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Item 2. Management’s Discussion and Analysis

2021-10-07 compared with 2021-04-07 · 136 added, 230 removed, 99 unchanged (79% of the section changed)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations, which we refer to as “MD&A,” should be read in conjunction with our condensed consolidated financial statements and related notes included in "Financial Statements and Supplementary Data"

of this Quarterly Report on Form 10-Q (this "Form 10-Q") and the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 2020 (the “Form 10-K”), which we filed with the U.S.

Securities and Exchange Commission (“SEC”) on July 28, 2020.

of this Quarterly Report on Form 10-Q (this "Form 10-Q") and in “Financial Statements and Supplementary Data” of the Company's Annual Report on Form 10-K for the fiscal year ended May 30, 2021 (the “Form 10-K”), which we filed with the United States (“U.S.”) Securities and Exchange Commission (“SEC”) on July 27, 2021.

Forward-Looking Statements

This report, including the MD&A, contains forward-looking statements within the meaning of the federal securities laws.

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

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

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

Examples of forward-looking statements include, but are not limited to, statements regarding our plans, execution, capital investments, operational costs, cash flows, liquidity, dividends, share repurchases, enterprise resource planning (“ERP”) system implementation and business outlook and prospects, as well as the impact of the COVID-19 pandemic on our industry and the global economy.

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

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These risks and uncertainties include, among other things:

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

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

the availability and prices of raw materials;

levels of pension, labor and people-related expenses;

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

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our debt levels;

the availability and prices of raw materials;

changes in our relationships with our growers or significant customers;

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the ultimate outcome of litigation or any product recalls;

levels of pension, labor and people-related expenses;

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

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This MD&A is provided as a supplement to the consolidated financial statements and related condensed notes included elsewhere herein to help provide an understanding of our financial condition, changes in financial condition and results of our operations.

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

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

Our MD&A is based on financial data derived from the financial statements prepared in accordance with U.S.

generally accepted accounting principles (“GAAP”) and certain other financial data (including Adjusted EBITDA and Adjusted EBITDA including unconsolidated joint ventures) that is prepared using non-GAAP financial measures.

Refer to “Non-GAAP Financial Measures” below for the definitions of Adjusted EBITDA and

Adjusted EBITDA including unconsolidated joint ventures, and a reconciliation of these non-GAAP financial measures to net income.

Executive Summary

Lamb Weston’s financial performance in the third quarter of fiscal 2021 reflects the COVID-19 pandemic’s negative impact on frozen potato demand in our food-away-from-home sales channels.

While demand and shipment trends have improved in both our food-away-from-home and food-at-home sales channels since the end of fiscal 2020, shipments to restaurants and other foodservice outlets remain below pre-pandemic levels.

However, COVID-19 significantly disrupted manufacturing and distribution operations across our entire supply chain network, which resulted in higher costs.

As a result, our sales and earnings in the third quarter of fiscal 2021 declined as compared to the third quarter of fiscal 2020.

Specifically:

● Net sales declined 4% to $895.8 million

Our strong sales growth in the first quarter of fiscal 2022 reflects the ongoing broad recovery of the frozen potato category following the pandemic’s negative impact on demand in our food-away-from-home channels.

However, our earnings in the quarter declined versus the prior year, reflecting the effect of significant inflation and other industrywide challenges on our manufacturing and supply chain operations, as well as higher selling, general and administrative (“SG&A”) expenses.

Specifically, in the quarter:

● Net sales increased 13% to $984.2 million

● Income from operations declined 56% to $60.2 million

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● Adjusted EBITDA including unconsolidated joint ventures declined 39% to $123.4 million

Compared with the third quarter of fiscal 2020, our sales volume declined as demand for frozen potato products outside the home fell after government-imposed social restrictions to slow the spread of COVID-19 reduced restaurant traffic and included restrictions for on-premise dining.

The volume decline was partially offset by higher price/mix, which was largely due to higher prices in our Retail and Foodservice segments, and favorable mix in our Retail segment.

Income from operations declined due to lower sales and higher manufacturing and distribution costs, which were largely due to incremental costs resulting from the pandemic’s disruptive effect on our production, transportation, and warehousing operations.

We also incurred higher costs in the quarter related to capital, repair and maintenance activities that we delayed at the onset of the pandemic.

In addition, higher manufacturing costs reflected input cost inflation.

The decline in income from operations was also due to higher selling, general and administrative (“SG&A”) expenses, reflecting investments to improve our manufacturing and supply chain operations over the long term, and to a lesser extent, investments to improve our information technology infrastructure.

We expect that we will continue to incur significant costs as a result of the pandemic’s ongoing impact on our manufacturing, distribution, commercial and functional support operations until the COVID-19 virus is broadly contained.

These costs may include, but are not limited to:

production inefficiencies and labor retention costs arising from modifying production schedules, reducing run-times, and lower overall factory utilization;

costs to shut down, sanitize, and restart production facilities after production is impacted by the virus;

costs to adopt and maintain enhanced employee safety and sanitation protocols, such as purchasing personal protection and health screening equipment and services;

and incremental warehousing and transportation costs.

We also expect that the pandemic will continue to have a negative impact on the U.S.

and global economies, global consumer demand for frozen potato products, and on our business and financial results until the COVID-19 virus is broadly contained.

While the degree of the impact of the pandemic on our business going forward remains uncertain, we continue to closely monitor the global french fry industry, including consumer reaction and demand.

During the third quarter, we observed the following:

● In the U.S., overall restaurant traffic was between 85% and 90% of pre-pandemic levels.

Traffic at large, quick service chain restaurants (“QSRs”) during the third quarter remained essentially at prior-year levels by continuing to leverage drive-thru and delivery formats.

Traffic at full-service restaurants was largely between 70% and 80% of prior-year levels during much of the quarter as governments in most states and localities continued to impose at least partial social and on-premise indoor dining restrictions.

Demand by our non-commercial customers (i.e., lodging and hospitality, healthcare, schools and universities, sports and entertainment, and workplace environments) remained at approximately 50% of prior-year levels.

In contrast, demand for retail frozen potato products remained strong, generally following an increase in overall food-at-home consumption following continued government-imposed social restrictions.

● In Europe, which is served by our Lamb-Weston/Meijer joint venture, demand for frozen potato products was 80% to 85% of prior-year levels, reflecting the continuation of government-imposed social restrictions.

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

● Demand in our other key international markets was mixed.

In China, demand for frozen potatoes was strong versus last year, when demand was depressed following the imposition of social restrictions during the latter half of the quarter.

Although demand varied in our other key international markets, it improved sequentially versus the second quarter of fiscal 2021, and was generally stronger in developed markets than in emerging markets.

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

As of February 28, 2021, we had $714.3 million of cash and cash equivalents.

During the first three quarters of fiscal 2021, we generated $374.8 million of cash from operations, spent $106.7 million in capital expenditures, including those on information technology initiatives, and paid $100.9 million of cash dividends to shareholders.

In addition, we resumed our share repurchase program in January 2021, which we suspended at the onset of the COVID-19 pandemic to preserve liquidity, and repurchased 164,678 shares for $12.7 million, reflecting an average price per purchased share of $77.04.

As discussed above, the government-imposed social and business restrictions, including closing or partially closing restaurants and other foodservice operations, have led to a decrease in consumer and customer demand for our products.

In response, we have taken actions, and will continue to evaluate various options, to lower our cost structure and maximize the efficiency of our manufacturing and commercial operations, including modifying production schedules to rebalance utilization rates across our manufacturing network.

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

We believe that the possibility of wide availability of government-approved COVID-19 vaccines by mid-calendar 2021 may allow governments to gradually ease broad social restrictions in their respective jurisdictions, which would likely have a favorable impact on restaurant traffic.

While we expect to continue to face challenging and volatile operating conditions until the virus is broadly contained, we continue to believe that global restaurant traffic will improve through calendar year 2021.

Improvements in global restaurant traffic would, in turn, lead to overall frozen potato demand approaching pre-pandemic levels, on a run-rate basis, by the end of the calendar year.

Operating Results

Compared with the first quarter of fiscal 2021, the increase in net sales was primarily driven by higher sales volumes in North America as demand in our restaurant and foodservice channels continued to improve as the economy further reopened and as consumer traffic recovered.

The increase in sales was most pronounced in our Foodservice segment, which has a higher proportion of its sales to on-premise dining establishments, including independent restaurants and non-commercial operations, such as lodging and hospitality, healthcare, schools and universities, sports and entertainment, and workplace environments.

Sales volumes also continued to increase at the large chain restaurant customers served by our Global segment, but to a lesser extent as sales volumes in this channel had largely recovered to pre-pandemic levels in the prior year quarter.

In contrast, sales volumes in our Retail segment declined largely due to lower shipments of private label products resulting from incremental losses of certain low-margin business, and as food-at-home purchases began to normalize to pre-pandemic levels.

Our net sales increase was also aided by higher price/mix in each of our core business segments, reflecting pricing actions, including the benefit of higher prices charged to customers for product delivery, as well as favorable mix.

Overall international sales volumes, which are included in our Global segment, varied by market, but improved versus the prior year period as restaurant traffic continued to gradually recover.

However, our exports were hindered by pandemic-related congestion at U.S.

West Coast ports as well as the availability of shipping containers.

In Europe, which is served by our Lamb-Weston/Meijer joint venture, sales volumes also increased as restaurant traffic continued to improve, although earnings were also negatively affected by inflation, production, and transportation challenges affecting its supply chain.

Despite an increase in sales, income from operations declined largely due to higher manufacturing and distribution costs on a per pound basis.

The increase in costs predominantly reflected double-digit cost inflation from key inputs and transportation.

We also incurred higher costs and inefficiencies related to labor availability across our manufacturing network.

In addition, the decline in earnings was also driven by higher SG&A expenses, largely due to investments to improve our operations over the long term, higher compensation and benefit expenses, and higher advertising and promotional (“A&P”) expenses.

We remain committed to prioritizing the health and well-being of our employees and contractors, to supporting our customers, and to maintaining our financial strength as the pandemic continues to impact our business and the global economy.

We expect our net sales in fiscal 2022 to increase versus the prior year as global demand for frozen potato products continues to recover.

In the U.S., during the first quarter of fiscal 2022, we saw shipments to large chain restaurants as well as in our Foodservice segment, in aggregate, approach pre-pandemic levels, although the rate of recovery in our Foodservice segment slowed during the final month of the quarter due to a resurgence of COVID-19 infections.

However, we expect the recovery in restaurant traffic will gradually resume as vaccination rates improve and the rate of COVID-19 infections eases.

We continue to expect that overall frozen potato demand may approach pre-pandemic levels, on a run-rate basis, by the end of the calendar year.

We expect our earnings in fiscal 2022 to be pressured largely as a result of inflation and industrywide operational challenges.

We anticipate that the rate of inflation for many of our manufacturing, commodity, and transportation costs, including, but not limited to edible oils, rail, trucking, ocean freight, and packaging, will increase compared to what we experienced in fiscal 2021.

We also expect our potato costs on a per pound basis will likely rise as the year progresses due to the extreme summer heat that negatively affected the quality of potato crops in the Pacific Northwest.

We anticipate the ongoing effects of the pandemic and the rapid resurgence of the broader economy will continue to pressure and disrupt our global supply chain operations, including the availability of manufacturing labor, through the remainder of fiscal 2022, which is expected to lead to volatile operating conditions and incremental manufacturing and distribution costs.

Our experienced team is taking specific actions to mitigate these challenges, most notably executing pricing actions intended to offset commodity inflation, restructuring freight policies, modifying production and crewing schedules to reduce labor volatility, adopting new policies and practices to attract and retain manufacturing employees, and rationalizing our product portfolio.

In addition, we expect overall SG&A in fiscal 2022 will be higher than the prior year largely due to increased compensation and benefit expenses, as well as continued investments to improve our information technology, commercial and supply chain operations over the long term.

This includes resuming our efforts to implement the next phase of a new ERP system, which we deferred due to the disruptive impact of the pandemic on our operations, as well as the significant number of employees working remotely.

While the near-term impact of the pandemic on sales volumes and costs is volatile, we believe we have sufficient liquidity to manage through the uncertainty.

We remain focused on our strategic objectives, and believe that our investments in productivity, technology, and capacity to support customer growth will create value for our stakeholders over the long term.

Results of Operations

We have four reportable segments:

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Net sales and product contribution margin are the primary measures reported to our chief operating decision maker for purposes of allocating resources to our segments and assessing their performance.

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

Product contribution margin includes advertising and promotion expenses because those expenses are directly associated with the performance of our segments.

Product contribution margin represents net sales less cost of sales and A&P expenses.

Product contribution margin includes A&P expenses because those expenses are directly associated with the performance of the Company’s segments.

For additional information on our reportable segments and product contribution margin, see “Non-GAAP Financial Measures” below and Note 13, Segments, of the Condensed Notes to Consolidated Financial Statements in “Part I, Item 1.

Financial Statements” of this report.

Thirteen Weeks Ended February 28, 2021 compared to Thirteen Weeks Ended February 23, 2020 (dollars in millions)

Thirteen Weeks Ended August 29, 2021 compared to Thirteen Weeks Ended August 30, 2020 (dollars in millions)

Net Sales and Product Contribution Margin

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Advertising and promotion expenses

Compared to the prior-year quarter, Lamb Weston’s net sales for the third quarter of fiscal 2021 declined $41.5 million, or 4%, to $895.8 million.

Volume declined 6%, predominantly reflecting lower demand for frozen potato products outside the home related to government-imposed restrictions on restaurants and other foodservice operations to slow the spread of the COVID-19 virus.

The rate of the decline in shipments improved sequentially as compared to the 14% decline that we realized during the first half of fiscal 2021, reflecting the steady recovery in demand, particularly in our Global segment.

Price/mix increased 2 percent, driven primarily by improved price in our Retail and Foodservice segments, and favorable mix in our Retail segment.

Global segment net sales declined $8.6 million, or 2%, to $478.5 million.

Volume declined 2%, reflecting lower demand for frozen potato products outside the home as a result of the pandemic’s negative impact on restaurant and other foodservice-related traffic in some of our key international markets.

Our shipments to North American chain restaurant customers increased nominally compared to the prior year period, and included the benefit of increased sales volumes of limited time offering products.

The segment’s overall 2% rate of decline is an improvement from the 12% rate of decline that the segment realized during the first half of fiscal 2021 compared to the first half of fiscal 2020, largely due to a recovery in international shipments in the third quarter.

Price/mix was flat versus the prior year quarter as favorable price was offset by unfavorable mix.

Foodservice segment net sales declined $63.5 million, or 22%, to $219.5 million.

Volume declined 24% due to lower demand for frozen potato products outside the home as a result of the pandemic’s negative impact on traffic at restaurants and non-commercial customers, such as lodging and hospitality, healthcare, schools and universities, sports and entertainment, and workplace environments.

Shipment and order trends improved as the quarter progressed, reflecting the positive and anticipated effect on restaurant traffic, especially at full-service restaurants, of governments easing social restrictions, as well as the benefit of relatively mild winter weather.

Price/mix increased 2%, reflecting the carryover benefit of a pricing action implemented during the second half of fiscal 2020, partially offset by unfavorable mix as sales of Lamb Weston branded and premium products softened.

Retail segment net sales increased $30.3 million, or 23%, to $162.5 million.

Volume increased 13% as strong growth in shipments of premium and mainstream branded offerings, which have historically comprised approximately 40% of the segment’s volume, was partially offset by a decline in shipments of private label products, which reflects incremental losses of certain low-margin private label business.

Price/mix increased 10 percent, largely driven by favorable mix from higher sales of branded products.

Net sales in our Other segment increased $0.3 million, or 1%, to $35.3 million, as favorable price/mix more than offset lower volumes in our vegetable business.

Gross Profit and Product Contribution Margin

Gross profit declined $53.7 million, or 21%, to $196.7 million in the third quarter of fiscal 2021.

The decline was driven by lower sales and higher manufacturing and distribution costs.

These higher costs were largely due to incremental costs and inefficiencies related to the pandemic’s disruptive effect on our production, transportation, and warehousing operations.

We also incurred higher costs in the quarter related to capital, repair and maintenance activities that we delayed at the onset of the pandemic.

In addition, higher manufacturing costs reflected input cost inflation.

The decline in gross profit was partially offset by a $7.5 million change in unrealized mark-to-market adjustments associated with commodity hedging contracts, which includes a $7.2 million gain in the current quarter, compared with a $0.3 million loss related to these items in the prior year quarter.

Lamb Weston’s overall product contribution margin, defined as gross profit less advertising and promotion expenses, declined $52.5 million, or 22%, to $191.3 million.

The decline was largely due to lower sales and higher manufacturing and distribution costs (as described above).

Global segment product contribution margin declined $30.0 million, or 27%, to $79.3 million.

Higher manufacturing and distribution costs, as well as unfavorable mix, drove the decline.

Global segment cost of sales was $398.2 million, up 6% compared to the third quarter of fiscal 2020, primarily due to higher manufacturing and distribution costs.

Foodservice segment product contribution margin declined $29.6 million, or 30%, to $70.2 million.

Lower sales volumes, higher manufacturing and distribution costs, and unfavorable mix drove the decline, partially offset by favorable price.

Cost of sales was $147.9 million, down 18% compared to the third quarter of fiscal 2020, due to lower sales volumes, partially offset by higher manufacturing and distribution costs.

Retail segment product contribution margin increased $4.3 million, or 15%, to $33.1 million.

Favorable mix drove the increase, partially offset by higher manufacturing and distribution costs, and an $0.8 million increase in advertising and promotional expenses.

Cost of sales was $126.4 million, up 25% compared to the third quarter of fiscal 2020, primarily due to higher sales volume and higher manufacturing and distribution costs.

Other segment product contribution margin increased $2.8 million, or 47%, to $8.7 million.

These amounts include a $4.3 million gain related to unrealized mark-to-market adjustments and realized settlements associated with commodity hedging contracts in the third quarter of fiscal 2021, and a $0.7 million loss related to the contracts in the prior year period.

Excluding these adjustments, Other segment product contribution margin decreased $2.2 million due to higher manufacturing and distribution costs, partially offset by favorable price/mix in our vegetable business.

Selling, General and Administrative Expenses

Compared with the prior-year period, SG&A expenses increased $8.2 million, or 9%, to $96.1 million.

The increase was largely due to investments to improve our manufacturing and supply chain operations over the long term, and to a lesser extent, our information technology infrastructure, which included approximately $1 million of non-recurring expenses, primarily related to consulting expenses associated with a new enterprise resource planning (“ERP”) system.

The increase in SG&A was partially offset by cost management efforts.

Interest Expense, Net

Compared with the prior-year quarter, interest expense, net increased $4.1 million to $29.3 million.

The increase reflected higher average total debt versus the prior year resulting from our actions in late fiscal 2020 and early fiscal 2021 to enhance our liquidity position.

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

Income Tax Expense

Income tax expense for the third quarter of fiscal 2021 and 2020 was $16.3 million and $35.7 million, respectively.

The effective income tax rate (calculated as the ratio of income tax expense to pre-tax income, inclusive of equity method investment earnings) was 19.8% and 24.3% for the third quarter of fiscal 2021 and 2020, respectively, in our Consolidated Statements of Earnings.

The lower effective tax rate for the third quarter fiscal 2021, as compared to the prior year period is primarily due to discrete items originating during the third quarter and a slightly lower annual effective tax rate.

The effective tax rate varies from the U.S.

statutory tax rate of 21% principally due to the impact of U.S.

state taxes, foreign taxes, permanent differences, and discrete items.

Equity Method Investment Earnings

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

Our share of earnings from our equity method investments was $11.1 million and $9.8 million for the third quarter of fiscal 2021 and 2020, respectively.

Equity method investment earnings included a $2.2 million unrealized gain related to mark-to-market adjustments associated with currency and commodity hedging contracts in the current quarter, compared to a $7.3 million unrealized loss related to these items in the prior year quarter.

In addition, in December 2020, Lamb-Weston/Meijer v.o.f.

(“Lamb-Weston/Meijer”) increased its interest in its Russian joint venture from 35.5% to 74.9%, and now consolidates that joint venture in its results.

Earnings in the prior year quarter also included a $2.6 million loss related to the withdrawal from a multiemployer pension plan by Lamb-Weston/RDO Frozen (“Lamb Weston RDO”).

Excluding the mark-to-market adjustments and the Lamb Weston RDO pension-related comparability item, earnings from equity method investments decreased $10.8 million compared to the prior year period.

Lower frozen potato demand in Europe resulting from the continuation of government-imposed social restrictions, as well as higher production costs related to the COVID pandemic, largely drove the earnings decline.

Thirty-Nine Weeks Ended February 28, 2021 compared to Thirty-Nine Weeks Ended February 23, 2020 (dollars in millions)

Net Sales and Product Contribution Margin

Thirty-Nine Weeks Ended

Segment sales

Segment product contribution margin

Advertising and promotion expenses

Compared with the prior-year period, Lamb Weston’s net sales for the first three quarters of fiscal 2021 declined $282.1 million, or 10%, to $2,663.4 million.

Volume declined 12%, reflecting lower demand for frozen potato products outside the home related to government-imposed restrictions on restaurants and other foodservice operations to slow the spread of COVID-19.

The decline was partially offset by higher sales volume in our Retail segment.

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

Global segment net sales declined $142.4 million, or 9%, to $1,401.9 million.

Volume declined 9%, primarily due to lower demand for frozen potato products outside the home as a result of the pandemic’s negative impact on restaurant and other foodservice-related traffic in the U.S.

and in most of our key international markets.

Price/mix was flat as favorable price was offset by unfavorable mix.

Foodservice segment net sales declined $196.0 million, or 22%, to $697.3 million.

Volume declined 26% due to lower demand for frozen potato products outside the home as a result of the pandemic’s negative impact on restaurant and non-commercial customers, such as lodging and hospitality, healthcare, schools and universities, sports and entertainment, and workplace environments.

Price/mix increased 4%, reflecting the carryover benefit of pricing actions implemented during fiscal 2020, partially offset by unfavorable mix as sales of Lamb Weston branded and premium products softened.

Retail segment net sales increased $63.5 million, or 16%, to $457.1 million.

Volume increased 8% due to higher sales of frozen potato products for in-home consumption following government-imposed social restrictions.

Sales volumes of premium and mainstream branded offerings more than offset the decline in sales volumes of private label products, which reflects incremental losses of certain low-margin private label business.

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

Net sales in our Other segment declined $7.2 million, or 6%, to $107.1 million, largely due to lower volumes in our vegetable business, partially offset by favorable price/mix.

Compared to the prior-year quarter, Lamb Weston’s net sales for the first quarter of fiscal 2022 increased $112.7 million, or 13%, to $984.2 million.

Volume increased 11% and price/mix increased 2%.

The increase in sales volumes predominantly reflected the recovery in demand for frozen potato products outside the home, which more than offset the decline in retail volume.

Pricing actions, including the benefit of higher prices charged to customers for product delivery, as well as favorable mix drove the increase in price/mix in each of our core business segments.

Global segment net sales increased $53.7 million, or 12%, to $501.2 million.

Volume increased 10% while price/mix increased 2%.

The sales volume increase reflects the recovery in demand in the U.S.

and in most of our key international markets, as well as the benefit of limited time product offerings.

The increase in price/mix largely reflected favorable price, including higher prices charged for freight.

Foodservice segment net sales increased $84.7 million, or 36%, to $321.4 million.

Volume increased 35% while price/mix increased 1%.

The continued recovery in demand at small and regional chain restaurants, as well as independently-owned restaurants, especially at full-service establishments, drove the increase in sales volumes.

Shipments to non-commercial customers, such as lodging and hospitality, healthcare, schools and universities, sports and entertainment, and workplace environments, also increased versus the prior year quarter, but remained below pre-pandemic levels.

Volume growth was tempered by the inability to service full customer demand due to lower production run-rates and throughput.

The increase in price/mix largely reflected favorable price, including higher prices charged for freight.

Retail segment net sales declined $21.4 million, or 14%, to $132.5 million.

Volume declined 15% while price/mix increased 1%.

The sales volume decline largely reflects lower shipments of private label products resulting from incremental losses of certain low-margin business, and to a lesser extent, a slight decline in branded product sales volumes as food-at-home purchases began to normalize to pre-pandemic levels.

However, total shipments of branded products in the current quarter were well above pre-pandemic levels.

The increase in price/mix was largely driven by favorable price, including higher prices charged for freight.

Net sales in our Other segment declined $4.3 million, or 13%, to $29.1 million.

The decline primarily reflects lower volume in our vegetable business, partially offset by favorable price/mix.

Gross Profit and Product Contribution Margin

Gross profit declined $150.1 million, or 19%, to $634.0 million in the first three quarters of fiscal 2021.

The decline was driven by lower sales and higher manufacturing and distribution costs.

These higher costs were largely due to incremental costs and inefficiencies related to the pandemic’s disruptive effect on our production, transportation, and warehousing operations.

We also incurred higher costs in the third quarter related to capital, repair and maintenance activities that we delayed at the onset of the pandemic.

In addition, higher costs reflected input cost inflation, as well as costs related to processing raw potatoes out of storage longer than in prior years.

The decline in gross profit was partially offset by a $13.7 million change in unrealized mark-to-market adjustments associated with commodity hedging contracts, which includes a $19.1 million gain in the first three quarters of fiscal 2021, compared with a $5.4 million gain related to these items in the prior year period.

Compared with the prior-year period, Lamb Weston’s overall product contribution margin for the first three quarters of fiscal 2021 declined $141.8 million, or 18%, to $624.9 million.

The decline was driven by lower sales and higher manufacturing and distribution costs (as described above).

Global segment product contribution margin declined $91.2 million, or 27%, to $249.8 million in the first three quarters of fiscal 2021.

Lower sales volumes, higher manufacturing and distribution costs, and unfavorable mix drove the decline.

Global segment cost of sales was $1,150.0 million, down 4% compared to the first three quarters of fiscal 2020, primarily due to lower sales, partially offset by higher manufacturing and distribution costs.

Foodservice segment product contribution margin declined $69.8 million, or 22%, to $243.7 million.

Lower sales volumes, higher manufacturing and distribution costs, and unfavorable mix drove the decline, partially offset by favorable price.

Cost of sales was $450.8 million, down 22% compared to the first three quarters of fiscal 2020, due to lower sales volumes, partially offset by higher manufacturing and distribution costs.

Retail segment product contribution margin increased $12.8 million, or 15%, to $99.0 million in the first three quarters of fiscal 2021.

Higher sales volumes, favorable mix and a $3.5 million decline in advertising and promotional expenses drove the increase, which was partially offset by higher manufacturing and distribution costs.

Cost of sales was $354.2 million, up 18% compared to the first three quarters of fiscal 2020, primarily due to higher sales volume and higher manufacturing and distribution costs.

Other segment product contribution margin increased $6.4 million, or 25%, to $32.4 million.

These amounts include a $16.3 million gain related to unrealized mark-to-market adjustments and realized settlements associated with commodity hedging contracts in the first three quarters of fiscal 2021, and a $6.6 million gain related to the contracts in the first three quarters of fiscal 2020.

Excluding these mark-to-market adjustments, Other segment product contribution margin declined $3.3 million, largely due to higher manufacturing and distribution costs in our vegetable business.

Gross profit declined $62.5 million, as the benefit of increased sales volumes was more than offset by higher manufacturing and distribution costs on a per pound basis.

The higher costs per pound predominantly reflected double-digit cost inflation from key inputs, especially edible oils, and transportation, especially trucking and ocean freight.

In addition, we incurred higher manufacturing costs per pound due to volatile labor availability, which was in part a result of COVID-related absenteeism, that affected production run-rates and throughput.

The decline in gross profit also included a $5.6 million decrease in unrealized mark-to-market adjustments associated with commodity hedging contracts, which includes a $1.2 million gain in the current quarter, compared with a $6.8 million gain related to these items in the prior year quarter.

Lamb Weston’s overall product contribution margin, defined as gross profit less A&P expenses, declined $65.4 million, or 31%, to $147.2 million.

The decline was largely due to lower gross profit (as described above) and a $2.9 million increase in A&P expenses to support new product launches in our Retail segment.

Global segment product contribution margin declined $35.2 million to $42.6 million, down 45% versus the prior year quarter.

Input and transportation cost inflation, as well as higher manufacturing costs per pound, more than offset the benefit of higher sales volumes and favorable price/mix.

Global segment cost of sales was $457.7 million, up 24% compared to the first quarter of fiscal 2021, primarily due to higher sales volumes and higher manufacturing and distribution costs.

Foodservice segment product contribution margin increased $10.6 million to $96.4 million, up 12% compared to the prior year quarter.

Higher sales volume and favorable price/mix drove the increase, and was partially offset by input and transportation cost inflation, as well as higher manufacturing costs per pound.

Foodservice segment cost of sales was $224.0 million, up 49% compared to the first quarter of fiscal 2021, primarily due to higher sales volumes and higher manufacturing and distribution costs.

Retail segment product contribution margin declined $21.0 million to $14.8 million, down 59% versus the prior year quarter.

Input and transportation cost inflation, higher manufacturing costs per pound, lower sales volumes and a $2.1 million increase in A&P expenses to support new product launches, drove the decline.

Retail segment cost of sales was $115.6 million, down 2% compared to the first quarter of fiscal 2021, primarily due to lower sales volumes and higher manufacturing and distribution costs.

Other product contribution margin declined $19.8 million to a loss of $6.6 million in the first quarter fiscal 2022, as compared to $13.2 million of income in fiscal 2021.

These amounts include an $8.2 million loss related to unrealized mark-to-market adjustments and realized settlements associated with commodity hedging contracts, and a $7.7 million gain related to the contracts in fiscal 2021.

Excluding these mark-to-market adjustments, Other segment product contribution margin declined $3.9 million, largely due to higher manufacturing costs and lower sales volumes in our vegetable business.

Selling, General and Administrative Expenses

Compared with the prior-year period, selling, general and administrative expenses was flat at $258.1 million.

Lower incentive compensation expense, cost management efforts, and an $8.3 million decline in advertising and promotional expenses offset investments to improve our manufacturing and supply chain operations over the long term, as well as investments in our information technology infrastructure, which included approximately $7 million of non-recurring expenses, primarily related to consulting and employee training expenses associated with a new ERP system.

SG&A increased $13.0 million compared to the prior year quarter, primarily due to investments to improve our information technology, commercial and supply chain operations over the long term, as well as increased compensation and benefit expenses.

These investments included more than $4 million of non-recurring expenses (primarily consulting expenses) associated with a new ERP system, compared to approximately $1 million in the prior year quarter.

In addition, A&P expenses increased $2.9 million, largely in support of the launch of new products in the Retail segment.

Interest Expense, Net

Compared with the prior-year period, interest expense, net increased $10.8 million to $89.6 million.

The increase reflected higher average total debt versus the prior year resulting from our actions to enhance our liquidity position, as well as the write-off of $1.0 million of debt issuance costs related to paying off a term loan facility that was due in November 2021.

Compared with the prior-year quarter, interest expense, net declined $2.4 million to $27.9 million.

The decrease reflected lower average total debt versus the prior year.

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

Income Tax Expense

Income tax expense for the first three quarters of fiscal 2021 and 2020 was $76.2 million and $115.1 million, respectively.

The effective income tax rate (calculated as the ratio of income tax expense to pre-tax income, inclusive of equity method investment earnings) was 23.2% and 23.8% for the first three quarters of fiscal 2021 and 2020, respectively, in our Consolidated Statements of Earnings.

Income tax expense for the first quarter of fiscal 2022 and 2021 was $8.7 million and $28.0 million, respectively.

The effective income tax rate (calculated as the ratio of income tax expense to pre-tax income, inclusive of equity method investment earnings) was 22.6% and 23.9% for the first quarter of fiscal 2022 and 2021, respectively.

The effective tax rate varies from the U.S.

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

Our share of earnings from our equity method investments was $42.2 million and $35.4 million for the first three quarters of fiscal 2021 and 2020, respectively.

Equity method investment earnings included a $6.8 million unrealized gain related to mark-to-market adjustments associated with currency and commodity hedging contracts in the first three quarters of fiscal 2021, compared to a $8.9 million unrealized loss related to the contracts in the first three quarters of fiscal 2020.

In addition, in December 2020, Lamb-Weston/Meijer increased its interest in its Russian joint venture from 35.5% to 74.9%, and now consolidates that joint venture in its results.

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

Excluding the mark-to-market adjustments and the Lamb Weston RDO pension-related comparability item, earnings from equity method investments declined $11.5 million compared to the prior year period.

Lower frozen potato demand in Europe as well as higher manufacturing and distribution costs related to the COVID pandemic largely drove the earnings decline.

Our share of earnings from our equity method investments was $6.2 million and $11.9 million for the first quarter of fiscal 2022 and 2021, respectively.

Equity method investment earnings included a $4.3 million unrealized gain related to mark-to-market adjustments associated with currency and commodity hedging contracts in the current quarter, compared to a $4.7 million unrealized gain related to these items in the prior year quarter.

Excluding the mark-to-market adjustments, earnings from equity method investments declined $5.3 million compared to the prior year period.

The earnings decline largely reflects input cost inflation and higher manufacturing costs in Europe and the U.S.

Liquidity and Capital Resources

Sources and Uses of Cash

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

As a result of the uncertainties caused by the pandemic, we took actions to enhance our liquidity.

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

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

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

Our cash and cash equivalents balance was $714.3 million at February 28, 2021.

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

While we expect increased availability of COVID-19 vaccines to enable a gradual return of consumer french fry demand as our fiscal year progresses, we continue to evaluate and take action, as necessary, to preserve adequate liquidity and ensure that our business can continue to operate during these uncertain times.

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

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

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

Financial Statements” of this report and Note 9, Debt and Financing Obligations, of the Notes to Consolidated Financial Statements in "Part II, Item 8.

Financial Statements and Supplementary Data"

of the Form 10-K.

We ended the first quarter of fiscal 2022 in a strong financial position with resources available for reinvesting in our business, including our strategic growth initiatives, pursuing acquisition opportunities that we may identify, and managing our capital structure on a short- and long-term basis.

During the first quarter of fiscal 2022, we amended our revolving credit facility to increase its capacity to $1.0 billion and to extend the maturity date to August 11, 2026.

At the end of the fiscal first quarter, no borrowings were outstanding under the amended revolving credit facility.

At August 29, 2021, we had $789.7 million of cash and cash equivalents and $994.6 million of availability under our revolving credit facility.

While we expect the near-term impact of the pandemic on sales volumes and costs to remain volatile, we believe we have sufficient liquidity to meet projected capital expenditures, service existing debt and meet working capital requirements for the next 12 months with current cash balances and cash from operations, supplemented as necessary by available borrowings under our existing revolving credit facility.

Below is a summary table of our cash flows, followed by a discussion of the sources and uses of cash through operating, investing, and financing activities (dollars in millions):

Thirty-Nine Weeks Ended

Thirteen Weeks Ended

Net cash flows provided by (used for):

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Operating Activities

In the first three quarters of fiscal 2021, cash provided by operating activities decreased $60.9 million to $374.8 million, compared with $435.7 million in the same period a year ago.

The decrease related to a $149.5 million decrease in income from operations, adjusted for non-cash income and expenses, partially offset by $88.6 million of cash provided by favorable changes in working capital.

Lower income from operations in the first three quarters of fiscal 2021 related to government-imposed restrictions on restaurants and other foodservice operations to slow the spread of COVID-19.

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

Favorable changes in working capital primarily related to an increase in accounts payable and income taxes payable, due to timing, a smaller increase in finished goods inventories, relative to fiscal 2020, and an increase in our compensation and benefits accruals and accrued interest, partially offset by a decrease in rebate accruals due primarily to lower sales in fiscal 2021, relative to fiscal 2020.

This favorability was partially offset by the timing of grower payments and receivable collections.

In the first quarter of fiscal 2022, cash provided by operating activities decreased $88.8 million to $161.8 million, compared with $250.6 million in the same period a year ago.

The decrease related to a $56.7 million decrease in income from operations, adjusted for non-cash income and expenses, and $32.1 million of cash used by unfavorable changes in working capital.

Lower income from operations was driven by higher manufacturing and transportation costs on a per pound basis, reflecting cost inflation for key inputs and transportation.

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

Unfavorable changes in working capital primarily related to an increase in receivables attributable to higher sales at the end of first quarter fiscal 2022, compared with the end of first quarter of fiscal 2021, a decrease in income taxes payable due to lower taxable income in first quarter of fiscal 2022, compared with the prior year quarter, and a decrease in accounts payable and grower payments, due to timing.

The unfavorability was partially offset by lower finished goods inventories compared with the prior year quarter, and an increase in trade promotion accruals due to higher sales, and an increase in accrued interest due to the timing of interest payments.

Investing Activities

Investing activities used $106.2 million of cash in the first three quarters of fiscal 2021, compared with $289.8 million in the same period in the prior year.

Excluding the $116.7 million of cash used for the acquisition of a frozen potato processor in Australia in the prior year, cash used for investing activities decreased $66.9 million, compared with the first three quarters of fiscal 2020.

The decrease related to our efforts to preserve liquidity during the COVID-19 pandemic.

Cash used for capital investing activities in fiscal 2021, including information technology expenditures, is expected to be approximately $160 million, reflecting investments in productivity, optimization and growth capacity projects.

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

In March 2021, we announced the planned construction of a new french fry processing facility in Ulanqab, Inner Mongolia, China with capacity to produce more than 250 million pounds of frozen french fries and other potato products per year.

The new facility will add to our existing in-country production from our facility in Shangdu, Inner Mongolia, China.

The new facility is expected to be completed in the first half of fiscal year 2024 and the investment is expected to be approximately $250 million.

Investing activities used $78.8 million of cash in the first quarter of fiscal 2022, compared with $33.1 million in the same period in the prior year.

The increase primarily relates to our investment in our chopped and formed capacity expansion in American Falls, Idaho and our greenfield french fry processing facility in Ulanqab, Inner Mongolia, China.

We reduced our estimate of cash used for capital expenditures, excluding acquisitions, for fiscal 2022 to approximately $450 million from our previous estimate of $650 million to $700 million, due to the projected timing of expenditures related to some of our capacity expansion projects.

Financing Activities

During the first three quarters of fiscal 2021, cash used for financing activities increased $792.2 million to $919.9 million, compared with $127.7 million during the same period a year ago.

During the first three quarters of fiscal 2021, financing activities primarily related to the repayment of $498.8 million of short-term borrowings, $297.6 million of debt and financing obligations repayments, which includes the repayment of the $271.9 million term loan facility due in November 2021, and the payment of $100.9 million in cash dividends to common stockholders.

During the first three quarters of fiscal 2021, we repurchased 164,678 shares of our common stock at an average price of $77.04 and withheld 162,930 shares from employees to cover income and payroll taxes on equity awards that vested during the period.

During the first three quarters of fiscal 2020, financing activities primarily related to $327.1 million of debt and financing obligation repayments, $299.3 million of net proceeds from the issuance of debt related to refinancing $300.0 million of the $599.1 million term loan facility outstanding at May 26, 2019, the payment of $87.7 million in cash dividends to common stockholders, $12.7 million of short-term borrowings and $28.9 million in cash used to repurchase 367,734 shares of our common stock, including tax withholdings in connection with vesting of restricted stock.

We took actions to further strengthen our liquidity by amending our revolving credit facility on August 11, 2021, to increase its capacity to $1.0 billion, extend the maturity date to August 11, 2026, and lower pricing with more favorable terms and conditions.

At the end of the fiscal first quarter, no borrowings were outstanding under the amended revolving credit facility.

During the first quarter of fiscal 2022, cash used for financing activities decreased $474.4 million to $75.8 million, compared with $550.2 million during the same period a year ago.

During the first quarter of fiscal 2022, financing activities primarily related to the payment of $34.4 million of cash dividends to common stockholders, and $7.9 million of debt and financing obligations repayments.

We also repurchased 395,361 shares of our common stock at an average price of $65.86 and withheld 111,488 shares from employees to cover income and payroll taxes on equity awards that vested during the period.

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

We also withheld 151,151 s hares from employees to cover income and payroll taxes on equity awards that vested during the period.

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

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

In particular, one of our subsidiaries is pursuing a new credit facility of up to $180 million related to funding our previously announced capital expansion project in China.

Borrowings under this facility would be guaranteed by Lamb Weston.

The facility is subject to conditions in the global credit markets generally, as well as finalization of definitive documentation.

If we do not complete this contemplated financing, we will pursue alternative options for funding the project.

For more information about our debt, interest rates, maturity dates, and covenants, see Note 9, Debt and Financing Obligations, of the Condensed Notes to Consolidated Financial Statements in “Part I, Item 1.

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

At February 28, 2021, we were in compliance with the financial covenant ratios and other covenants contained in our credit agreements.

At August 29, 2021, we were in compliance with the financial covenant ratios and other covenants contained in our credit agreements.

Obligations and Commitments

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

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

in the Form 10-K.

Non-GAAP Financial Measures

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

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

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

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

Product contribution margin includes advertising and promotion expenses because those expenses are directly associated with the performance of our segments.

Our management also uses Adjusted EBITDA, Adjusted EBITDA including unconsolidated joint ventures and Adjusted Diluted EPS to evaluate the Company’s performance excluding the impact of certain non-cash charges and other special items in order to have comparable financial results to analyze changes in our underlying business between reporting periods.

We include these non-GAAP financial measures because management believes they are useful to investors in that they provide for greater transparency with respect to supplemental information used by management in its financial and operational decision making.

We believe that the presentation of these non-GAAP financial measures, when used in conjunction with GAAP financial measures, is a useful financial analysis tool that can assist investors in assessing the Company’s operating performance and underlying prospects.

Product contribution margin represents net sales less cost of sales and A&P expenses.

Product contribution margin includes A&P expenses because those expenses are directly associated with the performance of our segments.

Our management also uses Adjusted EBITDA and Adjusted EBITDA including unconsolidated joint ventures to evaluate our performance excluding the impact of certain non-cash charges and other special items in order to have comparable financial results to analyze changes in our underlying business between reporting periods.

We include these non-GAAP financial measures because management believes they provide useful information to investors in that they provide for greater transparency with respect to supplemental information used by management in its financial and operational decision making.

We believe that the presentation of these non-GAAP financial measures, when used in conjunction with GAAP financial measures, is a useful financial analysis tool that can assist investors in assessing our operating performance and underlying prospects.

These non-GAAP financial measures should be viewed in addition to, and not as alternatives for, financial measures prepared in accordance with GAAP.

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

These non-GAAP financial measures may differ from similarly titled non-GAAP financial measures presented by other companies, and other companies may not define these non-GAAP financial measures the same way.

These measures are not a substitute for their comparable GAAP financial measures, such as gross profit, net income or diluted earnings per share, and there are limitations to using non-GAAP financial measures.

See “Operating Results – Thirteen Weeks Ended February 28, 2021 compared to Thirteen Weeks Ended February 23, 2020 (dollars in millions) – Net Sales and Product Contribution Margin” and “Operating Results – Thirty-Nine Weeks Ended February 28, 2021 compared to Thirty-Nine Weeks Ended February 23, 2020 (dollars in millions) – Net Sales and Product Contribution Margin” above for a reconciliation of product contribution margin on a consolidated basis to gross profit.

See “Results of Operations – Thirteen Weeks Ended August 29, 2021 compared to Thirteen Weeks Ended August 30, 2020 (dollars in millions) – Net Sales and Product Contribution Margin” above for a reconciliation of product contribution margin on a consolidated basis to gross profit.

The following table reconciles net income to Adjusted EBITDA and Adjusted EBITDA including unconsolidated joint ventures (dollars in millions):

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

Equity method investment earnings

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amortization included in equity method investment earnings

Items impacting comparability (b)

Loss on withdrawal from multiemployer pension plan

Adjusted EBITDA from unconsolidated joint ventures

Adjusted EBITDA including unconsolidated joint ventures

(a) The thirteen and thirty-nine weeks ended February 28, 2021, include incremental costs resulting from the pandemic’s effect on our manufacturing and supply chain operations, as well as incremental warehousing and transportation costs, and costs to enhance employee safety measures, including purchases of safety and health screening equipment, and retaining sales employees.

In addition, the thirty-nine weeks ended February 28, 2021, include incremental costs related to processing raw potatoes out of storage longer than prior years.

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

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

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

Items impacting comparability:

Loss on withdrawal from multiemployer pension plan (b)

Total items impacting comparability

(a) Diluted weighted average common shares were 147.2 million for both the thirteen weeks ended February 28, 2021 and February 23, 2020, respectively, and 147.1 million for both the thirty-nine weeks ended February 28, 2021 and February 23, 2020, respectively.

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

Off-Balance Sheet Arrangements

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included in the Form 10-K.

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

There were no material changes to these critical accounting estimates during the first quarter of fiscal 2022.

New and Recently Adopted Accounting Pronouncements

2 unchanged sentences

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis