What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2022-07-27 compared with 2021-07-27 · 195 added, 212 removed, 122 unchanged (77% of the section changed)

6 unchanged sentences

Discussions of fiscal 2020 items and fiscal year comparisons between fiscal 2021 and 2020 that are not included in this Form 10-K can be found in “Part II, Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations” of 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 .

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

Lamb Weston, along with our joint venture partners, is a leading global producer, distributor, and marketer of value-added frozen potato products.

We, along with our joint venture partners, are the number one supplier of value-added frozen potato products in North America.

We, along with our joint venture partners, are also a leading supplier of value-added frozen potato products internationally, with a strong and growing presence in high-growth emerging markets.

We, along with our joint venture partners, offer a broad product portfolio to a diverse channel and customer base in over 100 countries.

Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended May 30, 2021, which we filed with the SEC on July 27, 2021 .

Lamb Weston, along with our joint ventures, is a leading global producer, distributor, and marketer of value-added frozen potato products.

We, along with our joint ventures, are the number one supplier of value-added frozen potato products in North America.

We, along with our joint ventures, are also a leading supplier of value-added frozen potato products internationally, with a strong and growing presence in high-growth emerging markets.

We, along with our joint ventures, offer a broad product portfolio to a diverse channel and customer base in over 100 countries.

French fries represent the majority of our value-added frozen potato product portfolio.

On November 9, 2016, we separated from Conagra and became an independent publicly traded company through the pro rata distribution by Conagra of 100% of our outstanding common stock to Conagra stockholders.

In connection with the Separation, Conagra transferred substantially all of the assets and liabilities and operations of the Lamb Weston business to us.

Management’s discussion and analysis of our results of operations and financial condition, which we refer to in this filing as “MD&A,” is provided as a supplement to the consolidated financial statements and related notes included elsewhere in this Form 10-K 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 U.S.

generally accepted accounting principles (“GAAP”) and certain other financial data (including product contribution margin on a consolidated basis, Adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”), Adjusted EBITDA including unconsolidated joint ventures, and Adjusted Diluted EPS) that is prepared using non-GAAP financial measures.

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

generally accepted accounting principles (“GAAP”) and certain other financial data (including product contribution margin on a consolidated basis, Adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”), Adjusted EBITDA including unconsolidated joint ventures, Adjusted Diluted earnings per share (“EPS”), and Adjusted Net Income) that is prepared using non-GAAP financial measures.

Refer to “Non-GAAP Financial Measures” below for the definitions of product contribution margin, Adjusted EBITDA, Adjusted EBITDA including unconsolidated joint ventures, Adjusted Diluted EPS, and Adjusted Net Income, and a reconciliation of these non-GAAP financial measures to gross profit, net income or diluted EPS, as applicable.

Executive Summary

In fiscal 2021, we navigated the impacts of the COVID-19 pandemic on our operations and global frozen potato demand, demonstrating the strength and resilience of our employees in a challenging environment.

Throughout the pandemic, our primary focus and attention has been directed towards the health and well-being of our employees and contractors, while continuing to support our customers and to invest in our manufacturing, supply chain, commercial and information technology operations to meet our long-term strategic objectives.

Our fiscal 2021 financial performance reflects the negative impact on frozen potato demand in our food-away-from-home sales channels.

While demand and shipment trends sequentially improved during the year in our food-away-from-home sales channels, shipments to restaurants and other foodservice outlets were below pre-pandemic levels.

The pandemic also significantly disrupted manufacturing and distribution operations across all industries, including ours, which resulted in higher costs.

As a result, our sales and earnings in fiscal 2021 declined as compared to fiscal 2020, which included the benefit of an additional week (“53 rd week”) of sales, earnings and cash flow.

Specifically:

● Net sales declined 3% to $3,670.9 million

● Income from operations declined 15% to $474.8 million

● Net income declined 13% to $317.8 million

● Diluted earnings per share and Adjusted Diluted EPS each declined 13% and 14%, respectively, to $2.16

● Adjusted EBITDA including unconsolidated joint ventures declined 6% to $748.4 million

In fiscal 2022, we delivered a solid financial and operating performance in a highly challenging environment that was characterized by severe input and transportation cost inflation, a historically poor potato crop in the Pacific Northwest, and constraints in labor availability and logistics networks.

We drove strong net sales growth by executing pricing actions and improving product and customer mix.

These actions, along with our supply chain productivity initiatives, served to offset some, but not all, of the cost and operating headwinds that we faced throughout the year.

Specifically, compared with the prior year:

● Net sales increased 12% to $4,098.9 million

● Income from operations decreased 6% to $444.4 million

● Net income decreased 37% to $200.9 million and Adjusted Net Income decreased 4% to $304.1 million

● Diluted EPS decreased 36% to $1.38 and Adjusted Diluted EPS decreased 4% to $2.08

● Adjusted EBITDA including unconsolidated joint ventures decreased 3% to $725.7 million

● Net cash provided by operating activities declined 24% to $418.1 million

Compared with fiscal 2020, the decline in net sales was driven by lower sales volume.

Our sales volume declined largely due to demand for frozen potato products outside the home falling after government-imposed social restrictions to slow the spread of COVID-19 reduced restaurant traffic and included restrictions for on-premise dining.

The decline in sales volume 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.

The decline in sales volumes in our Global segment was less pronounced as consumers leveraged drive-thru, carry-out and delivery options at quick service restaurants in the U.S.

In our Retail segment, which sells products for food-at-home consumption, sales volume for our branded products was strong, but this was more than offset by lower sales volume of private label products resulting from losses of certain low-margin business.

Overall, our sales volume decline was partially offset by higher price/mix, which was largely due to favorable pricing in our Foodservice segment and favorable mix in our Retail segment, while price/mix in our Global segment was flat.

In Europe, which is served by our Lamb-Weston/Meijer joint venture, sales volumes also declined as demand fell following government-imposed social restrictions.

Although a high percentage of our sales are to quick service restaurants, unlike the U.S., most consumption in Europe is dine-in or carry-out as drive-thru options are more limited.

As a result, the effect of government-imposed restrictions on french fry demand in Europe was similar to what we observed for full-service restaurants operations in the U.S.

Overall international sales volumes, which are included in our Global segment, varied by market.

While demand in many of our key markets improved as fiscal 2021 progressed, the rate of improvement generally lagged that in the U.S.

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

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

Income from operations declined due to lower sales, higher manufacturing and distribution costs, and higher selling, general and administrative (“SG&A”) expenses .

The increase in costs was largely due to incremental costs resulting from the pandemic’s disruptive effect on our production, transportation, and warehousing operations, including costs to address the safety and welfare of our employees and costs associated with a tighter labor market due to COVID-19 related absenteeism and labor-related restrictions.

The COVID-19 environment also caused freight rates to increase due to tighter capacity and stronger demand in the trucking and cargo container markets resulting from higher shipping volume of products.

We also experienced higher input cost inflation, particularly for edible oils because of low supply as well as higher demand for raw materials by alternative end markets, such as biofuels.

Despite these challenges, we continued to invest in our supply chain operations, and completed the initial phase of our new ERP system, which we expect will benefit our operations over the long term.

We also announced capital expansions in the U.S.

and China, and with our joint venture in Europe, announced expansions in Russia and the Netherlands.

We generated full-year cash from operations of $553.2 million and cash flow after investing activities, including information technology initiatives, of $390.7 million.

Given the significant economic uncertainty, we took prudent and early actions to reinforce and enhance our financial strength (see “Liquidity and Capital Resources” in this MD&A for more information).

We ended the year with $783.5 million of cash and cash equivalents and no borrowings on our

revolving credit facility.

In addition, we returned $161.0 million to our stockholders, through a combination of dividends and share repurchases.

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 the global economy.

In fiscal 2022, while the degree of the impact of the pandemic on our business remains uncertain, we believe its effect on global frozen potato demand will continue to lessen as vaccination rates increase in the U.S.

and our key international markets and as governments continue to ease social restrictions in their respective jurisdictions.

We believe this will likely have a favorable impact on restaurant traffic, especially for full-service restaurants and other operations that have traditionally relied on on-premise dining, as well as for other non-commercial operations, such as hotels, schools and universities, and sporting venues.

In the U.S., by the end of fiscal 2021, we saw shipments to large chain restaurants as well as in our Foodservice segment, in aggregate, approach pre-pandemic levels as more governments eased social restrictions.

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

However, we expect the ongoing effects of the pandemic and the rapid resurgence of the broader economy will pressure and disrupt our global supply chain operations in the near-term, which will result in volatile operating conditions and incremental manufacturing and distribution costs.

In addition, in fiscal 2022, we expect the rate of inflation for many of our manufacturing, commodity and distribution 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 expect to increase the selling price of our products to offset, in whole or in part, these higher costs.

We expect overall SG&A to be higher as a result of increased compensation and benefits expense largely resulting from inflation, as well as continued investments to improve our manufacturing, supply chain, commercial and information technology 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 volume and costs is volatile, we believe we have sufficient liquidity to manage through the uncertainty, and remain focused on our business and plans to drive long-term value creation.

Compared with fiscal 2021, the increase in net sales was primarily driven by higher price/mix and sales volumes.

The increase in price/mix reflected the benefit of multiple product pricing actions across each of our business segments to offset input cost inflation, as well as higher prices charged for product delivery.

The increase in sales volumes reflected

higher shipments to restaurant and foodservice channels in North America as demand continued to rebound towards pre-pandemic levels.

The increase was most pronounced in our Foodservice segment, which has a higher proportion of its sales to on-premise dining establishments, while shipments to our large chain quick service restaurant (“QSR”) and casual dining restaurant customers in the U.S., which are included in our Global segment, also increased.

The sales volume increase was partially offset by lower export volumes, which are included in our Global segment, and lower shipments in our Retail segment.

Our sales growth was also tempered by widespread industry supply chain constraints that resulted in lower production run-rates and throughput in our production facilities.

Outside of North America, the recovery in frozen potato demand varied and generally lagged U.S.

Shipments to customers in China fell as restaurant traffic and consumer demand was negatively affected by government-imposed restrictions geared towards reducing the spread of COVID-19-related variants, while shipments to other key markets in Asia and Oceania were negatively affected by global logistics constraints.

In Europe, which is served by our LWM joint venture, sales volumes increased as restaurant traffic continued to improve, although earnings were negatively affected by inflation, production, and transportation challenges.

Gross profit in fiscal 2022 was flat compared to fiscal 2021, as favorable price/mix offset higher manufacturing and distribution costs on a per pound basis, while income from operations declined $30.4 million to $444.4 million as a result of higher selling, general and administrative (“SG&A”) expenses.

Compared to fiscal 2021, net income declined $116.9 million to $200.9 million, while Diluted EPS declined $0.78 to $1.38.

Most of the declines were due to a $62.7 million (before and after-tax, or $0.43 per share) non-cash impairment charge associated with LWM’s announced intent, in the fourth quarter of fiscal 2022, to withdraw from its joint venture in Russia in response to the war in Ukraine, as well as a loss of $53.3 million ($40.5 million after-tax or $0.27 per share) associated with a transaction to lower the interest rates and extend the maturities on some outstanding debt (see Liquidity and Capital Resources below).

We generated full-year cash from operations of $418.1 million and cash flow after investing activities of $107.6 million.

We ended the year with $525.0 million of cash and cash equivalents and no borrowings on our revolving credit facility.

In addition, we returned $289.1 million to our stockholders, including $138.4 million in cash dividends and $150.7 million of share repurchases.

In July 2022, we used approximately $42 million to acquire an additional forty percent interest in our joint venture in Argentina, LWAMSA, increasing our total ownership from fifty percent to ninety percent.

Following the acquisition, we will consolidate LWAMSA’s results in our consolidated financial statements.

In fiscal 2023, we expect price/mix to increase largely due to pricing actions that we began to implement in fiscal 2022 in an effort to mitigate manufacturing and distribution cost inflation.

We also expect sales volumes to grow largely due to the expected continuation in the rise of U.S.

demand for frozen potato products, although our volume growth may be tempered by production capacity and logistics constraints.

In addition, we expect that U.S.

restaurant traffic, demand, and volume growth may be increasingly volatile as consumers respond to the current inflationary environment.

We expect the rate of recovery of demand in our key international markets will be mixed, and that our international shipments will continue to be tempered by limited shipping container availability and disruptions to ocean freight networks.

During the first half of fiscal 2023, we expect our gross margins will be pressured as compared to normalized seasonal rates as we continue to manage through significant inflation as well as higher raw potato costs on a per pound basis due to the impact of extreme summer heat that negatively affected the yield and quality of potato crops in the Pacific Northwest in the fall of 2021.

We also expect our gross margins in the first half of fiscal 2023 will be pressured by ongoing industrywide operational challenges, including labor and commodities shortages, resulting from volatility in the broader supply chain.

During the second half of fiscal 2023, we expect our gross margins will improve if the potato crop harvested in fall 2022 is in line with historical averages, we continue to successfully implement our pricing actions to offset input and transportation costs inflation, and we realize a broad easing of labor and logistics pressures that have been constraining our production and shipments.

We expect overall SG&A to be higher as a result of increased compensation and benefits expenses and investments to improve our information technology infrastructure over the long-term, including our efforts to design and implement the next phase of a new ERP system.

Results of Operations

4 unchanged sentences

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 the Company’s segments.

Product contribution margin represents net sales less cost of sales and advertising and promotion (“A&P”) expenses.

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

For additional information on our reportable segments and product contribution margin, see “Non-GAAP Financial Measures” below and Note 13, Segments, of the Notes to Consolidated Financial Statements in “Part II, Item 8.

Financial Statements and Supplementary Data” in this Form 10-K.

Fiscal Year Ended May 30, 2021 Compared to Fiscal Year Ended May 31, 2020 (dollars in millions)

Fiscal Year Ended May 29, 2022 Compared to Fiscal Year Ended May 30, 2021

Net Sales and Product Contribution Margin

Segment sales

(in millions, except percentages)

Segment net sales

Segment product contribution margin

Advertising and promotion expenses

Lamb Weston’s net sales for fiscal 2021 declined $121.5 million, or 3%, to $3,670.9 million, compared with $3,792.4 million in fiscal 2020.

Volume declined 6% while price/mix increased 3%.

Net sales and volume declined 2% and 6%, respectively, excluding the benefit of the 53 rd week in the prior year.

The decline in sales volume reflected soft demand for much of the first three fiscal quarters following government-imposed pandemic-related social restrictions, including on restaurants and other foodservice operations.

Sales volumes increased in the fiscal fourth quarter due to a recovery in demand, as well as a comparison to reduced shipments in the prior year quarter when customers were destocking inventories as they adjusted to the abrupt change in the business environment.

The increase in price/mix was driven primarily by favorable pricing in our Foodservice segment and favorable mix in our Retail segment, while price/mix in our Global segment was flat.

Global net sales declined $62.1 million, or 3%, to $1,911.5 million, compared with $1,973.6 million in fiscal 2020.

Volume declined 3% while price/mix was flat.

Net sales and volume each declined 2% excluding the benefit of the 53 rd week in the prior year.

Sales volumes in the first half of the year declined as compared to the prior year, but largely stabilized beginning in the fiscal third quarter behind strength in shipments to large, quick service chain restaurant customers in the U.S.

Sales volumes for the segment increased in the fiscal fourth quarter due to a recovery in demand in the U.S.

and in our key international markets, as well as a comparison to reduced shipments in the prior year quarter when customers were destocking inventories.

Price/mix was flat as positive pricing actions were offset by unfavorable customer mix.

Foodservice net sales declined $51.8 million, or 5%, to $1,017.3 million, compared with $1,069.1 million in fiscal 2020.

Lamb Weston’s net sales for fiscal 2022 increased $428.0 million, or 12%, to $4,098.9 million, compared with $3,670.9 million in fiscal 2021.

Price/mix increased 9%, primarily reflecting the benefit of pricing actions across each of our business segments to offset input, manufacturing, and transportation cost inflation, as well as favorable mix.

Volume increased 3%, reflecting higher shipments to restaurant and foodservice channels in North America, partially offset by lower exports due to limited shipping container availability and disruptions to ocean freight networks, as well as lower shipments to retail channels.

Our volume growth was tempered by an inability to fully serve customer demand due to widespread industry supply chain constraints, including labor and commodities shortages, that resulted in lower production run-rates and throughput in our production facilities.

Global net sales increased $152.7 million, or 8%, to $2,064.2 million, compared with $1,911.5 million in fiscal 2021.

Price/mix increased 6% and volume increased 2%.

The benefit of domestic and international product and freight pricing actions to offset inflation, as well as favorable mix, drove the increase in price/mix.

A strong increase in sales volumes to North American large QSR and casual dining restaurant chain customers was partially offset by lower export shipments due to limited shipping container availability and disruptions to ocean freight networks.

Foodservice net sales increased $300.9 million, or 30%, to $1,318.2 million, compared with $1,017.3 million in fiscal 2021.

Volume and price/mix each increased 15%.

The benefits of product and freight pricing actions taken throughout the year to offset inflation, as well as favorable mix, drove the increase in price/mix.

The segment’s strong volume growth reflects the progressive recovery in demand in its restaurant and non-commercial channels, although growth was tempered by an inability to fully serve customer demand due to widespread industry supply chain constraints, including labor shortages, that resulted in lower production run-rates and throughput in our production facilities.

Retail net sales decreased $8.8 million, or 1%, to $594.6 million, compared with $603.4 million in fiscal 2021.

Volume declined 8% while price/mix increased 7%.

Net sales and volume declined 4% and 11%, respectively, excluding the benefit of the 53 rd week in the prior year.

Sales volumes during the first three quarters of the year declined as compared to the prior year as demand at full-service restaurants and non-commercial customers were significantly affected by government-imposed social restrictions.

Sales volumes for the segment increased in the fiscal fourth quarter due to a recovery in most of the segment’s customer channels, as well as a comparison to reduced shipments in the prior year quarter when customers were destocking inventories.

The increase in price/mix primarily reflected 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 during the height of the pandemic.

Retail net sales increased $7.9 million, or 1%, to $603.4 million, compared with $595.5 million in fiscal 2020.

Price/mix increased 5% while volume declined 4%.

Excluding the benefit of the 53 rd week in the prior year, net sales increased 4% and volume declined 2%.

The increase in price/mix was largely driven by favorable mix from higher sales of premium and mainstream branded offerings.

The decline in sales volumes reflected lower shipments of private label products resulting from incremental losses of certain low-margin business, partially offset by strong growth in branded products, which have historically comprised approximately 40 percent of the segment’s volume.

In addition, the sales volume decline reflects a comparison to the fourth quarter of fiscal 2020 which included a surge in demand for in-home consumption of frozen potato products following government-imposed social restrictions.

Lower shipments of private label products, resulting from incremental losses of certain low-margin business, as well as lower shipments of branded products, drove the sales volume decline.

The decline in branded product volume reflected an inability to fully serve customer demand due to lower production run-rates and throughput in our production facilities.

Product and freight pricing actions across the branded and private label portfolios to offset inflation, as well as improved mix, drove the increase in price/mix.

Net sales in our Other segment declined $16.8 million, or 12%, to $121.9 million, compared with $138.7 million in fiscal 2021.

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

The decline primarily reflects lower volume in our vegetable business, reflecting the negative effect of the extreme summer heat on the yield and quality of the vegetable crops, partially offset by the benefit of pricing actions.

Gross Profit and Product Contribution Margin

Gross profit declined $63.2 million, or 7%, to $832.0 million in fiscal 2021.

The decline was driven by lower sales and higher manufacturing and distribution costs on a per pound basis, which largely included:

incremental costs and inefficiencies related to the pandemic’s disruptive effect on our production, transportation, and warehousing operations;

and input and transportation cost inflation.

The increase in costs was partially offset by supply chain productivity savings.

In addition, gross profit included a $40.4 million change in unrealized mark-to-market adjustments and realized settlements associated with commodity hedging contracts, which reflects a $37.9 million gain in the current year, compared with a $2.5 million loss related to these items in the prior year.

Lamb Weston’s overall product contribution margin in fiscal 2021 declined $58.0 million, or 7%, to $814.2 million, compared with $872.2 million in fiscal 2020.

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

Global segment product contribution margin declined $68.3 million, or 18%, to $306.2 million in fiscal 2021.

Higher manufacturing and distribution costs, as well as lower sales volumes, largely drove the decline.

Global segment cost of sales was $1,601.4 million, up 1% compared to fiscal 2020, as higher manufacturing and distribution costs were largely offset by the impact of lower sales volumes.

Advertising and promotion spending declined $2.4 million in fiscal 2021, as compared to fiscal 2020.

Foodservice product contribution margin declined $16.0 million, or 4%, to $340.0 million in fiscal 2021.

Lower sales volumes and higher manufacturing and distribution costs more than offset the benefit of favorable price/mix.

Cost of sales was $672.4 million, down 5% compared to fiscal 2020, due to lower sales volumes, partially offset by higher manufacturing and distribution costs.

Advertising and promotion spending declined $2.3 million in fiscal 2021, as compared with fiscal 2020.

Retail product contribution margin increased $2.6 million, or 2%, to $120.2 million in fiscal 2021.

Favorable product mix and a $0.4 million decrease in advertising and promotion spending more than offset the impact of higher manufacturing and distribution costs and lower sales volumes of private label products.

Gross profit in fiscal 2022 was flat compared to fiscal 2021 at $832.0 million, as the benefits from higher price/mix and volume were offset by the impact of higher manufacturing and distribution costs on a per pound basis.

The higher costs per pound primarily reflected double-digit cost inflation from key inputs, including:

ingredients such as grains and starches used in product coatings;

and higher transportation costs.

The increase in costs per pound also reflected higher raw potato costs due to the impact of extreme summer heat that negatively affected the yield and quality of potato crops in the Pacific Northwest in fall 2021, the effects of labor and commodities shortages on production run-rates, as well as lower raw potato utilization rates.

The increase in per pound costs was partially offset by securing changes to product specifications, portfolio simplification, and driving supply chain savings behind our Win as 1 productivity program.

Gross profit also included a $28.9 million decrease in unrealized mark-to-market adjustments associated with commodity hedging contracts, which includes a $9.5 million loss in the current year, compared with a $19.4 million gain related to these items in the prior year.

Lamb Weston’s overall product contribution margin in fiscal 2022 declined $1.1 million to $813.1 million, compared with $814.2 million in fiscal 2021.

The decline was largely due to a $1.1 million increase in A&P expenses as gross profit was flat (as described above).

Global product contribution margin declined $54.0 million, or 18%, to $252.2 million in fiscal 2022.

Higher manufacturing and distribution costs per pound more than offset the benefit of favorable price/mix and higher sales volumes.

Global segment cost of sales was $1,806.6 million, up 13% compared to fiscal 2021, primarily due to higher manufacturing and distribution costs and higher sales volumes.

Foodservice product contribution margin increased $109.3 million, or 32%, to $449.3 million in fiscal 2022.

Favorable price, volume and mix drove the increase, and were partially offset by higher manufacturing and distribution costs per pound.

Cost of sales was $863.8 million, up 28% compared to fiscal 2021, primarily due to higher manufacturing and distribution costs and higher sales volumes.

Retail product contribution margin declined $10.8 million, or 9%, to $109.4 million in fiscal 2022.

Higher manufacturing and distribution costs per pound and lower sales volumes drove the decline, partially offset by favorable price/mix and a $0.8 million decrease in A&P expenses.

Cost of sales was $477.1 million, up 1% compared to fiscal 2021, primarily due to higher manufacturing and distribution costs, partially offset by lower sales volumes.

Other product contribution margin increased $23.7 million to $47.8 million in fiscal 2021, as compared to $24.1 million in fiscal 2020.

These amounts include a $27.8 million gain related to unrealized mark-to-market adjustments and realized settlements associated with commodity hedging contracts, and a $0.2 million loss related to the contracts in fiscal 2020.

Other product contribution margin declined $45.6 million to $2.2 million in fiscal 2022, as compared to $47.8 million in fiscal 2021.

These amounts include a $10.4 million loss related to unrealized mark-to-market adjustments and realized settlements associated with commodity hedging contracts in fiscal 2022, and a $27.8 million gain related to the

contracts in fiscal 2021.

Excluding these mark-to-market adjustments, Other segment product contribution margin declined $7.4 million, largely due to higher manufacturing costs and lower sales volumes in our vegetable business.

1 unchanged sentence

SG&A expenses were $387.6 million, up $30.4 million, or 9%, in fiscal 2022 compared with fiscal 2021.

The increase was largely driven by investments to improve our manufacturing, supply chain, commercial and information

technology operations over the long term, and included approximately $9 million of non-recurring expenses (primarily consulting and employee training expenses) associated with implementing the first phase of a new ERP system, compared to approximately $8 million in the prior year.

The increase in SG&A was also driven by higher compensation and benefits expense, partially offset by a $5.2 million decline in A&P expense, as well as by cost management efforts.

The increase was primarily due to higher compensation and benefits expense;

higher travel, employee relations and in-person meeting expenses;

higher information technology infrastructure costs, including expenses related to the planning and design of our new ERP system, and a $3.5 million contribution to the Lamb Weston charitable foundation.

The increase in SG&A was partially offset by lower consulting expenses associated with improving our commercial and supply chain operations.

Interest Expense, Net

Interest expense, net was $161.0 million in fiscal 2022, an increase of $42.7 million compared with fiscal 2021.

The increase in interest expense, net was the result of a higher level of average total debt versus the prior year resulting from our actions in late fiscal 2020 and early fiscal 2021 to enhance our liquidity position during the pandemic.

The increase reflects a $53.3 million ($40.5 million after-tax) loss on extinguishment of debt associated with the redemption of our previously outstanding senior notes due 2024 and 2026.

Excluding this loss, interest expense, net declined $10.6 million, reflecting a lower weighted average interest rate.

For more information, see Note 7, Debt and Financing Obligations, of the Notes to Consolidated Financial Statements in “Part II, Item 8.

1 unchanged sentence

Our effective tax rate was 26.3% for fiscal 2022, compared to 22.2% in fiscal 2021.

The difference between our effective tax rates in fiscal 2021 and 2020 is primarily due to permanent differences and discrete items.

The difference between our effective tax rates in fiscal 2022 and 2021 is primarily due to the Russia impairment charge treated as a non-deductible permanent difference.

Our 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.

state taxes, foreign taxes, permanent differences, and discrete items, and was elevated in fiscal 2022 relative to our historical rate due to the Russia impairment charge.

Excluding the Russia impairment charge, our effective tax rate for fiscal 2022 was 21.4%.

For further information on income taxes, see Note 3, Income Taxes, of the Notes to Consolidated Financial Statements in “Part II, Item 8.

Financial Statements and Supplementary Data” in this Form 10-K.

Equity Method Investment Earnings

We conduct meaningful business through unconsolidated joint ventures and include our share of the earnings based on our economic ownership interest in them.

Lamb Weston’s share of earnings from its equity method investments was $51.8 million and $29.3 million for fiscal 2021 and 2020, respectively.

Earnings in fiscal 2020 included a $2.6 million loss related to the withdrawal from a multiemployer pension plan by Lamb Weston RDO.

Equity method investment earnings also included an $11.3 million unrealized gain related to mark-to-market adjustments associated with currency and commodity hedging contracts in fiscal 2021 and a $6.3 million loss related to these items in fiscal 2020.

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

Excluding the Lamb Weston RDO pension-related comparability item and the mark-to-market adjustments, earnings from equity method investments increased $2.3 million compared to the prior year period, largely driven by Lamb-Weston/Meijer’s increased ownership interest in its Russian joint venture and higher manufacturing costs per pound in the prior year, partially offset by lower frozen potato demand in Europe following government-imposed restrictions on restaurant and other foodservice operations.

Equity Method Investment Earnings (Loss)

We conduct meaningful business through unconsolidated joint ventures and include our share of the earnings (loss) based on our economic ownership interest in them.

Lamb Weston’s share of earnings (loss) from its equity method investments was a loss of $10.7 million and earnings of $51.8 million for fiscal 2022 and 2021, respectively.

Equity method investment earnings in fiscal 2022 included a $62.7 million non-cash impairment charge to write-off our portion of LWM’s net investment in Russia resulting from LWM’s announced intent to withdraw from its joint venture in response to the war in Ukraine.

Equity method investment earnings also included a $26.5 million unrealized gain related to mark-to-market adjustments associated with currency and commodity hedging contracts in fiscal 2022 and an $11.3 million gain related to these items in fiscal 2021.

The increase in mark-to-market adjustments in 2022 primarily relates to changes in the value of natural gas derivatives at LWM as commodity markets in Europe have experienced significant volatility.

Excluding the charge associated with the write-off of our portion of LWM’s net investment in Russia and the mark-to-market adjustments, earnings from equity method investments decreased $15.0 million compared to the prior year.

The decrease reflects input cost inflation and higher manufacturing and distribution costs in both Europe and the U.S., partially offset by the benefit of favorable price/mix and higher sales volumes.

Liquidity and Capital Resources

We ended fiscal 2021 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-term and long-term basis.

At May 30, 2021, we had $783.5 million of cash and cash equivalents and $744.6 million of availability under our revolving credit facility.

While we expect the near-term impact of the pandemic on sales volume 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):

We ended fiscal 2022 with $525.0 million of cash and cash equivalents and $994.6 million of availability on our revolving credit facility, which is net of outstanding letters of credit of $5.4 million.

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:

For the Fiscal Years Ended May

(in millions)

Net cash flows provided by (used for):

3 unchanged sentences

Effect of exchange rate changes on cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Net decrease in cash and cash equivalents

Operating Activities

During fiscal 2021, cash provided by operating activities decreased $20.8 million to $553.2 million, compared with $574.0 million in the same period a year ago.

The decrease related to a $99.2 million decrease in net income, adjusted for non-cash income and expenses, partially offset by $78.4 million of cash provided by favorable changes in working capital.

Lower income from operations related to government-imposed restrictions on restaurants and other foodservice operations to slow the spread of COVID-19.

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

Favorable changes in working capital primarily related to an increase in accounts payable, due to timing, and an increase in our accrued liabilities, primarily related to higher compensation and benefits accruals.

This favorability was partially offset by higher finished goods inventory due to building more pounds of inventory to meet expected demand as sales began to reach pre-pandemic levels, compared with lower inventories at the end of fiscal 2020, when demand decreased due to the COVID-19 pandemic, as well as incremental costs related to rising input and other costs, higher receivables due to more sales at the end of fiscal 2021, compared with the end of fiscal 2020, and an increase in prepaid and other current assets primarily due to an increase in favorable open commodity contract hedge positions at the end of fiscal 2021, driven by a rise in edible oil prices.

During fiscal 2022, cash provided by operating activities decreased $135.1 million to $418.1 million, compared to $553.2 million for fiscal 2021.

The decrease related to $130.4 million of cash used for unfavorable changes in working capital, and a $4.7 million decrease in net income, adjusted for non-cash income and expenses.

Unfavorable changes in working capital primarily related to a decrease in accounts payable due to timing, an increase in receivables attributable to higher sales at the end of fiscal 2022, compared with the end of fiscal 2021, and higher finished goods inventories due to increased input costs and global disruption in freight networks.

These unfavorable changes were partially offset by a favorable change in accrued liabilities, which was primarily due to a shift in the timing of accrued interest payments for our senior notes.

Specifically, our senior notes due 2030 and 2032, which were issued in fiscal 2022, have payments due in the first quarter of fiscal 2023, whereas the now-redeemed senior notes due 2024 and 2026 had interest payments due in the fourth quarter of fiscal 2021.

See “Result of Operations” in this MD&A for more information related to the decrease in income from operations.

Investing Activities

Investing activities used $310.5 million of cash in fiscal 2022, compared with $162.5 million in fiscal 2021.

Excluding cash used for the acquisition of a frozen potato processor in Australia and for an investment in an equity method joint venture in the prior year, cash used for investing activities decreased $44.2 million, compared to fiscal 2020.

The decrease represents our concerted effort to control spending at the onset of the pandemic to preserve liquidity.

The increase primarily relates to our concentrated effort in the prior year to control spending during the early stages of the COVID-19 pandemic to preserve liquidity.

In addition to maintenance capital expenditures, fiscal 2022 also reflected increased investments to support capacity expansion projects in Idaho and China.

We expect capital investments in fiscal 2023 to be approximately $475 million to $525 million, depending on timing of projects, which include among other items:

completion of our chopped and formed capacity expansion in American Falls, Idaho;

initial construction of a new french fry processing line and plant modernization investments in American Falls, Idaho;

and initial construction of a greenfield french fry processing facility in Ulanqab, Inner Mongolia, China.

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.

construction of a previously announced french fry production line and plant modernization investments in Idaho, construction of a greenfield french fry processing facility in China, and capital investments to upgrade information systems and ERP infrastructure.

These expenditures could increase or decrease as a result of a number of factors, including our financial results, future economic conditions, supply chain constraints for equipment, and our regulatory compliance requirements.

At May 29, 2022, we had commitments for capital expenditures of $304.7 million.

In July 2022, we acquired an additional forty percent interest in our Argentina joint venture, LWAMSA, for approximately $42 million, increasing our total ownership of LWAMSA from fifty percent to ninety percent.

Following this acquisition, we will consolidate LWAMSA’s results in our consolidated financial statements.

Financing Activities

We took various actions to further strengthen our liquidity position in response to the COVID-19 pandemic, which included raising over $1 billion of liquidity in the last quarter of fiscal 2020, including borrowing $495.0 million under our revolving credit facility, entering into a new $325.0 million term loan facility, and issuing $500.0 million of senior notes due in 2028.

These actions also included deferring the payment of our payroll taxes as allowed under the Coronavirus Aid, Relief and Economic Security Act (“CARES”) Act.

The CARES Act allows for the deferral of the payment of the employer portion of Social Security taxes accrued between March 27, 2020, and December 31, 2020.

Under the CARES Act, 50% of the deferred payroll taxes will be paid by December 31, 2021 and the remainder will be paid by December 31, 2022.

In addition, in June 2019, we entered into a new $300.0 million term loan facility due in June 2024 and used the proceeds to repay $300.0 million of the term loan facility that was due in 2021.

During fiscal 2022, cash used for financing activities decreased $610.6 million to $363.4 million, compared with $974.0 million used during fiscal 2021.

During fiscal 2022, financing activities primarily related to issuing U.S.

dollar-denominated senior notes and a RMB-denominated loan facility for combined net proceeds of $1,676.1 million, offset by $1,698.1 million of debt and financing obligation repayments, including cash used to redeem our previously outstanding senior notes due 2024 and 2026 (including the payment of a call premium of $39.6 million), and the payment of $138.4 million of cash dividends to common stockholders.

In addition, we used $158.4 million of cash to repurchase 2,407,184 shares of our common stock at an average price of $62.59 and withheld 118,204 shares from employees to cover income and payroll taxes on equity awards that vested during the year.

As of May 29, 2022, $268.9 million remained authorized for repurchase under our share repurchase program.

During fiscal 2021, we repaid the $495.0 million we borrowed under our revolving credit facility at the onset of the pandemic, and we repaid $305.5 million of other debt and financing obligations (including the repayment of the $271.9 million term loan facility that was scheduled to mature in November 2021).

1 unchanged sentence

During fiscal 2021, we repurchased 328,918 shares of our common stock at an average price of $78.19 and withheld 164,992 shares of common stock from employees to cover income and payroll taxes on equity awards that vested during the period.

As of May 30, 2021, $169.6 million remained authorized for repurchase under our share repurchase program.

During fiscal 2020, we paid $121.3 million in cash dividends to common stockholders.

We also repurchased 287,239 shares of our common stock at an average price of $79.56 per share and withheld 80,673 shares of common stock 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.

For more information about our debt, including among other items, interest rates, maturity dates, and covenants, see Note 7, Debt and Financing Obligations, of the Notes to the Consolidated Financial Statements in “Part II, Item 8.

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

At May 30, 2021, we were in compliance with the financial covenant ratios and other covenants contained in our credit agreements.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements as of May 30, 2021 that are reasonably likely to have a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures, or capital resources.

At May 29, 2022, we were in compliance with all covenants contained in our credit agreements.

Investments in Joint Ventures

We conduct some of our business through three unconsolidated joint ventures and account for these investments using equity method accounting.

For more information about our investments in joint ventures, see Note 4, Investments in Joint Ventures, of the Notes to the Consolidated Financial Statements in “Part II, Item 8.

For more information about our investments in joint ventures, see Note 4, Equity Method Investments, of the Notes to the Consolidated Financial Statements in “Part II, Item 8.

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

Obligations and Commitments

As part of our ongoing operations, we enter into arrangements that obligate us to make future payments under contracts such as lease agreements, debt agreements, potato supply agreements, and unconditional purchase obligations (i.e., obligations to transfer funds in the future for fixed or minimum quantities of goods or services at fixed or minimum prices).

As part of our ongoing operations, we enter into arrangements that obligate us to make future payments under contracts such as debt agreements, lease agreements, potato supply agreements, and unconditional purchase obligations.

The unconditional purchase obligation arrangements are entered into in the normal course of business in order to ensure adequate levels of sourced product are available.

A summary of our contractual obligations as of May 30, 2021 are as follows (dollars in millions).

The expected timing of payments of the obligations in the table are estimated based on current information.

Timing of payments and actual amounts paid may be different, depending on the time of receipt of goods or services, or changes to agreed-upon amounts for some obligations.

Payments Due by Fiscal Year

Contractual Obligations

Long-term debt, including current portion, excluding financing obligations (a)

A summary of our material cash requirements for our known contractual obligations as of May 29, 2022 are as follows:

(in millions)

Payable within 12 Months

Long-term debt, including current portion (a)

Interest on long-term debt (b)

Purchase obligations and capital commitments (d) (e)

(a) The table is based on our long-term debt maturities at May 30, 2021, and includes the current portion of long-term debt.

Amounts are reported gross.

Balances have not been reduced by the $22.5 million of unamortized debt issuance costs at May 30, 2021.

(b) Amounts represent estimated future interest payments as of May 30, 2021, assuming our long-term debt is held to maturity and using interest rates in effect at May 30, 2021.

S ee Note 9, Leases, of the Notes to Consolidated Financial Statements in “Part II, Item 8.

Financial Statements and Supplementary Data” of this Form 10 K.

The total amount includes operating and finance lease obligations and estimated interest costs of $23.1 million.

(d) Amounts exclude purchase commitments under potato supply agreements due to uncertainty of pricing and quantity.

Potato supply agreements have maximum contracted pricing with deductions for certain quality attributes, and quantities purchased are determined by the yields produced on contracted acres.

Total purchases under all our potato supply agreements were $621.4 million, $646.5 million, and $592.3 million in fiscal 2021, 2020, and 2019, respectively.

(e) Capital commitments represent commitments for the construction or purchase of property, plant and equipment.

They were not recorded as liabilities on our Consolidated Balance Sheet as of May 30, 2021, as we had not yet received the related goods nor taken title to the property.

(f) Amount primarily consists of long-term compensation and benefits, such as deferred compensation liabilities, pension, and post-retirement benefit obligations.

Purchase obligations and capital commitments (a)

(a) See the below Notes to the Consolidated Financial Statements included in “Part II, Item 8.

Financial Statements and Supplementary Data” of this Form 10-K for more information.

● Long-term debt, including current portion .

See Note 7, Debt and Financing Obligations, for more information on debt payments and the timing of expected future payments.

See Note 8, Leases, for more information on our operating and finance lease obligations and timing of expected future

● Purchase obligations and capital commitments .

See Note 14, Commitments, Contingencies, Guarantees, and Legal Proceedings, for more information on our purchase obligations and the timing of future payments and capital commitments in connection with the expansion and replacement of existing facilities and equipment.

(b) Amounts represent estimated future interest payments assuming our long-term debt is held to maturity and using interest rates in effect as of May 29, 2022.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements as of May 29, 2022 that are reasonably likely to have a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures, or capital resources.

Critical Accounting Estimates

Management’s discussion and analysis of financial condition and results of operations are based upon the Company’s consolidated financial statements, which have been prepared in accordance with GAAP.

The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses, and related disclosures of contingent assets and liabilities.

On an ongoing basis, we evaluate our estimates, including those related to our trade promotions, income taxes, and acquisitions, among others.

On an ongoing basis, we evaluate our estimates, including those related to our trade promotions, income taxes, and impairment, among others.

We base our estimates on historical experiences combined with management’s understanding of current facts and circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

3 unchanged sentences

We review the development, selection, and disclosure of our critical accounting estimates with the Audit and Finance Committee of our Board of Directors.

While we have taken into account certain impacts arising from COVID-19 in connection with the accounting estimates reflected in this Form 10-K, the full impact of COVID-19 is unknown and cannot be reasonably estimated.

However, we have made appropriate accounting estimates based on the facts and circumstances available as of the

reporting date.

We have made appropriate accounting estimates based on the facts and circumstances available as of the reporting date.

To the extent there are differences between these estimates and actual results, our consolidated financial statements may be affected.

9 unchanged sentences

The determination of sales incentive and trade promotion costs requires judgment and may change in the future as a result of changes in customer demand for our products, 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.

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 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.

At May 29, 2022 and May 30, 2021, we had $41.2 million and $39.9 million, respectively, of accrued trade promotions payable recorded in “Accrued liabilities” on our Consolidated Balance Sheets.

We compute the provision for income taxes using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating losses and tax credit carryforwards.

We measure deferred tax assets and liabilities using the currently enacted tax rates that apply to taxable income in effect for the years in which those tax assets are expected to be realized or settled.

We measure deferred tax assets and liabilities using the currently enacted tax rates that apply to taxable income in effect for the years in which those tax assets and liabilities are expected to be realized or settled.

Inherent in determining the annual tax rate are judgments regarding business plans, planning opportunities, and expectations about future outcomes.

18 unchanged sentences

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

From time to time, we may enter into business combinations.

We allocate the total purchase price of a business combination to the assets acquired and the liabilities assumed based on their estimated fair values at the acquisition date, with the excess purchase price recorded as goodwill.

The acquisition method of accounting requires us to make significant estimates and assumptions regarding the fair values of the elements of a business combination as of the date of acquisition, including the fair values (fair value is determined using the income approach, cost approach and/or market approach) of inventory, property, plant and equipment, identifiable intangible assets, deferred tax asset valuation allowances, and liabilities related to uncertain tax positions, among others.

This method also requires us to refine these estimates over a measurement period not to exceed one year to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date.

If we are required to retroactively adjust provisional amounts that we have recorded for the fair values of assets and liabilities in connection with acquisitions, these adjustments could have a material impact on our financial condition and results of operations.

Significant estimates and assumptions in determining the fair value of brands and other identifiable intangible assets include future cash flows that we expect to generate from the acquired assets.

If the subsequent actual results and updated projections of the underlying business activity change compared with the assumptions and projections used to develop these values, we could record impairment charges.

In addition, we have estimated the economic lives of certain acquired assets and these lives are used to calculate depreciation and amortization expense.

If our estimates of the economic lives change, depreciation or amortization expenses could increase or decrease.

New and Recently Adopted Accounting Standards

For a listing of our new and recently adopted accounting standards, see Note 1, Nature of Operations and Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements in “Part II, Item 8.

Impairment of Long-Lived Assets and Equity Method Investments

Long lived assets .

Our manufacturing assets are shared across all reporting segments, which are grouped together for long-lived asset impairment assessment.

We review these long-lived assets for impairment upon the occurrence of events or changes in circumstances which indicate that the carrying amount of the assets may not be fully recoverable, measured by comparing their net book value to the undiscounted projected future cash flows generated by their use.

Impaired assets are recorded at their estimated fair value.

In evaluating impairment of long-lived assets, we consider events or changes in circumstances related to market prices, physical condition of assets, legal actions, construction costs, future operating cash flows, remaining depreciable

lives, and potential asset disposal.

At May 29, 2022 and May 30, 2021, we did not identify any triggering events that would indicate that the carrying amounts of our assets groups may not be recoverable.

Equity method investments .

We conduct some of our business through unconsolidated joint ventures and include our share of the earnings based on our economic ownership interest in them.

At May 29, 2022 and May 30, 2021, we held 50% equity interests in three potato processing joint ventures, including LWM, Lamb Weston RDO, and LWAMSA.

These investments are accounted for under the equity method of accounting.

We are required to assess our equity method investments for other-than-temporary impairment when events or circumstances suggest the carrying amount of the investment may be impaired.

We perform our assessment of other-than-temporary impairment for each investment individually.

In evaluating other-than-temporary impairment of equity method investments, we consider events or changes in circumstances related to investee operating losses, investee future cash flows, and the ability to retain our investment in the investee.

In May 2022, in response to the war in Ukraine, LWM announced its intent to withdraw from its investment in Russia and recorded a charge to write-off its net investment in the market.

Our portion of the non-cash impairment charge was $62.7 million.

There were no indications of other-than-temporary impairment in any of our other equity method investments.

New and Recently Issued Accounting Standards

For a listing of new and recently issued accounting standards, see Note 1, Nature of Operations and Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements in “Part II, Item 8.

Financial Statements and Supplementary Data” of this 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, Adjusted EBITDA including unconsolidated joint ventures, Adjusted Diluted EPS, and Adjusted Net Income, 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.

1 unchanged sentence

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 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.

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.

Our management also uses Adjusted EBITDA, Adjusted EBITDA including unconsolidated joint ventures, Adjusted Diluted EPS, and Adjusted Net Income, 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 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 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 non-GAAP financial measures should be viewed in addition to, and not as alternatives for, 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 (loss) or diluted earnings per share, and there are limitations to using non-GAAP financial measures.

See “Results of Operations – Fiscal Year Ended May 30, 2021 Compared to Fiscal Year Ended May 31, 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.

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

See “Results of Operations – Fiscal Year Ended May 29, 2022 Compared to Fiscal Year Ended May 30, 2021 – 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.

For the Fiscal Years Ended May

Equity method investment earnings

(in millions)

Equity method investment (earnings) loss

Interest expense, net

2 unchanged sentences

Depreciation and amortization

Adjusted EBITDA (b)

Adjusted EBITDA

Unconsolidated Joint Ventures

Equity method investment earnings

Equity method investment earnings (loss)

Interest expense, income tax expense, and depreciation and

amortization included in equity method investment earnings

Items impacting comparability

Loss on withdrawal from multiemployer pension plan

amortization included in equity method investment earnings (loss)

Item impacting comparability

Write-off of net investment in Russia (a)

Adjusted EBITDA from unconsolidated joint ventures

Adjusted EBITDA including unconsolidated joint ventures

(a) Fiscal 2021 and 2020 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, fiscal 2021 includes higher costs related to processing raw potatoes out of storage longer than prior years .

(b) Adjusted EBITDA includes EBITDA from consolidated joint ventures.

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

(a) In May 2022, LWM announced its intent to withdraw from its investment in Russia and wrote-off its net investment.

Our portion of the non-cash impairment charge was $62.7 million.

The following table reconciles net income to Adjusted Net Income, and diluted EPS to Adjusted Diluted EPS:

For the Fiscal Years Ended May

Item impacting comparability:

Loss on withdrawal from multiemployer pension plan

(a) Diluted weighted average common shares were 147.1 million in both fiscal 2021 and 2020.

(in millions, except per share amounts)

Items impacting comparability:

Write-off of net investment in Russia (b)

Loss on extinguishment of debt (c)

Total items impacting comparability

(a) Diluted weighted average common shares were 145.9 million and 147.1 million in fiscal 2022 and 2021, respectively.

(b) See footnote (a) to the reconciliation of net income to Adjusted EBITDA and Adjusted EBITDA including unconsolidated joint ventures above for a discussion of the item impacting comparability.

(c) The fiscal year ended May 29, 2022, includes a loss on the extinguishment of debt of $53.3 million ($40.5 million after-tax), which consists of a call premium of $39.6 million related to the redemption of our senior notes due 2024 and 2026 and the write-off of $13.7 million of debt issuance costs associated with those notes.

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 7. Management’s Discussion and Analysis