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

Graphic

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.
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

35

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

36

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.

37

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.

38

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.

39

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.

41

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

42

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

43

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.

44

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.

45

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.

46

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.

47

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.

48

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-

49

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.

50

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.

51

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.

52

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

53

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.

54

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.

55

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