What changed in this filing

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Item 1. Financial Statements

2020-10-07 compared with 2020-04-01 · 120 added, 298 removed, 254 unchanged (62% of the section changed)

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Thirteen Weeks Ended

Thirty-Nine Weeks Ended

Cost of sales

5 unchanged sentences

Equity method investment earnings

Income attributable to noncontrolling interests

Net income attributable to Lamb Weston Holdings, Inc.

Earnings per share

5 unchanged sentences

Thirteen Weeks Ended

February 23, 2020

February 24, 2019

Other comprehensive income (loss):

Reclassification of post-retirement benefits out of accumulated other comprehensive income (loss)

Unrealized currency translation gains (losses)

Comprehensive income (loss) attributable to Lamb Weston Holdings, Inc.

Thirty-Nine Weeks Ended

February 23, 2020

February 24, 2019

August 30, 2020

August 25, 2019

Other comprehensive income (loss):

Reclassification of post-retirement benefits out of accumulated other comprehensive income (loss)

Reclassification of post-retirement benefits out of accumulated other comprehensive income

Unrealized currency translation gains (losses)

Comprehensive income (loss)

Comprehensive income attributable to noncontrolling interests

Comprehensive income (loss) attributable to Lamb Weston Holdings, Inc.

See Condensed Notes to Consolidated Financial Statements.

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Treasury stock, at cost, 1,106,009 and 954,858 common shares

Total stockholders' equity (deficit)

Total stockholders' equity

Total liabilities and stockholders’ equity

3 unchanged sentences

(unaudited, dollars in millions, except shares and per share data )

Thirteen Weeks Ended February 23, 2020 and February 24, 2019

Thirteen Weeks Ended August 30, 2020 and August 25, 2019

Common Stock,

3 unchanged sentences

Income (Loss)

Balance at November 24, 2019

Dividends declared, $ 0.2300 per share

Common stock issued

Stock-settled, stock-based compensation expense

Repurchase of common stock and common stock withheld to cover taxes

Comprehensive income (loss)

Balance at February 23, 2020

Balance at November 25, 2018

Increase in redemption value of noncontrolling interests in excess of earnings allocated

Balance at May 31, 2020

Dividends declared, $ 0.23 per share

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Stock-settled, stock-based compensation expense

Repurchase of common stock and common stock withheld to cover taxes

Common stock withheld to cover taxes

Comprehensive income

Balance at February 24, 2019

Thirty-Nine Weeks Ended February 23, 2020 and February 24, 2019

Common Stock,

net of Treasury

(Distributed)

Comprehensive

Income (Loss)

Balance at August 30, 2020

Balance at May 26, 2019

5 unchanged sentences

Comprehensive income (loss)

Balance at February 23, 2020

Balance at May 27, 2018

Adoption of ASC 606 revenue from contracts with customers

Increase in redemption value of noncontrolling interests in excess of earnings allocated

Dividends declared, $ 0.5825 per share

Common stock issued

Stock-settled, stock-based compensation expense

Repurchase of common stock and common stock withheld to cover taxes

Comprehensive income (loss)

Balance at February 24, 2019

Balance at August 25, 2019

See Condensed Notes to Consolidated Financial Statements

2 unchanged sentences

(unaudited, dollars in millions)

Thirty-Nine Weeks Ended

Thirteen Weeks Ended

Cash flows from operating activities

11 unchanged sentences

Cash flows from investing activities

Acquisition of business, net of cash acquired

Additions to property, plant and equipment

Additions to other long-term assets

Investment in equity method joint venture

Acquisition of business, net of cash acquired

Net cash used for investing activities

Cash flows from financing activities

Proceeds from issuance of debt

Repayments of debt and financing obligations

Repayments of short-term borrowings, net

Dividends paid

Repurchase of common stock and common stock withheld to cover taxes

Proceeds (payments) of short-term borrowings, net

Acquisition of noncontrolling interest

Cash distributions paid to noncontrolling interest

Repayments of debt and financing obligations

Proceeds from issuance of debt

Net cash used for financing activities

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See Condensed Notes to Consolidated Financial Statements.

Condensed Notes to Consolidated Financial Statements

Condensed Notes to Consolidated Financial Statement s

NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Lamb Weston Holdings, Inc.

(“we,” “us,” “our,” the “Company,” or “Lamb Weston”), along with its joint venture partners, is a leading global producer, distributor, and marketer of value-added frozen potato products and is headquartered in Eagle, Idaho.

(“we,” “us,” “our,” the “Company,” or “Lamb Weston”), along with our joint venture partners, 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:

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Basis of Presentation

The accompanying consolidated financial statements present the financial results of Lamb Weston for the thirteen and thirty-nine weeks ended February 23, 2020 and February 24, 2019, and have been prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States of America.

These financial statements are unaudited but include all adjustments (consisting only of normal recurring adjustments) that we consider necessary for a fair presentation of such financial statements.

The accompanying unaudited Consolidated Financial Statements present the financial results of Lamb Weston for the thirteen weeks ended August 30, 2020 and August 25, 2019, and have been prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States of America.

These financial statements include all adjustments that we consider necessary for a fair presentation of such financial statements and consist only of normal recurring adjustments.

The preparation of financial statements involves the use of estimates and accruals.

Actual results may vary from those estimates.

The inputs into our judgements and estimates consider the economic implications of COVID-19 on our critical and significant accounting estimates.

The actual results that we experience may differ materially from those estimates.

Results for interim periods should not be considered indicative of results for our full fiscal year, which ends the last Sunday in May.

These financial statements and condensed notes should be read together with the combined and consolidated financial statements and notes in our Annual Report on Form 10-K for the fiscal year ended May 26, 2019 (the “Form 10-K”), which we filed with the Securities and Exchange Commission on July 25, 2019.

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

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 based on products 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-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 vary 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.

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.

These financial statements and condensed notes should be read together with the consolidated financial statements and notes in our Annual Report on Form 10-K for the fiscal year ended May 31, 2020 (the “Form 10-K”), which we filed with the Securities and Exchange Commission on July 28, 2020.

New and Recently Issued Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) (“ASC 842”).

We adopted the provisions of the guidance effective May 27, 2019 (the beginning of our fiscal year), using the modified retrospective transition method and prior periods were not recast .

The adoption of the standard resulted in a $ 26.6 million ($ 20.5 million, net of tax) cumulative-effect adjustment to the opening balance of retained earnings for the elimination of $ 38.7 million of land and $ 65.3 million of finance lease obligations related to a sale leaseback.

The adoption also resulted in the recognition of approximately $ 155 million of operating lease assets and short-term and long-term operating lease obligations recorded on our consolidated balance sheet related to operating leases.

We elected to adopt certain of the optional practical expedients including electing to not reassess lease classification, initial direct costs of existing leases, or whether existing contracts contain a lease .

In addition, we elected to account for each contract’s lease and non-lease components as a single lease component .

The standard did not have a material impact on our results of operations or cash flows.

See Note 6, Leases, for more information.

Accounting Pronouncements Not Yet Adopted

Receivables – Credit Losses

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326):

In June 2016 , the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments .

This update amends the impairment or incurred model by requiring the use of forward-looking information to assess the allowance for doubtful accounts.

This guidance is effective in fiscal 2021 (beginning June 1, 2020), including interim periods, with early adoption permitted.

In May 2019, the FASB issued ASU 2019-05, Financial Instruments – Credit Losses (Topic 326):

Targeted Transition Relief .

This update provides targeted transition relief allowing for an irrevocable one-time election upon adoption of the new credit losses standard to measure financial assets previously measured at amortized cost using the fair value option.

This guidance is effective concurrent with the adoption of ASU 2016-13.

The adoption of this standard is not expected to have a significant impact on our financial statements.

Defined Benefit Plans

In August 2018, the FASB issued ASU 2018-14, Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic 715-20):

Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans .

This update removes disclosures that are no longer considered cost beneficial, clarifies the specific requirements of disclosures, and adds disclosure requirements identified as relevant to defined benefit pension and other postretirement plans.

This guidance is effective for our fiscal 2022 (beginning May 31, 2021) with early adoption permitted.

The adoption of this standard is not expected to have a significant impact on our financial statements.

This guidance replaces the existing incurred loss impairment model by requiring the use of forward-looking information to assess expected credit losses.

We adopted this guidance on June 1, 2020 (the beginning of fiscal 2021), and it did not to have a significant impact on our financial statements or condensed notes to consolidated financial statements.

Accounting Pronouncements Not Yet Adopted

Reference Rate Reform

In March 2020, the FASB issued 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 LIBOR.

In March 2020 , the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting .

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.

This guidance is effective immediately;

however, it is only available through December 31, 2022.

This guidance is effective immediately and generally can be applied through December 31, 2022 .

We are currently evaluating the potential impact of this standard on our financial statements.

Defined Benefit Plans

In August 2018 , the FASB issued ASU 2018-14, Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic 715-20):

Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans .

This update removes disclosures that are no longer considered cost beneficial, clarifies the specific requirements of

disclosures, and adds disclosure requirements identified as relevant to defined benefit pension and other postretirement plans.

This guidance is effective for our fiscal 2021.

The adoption of this standard is not expected to have a significant impact on our notes to 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.

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Thirteen Weeks Ended

Thirty-Nine Weeks Ended

Net income attributable to Lamb Weston Holdings, Inc.

Increase in redemption value of noncontrolling interests in excess of earnings allocated, net of tax benefits (a)

Net income available to Lamb Weston common stockholders

Basic weighted average common shares outstanding

Dilutive effect of employee incentive plans (b)

Dilutive effect of employee incentive plans (a)

Diluted weighted average common shares outstanding

Earnings per share (a)

(a) In November 2018, we entered into an agreement to acquire the remaining 50.01 % interest in Lamb Weston BSW, LLC (“Lamb Weston BSW”).

Our Consolidated Statements of Earnings includes 100 % of Lamb Weston BSW’s earnings beginning November 2, 2018.

During the thirty-nine weeks ended February 24, 2019, net income available to common stockholders and earnings per share included accretion expense, net of estimated tax benefits, of $ 10.0 million, or $ 0.07 per share, to increase the redeemable noncontrolling interest to the amount we agreed to pay to acquire the remaining interest in Lamb Weston BSW.

While the accretion, net of estimated tax benefits, reduced net income available to Lamb Weston common stockholders and earnings per share, it did not impact net income in the Consolidated Statements of Earnings.

The thirteen weeks ended February 24, 2019, included a $ 0.5 million, or $ 0.01 per share, decrease in tax benefits related to the agreement to acquire Lamb Weston BSW.

(b) Potentially 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 February 23, 2020 , an insignificant number of stock-based awards were excluded from the computation of diluted earnings per share because they would be antidilutive.

As of February 24, 2019 , we did not have any stock-based awards that were antidilutive.

Income tax expense was $ 35.7 million and $ 39.6 million for the thirteen weeks ended February 23, 2020 and February 24, 2019, respectively;

and $ 115.1 million and $ 107.9 million for the thirty-nine weeks ended February 23, 2020 and February 24, 2019, respectively.

The effective income tax rate (calculated as the ratio of income tax expense to pre-tax income, inclusive of equity method investment earnings) was 24.3 % and 21.9 % for the thirteen weeks ended February 23, 2020 and February 24, 2019, respectively;

and 23.8 % and 22.3 % for the thirty-nine weeks ended February 23, 2020 and February 24, 2019, respectively, in our Consolidated Statements of Earnings.

Earnings per share

(a) Potentially 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 August 30, 2020, and August 25, 2019, an insignificant number of stock-based awards were excluded from the computation of diluted earnings per share because they would be antidilutive.

Income tax expense was $ 28.0 million and $ 36.7 million for the thirteen weeks ended August 30, 2020 and August 25, 2019, respectively.

The effective income tax rate (calculated as the ratio of income tax expense to pre-tax income, inclusive of equity method investment earnings) was 23.9 % and 24.1 % for the thirteen weeks ended August 30, 2020 and August 25, 2019, respectively, in our Consolidated Statements of Earnings.

The effective tax rate varies from the U.S.

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Income Taxes Paid

Income taxes paid, net of refunds, were $ 81.2 million and $ 54.7 million during the thirty-nine weeks ended February 23, 2020 and February 24, 2019 , respectively.

Income tax refunds, net of taxes paid were $ 2.8 million during the thirteen weeks ended August 30, 2020.

Income taxes paid , net of refunds, were $ 1.5 million during the thirteen weeks ended August 25, 2019 .

Unrecognized Tax Benefits

There have been no material changes to the unrecognized tax benefits disclosed in Note 5, Income Taxes, of the Notes to Combined and Consolidated Financial Statements in "Part II, Item 8.

There have been no material changes to the unrecognized tax benefits disclosed in Note 3, Income Taxes, of the Notes to Consolidated Financial Statements in "Part II, Item 8.

Financial Statements and Supplementary Data"

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The components of property, plant and equipment were as follows (dollars in millions):

Land and land improvements (a)

Land and land improvements

Buildings, machinery, and equipment

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Property, plant and equipment, net

(a) Effective May 27, 2019, we adopted ASC 842 and we eliminated $ 38.7 million of land, related to a sale leaseback, as part of the cumulative-effect adjustment.

See Note 1, Nature of Operations and Summary of Significant Accounting Policies, for more information.

Depreciation expense was $ 44.2 million and $ 38.7 million for the thirteen weeks ended February 23, 2020 and February 24, 2019, respectively;

and $ 130.7 million and $ 112.4 million for the thirty-nine weeks ended February 23, 2020 and February 24, 2019, respectively.

At February 23, 2020 and May 26, 2019, purchases of property, plant and equipment included in accounts payable were $ 21.0 million and $ 27.1 million, respectively.

Interest capitalized within construction in progress for the thirteen weeks ended February 23, 2020 and February 24, 2019, was $ 0.7 million and $ 2.5 million, respectively;

and $ 1.9 million and $ 6.0 million for the thirty-nine weeks ended February 23, 2020 and February 24, 2019, respectively.

We lease various real estate, including certain operating facilities, warehouses, office space, and land.

We also lease material handling equipment, vehicles, and certain other equipment.

Our leases have remaining lease terms of one to 21 years .

Leases having a lease term of twelve months or less are not recorded on the balance sheet and the related lease expense is recognized as costs are incurred.

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.

Effective May 27, 2019, 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.

The components of total lease costs, net, consisted of the following (dollars in millions):

Thirteen Weeks Ended February 23, 2020 (a)

Operating lease costs

Short-term and variable lease costs

Sublease income

Amortization of lease assets

Interest on lease liabilities

Total lease costs, net

Thirty-Nine Weeks Ended February 23, 2020 (a)

Operating lease costs

Short-term and variable lease costs

Sublease income

Amortization of lease assets

Interest on lease liabilities

Total lease costs, net

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

Operating and finance leases, with terms greater than one year, were as follows (dollars in millions):

As of February 23, 2020

Operating lease assets

Property, plant and equipment, net (a)

Total leased assets

Lease liabilities due within one year:

Accrued liabilities

Current portion of long-term debt and financing obligations

Long-term lease liabilities:

Other noncurrent liabilities

Long-term debt and financing obligations, excluding current portion

Total lease liabilities

(a) Finance leases are net of accumulated amortization of $ 11.6 million.

The maturities of our lease liabilities for operating and finance leases at February 23, 2020 were as follows (dollars in millions):

2020 (remainder of year)

Total lease payments

Present value of lease liabilities

Weighted-average remaining lease term (years)

Weighted-average discount rate

(a) 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.

We use a collateralized rate and apply the rate based on the currency of the lease, which is updated quarterly for the measurement of new lease liabilities.

At May 26, 2019, minimum lease payments under non-cancellable leases with lease terms in excess of one year, and accounted for under the previous lease accounting standard, were as follows (dollars in millions):

Total lease payments

Discount to present value

Total lease liability

Current portion of financing obligations

Long-term financing obligations, excluding current portion

(a) Includes unamortized portion of a deferred gain related to a sale leaseback that was eliminated from the Consolidated Balance Sheet as part of the cumulative-effect adjustment at adoption of ASC 842.

See Note 1, Nature of Operations and Summary of Significant Accounting Policies, for more information.

Supplemental cash flow information related to leases was as follows (dollars in millions):

Thirty-Nine Weeks Ended February 23, 2020

Cash paid for amounts included in the measurement of lease liabilities:

Cash used for operating activities

Cash used for financing activities

Noncash investing and financing activities:

Assets obtained in exchange for new operating lease obligations

Assets obtained in exchange for new finance lease obligations

On July 2, 2019, we acquired 100 % of the outstanding shares of a frozen potato processor in Australia for $ 116.7 million in cash.

This added approximately 70 million pounds of production capacity to our manufacturing network.

Net sales, income from operations, and total assets from this acquisition are not material to our consolidated net sales, income from operations, and total assets.

Beginning in July 2019, operating results of this acquisition are included in our Global segment.

We allocated the purchase price to the assets acquired and liabilities assumed based on estimates of the fair value at the date of the acquisition, of which $ 106.1 million, after final working capital adjustments, was allocated to goodwill (which is not deductible for tax purposes) and $ 3.7 million was allocated to intangible assets (to be amortized on a straight-line basis over a weighted average life of 10 years ), primarily a brand name, all of which are included in the Global segment.

Our purchase price allocation is complete.

Depreciation expense was $ 44.9 million and $ 42.6 million for the thirteen weeks ended August 30, 2020 and August 25, 2019, respectively.

At August 30, 2020 and May 31, 2020, purchases of property, plant and equipment included in accounts payable were $ 6.2 million and $ 9.9 million, respectively.

Interest capitalized within construction in progress for both the thirteen weeks ended August 30, 2020 and August 25, 2019, was $ 0.5 million.

INVESTMENTS IN JOINT VENTURES

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(“Lamb-Weston/Meijer”), a joint venture with Meijer Frozen Foods B.V., which is headquartered in the Netherlands and manufactures and sells frozen potato products principally in Europe.

We also hold a 50 % interest in Lamb-Weston/RDO Frozen (“Lamb Weston RDO”), a potato processing venture based in the United States.

We hold a 50 % interest in Lamb-Weston/RDO Frozen (“Lamb Weston RDO”), a potato processing venture based in the United States.

We also hold a 50 % interest in Lamb Weston Alimentos Modernos S.A.

(“LWAMSA”), a joint venture with Sociedad Commercial del Plata, which is headquartered in Argentina.

This joint venture manufactures and sells frozen potato products principally in South America.

These investments are accounted for using equity method accounting.

On October 15, 2019, we acquired a 50 % ownership interest in Lamb Weston Alimentos Modernos S.A.

(“LWAMSA”), a joint venture with Sociedad Commercial del Plata, which is headquartered in Argentina, for $ 27.3 million.

During the thirty-nine weeks ended February 23, 2020, we paid $ 22.6 million and will pay the remaining $ 4.7 million, less any amounts for indemnified losses, in October 2024.

LWAMSA manufactures and sells frozen potato products principally in South America.

We account for the investment using equity method accounting.

The carrying value of our equity method investments, which includes Lamb-Weston/Meijer, Lamb Weston RDO, and LWAMSA at February 23, 2020 and May 26, 2019, was $ 253.4 million and $ 224.6 million, respectively, and are included in “Equity method investments” on our Consolidated Balance Sheets.

For the thirteen weeks ended February 23, 2020 and February 24, 2019, we had sales to our equity method investments of $ 8.6 million and $ 5.8 million and payments to our equity method investments of $ 1.9 million and $ 1.5 million, respectively;

and for the thirty-nine weeks ended February 23, 2020 and February 24, 2019, we had sales to our equity method investments of $ 25.1 million and $ 19.9 million and payments to our equity method investments of $ 7.9 million and $ 7.4 million, respectively.

Total dividends from our equity method investments were $ 10.9 million and $ 9.8 million for the thirteen weeks ended February 23, 2020 and February 24, 2019, respectively;

and $ 28.9 million and $ 35.4 million for the thirty-nine weeks ended February 23, 2020 and February 24, 2019, respectively.

The thirteen and thirty-nine weeks ended February 23, 2020, both include a $ 2.6 million loss related to the withdrawal from a multiemployer pension plan by Lamb Weston RDO.

During the thirteen weeks ended February 23, 2020, we entered into an agreement with Lamb-Weston/Meijer, effective as of December 31, 2018, to share the costs of a single, global enterprise resource planning (“ERP”) platform and related software and services.

Under the terms of the agreement, Lamb-Weston/Meijer will pay us in five equal annual payments, plus interest, beginning in the period the system is deployed at Lamb-Weston/Meijer.

In connection with this agreement, we recorded a $ 6.0 million receivable from Lamb-Weston/Meijer in “Other assets” on our Consolidated Balance Sheet as of February 23, 2020.

We expect the receivable to increase as development and implementation of the ERP progresses over the next year.

Variable Interest Entity - Consolidated

In November 2018, we entered into an agreement to acquire the remaining 50.01 % interest in Lamb Weston BSW.

Our Consolidated Statements of Earnings includes 100 % of Lamb Weston BSW’s earnings beginning November 2, 2018.

Prior to entering into the agreement, Lamb Weston BSW was considered a variable interest entity, and we determined that we were the primary beneficiary of the entity.

Accordingly, we consolidated the financial statements of Lamb Weston BSW and deducted 50.01 % of the operating results of the noncontrolling interests to arrive at “Net income attributable to Lamb Weston Holdings, Inc.” in our Consolidated Statements of Earnings.

Lamb Weston and Lamb Weston BSW purchase potatoes and utilize storage facilities and water treatment services from a shareholder of Ochoa, our former partner of the Lamb Weston BSW joint venture.

While we continue to purchase such goods and services, subsequent to November 2, 2018, the shareholder of Ochoa is no longer considered a related party.

For the period up to November 2, 2018, the aggregate amounts of potato purchases were $ 24.6 million for the thirty-nine weeks ended February 24, 2019.

The aggregate amount of storage facilities and water treatment service costs were $ 2.5 million for the thirty-nine weeks ended February 24, 2019.

The carrying value of our equity method investments, which includes Lamb-Weston/Meijer, Lamb Weston RDO, and LWAMSA at August 30, 2020 and May 31, 2020, was $ 275.0 million and $ 250.2 million, respectively, and are included in “Equity method investments” on our Consolidated Balance Sheets.

For the thirteen weeks ended August 30, 2020 and August 25, 2019, we had sales to our equity method investments of $ 3.0 million and $ 7.3 million, respectively, and payments to our equity method investments of $ 1.1 million and $ 3.2 million, respectively.

Total dividends from our equity method investments were $ 2.7 million and $ 10.2 million for the thirteen weeks ended August 30, 2020 and August 25, 2019, respectively.

We have an agreement to share the costs of our global enterprise resource planning (“ERP”) system and related software and services with Lamb-Weston/Meijer.

Under the terms of the agreement, Lamb-Weston/Meijer will pay us for the majority of their portion of the ERP costs in five equal annual payments, plus interest, beginning in the period the system is deployed at Lamb-Weston/Meijer.

As of August 30, 2020, Lamb-Weston/Meijer’s portion of the ERP costs totaled $ 15.7 million.

During fiscal 2021 and 2020, we received $ 2.0 million and $ 1.0 million from Lamb-Weston/Meijer, and we had $ 12.6 million and $ 12.0 million of receivables recorded on our Consolidated Balance Sheets as of August 30, 2020 and May 31, 2020.

Of the $ 12.6 million and $ 12.0 million of receivables, $ 0.3 and $ 1.8 million were recorded in “Receivables, net” and $ 12.3 million and $ 10.2 million were recorded in “Other assets,” respectively.

We expect the total receivable from Lamb-Weston/Meijer to increase as development and implementation of the ERP system progresses.

GOODWILL AND OTHER IDENTIFIABLE INTANGIBLE ASSETS

The following table presents changes in goodwill balances, by segment, during the thirty-nine weeks ended February 23, 2020 (dollars in millions):

The following table presents changes in goodwill balances, by segment, during the thirteen weeks ended August 30, 2020 (dollars in millions):

Balance at May 31, 2020

Acquisition (a)

Foreign currency translation adjustment

Balance at February 23, 2020

(a) In July 2019, we acquired a frozen potato processor in Australia and recorded $ 106.1 million of goodwill in our Global Segment.

See Note 7, Acquisition, for more information.

Balance at August 30, 2020

Other identifiable intangible assets were as follows (dollars in millions):

February 23, 2020

August 30, 2020

Non-amortizing intangible assets (a)

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(b) Amortizing intangible assets are principally composed of licensing agreements, brands, and customer relationships.

Amortization expense was $ 0.6 million and $ 0.5 million for the thirteen weeks ended February 23, 2020 and February 24, 2019, respectively;

and $ 1.9 million and $ 1.6 million for the thirty-nine weeks ended February 23, 2020 and February 24, 2019, respectively.

Amortization expense was $ 0.7 million and $ 0.5 million for the thirteen weeks ended August 30, 2020 and August 25, 2019, respectively.

Foreign intangible assets are affected by foreign currency translation.

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Accrued trade promotions

Dividends payable

Accrued interest

Current portion of operating lease liabilities (a)

Dividends payable to shareholders

Current portion of operating lease liabilities

Franchise, property, and sales and use taxes

1 unchanged sentence

Accrued liabilities

(a) Effective May 27, 2019, we adopted ASC 842, using the modified retrospective transition method and as a result we did not recast our prior period financial statements.

See Note 1, Nature of Operations and Summary of Significant Accounting Policies, for more information.

DEBT AND FINANCING OBLIGATIONS

At February 23, 2020 and May 26, 2019, our debt, including financing obligations was as follows (dollars in millions):

At August 30, 2020 and May 31, 2020, our debt, including financing obligations was as follows (dollars in millions):

Short-term borrowings:

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Term loan facility, due 2021

Term loan facility, due 2024

Term A-1 loan facility, due 2024

Term A-2 loan facility, due 2025

4.625 % senior notes, due 2024

4.875 % senior notes, due 2026

4.875 % senior notes, due 2028

Financing obligations:

4.35 % lease financing obligation due May 2030 (a)

Lease financing obligations due on various dates through 2040 (b)

Lease financing obligations due on various dates through 2040 (a)

Total debt and financing obligations

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Long-term debt and financing obligations, excluding current portion

(a) On May 27, 2019, we adopted ASC 842 and we eliminated this financing obligation, related to a sale leaseback, as part of the cumulative-effect transition adjustment.

See Note 1, Nature of Operations and Summary of Significant Accounting Policies, for more information.

(b) The interest rates on our lease financing obligations range from 2.51 % to 3.68 % as of February 23, 2020, and 2.72 % to 4.33 % as of May 26, 2019.

Credit Facilities

At February 23, 2020, we had no borrowings outstanding under our Revolving Credit Facility (the “Facility”) and $ 495.1 million of availability under the Facility, which is net of outstanding letters of credit of $ 4.9 million.

For the thirty-nine weeks ended February 23, 2020, borrowings under the Facility ranged from zero to $ 97.9 million and the weighted average interest rate for our outstanding borrowings under the Facility was 3.62 %.

During the latter part of March 2020, we borrowed $ 495 million on the Facility to increase our cash position as a precautionary measure in order to preserve financial flexibility considering the uncertainty in the global markets resulting from the COVID-19 pandemic.

The borrowings may be used for general corporate purposes.

The material terms of the Facility are described in Note 9, Debt and Financing Obligations, of the Notes to Combined and Consolidated Financial Statements in “Part II, Item 8.

Financial Statements and Supplementary Data” of the Form 10-K.

Borrowings under the Facility bear interest at a floating rate per annum based upon the Base Rate or the Eurocurrency rate, in each case, plus an applicable margin which varies based upon our consolidated net leverage ratio.

Margins range from 0.500 % to 1.250 % for Base Rate loans and from 1.500 % to 2.250 % for Eurocurrency rate loans.

The Base Rate is defined as the highest of (a) Bank of America’s prime rate, (b) the federal funds rate plus 0.500 %, and (c) the Eurocurrency rate with a term of one month plus 1.0 %.

The Facility matures on November 9, 2021 .

New Term Loan Facility

On June 28, 2019, we amended our credit agreement to refinance $ 300.0 million of the $ 599.1 million term loan facility outstanding at May 26, 2019 and entered into a new credit agreement providing for a $ 300.0 million term loan facility (“New Term Loan Agreement”), for a lower overall interest rate, including anticipated patronage dividends.

The New Term Loan Agreement bears interest, before anticipated patronage dividends, at LIBOR or the Base Rate (each as defined in the New Term Loan Agreement) plus an applicable margin ranging from 1.625 % to 2.375 % for LIBOR-based loans and from 0.625 % to 1.375 % for Base Rate-based loans, depending upon our total net leverage ratio.

The borrowings under the New Term Loan Agreement mature June 28, 2024, and the covenants, events of default, and guarantees are consistent with the Facility.

The New Term Loan Agreement also provides for the ability, under certain circumstances, to add incremental facilities in an aggregate amount of up to $ 100.0 million.

In connection with the refinancing, we capitalized $ 1.0 million of debt issuance costs.

During the thirty-nine weeks ended February 23, 2020, we recorded $ 1.7 million of expenses, in “Interest expense, net” for the write-off of debt issuance costs related to the portion of the Term loan facility due in 2021, that was paid in full.

For the thirty-nine weeks ended February 23, 2020 and February 24, 2019, we paid $ 58.0 million and $ 60.7 million of interest on debt, respectively.

(a) The interest rates on our lease financing obligations range from 2.31 % to 4.10 % at both August 30, 2020 and May 31, 2020.

Revolving Credit Facility

At August 30, 2020, we had no borrowings outstanding under our revolving credit facility and $ 495.1 million of availability under the facility, which is net of outstanding letters of credit of $ 4.9 million.

For the thirteen weeks ended August 30, 2020, borrowings under the facility ranged from zero to $ 495.0 million and the weighted average interest rate for our outstanding borrowings under the facility was 1.68 %.

We paid $ 5.7 million of interest on debt for both the thirteen weeks ended August 30, 2020 and August 25, 2019.

On September 17, 2020, we amended our credit agreement, dated as of November 9, 2016, relating to our existing revolving credit facility discussed above (“Amended Revolving Credit Facility”).

The Amended Revolving Credit Facility, among other things, increases the aggregate principal amount to $ 750.0 million and extends the maturity date to September 17, 2023 .

In addition, we may add incremental term loan facilities, increase commitments and/or add new revolving commitments in an aggregate principal amount not to exceed the sum of (A) the greater of $ 600.0 million or 75 % of our Consolidated EBITDA (as defined in the Amended Revolving Credit Facility) and (B) an amount based on our consolidated net leverage ratio.

Borrowings under the Amended Revolving Credit Facility bear interest at LIBOR or the Base Rate (each as defined in the Amended Revolving Credit Facility) plus an applicable rate ranging from 1.25 % to 2.25 % for LIBOR-based loans and from 0.25 % to 1.25 % for Base Rate-based loans, depending upon our consolidated net leverage ratio.

In addition to paying interest, we will pay an annual commitment fee for undrawn amounts at a rate of 0.20 % to 0.40 %, depending on our consolidated net leverage ratio.

The Amended Revolving Credit Facility requires us to maintain a consolidated net leverage ratio no greater than 5.25 to 1.00, decreasing ratably to 4.50 to 1.00 on February 26, 2022 through maturity;

and an interest coverage ratio no less than 2.75 to 1.00.

In connection with the Amended Revolving Credit Facility, we repaid the outstanding $ 271.9 million term loan facility due in November 2021 with cash on hand.

As of our fiscal month ended September 27, 2020, no borrowings were outstanding under the Amended Revolving Credit Facility.

Term A-1 and A-2 Loan Facilities

On September 23, 2020, in connection with the Amended Revolving Credit Facility, we amended the credit agreement, dated as of June 28, 2019, relating to our Term A-1 and A-2 Loan Facilities (“Term Loan Facilities”), to, among other things, modify the Term Loan Facilities to make conforming changes to the affirmative and negative covenants under the Term Loan Facilities.

The financial covenants under the Term Loan Facilities remain unchanged, requiring a consolidated net leverage ratio no greater than 4.50 to 1.00 and an interest coverage ratio no less than 2.75 to 1.00 .

STOCK-BASED COMPENSATION

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The Committee, in its discretion, authorizes grants of restricted stock units (“RSUs”), performance awards payable upon the attainment of specified performance goals (“Performance Shares”), dividend equivalents, and other stock-based awards.

During the thirty-nine weeks ended February 23, 2020, we granted 0.2 million and 0.1 million RSUs and Performance Shares, respectively, at an average grant date fair value of $ 68.47 .

As of February 23, 2020, 7.6 million shares were available for future grant under the plan.

During the thirteen weeks ended August 30, 2020, we granted 0.2 million RSUs at an average grant date fair value of $ 59.45 .

As of August 30, 2020, 7.4 million shares were available for future grant under the plan.

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

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

Stock-settled RSUs

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Total compensation expense, net of tax benefit

(a) All cash-settled RSUs are marked-to-market and presented within “Accrued liabilities” and “Other noncurrent liabilities” on our Consolidated Balance Sheets.

(a) All cash-settled RSUs are marked-to-market and presented within “Accrued liabilities” on our Consolidated Balance Sheets.

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

Based on estimates at February 23, 2020, total unrecognized compensation expense related to stock-based awards was as follows (dollars in millions):

Based on estimates at August 30, 2020, total unrecognized compensation expense related to stock-based awards was as follows (dollars in millions):

Period (in years)

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FAIR VALUE MEASUREMENTS

For information about our fair value policies, methods and assumptions used in estimating the fair value of our financial assets and liabilities, see Note 1, Nature of Operations and Summary of Significant Accounting Policies and Note 12, Fair Value Measurements, of the Notes to Combined and Consolidated Financial Statements in "Part II, Item 8.

For information about our fair value policies, methods and assumptions used in estimating the fair value of our financial assets and liabilities, see Note 1, Nature of Operations and Summary of Significant Accounting Policies and Note 12, Fair Value Measurements, of the Notes to Consolidated Financial Statements in "Part II, Item 8.

Financial Statements and Supplementary Data"

of the Form 10-K.

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

The following table presents our financial assets and liabilities measured at fair value on a recurring basis based upon the level within the fair value hierarchy in which the fair value measurements fall (dollars in millions):

As of February 23, 2020

As of August 30, 2020

Deferred compensation assets

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Deferred compensation assets

Derivative assets (a)

Derivative liabilities (a)

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Cost and equity investments are measured at fair value on a non-recurring basis.

At February 23, 2020, we had $ 1,666.0 million of fixed-rate and $ 594.8 million of variable-rate debt outstanding.

Based on current market rates, the fair value of our fixed-rate debt at February 23, 2020, was estimated to be $ 1,754.0 million.

At August 30, 2020, we had $ 2,166.0 million of fixed-rate and $ 882.6 million of variable-rate debt outstanding.

Based on current market rates, the fair value of our fixed-rate debt at August 30, 2020, was estimated to be $ 2,297.5 million.

Any differences between the book value and fair value are due to the difference between the period-end market interest rate and the stated rate of our fixed-rate debt.

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In December 2018, our Board of Directors authorized a program, with no expiration date, to repurchase shares of our common stock in an amount not to exceed $ 250.0 million in the aggregate, on an opportunistic basis.

During the thirteen weeks ended February 23, 2020, we repurchased 102,039 shares for $ 9.4 million, or a weighted-average price of $ 92.18 per share;

and during the thirty-nine weeks ended February 23, 2020, we purchased 287,239 shares for $ 22.9 million, or a weighted-average price of $ 79.56 per share.

As of February 23, 2020, $ 195.3 million remained authorized for repurchase under the program.

During the thirty-nine weeks ended February 23, 2020, we paid $ 87.7 million of dividends to common stockholders.

On February 28, 2020, we paid $ 33.6 million of dividends to stockholders of record as of the close of business on January 31, 2020.

On March 19, 2020 , our Board of Directors declared a dividend of $ 0.23 per share of common stock.

The dividend will be paid on June 5, 2020 , to stockholders of record as of the close of business on May 8, 2020 .

During the thirteen weeks ended August 30, 2020, we did not repurchase any shares.

As of August 30, 2020, $ 195.3 million remained authorized for repurchase under the program.

During the thirteen weeks ended August 30, 2020, we paid $ 33.6 million of dividends to common stockholders.

On September 4, 2020, we paid $ 33.7 million of dividends to stockholders of record as of the close of business on August 7, 2020.

On September 24, 2020 , our Board of Directors declared a dividend of $ 0.23 per share of common stock.

The dividend will be paid on December 4, 2020 , to stockholders of record as of the close of business on November 6, 2020 .

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

Changes in AOCI, net of taxes, as of February 23, 2020 were as follows (dollars in millions).

Changes in AOCI, net of taxes, as of August 30, 2020 were as follows (dollars in millions).

Post-Retirement

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Net current-period other comprehensive income (loss)

Balance as of February 23, 2020

Actuarial losses on pension and post-retirement benefits, net of tax, included in AOCI to be amortized over the next 12 months is a net loss of $ 0.7 million ($ 0.5 million after-tax).

Balance as of August 30, 2020

(a) Actuarial losses on pension and post-retirement benefits included in AOCI to be amortized over the next 12 months is a net loss of $ 0.3 million ($ 0.2 million after tax).

We have four operating segments, each of which is a reportable segment:

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Thirteen Weeks Ended

Thirty-Nine Weeks Ended

(in millions)

Total net sales

Product contribution margin (a)

Advertising and promotion expenses (a)

Product contribution margin (b)

Advertising and promotion expenses (b)

Selling, general and administrative expenses

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Income tax expense

Equity method investment earnings (c)

Income attributable to noncontrolling interests (d)

Net income attributable to Lamb Weston Holdings, Inc.

(a) Product contribution margin represents net sales less cost of sales and advertising and promotion expenses.

Equity method investment earnings

(a) On March 11, 2020, the World Health Organization declared the spread of COVID-19 a global pandemic.

In an attempt to minimize the transmission of COVID-19, significant social and economic restrictions, including restrictions on dine-in purchases and the imposition of stay-at-home orders, were imposed in the United States and in our international markets.

These restrictions had a negative impact on our sales, costs, earnings of our joint ventures, and therefore our net income.

The increase in our costs, and the costs of our joint ventures, related to factory utilization and production inefficiencies, manufacturing and operational disruptions directly attributable to the pandemic, as well as incremental warehousing and transportation costs, and costs to enhance employee safety measures, including purchases of safety and health screening equipment, retaining sales employees, and expensing certain capitalized manufacturing facility expansion projects that were stopped.

(b) Product contribution margin represents net sales less cost of sales and advertising and promotion expenses.

Product contribution margin includes advertising and promotion expenses because the amounts are directly associated with segment performance;

it excludes general corporate expenses and interest expense because management believes these amounts are not directly associated with segment performance.

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

(c) The thirteen and thirty-nine weeks ended February 23, 2020, both include a $ 2.6 million loss related to the withdrawal from a multiemployer pension plan by Lamb Weston RDO.

(d) In November 2018, we entered into an agreement to acquire the remaining 50.01 % interest in Lamb Weston BSW.

Our Consolidated Statements of Earnings includes 100 % of Lamb Weston BSW’s earnings beginning November 2, 2018.

Lamb Weston’s largest customer, McDonald’s Corporation, accounted for approximately 10 %of consolidated “Net sales” in all periods presented in Consolidated Statements of Earnings.

No customer accounted for more than 10% of our consolidated accounts receivable as of February 23, 2020 or May 26, 2019.

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

Lamb Weston’s largest customer, McDonald’s Corporation, accounted for approximately 11 %and 10 % of consolidated “Net sales” for the thirteen weeks ended August 30, 2020 and August 25, 2019, respectively.

No customer accounted for more than 10% of our consolidated accounts receivable as of August 30, 2020 or May 31, 2020.

COMMITMENTS, CONTINGENCIES, GUARANTEES AND LEGAL PROCEEDINGS

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These include long-term debt, lease obligations, purchase commitments for goods and services, and legal proceedings.

There have been no material changes to the guarantees and indemnifications disclosed in Note 16, Commitments, Contingencies, Guarantees, and Legal Proceedings, of the Notes to Combined and Consolidated Financial Statements in “Part II, Item 8.

There have been no material changes to the guarantees and indemnifications disclosed in Note 15, Commitments, Contingencies, Guarantees, and Legal Proceedings, of the Notes to Consolidated Financial Statements in “Part II, Item 8.

Financial Statements and Supplementary Data” of the Form 10-K.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements