What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-07-27 compared with 2020-07-28 · 273 added, 402 removed, 745 unchanged (48% of the section changed)

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Consolidated Statements of Earnings for the fiscal years ended May 30, 2021, May 31, 2020 and May 26, 2019

Consolidated Statements of Comprehensive Income (Loss) for the fiscal years ended May 31, 2020, May 26, 2019, and May 27, 2018

Consolidated Statements of Comprehensive Income for the fiscal years ended May 30, 2021, May 31, 2020, and May 26, 2019

Consolidated Balance Sheets as of May 30, 2021 and May 31, 2020

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We have audited the accompanying consolidated balance sheets of Lamb Weston Holdings, Inc.

and subsidiaries (the Company) as of May 31, 2020 and May 26, 2019, the related consolidated statements of earnings, comprehensive income (loss), stockholders’ equity, and cash flows for each of the fiscal years in the three-year period ended May 31, 2020, and the related notes and consolidated financial statement schedule (collectively, the consolidated financial statements).

and subsidiaries (the Company) as of May 30, 2021 and May 31, 2020, the related consolidated statements of earnings, comprehensive income, stockholders’ equity, and cash flows for each of the fiscal years in the three-year period ended May 30, 2021, and the related notes and consolidated financial statement schedule (collectively, the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of May 30, 2021 and May 31, 2020, and the results of its operations and its cash flows for each of the fiscal years in the three-year period ended May 30, 2021, in conformity with U.S.

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2016-02, Leases (Topic 842), effective May 27, 2019.

As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for revenue for the fiscal year ended May 26, 2019 due to the adoption of Accounting Standards Update No.

2014-09, Revenue from Contracts with Customers (Topic 606), effective May 28, 2018.

Basis for Opinion

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Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Evaluation of certain sales incentives and trade promotion allowances

As discussed in Note 1 to the consolidated financial statements, the Company offers sales incentives and trade promotion allowances through various programs.

The Company records accruals based on sales incentive agreements and expectations

regarding customer participation and performance levels.

The Company records accruals based on sales incentive agreements and expectations regarding customer participation and performance levels.

Customer participation and performance levels are primarily based on historical sales and redemption rates, current customer sales, and industry trends.

We identified the evaluation of certain accruals for sales incentive and trade promotion allowances as a critical audit matter.

Subjective and complex auditor judgment is required in evaluating these accruals as a result of the timing difference between when the product is delivered and when the incentive will be claimed by the end consumer, coupled with customer participation expectations.

Subjective and complex auditor judgment was required in evaluating these accruals as a result of the timing difference between when the product is delivered and when the incentive will be claimed by the end consumer, coupled with customer participation expectations.

This specifically related to the impact of historical sales, payments, and redemption rates on the Company’s accrual.

The primary procedures that we performed to address this critical audit matter included the following.

We tested certain internal controls over the Company’s sales incentive and trade promotion allowance process, including the accrual methodology, and evaluation of the use of historic data.

The following are the primary procedures we performed to address this critical audit matter.

We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s sales incentive and trade promotion allowance process, including the accrual methodology, and evaluation of the use of historic data.

To evaluate the Company’s accrual for certain sales incentives and trade promotions allowances we (1) assessed the Company’s ability to accurately estimate its sales incentive accrual by comparing previously established accruals to actual settlements, (2) evaluated conditions in the current operating environment which may affect the use of historical sales, payments, and redemption rates as inputs to the projected accrual, (3) evaluated a sample of customer and end consumer incentive payments, which are the basis for certain portions of the Company’s accrual for sales incentives and trade promotions, based on volumes sold and the terms of the sales incentives to validate the accuracy of the payment made and the lag time between product invoice and incentive redemption, and (4) evaluated certain customer and end consumer incentive accruals based on volumes sold, historic payments, and the terms of the sales incentives to test the basis of the specific customer’s projected accrual.

Incremental audit procedures over IT financial reporting processes

As of May 26, 2019 the Company identified a material weakness in internal control over financial reporting related to ineffective information technology general controls (ITGCs) in the areas of user access over one of the Company’s information technology (IT) systems that support the Company’s financial reporting processes.

Automated and manual business process controls that were dependent on the affected ITGCs were also deemed ineffective because they could have been adversely impacted.

During a portion of the 53-week period ended May 31, 2020, the ITGCs were ineffective and the information or system generated reports produced by the affected financial reporting systems could not be relied upon without further testing.

We identified the design and evaluation of the sufficiency of the incremental audit procedures over the financial information reliant on the impacted IT systems as a critical audit matter.

Significant auditor judgment was required to design incremental audit procedures and assess the sufficiency of the procedures performed and evidence obtained due to ineffective controls and the complexity of the Company’s IT environment.

The primary procedures we performed to address this critical audit matter included the following.

We used our judgment to determine the nature and extent of incremental audit procedures to be performed over the information produced by the impacted IT systems.

We modified the types of procedures that were performed, which included testing the underlying records of selected transaction data obtained from the impacted IT systems to support the use of the information in the conduct of the audit.

In addition, we evaluated the overall sufficiency of audit evidence obtained related to the information produced by the impacted IT systems.

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

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In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of May 30, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of May 31, 2020 and May 26, 2019, the related consolidated statements of earnings, comprehensive income (loss), stockholders’ equity, and cash flows for each of the fiscal years in the three-year period ended May 31, 2020, and the related notes and consolidated financial statement schedule (collectively, the consolidated financial statements), and our report dated July 28, 2020 expressed an unqualified opinion on those consolidated financial statements.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of May 30, 2021 and May 31, 2020, the related consolidated statements of earnings, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended May 30, 2021, and the related notes and consolidated financial statement schedule (collectively, the consolidated financial statements), and our report dated July 27, 2021 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

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Lamb Weston Holdings, Inc.

Consolidated Statements of Comprehensive Income (Loss)

Consolidated Statements of Comprehensive Income

(dollars in millions)

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Unrealized currency translation gains (losses)

Comprehensive income (loss)

Comprehensive income

Comprehensive income attributable to noncontrolling interests

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

Comprehensive income attributable to Lamb Weston Holdings, Inc.

See Notes to Consolidated Financial Statements.

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Retained earnings

Accumulated other comprehensive loss

Accumulated other comprehensive income (loss)

Treasury stock, at cost, 1,448,768 and 954,858 common shares

Total stockholders' equity (deficit)

Total stockholders' equity

Total liabilities and stockholders’ equity

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Comprehensive

Income (Loss)

Balance at May 27, 2018

Adoption of ASC 606 revenue from contracts with customers

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

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Stock-settled, stock-based compensation expense

Common stock withheld to cover taxes

Repurchase of common stock and common stock withheld to cover taxes

Comprehensive income

Balance at May 26, 2019

Adoption of ASC 606 revenue from contracts with customers

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

Adoption of ASC 842 leases

Dividends declared, $ 0.8600 per share

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Repurchase of common stock and common stock withheld to cover taxes

Comprehensive income (loss)

Comprehensive income

Balance at May 31, 2020

Adoption of ASC 842 leases

Dividends declared, $ 0.9300 per share

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Repurchase of common stock and common stock withheld to cover taxes

Comprehensive income (loss)

Comprehensive income

Balance at May 30, 2021

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Deferred income taxes

Changes in operating assets and liabilities, net of acquisitions:

Changes in operating assets and liabilities, net of acquisition:

Income taxes payable/receivable, net

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Cash flows from investing activities

Acquisition of business, net of cash acquired

Additions to property, plant and equipment

Additions to other long-term assets

Acquisition of business, net of cash acquired

Investment in equity method joint venture

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Cash flows from financing activities

Proceeds from issuance of debt

Proceeds (payments) from short-term borrowings, net

Proceeds (payments) of short-term borrowings, net

Repayments of debt and financing obligations

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Repurchase of common stock and common stock withheld to cover taxes

Proceeds from issuance of debt

Acquisition of noncontrolling interest

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Lamb Weston Holdings, Inc.

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

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

We have four reportable segments:

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The fiscal year of Lamb Weston ends the last Sunday in May.

The fiscal years for the Consolidated Financial Statements presented consist of a 53 -week period for fiscal 2020 and 52 -week periods for fiscal 2019 and 2018.

The fiscal years for the Consolidated Financial Statements presented consist of 52 -week periods for fiscal 2021 and 2019, and a 53 -week period for fiscal 2020.

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

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Actual results may vary from those estimates.

Our consolidated financial statements include the accounts of Lamb Weston and all of its majority-owned subsidiaries.

Our consolidated financial statements include the accounts of Lamb Weston and all of our majority-owned subsidiaries.

In addition, the accounts of all variable interest entities for which we are the primary beneficiary are included in our consolidated financial statements from the date such determination was made.

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Our equity method investments are described in Note 4, Investments in Joint Ventures.

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

Use of Estimates

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We adjust such estimates and assumptions when facts and circumstances dictate.

The inputs into our judgments and estimates consider the economic implications of the effects of the COVID-19 pandemic on our critical accounting estimates and significant accounting policies.

As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates.

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Revenue from Contracts with Customers

Effective May 28, 2018 , we adopted Accounting Standards Update (“ASU”) 2014 -09, Revenue from Contracts with Customers, and its related amendments, collectively known as Accounting Standards Codification (“ASC”) 606, using the modified retrospective method.

Fiscal years 2020 and 2019 are accounted for in accordance with this guidance.

Fiscal 2018 was accounted for in accordance with ASC 605, Revenue Recognition.

Generally, we recognize revenue on a point-in-time basis when the customer takes title to the product and assumes the risks and rewards for the product.

However, for customized products, which are products manufactured to customers’ unique specifications, we recognize revenue over time, utilizing an output method based on products produced.

However, for customized products, which are products manufactured to customers’ unique specifications, we recognize revenue over time, utilizing an output method, which is generally as the products are produced.

This is because once a customized product is manufactured pursuant to a purchase order, we have an enforceable right to payment for that product.

Our Global segment sells the majority of our customized products, for which revenue is recognized when a purchase order is received to the extent the product has been manufactured, as opposed to sales of non-customized products, for which revenue is generally recognized upon shipment.

Our Global segment sells the majority of our customized products, for which revenue is

recognized when a purchase order is received to the extent the product has been manufactured, as opposed to sales of non-customized products, for which revenue is generally recognized upon shipment.

As a result, the timing of the receipt of a purchase order may create quarterly fluctuations in this segment.

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Amounts billed and due from customers are short-term in nature and are classified as receivables, since payments are unconditional and only the passage of time is required before payments are due.

As of May 30, 2021 and May 31, 2020, we had $ 111.0 million and $ 72.7 million, respectively, of unbilled receivables for customized products for which we have accelerated the recognition of revenue and recorded the amounts in “Receivables” on our Consolidated Balance Sheets.

We generally do not offer financing to our customers.

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As a result, customers’ right of return and related refund or product liabilities are estimated and recorded as reductions in revenue.

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

Sales Incentives and Trade Promotion Allowances

We promote our products with advertising, consumer incentives, and trade promotions.

Sales promotions include, but are not limited to, discounts, coupons, rebates, and volume-based incentives.

The estimates for sales incentives are based principally on historical sales and coupon utilization and redemption rates, influenced by judgments about current market conditions such as competitive activity in specific product categories.

Trade promotion programs include introductory marketing funds such as slotting fees, cooperative marketing programs, temporary price reductions, and other activities conducted by our customers to promote our products.

The costs of these programs are recognized as a reduction to revenue with a corresponding accrued liability.

The estimate of trade promotions is inherently difficult due to information limitations as the products move beyond distributors and through the supply chain to operators.

Estimates made by management in accounting for these costs are based primarily on our historical experience with marketing programs, with consideration given to current circumstances and industry trends and include the following:

quantity of customer sales, timing of promotional activities, current and past trade-promotion spending patterns, the interpretation of historical spending trends by customer and category, and forecasted costs for activities within the promotional programs.

The determination of sales incentive and trade promotion costs requires judgment and may change in the future as a result of changes in customer promotion participation, particularly for new programs related to the introduction of new products.

Final determination of the total cost of promotion is dependent upon customers providing information about proof of performance and other information related to the promotional event.

Because of the complexity of some of these trade promotions, the ultimate resolution may result in payments that are materially different from our estimates.

We have contract terms that give rise to variable consideration including, but not limited to, discounts, coupons, rebates, and volume-based incentives.

We estimate volume rebates based on the most likely amount method outlined in ASC 606, Revenue from Contracts with Customers .

We estimate early payment discounts and other customer trade incentives based principally on historical sales and coupon utilization and redemption rates, influenced by judgments about current market conditions such as competitive activity in specific product categories, which is consistent with the expected value method outlined in ASC 606.

We have concluded that these methods result in the best estimate of the consideration we are entitled to from our customers.

Because of the complexity of some of these trade promotions, however, the ultimate resolution may result in payments that are materially different from our estimates.

As additional information becomes known, we may change our estimates.

At May 30, 2021 and May 31, 2020, we had $ 39.9 million and $ 42.5 million, respectively, of sales incentives and trade promotions payable recorded in “Accrued liabilities” on our Consolidated Balance Sheets.

Advertising and Promotion

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Research and Development

Research and development costs are expensed as incurred and totaled $ 15.4 million in both 2020 and 2019, and $ 13.5 million in fiscal 2018, and are included in “Selling, general and administrative expenses” in the Consolidated Statements of Earnings.

Research and development costs are expensed as incurred and totaled $ 12.9 million in fiscal 2021 and $ 15.4 million in both fiscal 2020 and 2019, and are included in “Selling, general and administrative expenses” in the Consolidated Statements of Earnings.

Stock-Based Compensation

Compensation expense resulting from all stock-based compensation transactions are measured and recorded in the consolidated financial statements based on the grant date fair value of the equity or liability instruments issued.

Compensation expense resulting from all stock-based compensation transactions is measured and recorded in the consolidated financial statements based on the grant date fair value of the equity instruments issued.

Compensation expense is recognized over the period the employee provides service in exchange for the award.

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Cash and Cash Equivalents

Cash and all highly liquid investments with an original maturity of three months or less at the date of acquisition, including short-term time deposits, are classified as cash and cash equivalents and stated at cost, which approximates market value.

Book overdraft balances, if any, are classified in “Accounts payable” in our Consolidated Balance Sheets and are reported as a component of operating cash flows for accounts payable in our Consolidated Statements of Cash Flows as they do not represent bank overdrafts.

Cash and all highly liquid investments with an original maturity of three months or less at the date of acquisition are classified as cash and cash equivalents and stated at cost, which approximates market value.

We maintain various banking relationships with high quality financial institutions and believe we are not exposed to any significant credit risk for our cash and cash equivalents.

Cash and cash equivalents totaled $ 783.5 million and $ 1,364.0 million at May 30, 2021 and May 31, 2020, respectively.

In light of the current uncertainty in the global economy resulting from the COVID-19 pandemic, in the fourth quarter of fiscal 2020, we raised over $ 1 billion of liquidity, which we invested in money market funds that are backed by government Treasury securities and can be redeemed without notice.

See Note 9, Debt and Financing Obligations, for more information.

We invest available cash in money market funds that are backed by U.S.

Treasury securities and can be redeemed without notice.

Trade Accounts Receivable and Allowance for Doubtful Accounts

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In circumstances where a specific customer is unable to meet its financial obligations (e.g., bankruptcy filings, substantial downgrading of credit sources), a specific reserve for bad debts is recorded against amounts due to the Company to reduce the net recorded receivable to the amount that we reasonably believe will be collected.

For all other customers, reserves for bad debts are recognized based on historical collection experience.

For all other customers, reserves for bad debts are recognized based on forward-looking information to assess expected credit losses.

If collection experience deteriorates, the estimate of the recoverability of amounts due could be reduced.

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Trade accounts receivable balances that remain outstanding after we have used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable.

At both May 31, 2020 and May 26, 2019, the allowance for doubtful accounts was $ 1.3 million.

At May 30, 2021 and May 31, 2020, the allowance for doubtful accounts was $ 0.9 million and $ 1.3 million, respectively.

Inventories are valued at the lower of cost (determined using the first-in, first-out method) or net realizable value and include all costs directly associated with manufacturing products:

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Lease assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from these leases.

Effective May 27, 2019, operating lease assets and liabilities are recognized at the commencement date of the lease based on the present value of the lease payments over the lease term.

Effective May 27, 2019 , the beginning of our fiscal 2020, we adopted Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) .

Operating lease assets and liabilities are recognized at the commencement date of the lease based on the present value of the lease payments over the lease term.

Our leases may include options to extend or terminate these leases.

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Leases having a lease term of twelve months or less are not recorded on the balance sheet and the related lease expense is recognized on a straight-line basis over the term of the lease.

In addition, we applied the practical expedient to account for the lease and non-lease components as a single lease component for all of our leases.

In addition, we applied the practical expedient to account for

the lease and non-lease components as a single lease component for all of our leases.

See Note 9, Leases, for more information.

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We perform an annual impairment assessment of goodwill at the reporting unit level in the fourth quarter of each year, or more frequently if indicators of potential impairment exist.

The analysis may include both qualitative and quantitative factors to assess the likelihood of an impairment.

The reporting unit’s carrying value used in an impairment test represents the assignment of various assets and liabilities, excluding certain corporate assets and liabilities, such as cash and debt.

Qualitative factors include industry and market considerations, overall financial performance, and other relevant events and factors affecting the reporting unit.

Additionally, as part of this assessment, we may perform a quantitative analysis to support the qualitative factors above by applying sensitivities to assumptions and inputs used in measuring a reporting unit’s fair value.

Our quantitative impairment test considers both an income approach and a market approach to estimate a reporting unit’s fair value.

Significant estimates include market segment growth rates, our assumed market segment share, estimated costs, and discount rates based on a reporting unit's weighted average cost of capital.

We test the reasonableness of the inputs and outcomes of our discounted cash flow analysis against available market data.

In the current year, we performed a quantitative goodwill impairment test and determined that the fair values for the total company and each of our Global, Foodservice, Retail, and Other reporting units were substantially in excess of the carrying value, and therefore, no goodwill impairment existed.

We have an option to evaluate goodwill for impairment by first performing a qualitative assessment of events and circumstances to determine whether it is more likely than not that the fair value of a reporting until is less than its carrying amount.

If we determine that it is not more likely than not that the fair value of a reporting unit is less than its carrying amounts, then a quantitative goodwill impairment test is not required to be performed.

The quantitative assessment requires us to estimate the fair value of our reporting units using a weighted approach based on discounted future cash flows, market multiples and transaction multiples.

If the carrying amount of the reporting units is in excess of their estimated fair value, the reporting unit will record an impairment charge by the amount that the carrying amount exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill allocated to the reporting unit.

We amortize acquisition-related intangible assets with finite lives over their estimated useful life.

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

All significant inputs used in our valuations, such as discounted cash flows, are observable or can be derived principally from or corroborated with observable market data for substantially the full term of the assets or liabilities.

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

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Revenues and expenses are translated into U.S.

dollars using daily exchange rates.

dollars using daily and monthly average exchange rates.

Gains and losses resulting from the translation of Consolidated Balance Sheets are recorded as a component of “Accumulated other comprehensive income (loss).”

Foreign currency transactions resulted in losses of $ 0.1 million and $ 3.3 million in fiscal 2020 and 2019, and a gain of $ 4.7 million in fiscal 2018.

Foreign currency transactions resulted in a gain of $ 1.3 million, and losses of $ 0.1 million, and $ 3.3 million in fiscal 2021, 2020, and 2019, respectively.

These amounts were recorded in “Selling, general and administrative expenses” in the Consolidated Statements of Earnings.

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We do not designate commodity derivatives to achieve hedge accounting treatment.

Derivative financial instruments did not have a material impact on our Consolidated Statements of Earnings in any of the periods presented.

We recognize current tax liabilities and assets based on an estimate of taxes payable or refundable in the current year for each of the jurisdictions in which we transact business.

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We recognize the effect of income tax positions only if those positions are more likely than not of being sustained.

Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized.

Recognized income tax positions

are measured at the largest amount that is greater than 50% likely of being realized.

Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.

We also recognize deferred tax assets and liabilities for the estimated future tax effects attributable to temporary differences (e.g., the difference in book basis versus tax basis of fixed assets resulting from differing depreciation

If appropriate, we recognize valuation allowances to reduce deferred tax assets to amounts that are more likely than not to be ultimately realized, based on our assessment of estimated future taxable income, including the consideration of available tax planning strategies.

See Note 3, Income Taxes, for more information.

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Recently Adopted Accounting Pronouncements

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

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

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

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

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

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

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

See Note 4, Leases, for more information.

Accounting Pronouncements Not Yet Adopted

Receivables – Credit Losses

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

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

Measurement of Credit Losses on Financial Instruments .

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

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

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

Targeted Transition Relief .

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

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

The adoption of this standard did not have a significant impact on our consolidated financial statements or notes to consolidated financial statements.

Defined Benefit Plans

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

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

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

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

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

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

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

Accounting Pronouncements Not Yet Adopted

Reference Rate Reform

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) Facilitation of the Effects of Reference Rate Reform on Financial Reporting .

This update provides optional guidance for a limited period of time to

ease potential accounting impacts associated with transitioning away from reference rates that are expected to be discontinued, such as interbank offered rates and the London Interbank Offered Rate (“LIBOR”).

This update provides optional guidance for a limited period of time to ease potential accounting impacts associated with transitioning away from reference rates that are expected to be discontinued, such as interbank offered rates and the London Interbank Offered Rate (“LIBOR”).

This guidance includes practical expedients for contract modifications due to reference rate reform.

Generally, contract modifications related to reference rate reform may be considered an event that does not require remeasurement or reassessment of a previous accounting determination at the modification date.

This guidance is effective immediately;

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

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

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

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

See Note 6, Investments in Joint Ventures, in our Annual Report on Form 10-K for the fiscal year ended May 31, 2020, which we filed with the Securities and Exchange Commission on July 28, 2020.

(b) Potentially dilutive shares of common stock from employee incentive plans are determined by applying the treasury stock method to the assumed exercise of outstanding stock options and the assumed vesting of outstanding restricted stock units and performance awards.

As of May 31, 2020 and May 26, 2019, an insignificant number of stock-based awards were excluded from the computation of diluted earnings per share because they would be antidilutive.

As of May 30, 2021, we did not have any stock-based awards that were antidilutive.

As of May 31, 2020 and May 26, 2019, an insignificant number of stock-based awards were excluded from the computation of diluted earnings per share because they would be antidilutive.

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

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Total provision for taxes

Income taxes computed by applying the U.S.

statutory tax rates to income from operations, including equity method earnings, and before income taxes are reconciled to the provision for income taxes set forth in the Consolidated Statements of Earnings as follows (dollars in millions):

A reconciliation of income tax expense using the 21 % U.S.

statutory tax rate on income from operations, including equity method earnings and before income taxes, compared with the actual provision for income taxes follows (dollars in millions):

For the Fiscal Years Ended May

Provision computed at U.S.

statutory rate (a)

statutory rate

Increase (reduction) in rate resulting from:

State and local taxes, net of federal benefit

Tax credits and domestic manufacturers deduction

Effect of taxes on foreign operations

Deferred impact of rate change (b)

Transition tax liability (b)

Total provision for taxes

Effective income tax rate (c)

statutory tax rate was 21 % for fiscal years 2020 and 2019.

The impact of the lower U.S.

statutory income tax rate from the U.S.

Tax Cuts and Jobs Act of 2017 (the “Tax Act”) was phased in during fiscal 2018, resulting in a U.S.

statutory tax rate of 29.3 % .

(b) In connection with the impact of the Tax Act in fiscal 2018, we recorded a $ 45.4 million net tax benefit from the impact of remeasuring our net U.S.

deferred tax liabilities during fiscal 2018, including $ 5.5 million of deferred tax benefits originating during the year, with the new lower statutory tax rate.

We also recorded an $ 11.5 million transition tax on our previously untaxed foreign earnings that is primarily payable over eight years .

In fiscal 2019, we completed our analysis of the one-time impacts of the Tax Act and reduced the transition tax by $ 2.4 million.

(c) The effective income tax rate is calculated as the ratio of income tax expense to pre-tax income, inclusive of equity method investment earnings.

Effective income tax rate (a)

(a) The effective income tax rate is calculated as the ratio of income tax expense to pre-tax income, inclusive of equity method investment earnings.

Income Taxes Paid

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Inventory and inventory reserves

Lease liabilities

Lease obligations

Debt issuance costs

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(a) At May 30, 2021, Lamb Weston had approximately $ 14.1 million of gross ($ 3.1 million after-tax) foreign net operating loss carryforwards, of which the majority expire during fiscal 2022.

Lamb Weston also has a foreign tax credit carryforward of $ 0.5 million, which will expire by fiscal 2031.

(b) The valuation allowance is predominantly related to non-amortizable intangibles and the portion of the net operating loss carryforwards that we are not more likely than not to realize.

The net impact on income tax expense related to changes in the valuation allowance, including net operating loss carryforwards, was zero in fiscal 2020, $ 1.1 million of benefit in fiscal 2019, and zero in fiscal 2018.

(c) Deferred tax assets of $ 2.3 million and $ 1.8 million as of May 31, 2020 and May 26, 2019, respectively, were presented in “Other assets.” Deferred tax liabilities of $ 152.5 million and $ 125.7 million as of May 31, 2020 and May 26, 2019, respectively, were presented in “Deferred income taxes” as a long-term liability on the Consolidated Balance Sheets.

The net impact on income tax expense related to changes in the valuation allowance, including net operating loss carryforwards, was zero in fiscal 2021 and 2020, and $ 1.1 million of benefit in fiscal 2019.

(c) Deferred tax assets of $ 2.2 million and $ 2.3 million as of May 30, 2021 and May 31, 2020, respectively, were presented in “Other assets.” Deferred tax liabilities of $ 159.7 million and $ 152.5 million as of May 30, 2021 and May 31, 2020, respectively, were presented in “Deferred income taxes” as “Long-term liabilities” on the Consolidated Balance Sheets.

The deferred tax asset and liability net position is determined by tax jurisdiction.

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Increases from positions established during current and prior fiscal years

Decreases relating to settlements with taxing authorities

Expiration of statute of limitations

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We do not have any significant open tax audits.

As part of the tax matters agreement, Conagra has responsibility for tax audits associated with pre-Separation periods, including any associated adjustments for consolidated federal and state filings.

As part of the tax matters agreement we entered into with Conagra in connection with the Separation, Conagra has responsibility for tax audits associated with pre-Separation periods, including any associated adjustments for consolidated federal and state filings.

Major jurisdictions where we conduct business generally have statutes of limitations ranging from three to five years .

The expiration of statute of limitations could reduce the uncertain tax positions by $ 6.5 million during the next 12 months.

Although the timing of the resolutions and/or closures of audits is highly uncertain, it is reasonably possible that certain U.S.

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The estimated impact on income tax expense and net income is not expected to be significant.

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

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

Our leases have remaining lease terms of one to 20 years .

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

Year Ended May 31, 2020 (a)

Operating lease costs

Short-term and variable lease costs

Sublease income

Amortization of lease assets

Interest on lease liabilities

Total lease costs, net

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

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

As of May 31, 2020

Operating lease assets

Property, plant and equipment, net (a)

Total leased assets

Lease liabilities due within one year:

Accrued liabilities

Current portion of long-term debt and financing obligations

Long-term lease liabilities:

Other noncurrent liabilities

Long-term debt and financing obligations, excluding current portion

Total lease liabilities

(a) Finance leases are net of accumulated amortization of $ 12.2 million.

The maturities of our lease liabilities for operating and finance leases at May 31, 2020 for the next five fiscal years and thereafter are as follows (dollars in millions):

Total lease payments

Present value of lease liabilities

Weighted-average remaining lease term (years)

Weighted-average discount rate

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

Total lease payments

Discount to present value

Total lease liability

Current portion of financing obligations

Long-term financing obligations, excluding current portion

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

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

Rent expense, prior to the adoption of ASC 842, was $ 24.3 million and $ 26.0 million in fiscal 2019 and 2018, respectively.

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

Year Ended May 31, 2020

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

Cash used for operating activities

Cash used for financing activities

Noncash investing and financing activities:

Assets obtained in exchange for new operating lease obligations

Assets obtained in exchange for new finance lease obligations

On July 2, 2019 and December 21, 2018 , we acquired 100 % of the outstanding shares of two different frozen potato processors in Australia for $ 116.7 million and $ 88.6 million, respectively, net of cash acquired.

These acquisitions added approximately 70 million and 50 million pounds of production capacity, respectively, to our manufacturing network and expanded our geographic reach.

Net sales, income from operations, and total assets from either of these acquisitions are not material to our consolidated net sales, income from operations, and total assets.

The operating results for the acquisitions are included in our Global segment.

We allocated the purchase price of the July 2019 and December 2018 acquisitions to the assets acquired and liabilities assumed based on estimates of the fair value at the date of the acquisition, of which $ 106.1 million and $ 75.1 million, respectively, after final working capital adjustments, was allocated to goodwill (which is not deductible for tax purposes) and $ 3.7 million and $ 4.4 million, respectively, was allocated to intangible assets (both to be amortized on a straight-line basis over a weighted average life of 10 years ).

In both acquisitions, the intangible assets primarily related to brand names.

The purchase price allocations are complete.

INVESTMENTS IN JOINT VENTURES

We hold a 50 % ownership interest in Lamb-Weston/Meijer v.o.f.

(“Lamb-Weston/Meijer”), a joint venture with Meijer Frozen Foods B.V.

Headquartered in the Netherlands, this joint venture manufactures and sells frozen potato products principally in Europe.

Lamb Weston holds equity interests in three potato processing joint ventures, including 50 % of Lamb-Weston/Meijer v.o.f.

(“Lamb-Weston/Meijer”), Lamb-Weston/RDO Frozen (“Lamb Weston RDO”), and Lamb Weston Alimentos Modernos S.A.

(“LWAMSA”), which it accounts for its ownership under the equity method of accounting.

The carrying value of these equity method investments at May 30, 2021 and May 31, 2020, was $ 310.2 million and $ 250.2 million, respectively, and are included in “Equity method investments” on our Consolidated Balance Sheets.

In fiscal 2021, 2020, and 2019, we had sales to our equity method investments of $ 15.3 million, $ 27.8 million, and $ 29.9 million, respectively, and payments to our equity method investments of $ 5.2 million, $ 8.6 million, and $ 10.9 million, respectively.

Total dividends from our equity method investments were $ 18.8 million, $ 29.0 million, and $ 45.7 million for fiscal 2021, 2020, and 2019, respectively.

As of May 30, 2021 and May 31, 2020, we had receivables included in “Receivables” on our Consolidated Balance Sheet from our joint ventures of $ 6.3 million and $ 7.1 million, respectively.

Summarized combined financial information for our equity method investments based on 100 %of their operations is as follows (dollars in millions):

For the Fiscal Years Ended May

Income from operations

Current assets

Noncurrent assets

Current liabilities

Noncurrent liabilities

Lamb-Weston/Meijer

We hold a 50 % ownership interest in Lamb-Weston/Meijer, a joint venture with Meijer Frozen Foods B.V., that is headquartered in the Netherlands and manufactures and sells frozen potato products principally in Europe, Russia, and the Middle East.

We receive a royalty from Lamb-Weston/Meijer based on a per ton rate of the sales volumes of the venture.

The fees received were $ 1.6 million, $ 1.8 million, and $ 1.7 million in fiscal 2020, 2019, and 2018, respectively.

The fees received were $ 1.6 million in both fiscal years 2021 and 2020 and $ 1.8 million in fiscal 2019.

These fees are recorded as a reduction to “Selling, general and administrative expenses” in our Consolidated Statements of Earnings.

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We account for this investment using equity method accounting.

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

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

As of May 31, 2020, Lamb-Weston/Meijer’s portion of the ERP costs totaled $ 13.0 million, of which $ 3.0 million related to items expensed in “Selling, general, and administrative expenses” and the remainder was capitalized.

We received $ 1.0 million from Lamb-Weston/Meijer and we have $ 12.0 million of receivables recorded on our Consolidated Balance Sheet at May 31, 2020.

Of the $ 12.0 million receivable, $ 1.8 million and $ 10.2 million were recorded in “Account receivable, net” and “Other assets,” respectively.

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

We also hold a 50 % interest in Lamb-Weston/RDO Frozen (“Lamb Weston RDO”), a joint venture with RDO Frozen Co.

We have an agreement to share the costs of our global ERP system and related software and services with Lamb-Weston/Meijer.

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

As of May 30, 2021 and May 31, 2020, Lamb-Weston/Meijer’s portion of the ERP costs totaled $ 16.8 million and $ 13.0 million, respectively.

We had $ 13.3 million and $ 12.0 million of receivables recorded on our Consolidated Balance Sheets at May 30, 2021 and May 31, 2020, respectively.

Of the $ 13.3 million and $ 12.0 million of receivables, $ 0.1 million and $ 1.8 million were recorded in “Receivables, net” and $ 13.2 million and $ 10.2 million were recorded in “Other assets,” respectively.

We expect the total receivable from Lamb-Weston/Meijer to increase as development and implementation of the next phase of our ERP system commences in fiscal 2022.

Lamb Weston RDO

We hold a 50 % interest in Lamb Weston RDO, a joint venture with RDO Frozen Co.

This joint venture operates a potato processing plant in Minnesota.

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We account for this investment using equity method accounting.

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

(“LWAMSA”), a joint venture with Sociedad Commercial del Plata, for $ 27.3 million.

Headquartered in Argentina, this joint venture manufactures and sells frozen potato products principally in South America.

During the fiscal year ended May 31, 2020, we paid $ 22.6 million and will pay the remaining $ 4.7 million, less any amounts for indemnified losses, in October 2024.

We hold a 50 % ownership interest in LWAMSA, a joint venture with Sociedad Comercial del Plata S.A.

, that is headquartered in Argentina.

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

During fiscal year 2020, we paid $ 22.6 million and will pay the remaining amount of the purchase price, less any amounts for indemnified losses, in October 2024.

At May 30, 2021, we had $ 5.5 million, recorded for the remaining amount of the purchase price, which includes accretion and translation, in “Other noncurrent liabilities” on our Consolidated Balance Sheet.

We account for the investment using equity method accounting.

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This basis difference is comprised of equity method goodwill and will not be amortized.

The carrying value of our equity method investments, which includes Lamb-Weston/Meijer, Lamb Weston RDO, and LWAMSA at May 31, 2020 and May 26, 2019, was $ 250.2 million and $ 224.6 million, respectively, and are included in “Equity method investments” on our Consolidated Balance Sheets.

In fiscal 2020, 2019, and 2018, we had sales to our equity method investments of $ 27.8 million, $ 29.9 million, and $ 29.3 million and payments to our equity method investments of $ 8.6 million, $ 10.9 million, and $ 10.7 million, respectively.

Total dividends from our equity method investments were $ 29.0 million, $ 45.7 million, and $ 48.7 million for fiscal 2020, 2019, and 2018, respectively.

As of May 31, 2020 and May 26, 2019, we had receivables included in “Accounts receivable” on our Consolidated Balance Sheet from our joint ventures of $ 7.1 million and $ 12.7 million, respectively.

Summarized combined financial information for our equity method investments based on 100 %of their operations is as follows (dollars in millions):

For the Fiscal Years Ended May

Earnings before income taxes

Current assets

Noncurrent assets

Current liabilities

Noncurrent liabilities

Variable Interest Entity - Consolidated

On November 2, 2018, we entered into a Membership Interest Purchase Agreement (the “BSW Agreement”) with Ochoa Ag Unlimited Foods, Inc.

(“Ochoa”) to acquire the remaining 50.01 % interest in Lamb Weston BSW, a potato processing joint venture.

We paid Ochoa approximately $ 65 million in cash attributable to our contractual right to purchase the remaining equity interest in Lamb Weston BSW, plus $ 13.2 million attributable to Ochoa’s interest in expected earnings of the joint venture through our fiscal year ended May 26, 2019.

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

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

The Consolidated Statements of Earnings include 100 % of Lamb Weston BSW’s earnings beginning November 2, 2018, the date we entered into the BSW Agreement.

Prior to entering into the BSW Agreement, the value of the redeemable noncontrolling interest was recorded on our Consolidated Balance Sheet based on the value of Ochoa’s put option.

In connection with our purchase of the remaining 50.01 % interest in the joint venture, we recorded $ 9.4 million of accretion, net of tax benefits, to increase the redeemable noncontrolling interest to the amount we agreed to pay.

The purchase created $ 9.3 million of deferred tax assets related to the step-up in tax basis of the acquired assets.

We recorded both the accretion of the noncontrolling interest and the related tax benefits in “Additional distributed capital” on our Consolidated Balance Sheet, both of which did not impact net income.

While the accretion, net of tax benefits, had no impact on net income in the Consolidated Statements of Earnings, it reduced net income available to common stockholders by $ 9.4 million, net of tax, and both basic and diluted earnings per share by $ 0.06 , during fiscal 2019.

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

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

The aggregate amounts of potato purchases were $ 24.6 million in fiscal 2019 (through November 2, 2018) and $ 58.7 million in fiscal 2018.

The aggregate amounts of costs for storage facilities and water treatment services were $ 2.5 million in fiscal 2019 (through November 2, 2018) and $ 5.1 million in fiscal 2018.

The balance of our investment was $ 28.8 million and $ 26.5 million as of May 30, 2021 and May 31, 2020, respectively.

On July 2, 2019 and December 21, 2018, we acquired 100 % of the outstanding shares of two different frozen potato processors in Australia for $ 116.7 million and $ 88.6 million, respectively, net of cash acquired.

These acquisitions added approximately 70 million and 50 million pounds of production capacity, respectively, to our manufacturing network and expanded our geographic reach.

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

The operating results for the acquisitions are included in our Global segment.

We allocated the purchase prices of the July 2019 and December 2018 acquisitions to the assets acquired and liabilities assumed based on estimates of the fair value at the respective date of the acquisition, of which $ 106.1 million and $ 75.1 million, respectively, after final working capital adjustments, was allocated to goodwill (which is not deductible for tax purposes) and $ 3.7 million and $ 4.4 million, respectively, was allocated to intangible assets (both to be amortized on a straight-line basis over a weighted average life of 10 years ).

In both acquisitions, the intangible assets primarily related to brand names.

The purchase price allocations are complete.

GOODWILL AND OTHER IDENTIFIABLE INTANGIBLE ASSETS

The following table presents changes in goodwill balances as allocated to each segment for fiscal years 2020 and 2019 (dollars in millions):

The following table presents changes in goodwill balances, by segment, for fiscal years 2021 and 2020 (dollars in millions):

Balance at May 26, 2019

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Balance at May 31, 2020

Acquisition (b)

Foreign currency translation adjustment

Balance at May 30, 2021

(a) In December 2018, we acquired a frozen potato processor in Australia and recorded $ 75.1 million of goodwill in our Global segment.

See Note 5, Acquisitions, for more information.

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

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

See Note 5, Acquisitions, for more information.

Identifiable intangible assets were as follows (dollars in millions):

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

Non-amortizing intangible assets (a)

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

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

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

In addition, developed technology is recorded as “Other assets” on our Consolidated Balance Sheet.

Amortization expense was $ 5.0 million, $ 2.5 million, and $ 2.2 million in fiscal 2021, 2020, and 2019, respectively.

Foreign intangible assets are affected by foreign currency translation.

Based on current intangibles subject to amortization, we expect intangible asset amortization expense will be approximately $ 2.6 million in fiscal 2021 and 2022 and $ 2.5 million, $ 2.0 million, and $ 1.7 million in fiscal 2023, 2024, and 2025, respectively, and approximately $ 9.0 million thereafter.

Based on current intangibles subject to amortization, we expect intangible asset amortization expense, excluding developed technology, will be approximately $ 2.7 million, $ 2.6 million, and $ 2.1 million in fiscal 2022, 2023, and 2024, respectively, $ 1.8 million in fiscal 2025 and 2026 , and approximately $ 7.9 million thereafter.

Impairment Testing

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Additionally, when we experience changes to our business or operating environment, we evaluate the remaining useful lives of our finite-lived purchased intangible assets to determine whether any adjustments to the useful lives are necessary.

As a result of the COVID-19 pandemic’s impact on our operations, we performed a quantitative analysis to test our goodwill for impairment during the fourth quarter of 2020.

Based on the results of the quantitative impairment test, we determined that the fair values for total company and each of our Global, Foodservice, Retail, and Other reporting units exceeded the carrying value and therefore, no goodwill impairment existed.

Additionally, we completed our tests of our non-amortizing intangibles in the fourth quarter and there was no indication of intangible asset impairment.

During the annual goodwill impairment test we performed in the fourth quarter of fiscal 2021, we assessed qualitative factors to determine whether it was more likely than not that the fair value of each reporting unit was less than its carrying value.

Based on the results of the qualitative impairment test, we determined that it was not more likely than not that the fair value was less than the carrying value of our Global, Foodservice, Retail, and Other reporting units.

Additionally, we completed our tests of our non-amortizing intangibles in the fourth quarter of fiscal 2021 and there was no indication of intangible asset impairment.

ACCRUED LIABILITIES

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Dividends payable to shareholders

Current portion of operating lease liabilities (a)

Current portion of operating lease obligations

Franchise, property, and sales and use taxes

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Accrued liabilities

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

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

DEBT AND FINANCING OBLIGATIONS

At May 31, 2020 and May 26, 2019, our debt, including financing obligations, was as follows (dollars in millions):

At May 30, 2021 and May 31, 2020, our debt and financing obligations were as follows (dollars in millions):

Short-term borrowings:

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Long-term debt:

Term loan facility, due 2021

Term A-1 loan facility, due 2024

Term A-2 loan facility, due 2025

4.625 % senior notes, due 2024

4.875 % senior notes, due 2026

4.875 % senior notes, due 2028

Term loan facility, due November 2021

Term A-1 loan facility, due June 2024

Term A-2 loan facility, due April 2025

4.625 % senior notes, due November 2024

4.875 % senior notes, due November 2026

4.875 % senior notes, due May 2028

Financing obligations:

4.35 % lease financing obligation due May 2030 (a)

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

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

Total debt and financing obligations

Debt issuance costs (c)

Debt issuance costs (b)

Short-term borrowings

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Long-term debt and financing obligations, excluding current portion

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

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

(b) The interest rates on our lease financing obligations ranged from 2.31 % to 4.10 % at May 31, 2020 and 2.72 % to 4.33 % at May 26, 2019, respectively.

(a) The interest rates on our lease financing obligations ranged from 2.49 % to 4.10 % at May 30, 2021 and 2.31 % to 4.10 % at May 30, 2020, respectively.

For more information on our lease financing obligations, see Note 9, Leases.

(c) We amortize debt issuance costs into interest expense using the effective interest method over the life of the loan facilities.

(b) We amortize debt issuance costs into interest expense using the effective interest method over the life of the loan facilities.

In fiscal 2021, 2020, and 2019, we recorded $ 6.1 million, $ 6.2 million, and $ 4.7 million, respectively, of amortization expense in “Interest expense” in our Consolidated Statements of Earnings.

Fiscal 2021 included a $ 1.0 million write-off of debt issuance cost in connection with the Amended Revolving Credit Facility.

Fiscal 2020 included a $ 1.7 million write-off of debt issuance costs in connection with the $ 300.0 million payment on the term loan facility due in 2021.

Revolving Credit Facility and Term Loan Facility (together “Credit Facilities”)

In November 2016, we entered into a five-year $ 675.0 million amortizing term loan facility and a five-year non-amortizing $ 500.0 million revolving credit facility that mature in November 2021.

In March 2020, we drew $ 495.0 million available under the revolving credit facility and in June and July 2020, we repaid $ 100.0 million and $ 395.0 million, respectively.

As of July 2020, $ 495.1 million was available to us under the revolving credit facility, net of $ 4.9 million of outstanding letters of credit.

For the periods from May 27, 2019 through May 31, 2020 and May 28, 2018 through May 26, 2019, the weighted average interest rate for our outstanding borrowings under the revolving credit facility was 2.35 % and 3.94 %, respectively.

At May 31, 2020, we had $ 276.6 million outstanding under the term loan facility.

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

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

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

Amended Revolving Credit Facility

We are party to a senior secured credit agreement, dated as of November 9, 2016, with a syndicate of lenders.

On September 17, 2020, we amended the credit agreement to, among other things, increase the aggregate principal amount of available revolving credit facility borrowings to $ 750.0 million and extend the maturity date to September 17, 2023 (“Amended Revolving Credit Facility”).

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

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

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

Under the terms of the credit agreement, we must maintain ratios as of the last day of each fiscal quarter, of consolidated net leverage ratio of 4.50 to 1.00 and an interest coverage ratio of 2.75 to 1.00.

The credit agreement also contains covenants that, subject to exceptions, limit our ability and the ability of our subsidiaries to, among other things, incur, assume or guarantee additional indebtedness, pay distributions on, redeem or repurchase capital stock or redeem or repurchase subordinated debt, make loans and investments, incur or suffer to exist liens, sell, transfer or otherwise dispose of assets, enter into agreements that restrict distributions or other payments from restricted subsidiaries to us, engage in transactions with affiliates, designate subsidiaries as unrestricted or restricted, and consolidate, merge, amalgamate or transfer all or substantially all of our assets.

Upon the occurrence of an event of default, among other things, amounts outstanding under the Credit Facilities may be accelerated and the commitments may be terminated.

Our obligations under the Credit Facilities are unconditionally guaranteed by certain of our direct and indirect domestic subsidiaries on the terms set forth in the credit agreement.

The credit agreement is secured by security interests and liens on substantially all of our and each of our subsidiary guarantor’s assets, as long as Lamb Weston remains below investment grade by both Moody’s and Standard & Poor’s.

Term A-1 and A-2 Loan Facilities due 2024 and 2025

The Amended Revolving Credit Facility requires us to maintain a consolidated net leverage ratio no greater than 5.00 to 1.00, decreasing ratably to 4.50 to 1.00 on February 26, 2022 through maturity;

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

The Amended Revolving Credit Facility also contains covenants that, subject to exceptions, limit our ability and the ability of our subsidiaries to, among other things, incur, assume or guarantee additional indebtedness, pay distributions on, redeem or repurchase capital stock or redeem or repurchase subordinated debt, make loans and investments, incur or suffer to exist liens, sell, transfer or otherwise dispose of assets, enter into agreements that restrict distributions or other payments from restricted subsidiaries to us, engage in transactions with affiliates, designate subsidiaries as unrestricted or restricted, and consolidate, merge, amalgamate or transfer all or substantially all of our assets.

Upon the occurrence of an event of default, among other things, amounts outstanding under the credit facility may be accelerated and the commitments may be terminated.

Our obligations under the Amended Revolving Credit Facility are unconditionally guaranteed by certain of our direct and indirect domestic subsidiaries on the terms set forth in the credit agreement.

The credit agreement is secured by security interests and liens on substantially all of our and each of our subsidiary guarantor’s assets, unless Lamb Weston is rated investment grade by at least two of Fitch Ratings, Inc., Moody’s Investors Service, Inc., and Standard & Poor’s Ratings Services.

In connection with the Amended Revolving Credit Facility, we repaid the outstanding $ 271.9 million term loan facility due in November 2021 with cash on hand and capitalized $ 2.4 million of debt issuance costs as “Other assets” on our Consolidated Balance Sheet.

During fiscal 2021, we recognized $ 1.0 million of expenses, in “Interest expense, net” for the write-off of debt issuance costs related to the payoff of the term loan facility.

At May 30, 2021, we had no borrowings outstanding under our Amended Revolving Credit Facility.

At May 30, 2021, we had $ 744.6 million of availability under the facility, which is net of outstanding letters of credit of $ 5.4 million.

For the period from June 1, 2020 through May 30, 2021, borrowings under our revolving credit facility ranged from zero dollars to a high of $ 495.0 million.

For the period from June 1, 2020 through May 30, 2021 and May 27, 2019 through May 31, 2020, the weighted average interest rate for our outstanding borrowings under the revolving credit facility was 1.68 % and 2.35 %, respectively.

In March 2020, we drew $ 495.0 million available under the revolving credit facility and in June and July 2020, we repaid $ 100.0 million and $ 395.0 million, respectively.

Term A-1 and A-2 Loan Facilities

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

Borrowings on the Term A-1 Loan Facility amortize in equal quarterly installments for a total of 5 % annually, with the balance payable in June 2024.

The proceeds of the term loans under the Term A-1 Loan Facility were used to repay $ 300.0 million of the term loan facility due in 2021.

Borrowings under the Term A-1 Loan Facility bear interest, before anticipated patronage dividends, at LIBOR or the Base Rate (as defined in the Term A-1 Loan Facility agreement) plus an applicable margin ranging from 1.625 % to 2.375 % for LIBOR-based loans and from 0.625 % to 1.375 % for Base Rate-based loans, depending upon our consolidated net leverage ratio.

During the year ended May 31, 2020, the average interest rate on the Term A-1 Loan Facility was approximately 3.33 %.

During the years ended May 30, 2021 and May 31, 2020, the average interest rate on the Term A-1 Loan Facility was approximately 1.77 % and 3.33 %, respectively.

We have received and expect to continue receiving patronage dividends under the Term A-1 Loan Facility.

After giving effect to expected patronage distributions, the effective average interest rate on the Term A-1 Loan Facility was approximately 2.52 %.

After giving effect to expected patronage distributions, the effective average interest rate on the Term A-1 Loan Facility was approximately 0.95 % and 2.52 %, for the years ended May 30, 2021 and May 31, 2020, respectively.

On April 20, 2020, we amended the Term A-1 Loan Facility agreement to, among other things, provide for a new $ 325.0 million term loan facility (“Term A-2 Loan Facility”).

Borrowings under the Term A-2 Loan Facility bear interest, before anticipated patronage dividends, at LIBOR or the Base Rate (as defined in the Term A-2 Loan Facility agreement) plus an applicable rate ranging from 2.200 % to 2.950 % for LIBOR-based loans and from 1.200 % to 1.950 % for Base Rate-based loans, depending on our consolidated net leverage ratio.

The borrowings mature on April 20, 2025 .

During the year ended May 31, 2020, the average interest rate on the Term A-2 Loan Facility was approximately 2.85 %.

We expect to receive patronage dividends under the Term A-2 Loan Facility.

After giving effect to expected patronage distributions, the effective average interest rate on the Term A-2 Loan Facility was approximately 2.03 %.

The Term A-1 and A-2 Loan Facilities are unconditionally guaranteed by the same subsidiaries as the Credit Facilities discussed above.

Borrowings on the Term A-2 Loan Facility amortize in equal quarterly installments for a total of 5 % annually, with the balance payable in April 2025.

During the years ended May 30, 2021 and May 31, 2020, the average interest rate on the Term A-2 Loan Facility was approximately 2.34 % and 2.85 %, respectively.

We have received and expect to continue receiving patronage dividends under the Term A-2 Loan

After giving effect to expected patronage distributions, the effective average interest rate on the Term A-2 Loan Facility was approximately 1.53 % and 2.03 %, for the years ended May 30, 2021 and May 31, 2020, respectively.

The Term A-1 and A-2 Loan Facilities are unconditionally guaranteed by the same subsidiaries as the Amended Revolving Credit Facility.

Borrowings under the Term A-1 and A-2 Loan Facilities may be prepaid without premium or penalty and once repaid, cannot be reborrowed.

Additionally, the covenants, events of default, securities and liens are consistent with the Credit Facilities.

On September 23, 2020, in connection with the Amended Revolving Credit Facility, we amended the credit agreement relating to the Term A-1 and A-2 Loan Facilities, to, among other things, modify the term loan facilities to make conforming changes to the affirmative and negative covenants under the facilities.

As such, the covenants, events of default, securities and liens under the Term A-1 and A-2 Loan Facilities are consistent with the Amended Revolving Credit Facility.

The financial covenants under the Term A-1 and A-2 Loan Facilities, however, remain unchanged, requiring us to maintain a consolidated net leverage ratio no greater than 4.50 to 1.00 and an interest coverage ratio no less than 2.75 to 1.00 .

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

In November 2016, we issued (i) $ 833.0 million aggregate principal amount of 4.625 % senior notes due 2024 (“2024 Notes”) and (ii) $ 833.0 million aggregate principal amount of 4.875 % senior notes due 2026 (“2026 Notes”) pursuant to indentures, dated as of November 9, 2016, among Lamb Weston, certain of our subsidiaries as guarantors and Wells Fargo Bank, National Association, as trustee.

Our obligations under the 2024 Notes and 2026 Notes are unconditionally guaranteed on a senior unsecured basis by each of our subsidiaries that guarantee our obligations under the Credit Facilities.

The 2024 Notes and 2026 Notes are senior unsecured obligations and rank equally with all of our current and future senior indebtedness, rank senior to all our current and future subordinated indebtedness and are subordinated to all of our current and future secured indebtedness (including all borrowings with respect to the Credit Facilities and Term A-1 and A-2 Loan Facilities to the extent of the value of the assets securing such indebtedness).

Our obligations under the 2024 Notes and 2026 Notes are unconditionally guaranteed on a senior unsecured basis by each of our subsidiaries that guarantee our obligations under the Amended Revolving Credit Facility and Term A-1 and A-2 Loan Facilities.

The 2024 Notes and 2026 Notes are senior unsecured obligations and rank equally with all of our current and future senior indebtedness, rank senior to all our current and future subordinated indebtedness and are subordinated to all of our current and future secured indebtedness (including all borrowings with respect to the Amended Revolving Credit Facility and Term A-1 and A-2 Loan Facilities to the extent of the value of the assets securing such indebtedness).

Interest on the 2024 Notes and 2026 Notes is due semiannually.

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In May 2020, we issued $ 500.0 million aggregate principal amount of 4.875 % senior notes due in 2028 (“2028 Notes”) pursuant to an indenture, dated as of May 12, 2020, among Lamb Weston, certain of our subsidiaries as guarantors and Wells Fargo Bank, National Association, as trustee.

Our obligations under the 2028 Notes are unconditionally guaranteed on a senior unsecured basis by each of our subsidiaries that guarantee our obligations under the Credit Facilities.

The 2028 Notes bear interest at a rate of 4.875 % per year and mature on May 15, 2028 , unless earlier redeemed or repurchased.

Our obligations under the 2028 Notes are unconditionally guaranteed on a senior unsecured basis by each of our subsidiaries that guarantee our obligations under the Amended Revolving Credit Facility and Term A-1 and A-2 Loan Facilities.

The 2028 Notes bear interest at a rate of 4.875 % per

year and mature on May 15, 2028 , unless earlier redeemed or repurchased.

We capitalized approximately $ 6.2 million of debt issuance costs associated with this offering.

The 2028 Notes are senior unsecured obligations and rank equally with all of our current and future senior indebtedness (including the 2024 and 2026 Notes), rank senior to all our current and future subordinated indebtedness and are subordinated to all of our current and future secured indebtedness (including all borrowings with respect to the Credit Facilities and the Term A-1 and A-2 Loan Facilities to the extent of the value of the assets securing such indebtedness).

The 2028 Notes are senior unsecured obligations and rank equally with all of our current and future senior indebtedness (including the 2024 and 2026 Notes), rank senior to all our current and future subordinated indebtedness and are subordinated to all of our current and future secured indebtedness (including all borrowings with respect to the Amended Revolving Credit Facility and Term A-1 and A-2 Loan Facilities to the extent of the value of the assets securing such indebtedness).

Interest on the 2028 Notes is due semiannually.

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

(a) Debt includes $ 495.0 million of borrowings on the Revolving Credit Facility which we fully repaid in July 2020 (discussed above) and $ 3.7 million of expected payments on our other credit facilities in 2021.

See Note 4, Leases, for maturities of our lease financing obligations.

(a) See Note 9, Leases, for maturities of our lease financing obligations.

During fiscal 2021, 2020, and 2019 we paid $ 120.6 million, $ 105.7 million, and $ 107.8 million, respectively, of interest on debt.

Other Credit Facilities

We have $ 30.8 million of other credit facilities, under which $ 3.7 million and $ 1.2 million were outstanding at May 31, 2020 and May 26, 2019, respectively.

These facilities consist of two overdraft lines.

Borrowings under the facilities bear interest at a percentage of the stated rate of $ 3.56 % and 4.35 % at May 31, 2020 and May 26, 2019, respectively, and may be prepaid without penalty.

We guarantee the full amount of our subsidiary’s obligations to the financial institution up to the maximum amount of the credit facility.

Financing Obligations

During fiscal 2010, we completed the sale of approximately 17,600 acres of farmland to an unrelated buyer and immediately entered into an agreement with an affiliate of the buyer to lease back the farmland.

Lamb Weston’s performance under the lease was guaranteed by Conagra.

Conagra’s guarantee precluded accounting for this transaction as a sale and leaseback and, accordingly, the $ 75.0 million of proceeds received were treated as a financing obligation and the land and related equipment was included on our Consolidated Balance Sheets.

At May 26, 2019, the remaining balance of the financing obligation was $ 65.3 million and the net carrying value of the related property was $ 38.7 million.

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

At May 30, 2021, one of our subsidiaries had $ 56.5 million of availability under an overdraft line of credit facility with a financial institution with no borrowings outstanding.

At May 31, 2020, we had $ 30.8 million of availability under this facility and another credit facility with the same financial institution, with $ 3.7 million of borrowings outstanding.

Borrowings under these facilities bear interest at an effective rate of 3.915 % and 3.560 % at May 30, 2021 and May 31, 2020, respectively, and may be prepaid without penalty.

We guarantee the full amount of our subsidiary’s obligations to the financial institution up to the maximum amount of borrowings under the credit facilities.

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

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

Our leases have remaining lease terms of one to 19 years .

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

For the Fiscal Year Ended May (a)

Operating lease costs

Short-term and variable lease costs

Sublease income

Finance lease costs:

Amortization of lease assets

Interest on lease obligations

Total lease costs, net

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

Rent expense, prior to the adoption of ASC 842, was $ 24.3 million in fiscal 2019.

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

Classification

Operating lease assets

Finance lease assets

Property, plant and equipment, net (a) (b)

Total leased assets

Lease obligations due within one year:

Operating lease obligations

Accrued liabilities

Finance lease obligations

Current portion of long-term debt and financing obligations (b)

Long-term lease obligations:

Operating lease obligations

Other noncurrent liabilities

Finance lease obligations

Long-term debt and financing obligations, excluding current portion (b)

Total lease obligations

(a) Finance leases are net of accumulated amortization of $ 4.7 million and $ 12.2 million at May 30, 2021 and May 31, 2020, respectively.

(b) During fiscal 2021, we modified certain finance leases in the normal course of business resulting in a reduction of approximately $ 4.3 million of finance lease assets and short-term and long-term finance lease obligations recorded on our Consolidated Balance Sheet.

The maturities of our lease obligations for operating and finance leases at May 30, 2021 for the next five fiscal years and thereafter are as follows (dollars in millions):

Total lease payments

Present value of lease obligations

Weighted-average remaining lease term (years)

Weighted-average discount rate

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

For the Fiscal Years Ended May

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

Operating cash flows for operating leases

Financing cash flows for finance leases

Noncash investing and financing activities:

Assets obtained in exchange for new operating lease obligations

Assets obtained in exchange for new finance lease obligations

EMPLOYEE BENEFIT PLANS AND OTHER POST-RETIREMENT BENEFITS

Only certain hourly employees covered by collective bargaining agreements continue to accrue pension benefits.

Only certain hourly employees covered by certain collective bargaining agreements continue to accrue pension benefits.

Participants that do not actively participate in a pension plan are eligible to participate in defined contribution savings plans with employer matching provisions consistent with other employees without pension benefits.

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We made employer-matching contributions of $ 28.8 million, $ 28.7 million, and $ 21.3 million in fiscal 2021, 2020, and 2019, respectively.

We sponsor a deferred compensation savings plan, which is an unfunded nonqualified defined contribution plan.

The plan permits eligible employees to continue to make deferrals and receive company matching contributions when their contributions to the defined contribution plan are stopped due to limitations under U.S.

With the exception of a small Rabbi Trust, participant deferrals and company matching contributions are not invested in separate trusts, but are paid directly from our general assets at the time benefits become due and payable.

We sponsor a deferred compensation savings plan that permits eligible employees to continue to make deferrals and receive company matching contributions when their contributions to the defined contribution plan are stopped due to limitations under U.S.

In addition, we sponsor a deferred compensation plan for non-employee directors that allow directors to defer their cash compensation and stock awards.

Both deferred compensation plans are unfunded nonqualified defined contribution plans.

Participant deferrals and company matching contributions (for the employee deferred compensation plan only) are not invested in separate trusts, but are paid directly from our general assets at the time benefits become due and payable.

At May 30, 2021 and May 31, 2020, we had $ 23.5 million and $ 18.0 million, respectively, of liabilities attributable to participation in our deferred compensation plan recorded on our Consolidated Balance Sheets.

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

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

The funded status of our plans is based on company contributions, benefit payments, the plan asset investment return, the discount rate used to measure the liability, and expected participant longevity.

The following table, which includes only company-sponsored defined benefit and other post-retirement benefit plans, reconciles the beginning and ending balances of the projected benefit obligation and the fair value of plan assets.

We recognize the unfunded status of these plans on the Consolidated Balance Sheets, and we recognize changes in funded status in the year changes occur through the Consolidated Statements of Comprehensive Income (Loss) (dollars in millions):

For the Fiscal Years Ended May

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Benefits paid

Plan settlements

Plan settlements (a)

Actuarial (gain) loss

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Participant contributions

Benefits paid (a)

Benefits paid

Fair value of plan assets at end of year

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Net amortization of unrecognized amounts

Prior service benefit

Actuarial loss

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Actuarial (gain) loss

Amortization of prior service benefit

Amortization of actuarial loss (b)

Total recognized in other comprehensive loss (income)

Total recognized in net periodic benefit cost and other comprehensive loss (income) (pre-tax)

Total recognized in net periodic benefit cost and other comprehensive loss (income) (pre-tax) (c)

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

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We did not recognize a curtailment gain or loss with any of the amendments.

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

The estimated net amount of actuarial losses on pension and post-retirement benefits included in “Accumulated other comprehensive loss” on our Consolidated Balance Sheets to be amortized in fiscal 2021 is a net loss of $ 0.3 million ($ 0.2 million after tax).

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

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

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The expected long-term rate of return is adjusted when there are fundamental changes in expected returns on the plan investments.

The weighted-average expected return on plan assets we will use in our calculation of fiscal 2021 net period pension benefit cost is 2.90 %.

The weighted-average expected return on plan assets we will use in our calculation of fiscal 2022 net periodic pension benefit cost is 4.00 %.

Health Care Cost Trend Rate Assumptions.

We review external data and historical trends for health care costs to determine our health care cost trend rate assumptions .

We assumed health care cost trend rates for our post-retirement benefit plan as follows:

Health care cost trend rate (Pre65)

We assumed health care cost trend rates for our post-retirement benefit plan obligation as follows:

Health care cost trend rate assumed for next year (Pre65)

Ultimate health care cost trend rate

Year that the rate reaches the ultimate trend rate

A one-percentage point increase in the assumed health care cost trend rate would have an insignificant effect on the fiscal 2020, 2019 and 2018 postretirement benefit obligation.

Investment Policies and Strategies and Fair Value Measurements of Plan Assets

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Significant Unobservable Inputs

Cash and cash equivalents

Equity securities:

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From time to time, we may make discretionary contributions based on the funded status of the plans, tax deductibility, income from operations, and other factors.

In fiscal 2020, we made $ 3.8 million of contributions to our qualified plan, which represented our minimum contribution requirements as well as discretionary contributions.

In July 2020, we contributed $ 3.4 million to our qualified pension plan, which was in excess of the minimum required to be contributed in fiscal 2021.

In fiscal 2021, we made $ 3.4 million of discretionary contributions to our qualified plan.

There are no minimum required contributions in fiscal 2022, however, in July 2021, we made a $ 2.0 million discretionary contribution to our qualified pension plan.

We continually reassess the amount and timing of discretionary contributions, if any.

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2016 Stock Plan, which was amended in July 2017 (“Stock Plan”).

The Compensation Committee (“the Committee”) of our Board of Directors administers this stock compensation plan.

The Compensation Committee (“the Committee”) of our Board of Directors administers our stock compensation plan.

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

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We estimate the fair value of the RSUs based upon the market price of our common stock at the date of grant.

Certain RSU grants do not provide for the accrual of dividend equivalents to the participant during the vesting period.

For those grants, the value of the grants is reduced by the net present value of the foregone dividend equivalent payments.

Performance Shares are granted to certain executives and other key employees with vesting contingent upon meeting various Company-wide performance goals.

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Outstanding at May 31, 2020

Performance condition adjustment (b)

Forfeited/expired/cancelled

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

(b) Amount represents the adjustment to Performance Shares based on performance results attained in excess of target.

(c) The aggregate fair value of awards that vested in fiscal 2020, 2019, and 2018 was $ 24.9 million, $ 24.7 million, and $ 16.6 million, respectively, which represents the market value of our common stock on the date that the RSUs and Performance Shares vested.

(b) The aggregate fair value of awards that vested in fiscal 2021, 2020, and 2019 was $ 29.3 million, $ 24.9 million, and $ 24.7 million, respectively, which represents the market value of our common stock on the date that the RSUs and Performance Shares vested.

The number of RSUs and Performance Shares vested includes shares of common stock that we withheld on behalf of employees to satisfy the minimum statutory tax withholding requirements.

RSUs that are expected to vest are net of estimated future forfeitures.

Stock Options

We have historically granted stock options to employees for the purchase of stock at exercise prices equal to the fair market value of the underlying stock on the date of grant.

Stock options generally become exercisable in three annual installments beginning on the first anniversary of the grant date and have a maximum term of ten years .

Stock options were last issued in fiscal 2018 and we do not expect to issue new stock option awards under our Stock Plan.

At May 31, 2020, we had 453,050 stock options outstanding at a weighted average exercise price of $ 27.79 with a weighted average remaining term of 5.1 years, and an aggregate intrinsic value of $ 14.6 million.

Of these outstanding stock options, 434,218 were exercisable at May 31, 2020.

Compensation Expense

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For the Fiscal Years Ended May

Stock-settled RSUs

Performance Shares

Stock options

Stock-settled compensation expense

Cash-settled RSUs (a)

Total compensation expense

Income tax benefit (b)

Income tax benefit (a)

Total compensation expense, net of tax benefit

(a) As of May 31, 2020, there were no outstanding cash-settled RSUs.

During fiscal 2020-2018, cash-settled RSUs were marked-to-market and presented within “Accrued liabilities” and “Other noncurrent liabilities” in our Consolidated Balance Sheets.

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

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

Based on estimates at May 30, 2021, total unrecognized compensation expense related to stock-based awards was as follows (dollars in millions):

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Pension plan assets

Deferred compensation assets

Derivative liabilities (a)

Derivative assets (a)

Deferred compensation liabilities (b)

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Deferred compensation assets

Derivative assets (a)

Derivative liabilities (a)

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Total liabilities

(a) The fair values of our Level 2 derivative assets and liabilities were determined using valuation models that use market observable inputs including interest rate curves and both forward and spot prices for commodities.

Derivative assets and liabilities included in Level 2 primarily represent commodity swap and option contracts.

(a) Derivative assets and liabilities included in Level 2 primarily represent commodity swap and option contracts.

The fair values of our Level 2 derivative assets and liabilities were determined using valuation models that use market observable inputs including both forward and spot prices for commodities.

Derivative assets are presented within “Prepaid expenses and other current assets” and derivative liabilities are presented within “Accrued liabilities” on our Consolidated Balance Sheets.

(b) The fair values of our Level 2 deferred compensation liabilities were valued using third-party valuations, which are based on the net asset values of mutual funds in our retirement plans.

While the underlying assets are actively traded on an exchange, the funds are not.

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

Non-financial assets such as property, plant and equipment, and intangible assets are recorded at fair value only if an impairment is recognized.

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STOCKHOLDERS’ EQUITY

In connection with the Separation, we amended and restated our certificate of incorporation to authorize 600,000,000 shares of common stock and 60,000,000 shares of preferred stock.

Our certificate of incorporation authorizes 600,000,000 shares of common stock and 60,000,000 shares of preferred stock.

We had 146,191,864 shares of common stock issued and outstanding as of May 30, 2021.

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Comprehensive income includes net income, currency translation adjustments, and changes in prior service cost and net actuarial gains (losses) from pension and post-retirement benefit plans.

We generally deem our foreign investments

to be indefinite in nature and we do not provide for taxes on currency translation adjustments arising from converting the investment denominated in a foreign currency to the U.S.

We generally deem our foreign investments to be indefinite in nature and we do not provide for taxes on currency translation adjustments arising from converting the investment denominated in a foreign currency to the U.S.

If we determine that a foreign investment, as well as undistributed earnings, are no longer indefinite in nature, estimated taxes are provided for the related deferred tax liability (asset), if any, resulting from currency translation adjustments.

Changes in AOCI, net of taxes, as of May 30, 2021, were as follows (dollars in millions):

Amounts in parentheses indicate losses.

Post-Retirement

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Gains (Losses)

Income (Loss)

Balance as of May 31, 2020

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Our chief operating decision maker receives periodic management reports under this structure that generally focus on the nature and scope of our customers’ businesses, which enables operating decisions, performance assessment, and resource allocation decisions at the segment level.

The reportable segments are each managed by a general manager and supported by a cross functional team assigned to support the segment.

The reportable segments are each managed by a general manager and supported by a cross functional team assigned to support the segment (dollars in millions).

See “Part I, Item 1.

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For the Fiscal Years Ended May

(in millions)

Total net sales

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Advertising and promotion expenses (b)

Selling, general and administrative expenses (d)

Selling, general and administrative expenses

Income from operations

Interest expense, net

Income tax expense (e)

Equity method investment earnings (f)

Income attributable to noncontrolling interests (g)

Income tax expense (d)

Equity method investment earnings

Income attributable to noncontrolling interests (e)

Net income attributable to Lamb Weston Holdings, Inc.

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

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

The increase in our costs, and the costs of our joint ventures, related to lower factory utilization and production inefficiencies, manufacturing and operational disruptions directly attributable to the pandemic, expensing of excess crop year 2019 raw potato purchase contracts that could not be used due to the pandemic’s near-term effect on demand for frozen potato products, as well as incremental warehousing and transportation costs, and costs to enhance employee safety measures, including purchases of safety and health screening equipment, retaining sales employees, and expensing certain capitalized manufacturing facility expansion projects that were stopped.

These restrictions had a negative impact on our sales, costs, and earnings of our joint ventures, resulting in a negative impact on our net income in fiscal 2021 and 2020.

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

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

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

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

Product contribution margin includes advertising and promotion expenses because those expenses are directly associated with segment performance.

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

(d) Fiscal 2018 includes $ 8.7 million of pre-tax expenses related to the Separation, primarily related to professional fees and employee-related costs.

(e) In fiscal 2019, the Tax Act decreased income tax expense and increased net income by $ 27.2 million, or $ 0.19 per share, including a $ 24.8 million, or $ 0.17 per share, tax benefit related to a lower U.S.

(d) In fiscal 2019, the Tax Act decreased income tax expense and increased net income by $ 27.2 million, or $ 0.19 per share, including a $ 24.8 million, or $ 0.17 per share, tax benefit related to a lower U.S.

corporate tax rate and a $ 2.4 million, or $ 0.02 per share, benefit from the true-up of the transition tax on previously untaxed foreign earnings.

Since our fiscal year end is the last Sunday in May, in fiscal 2018, we phased in the impact of the lower tax rate, resulting in a U.S.

corporate tax rate of 29.3 % , compared with 21 % in fiscal 2020 and 2019.

We completed our analysis of the one-time impacts of the Tax Act in fiscal 2019.

In connection with our initial analysis of the impact of the Tax Act in fiscal 2018, we decreased income tax expense and increased net income $ 64.7 million, or $ 0.44 per share.

This included a $ 28.4 million, or $ 0.19 per share net benefit for one-time items, including a $ 39.9 million net provisional tax benefit from the estimated impact of remeasuring our net U.S.

deferred tax liabilities with a new lower federal tax rate, partially offset by an $ 11.5 million transition tax on our previously untaxed foreign earnings.

It also included a $ 36.3 million, or $ 0.25 per share, tax benefit related to a lower U.S.

corporate tax rate.

In fiscal 2018, we phased in the impact of the lower tax rate, resulting in a 29.3 % U.S.

corporate tax rate in fiscal 2018.

(f) Fiscal 2020 includes a $ 2.6 million loss related to the withdrawal from a multiemployer pension plan by Lamb Weston RDO.

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

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

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

See Note 6, Investments in Joint Ventures, for more information.

See Note 6, Investments in Joint Ventures, in our Annual Report on Form 10-K for the fiscal year ended May 31, 2020, which we filed with the Securities and Exchange Commission on July 28, 2020.

Assets by Segment

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Concentrations

Lamb Weston’s largest customer, McDonald’s Corporation, accounted for approximately 10 %of our consolidated net sales in both fiscal 2020 and 2019, and 11 % of our consolidated net sales in fiscal 2018.

Lamb Weston’s largest customer, McDonald’s Corporation, accounted for approximately 11 % of our consolidated net sales in fiscal 2021, and 10 %of our consolidated net sales in both fiscal 2020 and 2019.

No customer accounted for 10% of our consolidated accounts receivable at May 30, 2021 or May 31, 2020.

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Our long-lived assets located outside of the United States are not significant.

At May 31, 2020, we had approximately 7,700 employees.

Approximately 800 of these employees work outside of the United States.

At May 30, 2021, we had approximately 7,800 employees, of which approximately 800 of these employees work outside of the United States.

Approximately 27 % of our employees are parties to collective bargaining agreements on terms that we believe are typical for the industry in which we operate.

Most of the union workers at our facilities are represented under contracts that expire at various times throughout the next several years.

Collective bargaining agreements that represent 19 % of our hourly employees, who are parties to collective bargaining agreements, expire in fiscal 2021.

Collective bargaining agreements that represent 55 % of our hourly employees, who are parties to collective bargaining agreements, are scheduled to expire over the course of fiscal 2022.

As these agreements expire, we believe they will be renegotiated on terms satisfactory to us.

27 unchanged sentences

While any claim, proceeding or litigation has an element of uncertainty, we believe the outcome of any of these that are pending or threatened will not have a material adverse effect on our financial condition, results of operations, or cash flows.

QUARTERLY FINANCIAL DATA (unaudited;

dollars in millions, except per-share amounts)

Income before income taxes and equity method earnings

Income tax expense (benefit)

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

Earnings per share

Dividends declared

Income before income taxes and equity method earnings

Income tax expense

Net income attributable to Lamb Weston Holdings, Inc.

Earnings per share

Dividends declared

(a) The sum of quarterly amounts may not agree to our annual results due to rounding.

The third quarter of fiscal 2020 included a $ 2.6 million loss related to the withdrawal from a multiemployer pension plan by Lamb Weston RDO.

The first and second quarters of fiscal 2019 included a $ 14.0 million and $ 15.4 million benefit, respectively, related to lower U.S.

corporate tax rates as part of the Tax Act.

The third quarter of fiscal 2019 included $ 6.4 million expense;

approximately $ 7.4 million of expense related to a higher U.S.

corporate tax related to the timing of the Tax Act, offset partially by a $ 1.0 million benefit for the estimated true-up of the transition tax under the Tax Act.

The fourth quarter of fiscal 2019 included a $ 4.2 million benefit related to the Tax Act;

approximately $ 2.8 million relates to a lower U.S.

corporate tax rate and $ 1.4 million relates to the true-up of the transition tax under the Tax Act.

(b) See footnote (a) to the table in Note 14, Segments, for a discussion of the impact of government efforts to control the spread of COVID-19, including restrictions on restaurants and other foodservice operations and stay-at-home orders, on our financial results.

(c) The fourth quarter of fiscal 2020 excludes a weighted average of 0.8 million potentially dilutive shares from the diluted earnings (loss) per share calculation as they would have been antidilutive.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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-K

Item 8. Financial Statements and Supplementary Data