentures contain customary events of default that include, among other things (subject in certain cases to customary grace and cure periods): non-payment of principal, interest or premium; failure to perform or observe covenants; cross-acceleration with certain other indebtedness; certain judgments; and certain events of bankruptcy or insolvency. Generally, if an event of default occurs (subject to certain exceptions), the trustee or the holders of at least 25% in aggregate principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately.

In connection with the 2030 Notes and 2032 Notes issuance, we capitalized $17.5 million of debt issuance costs within long-term debt on our Consolidated Balance Sheet.

4.625% Senior Notes due 2024 and 4.875% Senior Notes due 2026

On November 18, 2021, we used the net proceeds of the issuance of the 2030 Notes and 2032 Notes, together with cash on hand, to redeem all of our outstanding $833.0 million aggregate principal amount of 4.625% senior notes due 2024 (the “2024 Notes”) and $833.0 million aggregate principal amount of 4.875% senior notes due 2026 (the “2026 Notes”). The 2024 Notes were redeemed at a price of 102.313% of the principal amount and the 2026 Notes were redeemed at a price of 102.438% of the principal amount. The call premium for the 2024 Notes and 2026 Notes was $39.6 million (included in the redemption prices noted above) and in connection with these redemptions, we also wrote off $13.7 million of previously unamortized debt issuance costs. Both of these amounts are included as “Interest Expense, net” in our Consolidated Statements of Earnings for the fifty-two weeks ended May 29, 2022.

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Other Credit Facilities

At May 29, 2022 and May 30, 2021, one of our subsidiaries had $53.7 million and $56.5 million, respectively, of availability under an overdraft line of credit facility with a financial institution with no borrowings outstanding. Borrowings under this facility bear interest at an effective rate of 3.915% as of both May 29, 2022 and May 30, 2021, and may be prepaid without penalty. We guarantee the full amount of our subsidiary’s obligations to the financial institution up to the maximum amount of borrowings under the credit facility.

Debt Maturities

The aggregate minimum principal maturities of our long-term debt, including current portion, for the next five fiscal years and thereafter, are as follows:



(in millions)	Debt (a)
2023	$	31.3
2024		31.3
2025		493.5
2026		1.6
2027		17.3
Thereafter		2,170.0
	$	2,745.0

(a)	See Note 8, Leases, for maturities of our lease financing obligations.

Other

During fiscal 2022, 2021, and 2020, we paid $80.6 million, $120.6 million, and $105.7 million, respectively, of interest on debt.

8. LEASES

We lease various real estate, including certain operating facilities, warehouses, office space, and land. We also lease material handling equipment, vehicles, and certain other equipment. Our leases have remaining lease terms of one to 18 years.

The components of total lease costs, net, consisted of the following:


	For the Fiscal Year Ended May (a)
(in millions)	2022		2021		2020
Operating lease costs	$	33.9	$	33.2	$	29.7
Short-term and variable lease costs		7.8		9.0		5.8
Sublease income		(4.9)		(3.4)		(2.7)
Finance lease costs:
Amortization of lease assets		1.1		1.9		3.2
Interest on lease obligations		0.2		0.3		0.6
Total lease costs, net	$	38.1	$	41.0	$	36.6

(a)

Supply-chain-related lease costs are included in “Cost of sales,” and the remainder is recorded in “Selling, general, and administrative expenses,” in our Consolidated Statements of Earnings. Interest on finance lease obligations is included in “Interest expense, net,” in our Consolidated Statements of Earnings.

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Operating and finance leases, with initial terms greater than one year, were as follows:


		May 29,		May 30,
(in millions)	Classification	2022		2021
Assets:
Operating lease assets	Operating lease assets	$	119.0	$	141.7
Finance lease assets	Property, plant and equipment, net (a)		4.4		5.4
Total leased assets		$	123.4	$	147.1

Liabilities:
Lease obligations due within one year:
Operating lease obligations	Accrued liabilities	$	22.4	$	29.1
Finance lease obligations	Current portion of long-term debt and financing obligations		0.9		0.7
Long-term lease obligations:
Operating lease obligations	Other noncurrent liabilities		104.7		120.3
Finance lease obligations	Long-term debt and financing obligations, excluding current portion		6.1		6.6
Total lease obligations		$	134.1	$	156.7

(a)	Finance leases are net of accumulated amortization of $5.8 million and $4.7 million at May 29, 2022 and May 30, 2021, respectively.

The maturities of our lease obligations for operating and finance leases at May 29, 2022 for the next five fiscal years and thereafter are as follows:


	Operating		Finance
(in millions, except for lease term and discount rate amounts)	Leases		Leases
2023	$	25.2	$	1.2
2024		21.3		1.1
2025		18.9		1.0
2026		15.9		0.8
2027		14.9		0.6
Thereafter		52.8		4.1
Total lease payments		149.0		8.8
Less: Interest		(21.9)		(1.8)
Present value of lease obligations	$	127.1	$	7.0

Weighted-average remaining lease term (years)		7.4		13.4
Weighted-average discount rate		4.0%		3.1%

Supplemental cash flow information related to leases was as follows:


	For the Fiscal Years Ended May
(in millions)	2022		2021		2020
Cash paid for amounts included in the measurement of lease obligations:
Operating cash flows for operating leases	$	29.1	$	30.9	$	26.8
Financing cash flows for finance leases		1.1		1.7		2.6

Noncash investing and financing activities:
Assets obtained in exchange for new operating lease obligations		1.4		5.2		41.4
Assets obtained in exchange for new finance lease obligations		0.5		—		2.2

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9. EMPLOYEE BENEFIT PLANS AND OTHER POST-RETIREMENT BENEFITS

Only certain hourly employees covered by certain collective bargaining agreements continue to accrue pension benefits. Participants that do not actively participate in a pension plan are eligible to participate in defined contribution savings plans with employer matching provisions consistent with other employees without pension benefits.

We also have a nonqualified defined benefit pension plan that provides unfunded supplemental retirement benefits to certain executives. This plan is closed to new participants and pension benefit accruals are frozen for active participants.

Other Plans

Eligible U.S. employees participate in a contributory defined contribution plan (“the Plan”). The Plan permits participants to make contributions by salary reduction pursuant to Section 401(k) of the Internal Revenue Code of 1986, as amended. Regardless of employee participation level, we generally provide a 3% contribution. In addition to this, we will generally match 100% of the first 6% of the participating employee’s contribution election. The Plan’s matching contributions have a five-year graded vesting with 20% vesting each year. We made employer-matching contributions of $30.5 million, $28.8 million, and $28.7 million in fiscal 2022, 2021, and 2020, respectively.

We sponsor a deferred compensation savings plan that permits eligible employees to continue to make deferrals and receive company matching contributions when their contributions to the defined contribution plan are stopped due to limitations under U.S. tax law. In addition, we sponsor a deferred compensation plan for non-employee directors that allow directors to defer their cash compensation and stock awards. Both deferred compensation plans are unfunded nonqualified defined contribution plans. Participant deferrals and company matching contributions (for the employee deferred compensation plan only) are not invested in separate trusts, but are paid directly from our general assets at the time benefits become due and payable. At May 29, 2022 and May 30, 2021, we had $21.6 million and $23.5 million, respectively, of liabilities attributable to participation in our deferred compensation plan recorded on our Consolidated Balance Sheets.

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Obligations and Funded Status of Defined Benefit Pension and Other Post-retirement Benefit Plans

The funded status of our plans is based on company contributions, benefit payments, the plan asset investment return, the discount rate used to measure the liability, and expected participant longevity. The following table, which includes only company-sponsored defined benefit and other post-retirement benefit plans, reconciles the beginning and ending balances of the projected benefit obligation and the fair value of plan assets. We recognize the unfunded status of these plans on the Consolidated Balance Sheets, and we recognize changes in funded status in the year changes occur through the Consolidated Statements of Comprehensive Income:


	For the Fiscal Years Ended May
	2022				2021
(in millions)	Pension Plans		Post-Retirement Plan		Pension Plans		Post-Retirement Plan
Change in benefit obligation
Benefit obligation at beginning of year	$	41.5	$	6.5	$	37.3	$	6.5
Service cost		2.1		—		3.0		—
Interest cost		1.3		0.1		1.2		0.1
Participant contributions		—		0.3		—		0.3
Plan amendments		0.1		—		—		—
Benefits paid		(0.4)		(0.3)		(0.5)		(0.2)
Actuarial (gain) loss		(8.5)		(1.1)		0.5		(0.2)
Benefit obligation at fiscal year end	$	36.1	$	5.5	$	41.5	$	6.5

Accumulated benefit obligation portion of above	$	36.1			$	41.5

Change in fair value of plan assets
Fair value of plan assets at beginning of year	$	28.1	$	—	$	27.2	$	—
Actual return on plan assets		(4.6)		—		(2.0)		—
Company contributions		2.0		—		3.4		—
Participant contributions		—		0.3		—		0.3
Benefits paid		(0.4)		(0.3)		(0.5)		(0.2)
Other		—		—		—		(0.1)
Fair value of plan assets at end of year	$	25.1	$	—	$	28.1	$	—

Underfunded status	$	(11.0)	$	(5.5)	$	(13.4)	$	(6.5)

Amounts recognized on Consolidated Balance Sheets
Accrued liabilities	$	—	$	(0.3)	$	—	$	(0.3)
Other noncurrent liabilities		(11.0)		(5.2)		(13.4)		(6.2)
Accrued obligation recognized	$	(11.0)	$	(5.5)	$	(13.4)	$	(6.5)

Amounts recognized in Accumulated Other Comprehensive (Income) Loss (Pre-tax)
Actuarial (gain) loss	$	4.6	$	(0.4)	$	7.7	$	0.7
Prior service benefit		0.1		—		—		—
Total	$	4.7	$	(0.4)	$	7.7	$	0.7

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Components of Net Periodic Benefit Cost and Other Comprehensive (Income) Loss

The components of net periodic benefit cost were as follows:


	For the Fiscal Years Ended May
	2022				2021				2020
	Pension		Post-Retirement		Pension		Post-Retirement		Pension		Post-Retirement
(in millions)	Plans		Plan		Plans		Plan		Plans		Plan
Service cost	$	2.1	$	—	$	3.0	$	—	$	3.1	$	—
Interest cost		1.3		0.1		1.2		0.1		1.1		0.2
Expected return on plan assets		(1.2)		—		(0.8)		—		(0.9)		—
Net amortization of unrecognized amounts
Actuarial loss		0.4		—		0.1		0.2		0.2		0.6
Net periodic benefit cost (a)	$	2.6	$	0.1	$	3.5	$	0.3	$	3.5	$	0.8

Changes in plan assets and benefit obligations recognized in other comprehensive (income) loss
Prior service cost	$	0.1	$	—	$	—	$	—	$	—	$	—
Actuarial (gain) loss		(2.7)		(1.1)		3.4		(0.2)		0.6		(1.0)
Amortization of actuarial loss (b)		(0.4)		—		(0.1)		(0.2)		(0.2)		(0.6)
Total recognized in other comprehensive loss (income)	$	(3.0)	$	(1.1)	$	3.3	$	(0.4)	$	0.4	$	(1.6)

Total recognized in net periodic benefit cost and other comprehensive loss (income) (pre-tax)	$	(0.4)	$	(1.0)	$	6.8	$	(0.1)	$	3.9	$	(0.8)

(a)	Pension service costs are allocated to operations and reflected in “Cost of sales” and expected returns on pension assets and interest costs are reflected in “Selling, general and administrative expenses” in the Consolidated Statements of Earnings.

The decrease in fiscal 2022 net periodic benefit cost, compared with fiscal 2021 and 2020, reflects amendments to the pension plans so that no future benefits accrue after certain dates. We did not recognize a curtailment gain or loss with any of the amendments.

(b)

Accumulated losses in excess of 10% of the greater of the projected benefit obligation or the market-related value of assets will be recognized on a straight-line basis over the average remaining service period of active employees in our plans (which is between six to ten years for our pension plans and approximately two years for our post-retirement benefit plan), to the extent that losses are not offset by gains in subsequent years.

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Assumptions

The actuarial assumptions used in determining the benefit obligations and net periodic pension cost for our defined benefit and post-retirement plans are as follows:


	For the Fiscal Years Ended May
	2022				2021			2020
	Pension Plans		Post-Retirement Plan		Pension Plans	Post-Retirement Plan		Pension Plans	Post-Retirement Plan
Weighted-average assumptions used to determine benefit obligations:
Discount rate		4.42%		4.41%	3.11%		2.82%	3.14%		2.85%
Weighted-average assumptions used to determine net periodic benefit cost:
Discount rate		3.11%		2.82%	3.14%		2.85%	4.01%		3.81%
Expected return on plan assets		4.00%		N/A	2.90%		N/A	5.12%		N/A

Discount Rate Assumption. The discount rate reflects the current rate at which the pension and post-retirement benefit obligations could be settled on the measurement date: May 29, 2022. The discount rate assumption used to calculate the present value of pension and post-retirement benefit obligations reflects the rates available on high-quality bonds on May 29, 2022. The bonds included in the models reflect anticipated investments that would be made to match the expected monthly benefit payments over time. The plans’ projected cash flows were duration-matched to these models to develop an appropriate discount rate. The discount rate we will use in fiscal 2023 to calculate the net periodic pension benefit cost and post-retirement benefit cost is 4.42% and 4.41%, respectively.

Asset Return Assumption: Our investment strategies are governed by our Employee Benefits Investment Committee. The expected return on plan assets reflects the expected long-term rates of return for the categories of investments currently held in the plan as well as anticipated returns for additional contributions made in the future. The expected long-term rate of return is adjusted when there are fundamental changes in expected returns on the plan investments. The weighted-average expected return on plan assets we will use in our calculation of fiscal 2023 net periodic pension benefit cost is 2.00%.

Health Care Cost Trend Rate Assumptions. We review external data and historical trends for health care costs to determine our health care cost trend rate assumptions. We assumed health care cost trend rates for our post-retirement benefit plan obligation as follows:


	2022		2021		2020
Health care cost trend rate assumed for next year (Pre65)		7.00%		6.19%		6.75%
Ultimate health care cost trend rate		4.50%		4.50%		4.50%
Year that the rate reaches the ultimate trend rate		2033		2024		2024

Investment Policies and Strategies and Fair Value Measurements of Plan Assets

We utilize professional advisors to oversee pension investments and provide recommendations regarding investment strategy. Our overall strategy and related apportionments between equity and debt securities may change from time to time based on market conditions, external economic factors, timing of contributions and the funded status of the plans. The general investment objective for all of our plan assets is to optimize growth of the pension plan trust assets, while minimizing the risk of significant losses to enable the plans to satisfy their benefit payment obligations over time. The objectives consider the long-term nature of the benefit obligations, the liquidity needs of the plans, and the expected risk/return trade-offs of the asset classes in which the plans may choose to invest. Our current investment policy is to invest 30% in equity securities and 70% in fixed income securities.

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Investment securities, in general, are exposed to various risks, such as interest rate, credit, and overall market volatility risk, all of which are subject to change. Due to the level of risk associated with some investment securities, it is reasonably possible that changes in the values of investment securities will occur in the near term, and such changes could materially affect the reported amounts:


	Fair Value Measurements at May 29, 2022
	Quoted Market Prices in Active Markets for Identical Assets		Significant Observable Market-Based Inputs		Significant Unobservable Inputs
(in millions)	Level 1		Level 2		Level 3		Total
Cash and cash equivalents	$	0.1	$	—	$	—	$	0.1
Equity securities:
U.S. equity securities (a)		—		4.2		—		4.2
International equity securities (a)		—		3.6		—		3.6
Fixed income securities:
Government securities (b)		17.2		—		—		17.2
Total assets	$	17.3	$	7.8	$	—	$	25.1


	Fair Value Measurements at May 30, 2021
	Quoted Market Prices in Active Markets for Identical Assets		Significant Observable Market-Based Inputs		Significant Unobservable Inputs
(in millions)	Level 1		Level 2		Level 3		Total
Cash and cash equivalents	$	0.4	$	—	$	—	$	0.4
Equity securities:
U.S. equity securities (a)		—		4.7		—		4.7
International equity securities (a)		—		3.7		—		3.7
Fixed income securities:
Government securities (b)		19.3		—		—		19.3
Total assets	$	19.7	$	8.4	$	—	$	28.1

(a)

Includes investments in common/collective trust funds that are valued using net asset values (“NAV”) provided by the administrator of the funds. The NAV is based on the value of the underlying assets owned by the fund, minus its liabilities, and then divided by the number of units outstanding. While the underlying assets are actively traded on an exchange, the funds are not. There are currently no redemption restrictions or unfunded commitments on these investments. There are certain funds with thirty-day redeemable notice requirements.

(b)	Includes investments in exchange-traded funds based on quoted prices in active markets.

Funding and Cash Flows

We make pension plan contributions that are sufficient to fund our actuarially determined costs, generally equal to the minimum amounts required by the Employee Retirement Income Security Act of 1974, as amended. From time to time, we may make discretionary contributions based on the funded status of the plans, tax deductibility, income from operations, and other factors. In fiscal 2022, we made $2.0 million of discretionary contributions to our qualified plan. There are no minimum required contributions in fiscal 2023, however, in July 2022, we made a $2.0 million discretionary contribution to our qualified pension plan. We continually reassess the amount and timing of discretionary contributions, if any.

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The following are estimated benefit payments to be paid to current plan participants by fiscal year. Qualified pension benefit payments are paid from plan assets, while nonqualified pension benefit payments are paid by the Company.


(in millions)	Pension Plans		Post-Retirement Plan
2023	$	0.7	$	0.3
2024		0.9		0.3
2025		1.1		0.4
2026		1.3		0.4
2027		1.5		0.4
2028-2032		9.9		2.0

10. STOCK-BASED COMPENSATION

On October 29, 2016, our Board of Directors adopted the Lamb Weston Holdings, Inc. 2016 Stock Plan, which was amended in July 2017 (“Stock Plan”). The Compensation and Human Capital Committee (“the Committee”) of our Board of Directors administers our stock compensation plan. The Committee, in its discretion, authorizes grants of restricted stock units (“RSUs”), performance awards payable upon the attainment of specified performance goals (“Performance Shares”), dividend equivalents, and other stock-based awards. At May 29, 2022, we had 10.0 million shares authorized under the Stock Plan, and 7.2 million were available for future grant.

RSUs and Performance Shares

We grant RSUs to eligible employees and non-employee directors. The employee RSUs generally vest over a three-year period while the non-employee director RSUs generally vest after one year. We estimate the fair value of the RSUs based upon the market price of our common stock on the date of grant. Compensation expense is recognized over the period the employee or non-employee director provides service in exchange for the award.

Performance Shares are granted to certain executives and other key employees with vesting contingent upon meeting various Company-wide performance goals. Awards actually earned range from 0% to 200% of the targeted number of Performance Shares for each of the performance periods. Awards, if earned, will be paid in shares of our common stock. Subject to limited exceptions set forth in the Stock Plan, any shares earned will generally vest over a three-year period. The value of the Performance Shares is adjusted based upon the market price of our common stock and the anticipated attainment of Company-wide performance goals at the end of each reporting period and amortized as compensation expense over the vesting period.

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The following table summarizes stock-based compensation activity for fiscal 2022:


	RSUs				Performance Shares
			Weighted-				Weighted-
			Average				Average
			Grant-				Grant-
			Date Fair				Date Fair
	Shares		Value		Shares		Value
Outstanding at May 30, 2021		675,302	$	66.34		335,445	$	67.02
Granted (a)		404,131		65.46		135,204		67.12
Vested (b)		(196,230)		68.64		(133,039)		69.50
Forfeited/expired/cancelled		(75,476)		67.34		(27,613)		63.94
Outstanding at May 29, 2022		807,727	$	65.25		309,997	$	66.27

(a)	Granted represents new grants and dividend equivalents accrued.

(b)

The aggregate fair value of awards that vested in fiscal 2022, 2021, and 2020 was $22.4 million, $29.3 million, and $24.9 million, respectively, which represents the market value of our common stock on the date that the RSUs and Performance Shares vested. The number of RSUs and Performance Shares vested includes shares of common stock that we withheld on behalf of employees to satisfy the minimum statutory tax withholding requirements. RSUs that are expected to vest are net of estimated future forfeitures.

Compensation Expense

Our stock-based compensation expense is recorded in “Selling, general and administrative expenses.” Compensation expense for stock-based awards recognized in the Consolidated Statements of Earnings, net of forfeitures, was as follows:


	For the Fiscal Years Ended May
(in millions)	2022		2021		2020
Stock-settled RSUs	$	15.1	$	13.9	$	12.9
Performance Shares		6.2		6.7		9.8
Stock options		—		—		0.1
Stock-settled compensation expense		21.3		20.6		22.8
Cash-settled RSUs		—		—		1.0
Total compensation expense		21.3		20.6		23.8
Income tax benefit (a)		(3.9)		(3.7)		(4.6)
Total compensation expense, net of tax benefit	$	17.4	$	16.9	$	19.2

(a)	Income tax benefit represents the marginal tax rate, excluding non-deductible compensation.

Based on estimates at May 29, 2022, total unrecognized compensation expense related to stock-based awards was as follows:


			Remaining
			Weighted
	Unrecognized		Average
	Compensation		Recognition
(in millions, except data in years)	Expense		Period (in years)
Stock-settled RSUs	$	23.9		2.0
Performance Shares		7.1		1.8
Total unrecognized compensation expense	$	31.0		2.0

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11. FAIR VALUE MEASUREMENTS

The following table presents our financial assets and liabilities measured at fair value on a recurring basis based upon the level within the fair value hierarchy in which the fair value measurements fall, as of May 29, 2022 and May 30, 2021:


	As of May 29, 2022
							Fair Value
							of Assets
(in millions)	Level 1		Level 2		Level 3		(Liabilities)
Pension plan assets	$	17.3	$	7.8	$	—	$	25.1
Derivative assets (a)		—		7.0		—		7.0
Deferred compensation liabilities (b)		—		(21.6)		—		(21.6)
Fair value, net	$	17.3	$	(6.8)	$	—	$	10.5


	As of May 30, 2021
							Fair Value
							of Assets
(in millions)	Level 1		Level 2		Level 3		(Liabilities)
Pension plan assets	$	19.7	$	8.4	$	—	$	28.1
Derivative assets (a)		—		15.3		—		15.3
Deferred compensation liabilities (b)		—		(23.5)		—		(23.5)
Fair value, net	$	19.7	$	0.2	$	—	$	19.9

(a)

Derivative assets included in Level 2 primarily represent commodity swap and option contracts. The fair values of our Level 2 derivative assets were determined using valuation models that use market observable inputs including both forward and spot prices for commodities. Derivative assets are presented within “Prepaid expenses and other current assets” on our Consolidated Balance Sheets.

(b)

The fair values of our Level 2 deferred compensation liabilities were valued using third-party valuations, which are based on the net asset values of mutual funds in our retirement plans. While the underlying assets are actively traded on an exchange, the funds are not. Deferred compensation liabilities are primarily presented within “Other noncurrent liabilities” on our Consolidated Balance Sheets.

The fair values of cash equivalents, receivables, accounts payable and short-term debt approximate their carrying amounts due to their short duration.

Non-financial assets such as property, plant and equipment, and intangible assets are recorded at fair value only if an impairment is recognized. Cost and equity investments are measured at fair value on a non-recurring basis.

At May 29, 2022, we had $2,170.0 million of fixed-rate and $575.0 million of variable-rate debt outstanding. Based on current market rates, the fair value of our fixed-rate debt at May 29, 2022 was estimated to be $2,040.8 million. Any differences between the book value and fair value are due to the difference between the period-end market interest rate and the stated rate of our fixed-rate debt. We estimated the fair value of our fixed-rate debt using quoted market prices (Level 2 inputs) within the fair value hierarchy that is described above. The fair value of our variable-rate term debt approximates the carrying amount as our cost of borrowing is variable and approximates current market prices.

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12. STOCKHOLDERS’ EQUITY

Our certificate of incorporation authorizes 600,000,000 shares of common stock and 60,000,000 shares of preferred stock. We had 144,071,428 shares of common stock issued and outstanding as of May 29, 2022. Each share of common stock entitles the holder to one vote on matters to be voted on by our stockholders. No preferred stock was issued or outstanding on May 29, 2022.

Share Repurchase Program

In December 2018, our Board of Directors authorized a program, with no expiration date, to repurchase shares of our common stock in an amount not to exceed $250.0 million in the aggregate, on an opportunistic basis. In December 2021, our Board of Directors authorized the repurchase of an additional $250.0 million of our common stock under this share repurchase program. During fiscal 2022, we purchased 2,407,184 shares for $150.7 million, or a weighted-average price of $62.59 per share. As of May 29, 2022, $268.9 million remained authorized for repurchase under the program.

Dividends

During fiscal 2022, 2021, and 2020, we paid $138.4 million, $135.3 million, and $121.3 million, respectively, of dividends to common stockholders. On July 20, 2022, our Board of Directors declared a dividend of $0.245 per share of common stock. The dividend will be paid on September 2, 2022, to stockholders of record as of the close of business on August 5, 2022.

Accumulated Other Comprehensive Income (Loss) (“AOCI”)

Comprehensive income includes net income, currency translation adjustments, and changes in prior service cost and net actuarial gains (losses) from pension and post-retirement benefit plans. We generally deem our foreign investments to be indefinite in nature and we do not provide for taxes on currency translation adjustments arising from converting the investment denominated in a foreign currency to the U.S. dollar. If we determine that a foreign investment, as well as undistributed earnings, are no longer indefinite in nature, estimated taxes are provided for the related deferred tax liability (asset), if any, resulting from currency translation adjustments.

Changes in AOCI, net of tax, as of May 29, 2022, were as follows:


	Foreign							Accumulated
	Currency		Pension and					Other
	Translation		Post-Retirement					Comprehensive
(in millions)	Gains (Losses)		Benefits			Other		Income (Loss)
Balance as of May 30, 2021	$	36.0	$	(6.5)		$	—	$	29.5
Other comprehensive income before reclassifications, net of tax		(48.9)		2.9			0.7		(45.3)
Amounts reclassified out of AOCI, net of tax		—		0.3	(a)		(0.1)		0.2
Net current-period other comprehensive income (loss)		(48.9)		3.2			0.6		(45.1)
Balance as of May 29, 2022	$	(12.9)	$	(3.3)		$	0.6	$	(15.6)

(a)	These AOCI components are included in the computation of net pension and postretirement benefit costs. See Note 9, Employee Benefit Plans and Other Post-Retirement Benefits, for additional information.

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13. SEGMENTS

We have four operating segments, each of which is a reportable segment: Global, Foodservice, Retail, and Other. Our chief operating decision maker receives periodic management reports under this structure that generally focus on the nature and scope of our customers’ businesses, which enables operating decisions, performance assessment, and resource allocation decisions at the segment level. The reportable segments are each managed by a general manager and supported by a cross functional team assigned to support the segment. See “Part I, Item 1. Business” of this Form 10-K for more information on our segments.


	For the Fiscal Years Ended May
(in millions)	2022		2021		2020
Net sales
Global	$	2,064.2	$	1,911.5	$	1,973.6
Foodservice		1,318.2		1,017.3		1,069.1
Retail		594.6		603.4		595.5
Other		121.9		138.7		154.2
Total net sales		4,098.9		3,670.9		3,792.4
Product contribution margin (a)
Global		252.2		306.2		374.5
Foodservice		449.3		340.0		356.0
Retail		109.4		120.2		117.6
Other (b)		2.2		47.8		24.1
		813.1		814.2		872.2
Add: Advertising and promotion expenses (a)		18.9		17.8		23.0
Gross profit		832.0		832.0		895.2
Selling, general and administrative expenses		387.6		357.2		338.3
Income from operations		444.4		474.8		556.9
Interest expense, net (c)		161.0		118.3		108.0
Income tax expense		71.8		90.5		112.3
Equity method investment earnings (loss) (d)		(10.7)		51.8		29.3
Net income	$	200.9	$	317.8	$	365.9

(a)	Product contribution margin represents net sales less cost of sales and advertising and promotion expenses. Product contribution margin includes advertising and promotion expenses because those expenses are directly associated with segment performance.

(b)	The Other segment primarily includes our vegetable and dairy businesses and unrealized mark-to-market adjustments associated with commodity hedging contracts.

(c)

The fiscal year ended May 29, 2022, includes a loss on extinguishment of debt of $53.3 million, which includes a call premium of $39.6 million related to the redemption of the 2024 Notes and 2026 Notes, and the write-off of $13.7 million of previously unamortized debt issuance costs associated with those notes.

(d)	In May 2022, LWM announced its intent to withdraw from its joint venture investment in Russia. As a result, LWM determined that its net investment in Russia was impaired and recognized a non-cash impairment charge, of which our portion was $62.7 million.

Assets by Segment

The manufacturing assets of Lamb Weston are shared across all reporting segments. Output from these facilities used by each reporting segment can change from fiscal year to fiscal year. Therefore, it is impracticable to allocate those assets to the reporting segments, as well as disclose total assets by segment.

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Concentrations

Lamb Weston’s largest customer, McDonald’s Corporation, accounted for approximately 10% of our consolidated net sales in fiscal 2022, 11% of our consolidated net sales in fiscal 2021, and 10% of our consolidated net sales in fiscal 2020. Sales to McDonald’s Corporation are included in our Global segment.

Other Information

The net sales of each of our Global, Foodservice, and Retail reporting segments are comprised of sales of frozen potato and frozen sweet potato products. The net sales of our Other reporting segment include:


	For the Fiscal Years Ended May
(in millions)	2022		2021		2020
Net sales
Vegetable	$	74.9	$	91.3	$	104.9
Byproducts		33.5		36.1		36.4
Dairy		13.5		11.3		12.9
Total net sales	$	121.9	$	138.7	$	154.2

Our operations are principally in the U.S. With respect to operations outside of the U.S., no single foreign country or geographic region was significant with respect to consolidated operations in fiscal 2022, 2021, and 2020. Foreign net sales, including sales by domestic segments to customers located outside of the U.S., were $682.7 million, $700.2 million, and $776.4 million in fiscal 2022, 2021, and 2020, respectively. Our long-lived assets located outside of the U.S. are not significant.

Labor

At May 29, 2022, we had approximately 8,000 employees, of which approximately 800 of these employees work outside of the U.S. Approximately 22% of our employees are parties to collective bargaining agreements with terms that we believe are typical for the industry in which we operate. Most of the union workers at our facilities are represented under contracts that expire at various times over the next several years.

14. COMMITMENTS, CONTINGENCIES, GUARANTEES, AND LEGAL PROCEEDINGS

We have financial commitments and obligations that arise in the ordinary course of our business. These include long-term debt (discussed in Note 7, Debt and Financing Obligations), lease obligations (discussed in Note 8, Leases), purchase obligations and capital commitments for goods and services, and legal proceedings (discussed below).

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Purchase Obligations and Capital Commitments

A summary of our purchase obligations, excluding capital commitments, as of May 29, 2022 are as follows. The expected timing of payments of the obligations in the table are estimated based on current information. Timing of payments and actual amounts paid may be different, depending on the time of receipt of goods or services, or changes to agreed-upon amounts for some obligations:


(in millions)		Purchase Obligations
2023	$	82.9
2024		72.2
2025		60.9
2026		29.3
2027		26.0
Thereafter		380.5
Total (a)	$	651.8

(a)

The amounts in the table above exclude purchase commitments under potato supply agreements due to uncertainty of pricing and quantity. Potato supply agreements have maximum contracted pricing with deductions for certain quality attributes, and quantities purchased are determined by the yields produced on contracted acres. Total purchases under all our potato supply agreements were $717.6 million, $621.4 million, and $646.5 million in fiscal 2022, 2021, and 2020, respectively.

We had capital commitments of approximately $304.7 million and $75.0 million as of May 29, 2022 and May 30, 2021, respectively, that represent commitments for construction of a previously announced french fry production line and plant modernization investments. Capital commitments were not recorded as liabilities on our Consolidated Balance Sheets as of May 29, 2022 as we had not yet received the related goods nor taken title to the property.

Guarantees and Indemnifications

We provide guarantees, indemnifications, and other assurances to third parties in the normal course of our business. These include tort indemnifications, environmental assurances, and representations and warranties in commercial agreements. At May 29, 2022, we were not aware of any material liabilities arising from any guarantee, indemnification, or financial assurance we have provided. If the fair value of such liability becomes material, we will accrue for it at that time.

We are a party to various potato purchase supply agreements with partner growers, under which they deliver their potato crop from the contracted acres to Lamb Weston during the harvest season, and pursuant to the potato supply agreements, pricing for this inventory is determined after delivery, taking into account crop size and quality, among other factors. Total purchases under these agreements were $146.6 million, $139.8 million, and $142.7 million in fiscal 2022, 2021, and 2020, respectively, under the terms of the potato supply agreements. These purchases are initially recorded in inventory and charged to cost of sales as related inventories are produced and subsequently sold. Under the terms of these potato supply agreements, we have guaranteed repayment of short-term bank loans of the potato suppliers, under certain conditions. At May 29, 2022, we have effectively guaranteed $35.9 million of supplier loans. We have not established a liability for these guarantees, as we have determined that the likelihood of our required performance under the guarantees is remote. Under certain other potato supply agreements, we make advances to growers prior to the delivery of potatoes. The aggregate amounts of these advances were $28.1 million and $23.9 million at May 29, 2022 and May 30, 2021, respectively, and were recorded in “Prepaid expenses and other current assets,” on our Consolidated Balance Sheets.

We and our partner are jointly and severally liable for all legal liabilities of LWM. See Note 4, Equity Method Investments, for further information on LWM’s liabilities and capital structure.

After taking into account liabilities recognized for all of the foregoing matters, management believes the ultimate resolution of such matters would not have a material adverse effect on our financial condition, results of operations, or cash flows. It is reasonably possible that a change to an estimate of the foregoing matters may occur in the future.

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Legal Proceedings

We are a party to legal actions arising in the ordinary course of our business. These claims, legal proceedings and litigation principally arise from alleged casualty, product liability, employment, and other disputes. In determining loss contingencies, we consider the likelihood of loss as well as the ability to reasonably estimate the amount of such loss or liability. An estimated loss is recognized when it is considered probable that a liability has been incurred and when the amount of loss can be reasonably estimated. While any claim, proceeding or litigation has an element of uncertainty, we believe the outcome of any of these that are pending or threatened will not have a material adverse effect on our financial condition, results of operations, or cash flows.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of May 29, 2022. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

Management's Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with U.S. GAAP. Our internal control over financial reporting includes those policies and procedures that:

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pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets;

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provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with U.S. GAAP;

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provide reasonable assurance that receipts and expenditures are being made only in accordance with management and director authorization;

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provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the consolidated financial statements; and

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provide reasonable assurance as to the detection of fraud.

Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer and oversight of the Board of Directors, assessed the effectiveness of our internal control over financial reporting as of May 29, 2022. Management based this assessment on criteria for effective internal control over financial

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reporting described in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management’s assessment included evaluation of elements such as the design and operating effectiveness of key financial reporting controls, process documentation, accounting policies, and our overall control environment. Based on this assessment, management concluded that, as of May 29, 2022, our internal control over financial reporting was effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external reporting purposes in accordance with GAAP. We reviewed the results of management’s assessment with the Audit and Finance Committee of our Board of Directors.

Our independent registered public accounting firm, KPMG LLP, audited the consolidated financial statements prepared by us. KPMG LLP has also issued an attestation report on our internal control over financial reporting. Their report on the consolidated financial statements and attestation report are included in “Part II, Item 8. Financial Statements and Supplementary Data” of this Form 10-K.

Inherent Limitations on Effectiveness of Controls

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of the effectiveness of controls to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

Changes in Internal Control over Financial Reporting

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated any change in our internal control over financial reporting that occurred during the quarter ended May 29, 2022 and determined that there was no change in our internal control over financial reporting during the fourth quarter of fiscal 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None.

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

Not applicable.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Information required by this Item 10 is included under the headings “Information About Our Executive Officers” and “Ethics and Governance” in Part 1, Item 1 of this Form 10-K, and will be included under the headings “Item 1. Election of Directors,” “Corporate Governance – Code of Conduct and Code of Ethics for Senior Corporate Financial Officers,” and “Board Committees and Membership – Audit and Finance Committee” in our definitive Proxy Statement for our Annual Meeting of Stockholders scheduled to be held on September 29, 2022 (“2022 Proxy Statement”). This information from the 2022 Proxy Statement is incorporated by reference into this Form 10-K.