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Item 2. Management’s Discussion and Analysis

2020-10-07 compared with 2020-04-01 · 141 added, 247 removed, 97 unchanged (80% of the section changed)

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This report, including Management's Discussion and Analysis of Financial Condition and Results of Operations, which we refer to as “MD&A,” contains forward-looking statements within the meaning of the federal securities laws.

Words such as “will,” “continue,” “may,” “expect,” “anticipate,” “should,” “believe,” “estimate,” “grow,” “drive,” “invest,” “support,” “improve,” “impact,” “remain,” “outlook,” and variations of such words and similar expressions are intended to identify forward-looking statements.

Examples of forward-looking statements include, but are not limited to, statements regarding our plans, capital investments, dividends, share repurchases, financings, business outlook and prospects, and remediation of the material weakness in internal control.

Words such as “will,” “continue,” “may,” “expect,” “anticipate,” “believe,” “estimate,” “support,” “impact,” “remain,” “outlook,” and variations of such words and similar expressions are intended to identify forward-looking statements.

Examples of forward-looking statements include, but are not limited to, statements regarding our plans, execution, liquidity, dividends, share repurchases, capital expenditures, operational costs, ERP implementation and business outlook and prospects, as well as the impact of the COVID-19 pandemic on the industry and consumer demand.

These forward-looking statements are based on management’s current expectations and are subject to uncertainties and changes in circumstances.

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These risks and uncertainties include, among other things:

impacts on our business due to health pandemics or other contagious outbreaks, such as the current COVID-19 pandemic, including impacts on demand for our products, increased costs, disruption of supply or other constraints in the availability of key commodities and other necessary services;

our ability to successfully execute our long-term value creation strategies;

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disruption of our access to export mechanisms;

risks associated with possible acquisitions, including our ability to complete acquisitions or integrate acquired businesses;

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our ability to pay regular quarterly cash dividends and the amounts and timing of any future dividends;

our ability to remediate the material weakness in internal control;

and other risks described in our reports filed from time to time with the U.S.

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(“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.

We 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, are the number one supplier of value-added frozen potato products in North America and 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.

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Management’s discussion and analysis of our results of operations and financial condition is provided as a supplement to the consolidated financial statements and related condensed notes included elsewhere herein 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 United States (“U.S.”) generally accepted accounting principles (“GAAP”) and certain other financial data (EBITDA, Adjusted EBITDA including unconsolidated joint ventures and Adjusted Diluted EPS) that is prepared using non-GAAP measures.

Refer to “Reconciliations of Non-GAAP Financial Measures to Reported Amounts” below for the definitions of EBITDA, Adjusted EBITDA including unconsolidated joint ventures and Adjusted Diluted EPS, and a reconciliation of these non-GAAP financial measures to net income or diluted earnings per share.

Our MD&A is based on financial data derived from the financial statements prepared in accordance with United States (“U.S.”) generally accepted accounting principles (“GAAP”) and certain other financial data (EBITDA and EBITDA including unconsolidated joint ventures) that is prepared using non-GAAP measures.

Refer to “Reconciliations of Non-GAAP Financial Measures to Reported Amounts” below for the definitions of EBITDA and EBITDA including unconsolidated joint ventures, and a reconciliation of these non-GAAP financial measures to net income.

Executive Summary

Lamb Weston’s financial performance in the third quarter of fiscal 2020 was mixed.

While we delivered solid sales growth in our Foodservice and Retail segments, sales in our Global segment declined due to the timing of sales of customized products (products manufactured to a customer’s unique specifications) and higher-margin limited time offering products, as well as the initial effects of the COVID-19 pandemic on restaurant traffic in China.

Higher manufacturing costs due to input and fixed cost inflation also pressured profitability.

Compared with the third quarter of fiscal 2019:

● Net sales increased 1% to $937.3 million

On March 11, 2020 (during the fourth quarter of fiscal 2020), the World Health Organization declared that the spread of COVID-19 qualified as a global pandemic.

Throughout this pandemic, our primary focus and attention has remained directed towards the health and well-being of our employees, and we have taken numerous steps to keep our employees safe, including implementing enhanced sanitation protocols and preventative screenings at all our manufacturing facilities, providing masks and requiring social distancing for employees across all our facilities, providing benefits that help support our employees and their families, and implementing remote work arrangements for functional support areas to comply with shelter-in-place orders and federal and local government recommendations.

If an employee at one of our manufacturing facilities tests positive for COVID-19, we have developed plans to temporarily close the area where the employee works in order to sanitize and disinfect the facility before allowing employees to return to the facility and restart operations.

Lamb Weston’s financial performance in the first quarter of fiscal 2021 reflects the effect on frozen potato demand and restaurant traffic following the significant government-imposed social and economic restrictions to control the spread of COVID-19.

While demand trends have improved in each of our U.S.

sales channels since the end of fiscal 2020, demand for our products remain below pre-pandemic levels.

As a result, our sales and earnings in the fiscal first quarter declined as compared to the first quarter of fiscal 2020.

Specifically:

● Net sales declined 12% to $871.5 million

● Income from operations declined 20% to $135.7 million

● Net income attributable to Lamb Weston declined 21% to $111.4 million

● Diluted earnings per share declined 20% to $0.76, while Adjusted Diluted EPS declined 19% to $0.77

● Adjusted EBITDA including unconsolidated joint ventures declined 10%, to $227.7 million

In the first three quarters of fiscal 2020, our net cash provided by operating activities declined 2% to $435.7 million relative to the first three quarters of fiscal 2019.

We also returned $110.6 million of cash to shareholders through dividends and share repurchases.

Comparing performance with the third quarter of fiscal 2019, price/mix increased, largely due to higher prices and improved mix in our Foodservice segment.

Our volume was flat as growth in the Foodservice segment was partially offset by a decline in our Global segment’s volume, primarily due to timing of sales of customized products and higher-margin limited time offering products, as well as the initial effects of the COVID-19 pandemic on restaurant traffic in China.

In addition, the sales benefit from acquisitions was largely offset by the effect of fewer shipping days in the quarter, compared with the prior year period, related to the timing of the Thanksgiving holiday.

Income from operations declined, largely due to input and fixed cost inflation;

costs resulting from COVID-19 related production interruptions in China;

an unfavorable change in unrealized commodity mark-to-market adjustments associated with commodity hedging contracts;

higher transportation costs;

unfavorable customer mix;

higher depreciation expense;

and higher selling, general and administrative expenses.

While the impact of the COVID-19 pandemic on global consumer demand for frozen potato products through our fiscal third quarter was limited, the pandemic’s effect on our business and financial results is uncertain for the remainder of fiscal 2020.

We are closely monitoring the global french fry industry, including consumer reaction and demand.

To date, we have observed the following impacts:

● In China, after the government placed severe social and movement restrictions that significantly reduced restaurant traffic, french fry demand declined approximately 50 percent for approximately a one-month period.

As restrictions were gradually relaxed, volume began to increase to approximately 70 percent of pre-pandemic demand.

● In other key markets in Asia, such as Japan, South Korea, Taiwan and Singapore, there has been a modest impact on french fry demand.

While our sales in these markets are consistent with these trends, we are closely monitoring the situation.

● In the U.S., because efforts to contain the pandemic are fluid, we believe it is too early to determine the ultimate impact on demand.

Usually in the U.S., approximately 65 percent of all french fries are purchased at quick service restaurants (“QSRs”), with another approximately 20 percent purchased at full-service restaurants.

The remaining approximately 15 percent of french fries are purchased at retail locations.

Of the french fries purchased at QSRs, approximately two-thirds are purchased by consumers through drive-thru, carry-out or delivery options, with the remaining one-third consumed while dining in at restaurants.

As social and movement restrictions become more severe, including state and local governments temporarily closing or partially closing restaurants and other foodservice operations, we are experiencing lower sales orders.

We expect consumer traffic at full-service restaurants and operations in the U.S.

to decrease significantly more than at QSRs.

While many full-service restaurants and operations have taken or will take steps to increase take-out and delivery sales, we expect these steps will only offset a fraction of the lost business.

Accordingly, we believe our sales to these types of customers, which represent approximately 80% of our Foodservice segment’s customers, will be more significantly impacted.

In contrast, retail demand for frozen french fries has significantly increased as food-at-home consumption has risen with the adoption of social distancing policies and government imposed sheltering at home restrictions.

We have taken steps to increase production of our retail products in order to meet the increased demand for these products.

● In Europe, which is served by our Lamb-Weston/Meijer joint venture, a high percentage of our sales are to QSRs.

Unlike the U.S., most consumption in Europe is dine-in or carry-out as drive-thru options are more limited.

As a result, we expect the COVID-19 pandemic will have a greater impact on french fry demand in Europe than in the U.S., which will negatively impact Lamb-Weston/Meijer’s results, and ultimately, our equity method investment earnings.

● In response to the decline in consumer and customer demand related to the COVID-19 pandemic, we are adjusting our production schedules, including shifting capacity to produce more retail product, as well as temporarily reducing production, as appropriate.

As discussed above, the government-imposed severe social and business restrictions, including closing or partially closing restaurants and other foodservice operations, are decreasing the demand for our products.

The outlook for the spread and eventual containment of the COVID-19 pandemic remains unpredictable, as does its potential impact on the global economy, restaurant traffic, customer and consumer demand, our supply chain, and availability of key commodities and other necessary services.

● Net income declined 23% to $89.3 million

● Diluted earnings per share declined 23% to $0.61

● EBITDA including unconsolidated joint ventures declined 13%, to $201.8 million

● Income from operations and EBITDA including unconsolidated joint ventures included approximately $20 million and $21 million of net costs, respectively, related to the pandemic’s impact on our operations, as described below

In the first quarter of fiscal 2021, our net cash provided by operating activities was $250.6 million, up 5% as compared to the first quarter of fiscal 2020.

We also paid $33.6 million of cash dividends to shareholders.

As compared to the first quarter of fiscal 2020, price/mix increased, largely due to higher prices and improved mix in our Foodservice and Retail segments, while our volume declined as demand for frozen potato products outside the home fell following government-imposed restrictions on restaurants and other foodservice operations to slow the spread of COVID-19.

Income from operations declined due to lower sales as well as approximately $20 million of costs, net of employee retention credits provided by the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) and other labor incentives, related to the pandemic’s impact on operations, which included:

● Approximately $6 million of factory utilization-related production costs and inefficiencies, such as labor retention costs;

costs to shut down, sanitize, and restart manufacturing facilities after a production employee was infected by the virus;

costs arising from modifying production schedules and reducing run-times;

and additional costs and inefficiencies related to manufacturing retail products on lines primarily designed for foodservice products;

● Approximately $10 million of non-utilization-related costs, of which approximately $3 million relates to expensing the remaining crop year 2019 contracts for raw potatoes that could not be used due to the pandemic’s near-term effect on demand, and approximately $7 million of expense for enhanced employee safety and sanitation protocols as well as incremental warehousing, transportation and other supply chain costs;

● Approximately $4 million of selling, general and administrative expenses (“SG&A”), largely comprised of costs to retain certain sales employees, net of CARES Act retention credits and other labor incentives.

The amount of COVID-19 related costs sequentially decreased from fourth quarter of fiscal 2020, however, we expect that we will continue to incur some of these costs until the pandemic no longer has an impact on our manufacturing, supply chain, commercial and functional support operations.

We expect that we will continue to realize the impact of the pandemic on the U.S.

and global economies, global consumer demand for frozen potato products, and on our business and financial results for the remainder of fiscal 2021.

While the impact is uncertain, we continue to closely monitor the global french fry industry, including consumer reaction and demand.

During the first quarter, we observed the following:

● In the U.S., overall restaurant traffic and demand for frozen potato products steadily improved early in the quarter, then largely stabilized at below pre-pandemic levels during the latter half of our first quarter.

Traffic at large, quick service chain restaurants (“QSRs”) approached prior-year levels by leveraging drive-thru and delivery formats.

Full-service restaurant traffic recovered to 70% to 80% of prior-year levels by the end of the quarter, aided by the relaxing of government-imposed restrictions for on-premise dining, as well as increased carry-out and delivery.

Demand by our non-commercial customers (i.e., lodging and hospitality, healthcare, schools and universities, sports and entertainment, and workplace environments) was significantly below prior-year levels.

We continue to expect traffic and demand at full-service restaurants and non-commercial operations to be more vulnerable than at QSRs, especially as options for outdoor dining become more limited with the onset of colder weather beginning in our second quarter.

In contrast, demand for retail frozen potato products significantly increased along with overall food-at-home consumption with the adoption of social distancing policies and government-imposed shelter-in-place restrictions.

Retail demand growth peaked early in the quarter, and steadily moderated as the quarter progressed.

● In Europe, which is served by our Lamb-Weston/Meijer joint venture, demand for frozen potato products steadily approached prior-year levels by the end of the quarter, although demand at this time last year was tempered due to a poor potato crop.

Since most consumption in Europe is dine-in or carry-out as QSR drive-thru options are more limited, we anticipate that demand may be tempered as options for outdoor dining decline with the onset of colder weather beginning in our second quarter.

● Demand improvement in our other key international markets was mixed.

In China and Australia, demand for frozen potato products steadily improved and was approaching prior-year levels by the end of the quarter.

In our other key markets, which are primarily in Asia and Latin America, the improvement in restaurant traffic and demand for frozen potato products has been uneven as governments employ differing approaches to contain the spread of COVID-19.

In response to the decline in consumer and customer demand related to the pandemic, we have taken actions, and will continue to evaluate various options, to lower our cost structure and maximize the efficiency of our manufacturing and commercial operations, including temporarily closing facilities and/or modifying production schedules to rebalance utilization rates across our manufacturing network.

As discussed above, the government-imposed severe social and business restrictions, including closing or partially closing restaurants and other foodservice operations, have decreased the demand for our products.

The outlook for the spread and eventual containment of COVID-19 remains unpredictable, as does its potential impact on the global economy, restaurant traffic, customer and consumer demand, our supply chain, and availability of key commodities and other necessary services.

During these uncertain times, our top priorities are to ensure the health and welfare of our employees, maintain product safety, and continue to support our customers as they work to manage their supply chains and inventories.

While the near-term impact of the COVID-19 pandemic on consumer demand and sales volume is likely to be material, we believe we have sufficient liquidity to manage through the uncertainty.

See the Liquidity and Capital Resources section of this Management’s Discussion and Analysis for more information.

While the near-term impact of the pandemic on consumer demand and sales volume is likely to be material, we believe we have sufficient liquidity to manage through the uncertainty.

See “Liquidity and Capital Resources” in this MD&A for more information.

Operating Results

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We report product contribution margin by segment.

Product contribution margin is the primary measure reported to our chief operating decision maker for purposes of allocating resources to our segments and assessing their performance.

Product contribution margin is the primary measure 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.

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Financial Statements” of this report.

Thirteen Weeks Ended February 23, 2020 compared to Thirteen Weeks Ended February 24, 2019 (dollars in millions)

Thirteen Weeks Ended August 30, 2020 compared to Thirteen Weeks Ended August 25, 2019 (dollars in millions)

Net Sales and Product Contribution Margin

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Advertising and promotion expenses

Lamb Weston’s net sales for the third quarter of fiscal 2020 were $937.3 million, an increase of $10.5 million, or 1%, compared to the third quarter of fiscal 2019.

Price/mix increased 1% due to pricing actions, partially offset by unfavorable mix.

Volume was flat as growth in the Foodservice segment was partially offset by a decline in our Global segment’s volume, which was primarily due to timing of sales of customized products and higher-margin limited time offering products, as well as the initial effects of the COVID-19 pandemic on restaurant traffic in China.

In addition, acquisitions contributed more than 1 percentage point of the volume increase, which was largely offset by an approximate 1 percentage point decline from the effect of fewer shipping days, compared with the prior year period, related to the timing of the Thanksgiving holiday.

Global segment net sales decreased $11.1 million, or 2%, to $487.1 million, compared with $498.2 million in the third quarter of fiscal 2019.

Volume decreased 1%, primarily due to higher sales of customized products and higher-margin limited time offering products in the prior year period, as well as the initial effects of the COVID-19 pandemic on restaurant traffic in China.

The 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.

In addition, acquisitions contributed approximately 2 percentage points of volume growth, which was partially offset by an approximate 1 percentage point decline from the effect of fewer shipping days related to the timing of the Thanksgiving holiday.

Price/mix decreased 1%, largely due to unfavorable mix resulting from lower sales of customized products and limited time offering products versus the prior year period, customer mix in North America, and a higher proportion of growth in international sales volumes.

Foodservice segment net sales increased $17.5 million, or 7%, to $283.0 million, compared with $265.5 million in the third quarter of fiscal 2019.

Price/mix increased 4%, primarily reflecting pricing actions initiated in the fall of 2019, and improved mix.

Volume increased 3%, led by growth in distributor private label and Lamb Weston branded products, partially offset by a more than 2 percentage point impact from the effect of fewer shipping days related to the timing of the Thanksgiving holiday.

Retail segment net sales increased $3.2 million, or 2%, to $132.2 million, compared with $129.0 million in the third quarter of fiscal 2019.

Price/mix increased 2%, largely driven by favorable mix.

Volume was flat as higher sales of Grown in Idaho and other branded products were offset by lower sales of private label products, as well as an approximate 2 percentage point impact from the effect of fewer shipping days related to the timing of the Thanksgiving holiday.

Net sales in our Other segment increased $0.9 million, or 3%, to $35.0 million, compared with $34.1 million in the third quarter of fiscal 2019, largely due to higher volumes in our vegetable business, partially offset by lower price/mix.

Product Contribution Margin

Lamb Weston’s product contribution margin for the third quarter of fiscal 2020 was $243.8 million, a decline of $20.7 million, or 8%, compared to the third quarter of fiscal 2019.

Global segment product contribution margin decreased $19.5 million, or 15%, to $109.3 million in the third quarter of fiscal 2020, driven by higher manufacturing costs, lower sales volumes and unfavorable customer mix.

Global segment cost of sales was $375.6 million, up 2% compared to the third quarter of fiscal 2019, primarily due to higher input (primarily edible oils) and fixed cost (primarily insurance-rate and medical costs) inflation;

higher transportation costs;

costs resulting from COVID-19 related to production interruptions in China;

and higher depreciation expense primarily associated with the new Hermiston production line.

Foodservice segment product contribution margin increased $5.0 million, or 5%, to $99.8 million in the third quarter of fiscal 2020, driven by favorable price/mix and volume growth.

Cost of sales was $181.0 million, up 7% compared to the third quarter of fiscal 2019, due to higher sales volumes;

input and fixed cost inflation (primarily edible oils, insurance-rate, and medical cost increases);

higher transportation costs;

and higher depreciation expense primarily associated with the new Hermiston production line.

Retail segment product contribution margin decreased $0.3 million, or 1%, to $28.8 million, largely due to higher manufacturing costs more than offsetting favorable price/mix and lower advertising and promotional expenses.

Cost of sales was $101.2 million, up 7% compared to the third quarter of fiscal 2019, primarily due to input and fixed cost inflation (primarily edible oils, insurance-rate and medical cost increases);

higher transportation costs;

and higher depreciation expense primarily associated with the new Hermiston production line.

Advertising and promotion spending decreased $2.8 million to $2.2 million in the third quarter of fiscal 2020 as compared to the third quarter of fiscal 2019, reflecting the timing of marketing investments in support of Grown in Idaho , Alexia and other branded products.

Other segment product contribution margin was $5.9 million, a decrease of $5.9 million as compared with $11.8 million in the third quarter of fiscal 2019.

These amounts include a $0.7 million loss related to unrealized mark-to-market adjustments and realized settlements associated with commodity hedging contracts in the third quarter of fiscal 2020, and a $6.6 million gain related to the contracts in the prior year period.

Excluding these adjustments, Other segment product contribution margin increased $1.4 million, largely due to higher sales volumes in our vegetable business.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $8.3 million, or 10%, to $87.9 million in the third quarter of fiscal 2020 compared with the same period in 2019.

The increase was largely driven by investments in our sales, operating and systems capabilities, including approximately $2 million of non-recurring expenses, primarily consulting expenses, associated with developing and implementing a new enterprise resource planning (“ERP”) system.

The increase also reflects an approximate $3 million impact of unfavorable foreign exchange.

The increase in SG&A was partially offset by a $2.3 million decline in advertising and promotional expenses.

Interest Expense, Net

Interest expense, net was $25.2 million for the third quarter of fiscal 2020, a decrease of $1.8 million compared with the same period in fiscal 2019.

The decrease in “Interest expense, net” was the result of lower average total debt versus the prior year and lower interest rates, net of anticipated patronage dividends, on the term loan facility we refinanced during the first quarter of fiscal 2020.

For more information on this refinance see “Liquidity and Capital Resources” in this MD&A.

Income Tax Expense

Income tax expense for the third quarter of fiscal 2020 and 2019 was $35.7 million and $39.6 million, 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 third quarter of fiscal 2020 and 2019, respectively, in our Consolidated Statements of Earnings.

The 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.

Equity Method Investment Earnings

We conduct business through unconsolidated joint ventures in Europe, the U.S., and South America and include our share of the earnings based on our economic ownership interest in them.

Our share of earnings from our equity method investments was $9.8 million and $14.2 million for the third quarter of fiscal 2020 and 2019, respectively.

Earnings in the current quarter included a $2.6 million loss related to the withdrawal from a multiemployer pension plan by our joint venture, Lamb-Weston/RDO Frozen (“Lamb Weston RDO”).

Equity method investment earnings also included a $7.3 million unrealized loss related to mark-to-market adjustments associated with currency and commodity hedging contracts in the third quarter of fiscal 2020, and a $0.9 million unrealized loss related to the contracts in the third quarter of fiscal 2019.

Excluding these adjustments, earnings from equity method investments increased $4.6 million, largely reflecting lower raw potato prices and higher sales volumes in Europe.

Thirty-Nine Weeks Ended February 23, 2020 compared to Thirty-Nine Weeks Ended February 24, 2019 (dollars in millions)

Net Sales and Product Contribution Margin

Thirty-Nine Weeks Ended

Segment sales

Segment product contribution margin

Advertising and promotion expenses

Lamb Weston’s net sales for the first three quarters of fiscal 2020 were $2,945.5 million, an increase of $192.4 million, or 7%, compared to the first three quarters of fiscal 2019.

Volume increased 6%, driven by volume growth in each of our business segments.

Acquisitions contributed more than 1 percentage point of growth.

Price/mix increased 1% due to pricing actions and favorable mix.

Global segment net sales increased $109.4 million, or 8%, to $1,544.3 million, compared with $1,434.9 million in the first three quarters of fiscal 2019.

Volume increased 7%, primarily driven by solid growth in sales to customers in the U.S.

and key international markets, while acquisitions contributed more than 2 percentage points of growth.

Price/mix increased 1%, largely reflecting pricing adjustments associated with multi-year contracts as well as favorable mix.

Foodservice segment net sales increased $50.3 million, or 6%, to $893.3 million, compared with $843.0 million in the first three quarters of fiscal 2019.

Volume increased 3%, led by growth in distributor private label and Lamb Weston branded products.

Price/mix increased 3%, primarily reflecting improved mix and pricing actions initiated in the fall of 2018 and fall of 2019.

Retail segment net sales increased $24.5 million, or 7%, to $393.6 million, compared with $369.1 million in the first three quarters of fiscal 2019.

Volume increased 4%, driven by increased sales of Grown in Idaho and other branded products, as well as private label products.

Price/mix increased 3%, driven by favorable mix and pricing actions.

Net sales in our Other segment increased $8.2 million, or 8%, to $114.3 million, compared with $106.1 million in the first three quarters of fiscal 2019, largely due to increased volumes in our vegetable business, partially offset by lower price/mix.

Lamb Weston’s net sales for the first quarter of fiscal 2021 were $871.5 million, a decline of $117.5 million, or 12%, compared to the first quarter of fiscal 2020.

Price/mix increased 2% due to improved price/mix in the Foodservice and Retail segments.

Volume declined 14%, reflecting the decline in demand for frozen potato products outside the home following government-imposed restrictions on restaurants and other foodservice operations to slow the spread of COVID-19.

The decline was partially offset by increased sales of frozen potato products for in-home consumption.

Global segment net sales decreased $70.1 million, or 14%, to $447.5 million, compared with $517.6 million in the first quarter of fiscal 2020.

Price/mix decreased 1% as a result of negative mix.

Volume declined 13%, primarily due to the decline in demand for frozen potato products outside the home as a result of the pandemic’s negative impact on restaurant and other foodservice-related traffic in the U.S.

and in most of our key international markets.

Foodservice segment net sales declined $68.7 million, or 22%, to $236.7 million, compared with $305.4 million in the first quarter of fiscal 2020.

Price/mix increased 6%, reflecting the carryover benefit of pricing actions implemented during fiscal 2020, partially offset by unfavorable mix as sales of Lamb Weston branded and premium products softened.

Volume decreased 28% due to the decline in demand for frozen potato products outside the home as a result of the pandemic’s negative impact on restaurant and non-commercial customers, such as lodging and hospitality, schools and universities, sports and entertainment, and workplace environments.

Retail segment net sales increased $24.6 million, or 19%, to $153.9 million, compared with $129.3 million in the first quarter of fiscal 2020.

Volume increased 11% due to increased sales of frozen potato products for in-home consumption following government-imposed stay-at-home orders.

Shipments of our premium and mainstream branded

offerings, which have historically comprised approximately 40% of the segment’s shipments, were strong, but were partially offset by a decline in private label product shipments, reflecting the loss of certain low-margin private label business beginning in the second quarter of fiscal 2020.

Price/mix increased 8%, largely driven by favorable mix from increased sales of branded products.

Net sales in our Other segment declined $3.3 million, or 9%, to $33.4 million, compared with $36.7 million in the first quarter of fiscal 2020, largely due to lower volumes in our vegetable business.

Product Contribution Margin

Lamb Weston’s product contribution margin for the first three quarters of fiscal 2020 was $766.7 million, an increase of $35.1 million, or 5%, compared to the first three quarters of fiscal 2019.

Global segment product contribution margin increased $5.4 million, or 2%, to $341.0 million in the first three quarters of fiscal 2020, driven by volume growth and favorable price/mix.

Global segment cost of sales was $1,198.8 million, up 9% compared to the first three quarters of fiscal 2019, due to higher sales volumes;

input and fixed cost inflation (primarily edible oils, insurance-rate and medical cost increases);

costs resulting from COVID-19 related to production interruptions in China;

and higher depreciation expense primarily associated with the new Hermiston production line.

The increase in cost of sales was partially offset by lower transportation costs and favorable allocated settlements of commodity hedging contracts.

Foodservice segment product contribution margin increased $19.3 million, or 7%, to $313.5 million in the first three quarters of fiscal 2020, driven by favorable price/mix and volume growth.

Cost of sales was $574.5 million, up 6% compared to the first three quarters of fiscal 2019, due to higher sales volumes;

input and fixed cost inflation (primarily edible oils, insurance-rate and medical cost increases);

and higher depreciation expense primarily associated with the new Hermiston production line.

The increase in cost of sales was partially offset by favorable allocated settlements of commodity hedging contracts.

Retail segment product contribution margin increased $8.4 million, or 11%, to $86.2 million, driven by favorable price/mix, volume growth and lower advertising and promotional expenses.

Cost of sales was $300.0 million, up 7% compared to the first three quarters of fiscal 2019, primarily due to higher sales volumes;

input and fixed cost inflation (primarily edible oils, insurance-rate and medical cost increases);

and higher depreciation expense primarily associated with the new Hermiston production line.

The increase in cost of sales was partially offset by lower transportation costs and favorable allocated settlements of commodity hedging contracts.

Advertising and promotion spending declined $4.4 million to $7.4 million in the first three quarters of fiscal 2020 as compared to the first three quarters of fiscal 2019, reflecting the timing of marketing investments in support of Grown in Idaho , Alexia and other branded products.

Other segment product contribution margin was $26.0 million, an increase of $2.0 million as compared with $24.0 million in the first three quarters of fiscal 2019.

These amounts include a $6.6 million gain related to unrealized mark-to-market adjustments and realized settlements associated with commodity hedging contracts in the first three quarters of fiscal 2020, and a $2.6 million gain related to the contracts in the prior year period.

Excluding these adjustments, Other segment product contribution margin declined $1.9 million, largely due to lower price/mix in our vegetable business.

Lamb Weston’s product contribution margin for the first quarter of fiscal 2021 was $212.6 million, a decline of $31.2 million, or 13%, compared to the first quarter of fiscal 2020.

The decline primarily related to lower sales due to the pandemic and approximately $16 million of pandemic-related costs, net of CARES Act retention credits and other labor incentives, resulting from lower factory utilization and production inefficiencies, manufacturing and operational disruptions directly attributable to the pandemic, and other supply chain costs discussed above.

Global segment product contribution margin declined $24.9 million, or 24%, to $77.8 million in the first quarter of fiscal 2021.

Pandemic-related costs accounted for approximately $9 million of the decline, with the remainder driven by lower sales.

Global segment cost of sales was $369.3 million, down 11% compared to the first quarter of fiscal 2020, primarily due to lower sales, partially offset by the pandemic costs cited above.

Advertising and promotion expense was lower in the first quarter of fiscal 2021, as compared to prior year period.

Foodservice segment product contribution margin declined $16.7 million, or 16%, to $85.8 million in the first quarter of fiscal 2021.

Pandemic-related costs accounted for approximately $4 million of the decline, with the remainder driven by lower sales volume, partially offset by favorable price/mix.

Cost of sales was $150.3 million, down 25% compared to the first quarter of fiscal 2020, due to lower sales volumes.

Advertising and promotion expense was lower in the first quarter of fiscal 2021, as compared with the prior year period.

Retail segment product contribution margin increased $6.9 million, or 24%, to $35.8 million.

Higher sales volumes, favorable mix and a $1.9 million decline in advertising and promotional expenses drove the increase, which was partially offset by approximately $3 million of pandemic-related costs.

Cost of sales was $118.1 million, up 20% compared to the first quarter of fiscal 2020, primarily due to higher sales volume.

Other segment product contribution margin was $13.2 million, an increase of $3.5 million as compared with $9.7 million in the first quarter of fiscal 2020.

These amounts include a $7.7 million gain related to unrealized mark-to-market adjustments and realized settlements associated with commodity hedging contracts in the first quarter of fiscal 2021, and a $3.1 million gain related to the contracts in the prior year period.

Excluding these adjustments, Other segment product contribution margin declined $1.1 million, largely due to higher costs in our vegetable business.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $25.5 million, or 11%, to $258.1 million in the first three quarters of fiscal 2020 compared with the same period in 2019.

The increase was largely driven by an approximate $7 million increase in incentive expense accruals;

and investments in our sales, operating and systems capabilities, including approximately $6 million of non-recurring expenses, primarily consulting expenses, associated with developing and implementing a new ERP system.

These increases were partially offset by an approximate $3 million impact of favorable foreign exchange and a $4.0 million decline in advertising and promotional expenses.

The prior year period also included an approximate $4 million insurance settlement benefit.

Selling, general and administrative expenses declined $0.5 million, or less than 1%, to $78.1 million in the first quarter of fiscal 2021 compared with the same period in 2020, as cost management efforts and a $3.7 million decline in advertising and promotional expenses offset approximately $4 million of pandemic-related expenses described above, as well as approximately $1 million of non-recurring expenses (primarily consulting expenses) associated with developing and implementing a new enterprise resource planning (“ERP”) system.

Interest Expense, Net

Interest expense, net was $78.8 million for the first three quarters of fiscal 2020, a decrease of $1.2 million compared with the same period in fiscal 2019.

These decreases were offset by the write-off of $1.7 million of debt issuance costs in connection with the refinance of our term loan facility.

Interest expense, net was $30.3 million for the first quarter of fiscal 2021, an increase of $2.1 million compared with the same period in fiscal 2020.

The increase in “Interest expense, net” was the result of higher average total debt versus the prior year.

For more information on this refinance see “Liquidity and Capital Resources” in this MD&A.

Income Tax Expense

Income tax expense for the first three quarters of fiscal 2020 and 2019 was $115.1 million and $107.9 million, 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 23.8% and 22.3% for the first three quarters of fiscal 2020 and 2019, respectively, in our Consolidated Statements of Earnings.

Income tax expense for the first quarter of fiscal 2021 and 2020 was $28.0 million and $36.7 million, 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 first quarter of fiscal 2021 and 2020, respectively, in our Consolidated Statements of Earnings.

The effective tax rate varies from the U.S.

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We conduct business through unconsolidated joint ventures in Europe, the U.S., and South America and include our share of the earnings based on our economic ownership interest in them.

Our share of earnings from our equity method investments was $35.4 million and $44.3 million for the first three quarters of fiscal 2020 and 2019, respectively.

Earnings in the current period included a $2.6 million loss related to the withdrawal from a multiemployer pension plan by Lamb Weston RDO.

Equity method investment earnings also included an $8.9 million unrealized loss related to mark-to-market adjustments associated with currency and commodity hedging contracts in the first three quarters of fiscal 2020, and a $1.2 million unrealized loss related to mark-to-market adjustments associated with currency and commodity hedging contracts in the first three quarters of fiscal 2019.

Excluding these adjustments, earnings from equity method investments increased $1.4 million, largely reflecting lower raw potato prices and higher sales volumes in Europe.

Our share of earnings from our equity method investments was $11.9 million and $10.6 million for the first quarter of fiscal 2021 and 2020, respectively.

Equity method investment earnings included a $4.7 million unrealized gain related to mark-to-market adjustments associated with currency and commodity hedging contracts in the first quarter of fiscal 2021, compared to a $1.1 million unrealized gain related to the contracts in the first quarter of fiscal 2020.

Excluding the mark-to-market adjustments, earnings from equity method investments declined $2.3 million compared to the prior year period.

Pandemic-related manufacturing costs and SG&A expenses accounted for approximately $1 million of the decline, with the remainder largely driven by lower sales following government-imposed restrictions on restaurant and other foodservice operations.

Liquidity and Capital Resources

Sources and Uses of Cash

Our primary sources of liquidity are net cash provided by operating activities and borrowings under our revolving credit facility.

At February 23, 2020, we had $30.1 million of cash and cash equivalents and $495.1 million of available borrowing capacity on our revolving credit facility.

During the latter part of March 2020, we borrowed $495 million under our revolving credit 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.

See Note 11, Debt

and Financing Obligations, of the Condensed Notes to Consolidated Financial Statements in “Part I, Item 1.

Financial Statements” of this Form 10-Q, for more information.

Currently, our primary uses of cash are for operations, capital expenditures, dividends on our common stock, acquisitions, debt service, and stock repurchases.

The recent COVID-19 pandemic has disrupted our business.

While its effect on global consumer demand for frozen potato products through our fiscal third quarter was limited, the pandemic’s effect on our future financial results is uncertain.

Several governments around the world have enacted severe social and business restrictions, including closing or partially closing restaurants or other foodservice operations, which is impacting the demand for our products.

While the near-term impact of the COVID-19 pandemic on consumer demand and sales volume is likely to be material, we believe that net cash generated from operating activities, cash on hand, borrowings under our revolving credit facility, and available capital through access to capital markets will be adequate to meet our liquidity and capital requirements, including dividends declared, for at least the next twelve months.

As noted below, we plan to defer certain capital expenditures and we have temporarily suspended share repurchases in the near-term to provide us with additional liquidity.

The current COVID-19 pandemic has disrupted our business and operating results.

As a result of the uncertainties caused by the pandemic, we have taken, and are continuing to take, actions to enhance liquidity.

We limited discretionary expenses across the Company;

implemented a hiring and salary freeze for our U.S.

salaried positions;

suspended future share repurchases, and received benefits under the CARES Act and other labor incentives.

In addition, in September 2020, we amended our credit agreement to increase available borrowings under our revolving credit facility from $500.0 million to $750.0 million and extended the maturity date to September 2023.

In connection with the amendment, we used cash on hand to repay the $271.9 million term loan facility due in November 2021.

Considering the current environment, with a significant number of employees working remotely, we have also deferred the second phase of our new ERP system implementation.

As a result of our actions, our cash and cash equivalents balance was $1,032.5 million and approximately $800 million at August 30, 2020 and at the end of our fiscal month ended September 27, 2020, respectively.

We believe our cash on hand, cash flows from operations and our current credit facilities will be sufficient to satisfy our future working capital requirements, interest payments, capital expenditures, dividends on our common stock, and other financing requirements for the foreseeable future.

We continue to evaluate and take action, as necessary, to preserve adequate liquidity and ensure that our business can continue to operate during these uncertain times.

If we are unable to generate sufficient cash flows from operations, or are otherwise unable to comply with the terms of our credit facilities, we may be required to seek additional financing alternatives, which may require waivers under our credit agreements governing our senior secured debt and indentures governing our senior notes, in order to generate additional cash.

There can be no assurance that we would be able to obtain additional financing or any such waivers on terms acceptable to us or at all.

For additional information on our debt, see Note 9, Debt and Financing Obligations, of the Condensed Notes to Consolidated Financial Statements in “Part I, Item 1.

Financial Statements” of this report.

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:

Thirty-Nine Weeks Ended

Thirteen Weeks Ended

Net cash flows provided by (used for):

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Operating Activities

In the first three quarters of fiscal 2020, cash provided by operating activities declined $8.7 million to $435.7 million, compared with $444.4 million in the same period a year ago.

Changes in operating assets and liabilities used $10.3 million more cash during the first three quarters of fiscal 2020 compared with the same period in the prior year.

The decline in cash provided by changes in operating assets and liabilities was driven primarily by the timing of payments for accounts payable and tax payments.

These cash outflows were partially offset by higher sales, timing of receivable collections, a lower increase in finished goods inventories, and the timing of grower and trade program payments.

In the first quarter of fiscal 2021, cash provided by operating activities increased $12.1 million to $250.6 million, compared with $238.5 million in the same period a year ago.

The increase related to $48.9 million of cash provided by favorable changes in working capital, partially offset by a $36.8 million decrease in income from operations, adjusted for non-cash income and expenses.

Favorable changes in working capital primarily related to lower sales and therefore, lower receivables in first quarter 2021, compared with the same period in fiscal 2020, and the timing of the collection of accounts receivable.

A lower incentive compensation payout in fiscal 2020, relative to fiscal 2019, also contributed to the favorable changes in working capital.

These increases in working capital were partially offset by a larger finished goods inventory build in first quarter of fiscal 2021, compared with fiscal 2020, due to the abnormally low finished goods inventories at the end of fiscal 2020, as we balanced production with declining demand resulting from the impact of the COVID-19 pandemic.

Lower earnings from operations in first quarter of fiscal 2021 related to government-imposed restrictions on restaurants and other foodservice operations to slow the spread of COVID-19 and approximately $21 million of pandemic-related costs, net of CARES Act retention credits and other labor incentives.

See “Operating Results” in this MD&A for more information.

Investing Activities

Investing activities used $289.8 million of cash in the first three quarters of fiscal 2020, compared with $333.9 million in the same period in the prior year.

The first three quarters of fiscal 2020 includes the acquisition of a frozen potato processor in Australia for $116.7 million.

We also acquired a 50% ownership interest in Lamb Weston Alimentos Modernos S.A., a manufacturer of frozen potato products in South America, for $27.3 million.

We paid $22.6 million in the first three quarters of fiscal year 2020 and will pay the remaining $4.7 million, less any amounts for indemnified losses, in October 2024.

Cash used for capital, including information technology expenditures, was $152.0 million in the first three quarters of fiscal 2020.

We now expect our full year 2020 capital expenditures to be approximately $200 million, excluding acquisitions, for fiscal 2020 as we plan to defer certain capital expenditures to preserve financial flexibility considering the uncertainty in the global markets resulting from the COVID-19 pandemic.

Investing activities used $33.1 million of cash in the first quarter of fiscal 2021, compared with $176.7 million in the same period in the prior year.

The decrease related to our efforts to preserve liquidity and defer strategic capital expenditures.

We increased our estimate of fiscal 2021 capital expenditures from $140 million to $180 million, reflecting investments in productivity, optimization and growth capacity projects.

These expenditures could increase or decrease as a result of a number of factors, including our financial results, future economic conditions, including the impact of COVID-19, and our regulatory compliance requirements.

Financing Activities

During the first three quarters of fiscal 2020, cash used for financing activities decreased $19.6 million to $127.7 million, compared with $147.3 million during the same period a year ago.

During the first three quarters of fiscal 2020, financing activities primarily related to $327.1 million of debt and financing obligation repayments, $299.3 million of net proceeds from issuance of debt related to refinancing $300.0 million of the $599.1 million term loan facility outstanding at May 26, 2019 (described below), the payment of $87.7 million in cash dividends to common stockholders and $22.9 million in cash used to repurchase 287,239 shares of our common stock at an average price of $79.56 per share under our share repurchase program.

During the first quarter of fiscal 2021, cash used for financing activities increased $495.3 million to $550.2 million, compared with $54.9 million during the same period a year ago.

During the first quarter of fiscal 2021, financing activities primarily related to the repayment of $498.1 million of short-term borrowings, the payment of $33.6 million in cash dividends to common stockholders, and $9.2 million of debt and financing obligations repayments.

Financing activities also included $9.6 million for the repurchase of 151,151 shares for restricted stock tax withholdings.

Given the uncertainty of the COVID-19 pandemic, we have temporarily suspended share repurchases in the near-term to provide us with additional liquidity.

During the first three quarters of fiscal 2020, we withheld 80,495 shares from vesting equity awards to cover employee tax liabilities of $6.0 million.

These outflows were offset partially by $12.7 million of net short-term borrowings.

During the first quarter of fiscal 2020, 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 extends the maturity of $300.0 million of our borrowings until June 28, 2024, and the covenants, events of default, and guarantees are consistent with our existing credit agreement.

We assess our financing alternatives periodically and expect to access credit or debt capital markets opportunistically, within targeted levels, as part of our plans to fund our capital programs, including capital expenditures and cash returns to shareholders through dividends and share repurchases.

These transactions may include refinancing of existing debt or the incurrence of new debt, subject to financing options that may be available to us from time to time, as well as conditions in the credit and debt capital markets generally.

During the first three quarters of fiscal 2019, financing activities primarily related to the payment of $84.0 million in cash dividends to common stockholders, $78.2 million to acquire the noncontrolling interest in Lamb Weston BSW, $57.1 million of debt repayments, primarily scheduled payments under our term loan facility, $7.8 million to repurchase shares of Lamb Weston common stock, and $6.1 million of distributions to Lamb Weston BSW.

During the first three quarters of fiscal 2019, we withheld 63,336 shares from vesting equity awards to cover employee tax liabilities of $4.5 million.

These payments were partially offset by $89.3 million of net short-term borrowings.

For more information about our debt, interest rates, maturity dates, and covenants, see Note 9, Debt and Financing Obligations of the Notes to Combined and Consolidated Financial Statements in “Part II, Item 8.

In September 2020, we amended our credit agreement to increase available borrowings under our revolving credit facility from $500.0 million to $750.0 million and extended the maturity to September 2023.

In addition, we used cash on hand to repay the $271.9 million term loan facility due in November 2021.

As of our fiscal month ended September 27, 2020, no borrowings were outstanding under the amended revolving credit facility.

During the first quarter of fiscal 2020, financing activities primarily related to $309.0 million of debt and financing obligation repayments, $299.3 million of net proceeds from the issuance of debt related to our refinancing $300.0 million of the $599.1 million term loan facility outstanding at May 26, 2019, the payment of $29.2 million in cash dividends to common stockholders, $8.3 million of short-term borrowing repayments and a $3.5 million increase in cash used to repurchase 111,721 shares of our common stock, including tax withholdings in connection with vesting of restricted stock.

For more information about our debt, interest rates, maturity dates, and covenants, see Note 9, Debt and Financing Obligations of the Notes to Consolidated Financial Statements in “Part II, Item 8.

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

At February 23, 2020, we were in compliance with the financial covenant ratios and other covenants contained in our credit agreement.

At August 30, 2020, we were in compliance with the financial covenant ratios and other covenants contained in our credit agreements.

Obligations and Commitments

There have been no material changes to the contractual obligations disclosed in “Management's Discussion and Analysis of Financial Condition and Results of Operations"

Except for the $271.9 million repayment in September 2020 of the term loan facility due in 2021, there have been no material changes to the contractual obligations disclosed in “Management's Discussion and Analysis of Financial Condition and Results of Operations"

in the Form 10-K.

Reconciliations of Non-GAAP Financial Measures to Reported Amounts

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

Lamb Weston’s management uses EBITDA, Adjusted EBITDA including unconsolidated joint ventures and Adjusted Diluted EPS to evaluate the Company’s 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.

To supplement the financial information included in this report, we have presented EBITDA and EBITDA including unconsolidated joint ventures, each of which is considered a non-GAAP financial measure.

Lamb Weston’s management uses EBITDA and EBITDA including unconsolidated joint ventures to evaluate the Company’s performance.

The Company includes 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.

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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 net income (loss) or diluted earnings per share, and there are limitations to using non-GAAP financial measures.

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

These measures are not a substitute for their comparable GAAP financial measures, such as net income, and there are limitations to using non-GAAP financial measures.

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

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

Net income attributable to Lamb Weston Holdings, Inc.

Income attributable to noncontrolling interests

Equity method investment earnings

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amortization included in equity method investment earnings

Items impacting comparability (b)

Loss on withdrawal from multiemployer pension plan

Adjusted EBITDA from unconsolidated joint ventures

Consolidated Joint Ventures (c)

Income attributable to noncontrolling interests

Interest expense, income tax expense, and depreciation and

amortization included in equity method investment earnings

EBITDA from consolidated joint ventures

Adjusted EBITDA including unconsolidated joint ventures

(a) EBITDA includes EBITDA from consolidated joint ventures for the thirty-nine weeks ended February 24, 2019.

(b) 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.

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

The following table reconciles diluted earnings per share to Adjusted Diluted EPS:

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

Items impacting comparability:

Loss on withdrawal from multiemployer pension plan (b)

Increase in redemption value of noncontrolling interests, net of tax benefits (c)

Tax reform (d)

Total items impacting comparability

(a) Diluted weighted average common shares were 147.2 million and 147.4 million for the thirteen weeks ended February 23, 2020 and February 24, 2019, respectively, and 147.1 million and 147.3 million for the thirty-nine weeks ended February 23, 2020 and February 24, 2019, respectively.

(b) The thirteen and thirty-nine weeks ended February 23, 2020, both include a $2.6 million ($2.0 million after-tax) loss related to the withdrawal from a multiemployer pension plan by Lamb Weston RDO.

(c) The thirty-nine weeks ended February 24, 2019, included accretion, net of tax benefits, of $10.0 million, or $0.07 per share, which we recorded to increase the redeemable noncontrolling interest to the amount we paid to acquire the remaining 50.01% interest in Lamb Weston BSW.

While the accretion, net of 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.

Net income includes 100% of Lamb Weston BSW’s earnings beginning November 2, 2018, the date we entered into the definitive agreement to acquire the remaining interest in Lamb Weston BSW.

See Note 8, Investments in Joint Ventures, of the Condensed Notes to Consolidated Financial Statements in “Part I, Item 1.

Financial Statements” of this Form 10-Q, for more information.

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.

(d) The thirteen and thirty-nine weeks ended February 24, 2019, included a $1.0 million decrease in income tax expense related to the true-up of the transition tax on previously untaxed foreign earnings under the U.S.

Tax Cuts and Jobs Act.

EBITDA from unconsolidated joint ventures

EBITDA including unconsolidated joint ventures

Off-Balance Sheet Arrangements

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included in the Form 10-K.

There were no material changes to these critical accounting estimates during the third quarter of fiscal 2020.

There were no material changes to these critical accounting estimates during the first quarter of fiscal 2021.

New and Recently Adopted Accounting Pronouncements

2 unchanged sentences

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 2. Management’s Discussion and Analysis