Item 2. Management’s Discussion and Analysis
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
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,” “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. Readers of this report should understand that these statements are not guarantees of performance or results. Many factors could affect our actual financial results and cause them to vary materially from the expectations contained in the forward-looking statements, including those set forth in this report. 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; our ability to execute on large capital projects, including construction of new production lines; the competitive environment and related conditions in the markets in which we and our joint ventures operate; political and economic conditions of the countries in which we and our joint ventures conduct business and other factors related to our international operations; disruption of our access to export mechanisms; risks associated with possible acquisitions, including our ability to complete acquisitions or integrate acquired businesses; our debt levels; the availability and prices of raw materials; changes in our relationships with our growers or significant customers; the success of our joint ventures; actions of governments and regulatory factors affecting our businesses or joint ventures; the ultimate outcome of litigation or any product recalls; levels of pension, labor and people-related expenses; our ability to pay regular quarterly cash dividends and the amounts and timing of any future dividends; and other risks described in our reports filed from time to time with the U.S. Securities and Exchange Commission (“SEC”). We caution readers not to place undue reliance on any forward-looking statements included in this report, which speak only as of the date of this report. We undertake no responsibility for updating these statements, except as required by law.
This Item 2 is intended to supplement, and should be read in conjunction with, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included 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 SEC on July 28, 2020.
Overview
Lamb Weston Holdings, Inc. (“we,” “us,” “our,” “the Company,” or “Lamb Weston”), along with our joint ventures, is a leading global producer, distributor, and marketer of value-added frozen potato products. 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. French fries represent the majority of our value-added frozen potato product portfolio.
Management’s discussion and analysis of our results of operations and financial condition 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 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.
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Executive Summary
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 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; and
● 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.
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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 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
We have four reportable segments: Global, Foodservice, Retail, and Other. We report product contribution margin by segment. Product contribution margin is the primary measure reported to our chief operating decision maker for
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purposes of allocating resources to our segments and assessing their performance. Product contribution margin represents net sales less cost of sales and advertising and promotion expenses. Product contribution margin includes advertising and promotion expenses because 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. For additional information on our reportable segments and product contribution margin, see Note 13, Segments, of the Condensed Notes to Consolidated Financial Statements in “Part I, Item 1. Financial Statements” of this report.
Thirteen Weeks Ended August 30, 2020 compared to Thirteen Weeks Ended August 25, 2019 (dollars in millions)
Net Sales and Product Contribution Margin
Thirteen Weeks Ended
August 30,
August 25,
%
2020
2019
Inc/(Dec)
Segment sales
Global
$
447.5
$
517.6
(14%)
Foodservice
236.7
305.4
(22%)
Retail
153.9
129.3
19%
Other
33.4
36.7
(9%)
$
871.5
$
989.0
(12%)
Segment product contribution margin
Global
$
77.8
$
102.7
(24%)
Foodservice
85.8
102.5
(16%)
Retail
35.8
28.9
24%
Other
13.2
9.7
36%
212.6
243.8
(13%)
Advertising and promotion expenses
1.2
4.8
(75%)
Gross profit
$
213.8
$
248.6
(14%)
Net Sales
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
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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 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 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 $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.
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Income Tax Expense
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. 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 $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
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.
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Cash Flows
Below is a summary table of our cash flows, followed by a discussion of the sources and uses of cash through operating, investing, and financing activities:
Thirteen Weeks Ended
August 30,
August 25,
Provided by
2020
2019
(Used for)
Net cash flows provided by (used for):
Operating activities
$
250.6
$
238.5
$
12.1
Investing activities
(33.1)
(176.7)
143.6
Financing activities
(550.2)
(54.9)
(495.3)
(332.7)
6.9
(339.6)
Effect of exchange rate changes on cash and cash equivalents
1.2
(0.1)
1.3
Net increase (decrease) in cash and cash equivalents
$
(331.5)
$
6.8
$
(338.3)
Operating Activities
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 $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 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. 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.
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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 August 30, 2020, we were in compliance with the financial covenant ratios and other covenants contained in our credit agreements.
Obligations and Commitments
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 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. We believe that the presentation of these non-GAAP financial measures, when used in conjunction with GAAP financial measures, is a useful financial analysis tool that can assist investors in assessing the Company’s operating performance and underlying prospects. These non-GAAP financial measures should be viewed in addition to, and not as alternatives for, financial measures prepared in accordance with GAAP. 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, 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
August 30,
August 25,
2020
2019
Net income
$
89.3
$
115.7
Equity method investment earnings
(11.9)
(10.6)
Interest expense, net
30.3
28.2
Income tax expense
28.0
36.7
Income from operations
135.7
170.0
Depreciation and amortization
45.6
43.1
EBITDA
181.3
213.1
Unconsolidated Joint Ventures
Equity method investment earnings
11.9
10.6
Interest expense, income tax expense, and depreciation and
amortization included in equity method investment earnings
8.6
9.2
Add: EBITDA from unconsolidated joint ventures
20.5
19.8
EBITDA including unconsolidated joint ventures
$
201.8
$
232.9
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Off-Balance Sheet Arrangements
There have been no material changes to the off-balance sheet arrangements disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the Form 10-K.
Critical Accounting Policies and Estimates
A discussion of our critical accounting policies and estimates can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in the Form 10-K. There were no material changes to these critical accounting estimates during the first quarter of fiscal 2021.
New and Recently Adopted Accounting Pronouncements
For a list of our new and recently adopted accounting pronouncements, see Note 1, Nature of Operations and Summary of Significant Accounting Policies, of the Condensed Notes to Consolidated Financial Statements in “Part I, Item 1. Financial Statements” of this report.
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