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Item 1. Financial Statements

2022-10-05 compared with 2022-04-07 · 148 added, 188 removed, 248 unchanged (58% of the section changed)

4 unchanged sentences

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

Cost of sales

13 unchanged sentences

Thirteen Weeks Ended

February 27, 2022

February 28, 2021

Other comprehensive income (loss):

Reclassification of post-retirement benefits out of accumulated other comprehensive income (loss)

Unrealized currency translation gains (losses)

Comprehensive income

Thirty-Nine Weeks Ended

February 27, 2022

February 28, 2021

August 28, 2022

August 29, 2021

Other comprehensive income (loss):

Reclassification of post-retirement benefits out of accumulated other comprehensive income (loss)

Reclassification of post-retirement benefits out of accumulated other comprehensive income

Unrealized currency translation gains (losses)

15 unchanged sentences

Current liabilities:

Short-term borrowings

Current portion of long-term debt and financing obligations

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Retained earnings

Accumulated other comprehensive income (loss)

Accumulated other comprehensive loss

Treasury stock, at cost, 4,456,388 and 3,974,156 common shares

5 unchanged sentences

(unaudited, dollars in millions, except share data )

Thirteen Weeks Ended February 27, 2022 and February 28, 2021

Common Stock,

net of Treasury

(Distributed)

Comprehensive

Stockholders’

Income (Loss)

Balance at November 28, 2021

Dividends declared, $ 0.245 per share

Common stock issued

Stock-settled, stock-based compensation expense

Repurchase of common stock and common stock withheld to cover taxes

Comprehensive income

Balance at February 27, 2022

Balance at November 29, 2020

Dividends declared, $ 0.235 per share

Common stock issued

Stock-settled, stock-based compensation expense

Repurchase of common stock and common stock withheld to cover taxes

Comprehensive income

Balance at February 28, 2021

Thirty-Nine Weeks Ended February 27, 2022 and February 28, 2021

Thirteen Weeks Ended August 28, 2022 and August 29, 2021

Common Stock,

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Repurchase of common stock and common stock withheld to cover taxes

( 2,144,671 )

Comprehensive income

Balance at February 27, 2022

Balance at August 28, 2022

Balance at May 30, 2021

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Comprehensive income

Balance at February 28, 2021

Balance at August 29, 2021

See Condensed Notes to Consolidated Financial Statements.

2 unchanged sentences

(unaudited, dollars in millions)

Thirty-Nine Weeks Ended

Thirteen Weeks Ended

Cash flows from operating activities

1 unchanged sentence

Depreciation and amortization of intangibles and debt issuance costs

Loss on extinguishment of debt

Stock-settled, stock-based compensation expense

Earnings of joint ventures in excess of distributions

Equity method investment (earnings) loss in excess of distributions

Deferred income taxes

Changes in operating assets and liabilities:

Changes in operating assets and liabilities, net of acquisition:

Income taxes payable/receivable, net

5 unchanged sentences

Additions to property, plant and equipment

Acquisition of interest in joint venture, net

Additions to other long-term assets

3 unchanged sentences

Repayments of debt and financing obligations

Repurchase of common stock and common stock withheld to cover taxes

Dividends paid

Payments of senior notes call premium

Repayments of short-term borrowings, net

Repurchase of common stock and common stock withheld to cover taxes

Net cash used for financing activities

Effect of exchange rate changes on cash and cash equivalents

Net decrease in cash and cash equivalents

Net (decrease) increase in cash and cash equivalents

Cash and cash equivalents, beginning of period

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Lamb Weston Holdings, Inc.

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

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

We have four reportable segments:

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Basis of Presentation

The accompanying unaudited Consolidated Financial Statements present the financial results of Lamb Weston for the thirteen and thirty-nine weeks ended February 27, 2022 and February 28, 2021, and have been prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States of America.

These consolidated financial statements include all adjustments that we consider necessary for a fair presentation of such financial statements and consist only of normal recurring adjustments.

The accompanying unaudited Consolidated Financial Statements present the financial results of Lamb Weston for the thirteen weeks ended August 28, 2022 and August 29, 2021, and have been prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States of America (“U.S”).

These consolidated financial statements are unaudited, and include all adjustments that we consider necessary for a fair presentation of such financial statements and consist only of normal recurring adjustments.

The preparation of financial statements involves the use of estimates and accruals.

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

The actual results that we experience may differ materially from those estimates.

Results for interim periods should not be considered indicative of results for our full fiscal year, which ends the last Sunday in May.

These financial statements and condensed notes should be read together with the consolidated financial statements and notes in our Annual Report on Form 10-K for the fiscal year ended May 30, 2021 (the “Form 10-K”), which we filed with the Securities and Exchange Commission on July 27, 2021.

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

Recently Issued Accounting Pronouncements Not Yet Adopted

In March 2020, the Financial Accounting Standards Board issued Accounting Standards Update 2020-04 , Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting .

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

This guidance includes practical expedients and exceptions to the current guidance on contract modifications and hedge accounting.

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

This guidance was effective upon issuance and can be applied through December 31, 2022.

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

There were no other accounting pronouncements recently issued that had or are expected to have a material impact on our consolidated financial statements.

These financial statements and condensed notes should be read together with the consolidated financial statements and notes in our Annual Report on Form 10-K for the fiscal year ended May 29, 2022 (the “Form 10-K”), where we include additional information on our critical accounting estimates, policies, and the methods and assumptions used in our estimates.

We filed the Form 10-K with the Securities and Exchange Commission on July 27, 2022.

There were no accounting pronouncements recently issued that had or are expected to have a material impact on our consolidated financial statements.

EARNINGS PER SHARE

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Thirteen Weeks Ended

Thirty-Nine Weeks Ended

(in millions, except per share amounts)

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Earnings per share:

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

As of February 27, 2022, 0.1 million shares of stock-based awards were excluded from the computation of diluted earnings per share because they would be antidilutive.

As of February 28, 2021, we did not have any stock-based awards that were antidilutive.

Income tax expense was $ 31.1 million and $ 16.3 million for the thirteen weeks ended February 27, 2022 and February 28, 2021, respectively;

and $ 49.4 million and $ 76.2 million for the thirty-nine weeks ended February 27, 2022 and February 28, 2021, 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 19.8 % for the thirteen weeks ended February 27, 2022 and February 28, 2021, respectively;

and 22.6 % and 23.2 % for the thirty-nine weeks ended February 27, 2022 and February 28, 2021, respectively, in our Consolidated Statements of Earnings.

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

As of August 28, 2022, 0.6 million shares of stock-based awards were excluded from the computation of diluted earnings per share because they would be antidilutive.

As of August 29, 2021, an insignificant number of stock-based awards were excluded from the computation of diluted earnings per share because they would be antidilutive.

Income tax expense was $ 73.7 million and $ 8.7 million for the thirteen weeks ended August 28, 2022 and August 29, 2021, respectively.

The effective income tax rate (calculated as the ratio of income tax expense to pre-tax income, inclusive of equity method investment earnings) was 24.1 % and 22.6 % for the thirteen weeks ended August 28, 2022 and August 29, 2021, respectively, in our Consolidated Statements of Earnings.

The effective tax rate varies from the U.S.

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

Excluding the impact of both the gain associated with the acquisition of an additional 40 % interest in our Argentina joint venture, Lamb Weston Alimentos Modernos S.A.

(“LWAMSA”), and the mark-to-market adjustments associated with changes in natural gas and electricity derivatives at our Lamb-Weston/Meijer v.o.f (“LWM”) joint venture, which are discussed at Note 6, Joint Venture Investments, and Note 13, Segments, respectively, our effective tax rate was 25.0 %.

Income Taxes Paid

Income taxes paid, net of refunds were $ 17.2 million and $ 44.4 million during the thirty-nine weeks ended February 27, 2022 and February 28, 2021, respectively.

Income tax refunds, net of taxes paid, were $ 3.2 million and $ 2.9 million during the thirteen weeks ended August 28, 2022 and August 29, 2021, respectively.

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

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Property, plant and equipment, net

Depreciation expense was $ 45.3 million and $ 44.8 million for the thirteen weeks ended February 27, 2022 and February 28, 2021, respectively;

and $ 134.5 million and $ 134.9 million for the thirty-nine weeks ended February 27, 2022 and February 28, 2021, respectively.

At February 27, 2022 and May 30, 2021, purchases of property, plant and equipment included in accounts payable were $ 15.1 million and $ 23.1 million, respectively.

Interest capitalized within construction in progress for the thirteen weeks ended February 27, 2022 and February 28, 2021, was $ 1.2 million and $ 0.5 million, respectively;

and $ 4.0 million and $ 1.5 million for the thirty-nine weeks ended February 27, 2022 and February 28, 2021, respectively.

EQUITY METHOD INVESTMENTS

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

(“Lamb-Weston/Meijer”), a joint venture with Meijer Frozen Foods B.V., that is headquartered in the Netherlands and manufactures and sells frozen potato products principally in Europe, Russia, and the Middle East.

We hold a 50 % ownership interest in Lamb-Weston/RDO Frozen (“Lamb Weston RDO”), a potato processing joint venture based in the United States.

We also hold a 50 % ownership interest in Lamb Weston Alimentos Modernos S.A.

(“LWAMSA”), a joint venture with Sociedad Comercial del Plata S.A., that is headquartered in Argentina.

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

These investments are accounted for using equity method accounting.

The carrying value of these investments at February 27, 2022 and May 30, 2021, was $ 312.8 million and $ 310.2 million, respectively, and are included in “Equity method investments” on our Consolidated Balance Sheets.

Lamb-Weston/Meijer has a 74.9 % ownership interest in a joint venture located in Russia that manufactures and sells frozen potato products.

In March 2022, as a result of Russia’s invasion of Ukraine, the joint venture paused construction of its previously announced capacity expansion and began winding down production of Lamb Weston branded products.

In addition, Lamb-Weston/Meijer ceased shipping products into Russia.

While the joint venture continues to produce and sell food for domestic consumption, the current sanctions imposed by governments in the United States, United Kingdom, and European Union against Russia, as well as additional steps taken by the joint venture’s customers, suppliers, or other stakeholders, may disrupt the plant’s ability to operate in the future.

Through the thirty-nine weeks ended February 27, 2022, approximately 2 % of our net income was attributable to business conducted through Lamb-Weston/Meijer’s joint venture, and the portion of our Lamb-Weston/Meijer interest related to its operations in Russia was approximately $ 55 million as of February 27, 2022.

For the thirteen weeks ended February 27, 2022 and February 28, 2021, we had sales to our equity method investments of $ 4.3 million and $ 5.5 million, respectively, and purchases from our equity method investments of $ 6.0 million and $ 0.9 million, respectively.

For the thirty-nine weeks ended February 27, 2022 and February 28, 2021, we had sales to our equity method investments of $ 12.5 million and $ 12.4 million, respectively, and purchases from our equity method investments of $ 13.2 million and $ 4.2 million, respectively.

Total dividends received from our equity method investments were $ 5.0 million and $ 5.8 million for the thirteen weeks ended February 27, 2022 and February 28, 2021, respectively;

and $ 19.2 million and $ 12.4 million for the thirty-nine weeks ended February 27, 2022 and February 28, 2021, respectively.

We have an agreement to share the costs of our global enterprise resource planning (“ERP”) system and related software and services with Lamb-Weston/Meijer.

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

At February 27, 2022 and May 30, 2021, Lamb-Weston/Meijer’s portion of the ERP costs was $ 19.6 million and $ 16.8 million, respectively.

Related to this project, we had $ 16.5 million and $ 13.2 million of receivables recorded in “Other assets” on our Consolidated Balance Sheets at February 27, 2022 and May 30, 2021, respectively.

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

Depreciation expense was $ 47.3 million and $ 44.5 million for the thirteen weeks ended August 28, 2022 and August 29, 2021, respectively.

At August 28, 2022 and May 29, 2022, purchases of property, plant and equipment included in accounts payable were $ 64.4 million and $ 38.3 million, respectively.

Interest capitalized within construction in progress for the thirteen weeks ended August 28, 2022 and August 29, 2021, was $ 2.0 million and $ 1.2 million, respectively.

JOINT VENTURE INVESTMENTS

Consolidated Joint Ventures

In July 2022, we acquired an additional 40 % interest in LWAMSA, which increased our total ownership from 50 % to 90 %.

We recorded LWAMSA’s assets and liabilities at fair value, which included remeasuring our previously held equity interest at fair value, and we recognized a $ 15.1 million gain in “Equity method investment earnings” in our Consolidated Statement of Earnings.

The fair value was determined utilizing industry EBITDA multiples and control premium comparable information, which are unobservable inputs, or Level 3 in the fair value hierarchy.

We recorded the preliminary fair values as of the date of acquisition.

In connection with the purchase of the additional interest in LWAMSA, we ceased equity method accounting and began consolidating LWAMSA’s financial statements.

The net sales, income from operations, and total assets acquired were not material to our consolidated net sales, income from operations, and total assets.

LWAMSA’s operating results are included in our Global segment.

On September 6, 2022, we announced an expansion of french fry processing capacity in Argentina with the planned construction of a new manufacturing facility in Mar del Plata.

The new processing facility is expected to produce more than 200 million pounds of frozen french fries and other potato products per year.

Construction of the new line is expected to be completed in fiscal 2025.

The total investment is expected to be approximately $ 240 million.

This investment will add to the capacity produced at LWAMSA’s existing production facility in Buenos Aires.

Noncontrolling Interest

As of August 28, 2022, total LWAMSA interest not directly attributable to Lamb Weston, or NCI, was $ 8.2 million and was recorded in “Additional distributed capital” on our Consolidated Balance Sheet.

For the thirteen weeks ended August 28, 2022, the net loss attributable to NCI was not significant and was recorded in “Selling, general and administrative expenses” in our Consolidated Statement of Earnings.

Unconsolidated Joint Ventures

Our equity method investments were as follows:

(in millions)

Lamb-Weston/RDO Frozen ("Lamb Weston RDO") (b)

(a) We own 50 % of LWM, a joint venture with Meijer Frozen Foods B.V., headquartered in the Netherlands that manufactures and sells frozen potato products principally in Europe and the Middle East.

The investment balance includes $ 146.3 million of unrealized gains related to mark-to-market adjustments associated with changes in natural gas and electricity derivatives as commodity markets in Europe have experienced significant volatility during the thirteen weeks ended August 28, 2022.

In September 2022, LWM completed the previously announced withdrawal from its joint venture in Russia.

(b) We own 50 % of Lamb Weston RDO, a joint venture with RDO Frozen Co., that operates a potato processing facility in the U.S.

(c) In July 2022, we acquired an additional 40 % interest in LWAMSA, increasing our total ownership to 90 % and began consolidating the joint venture.

We have an agreement to share the costs of our global enterprise resource planning (“ERP”) system and related software and services with LWM.

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

At August 28, 2022 and May 29, 2022, LWM’s portion of the ERP costs totaled $ 29.5 million and $ 23.4 million, respectively.

We had $ 25.3 million and $ 20.5 million of receivables recorded in “Other assets” on our Consolidated Balance Sheets at August 28, 2022 and May 29, 2022, respectively.

We expect the total receivable from LWM to increase as development and implementation of the next phase of our ERP system continues throughout fiscal 2023.

GOODWILL AND OTHER IDENTIFIABLE INTANGIBLE ASSETS

The following table presents changes in goodwill balances, by segment, during the thirty-nine weeks ended February 27, 2022:

The following table presents changes in goodwill balances, by segment, during the thirteen weeks ended August 28, 2022:

(in millions)

Balance at May 29, 2022

Acquisition of interest in joint venture (a)

Foreign currency translation adjustment

Balance at February 27, 2022

Balance at August 28, 2022

(a) In July 2022, we acquired an additional 40 % interest in LWAMSA, which increased our total ownership from 50 % to 90 % , and we recorded $ 42.1 million of goodwill, that is not deductible for tax purposes, in our Global segment.

See Note 6, Joint Venture Investments, for more information.

Other identifiable intangible assets were as follows:

February 27, 2022

August 28, 2022

(dollars in millions)

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Developed technology, which is excluded from this balance, is recorded as “Other assets” on our Consolidated Balance Sheets.

Amortization expense, including developed technology amortization expense, was $ 1.3 million and $ 1.5 million for the thirteen weeks ended February 27, 2022 and February 28, 2021, respectively;

and $ 4.3 million and $ 3.6 million for the thirty-nine weeks ended February 27, 2022 and February 28, 2021, respectively.

Amortization expense, including developed technology amortization expense, was $ 1.4 million and $ 1.5 million for the thirteen weeks ended August 28, 2022 and August 29, 2021, respectively.

Foreign intangible assets are affected by foreign currency translation.

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Accrued trade promotions

Income taxes payable

Dividends payable to shareholders

Current portion of operating lease obligations

Franchise, property, and sales and use taxes

Accrued interest

Franchise, property, and sales and use taxes

Accrued liabilities

2 unchanged sentences

(in millions)

Short-term borrowings:

Other credit facilities

Long-term debt:

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Term A-2 loan facility, due April 2025

RMB loan facility, due February 2027

4.625 % senior notes, due November 2024

4.875 % senior notes, due November 2026

RMB loan facility, due February 2027 (a)

4.875 % senior notes, due May 2028

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Financing obligations:

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

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

Total debt and financing obligations

Debt issuance costs (b)

Debt issuance costs (c)

Short-term borrowings

Current portion of long-term debt and financing obligations

Long-term debt and financing obligations, excluding current portion

(a) The interest rates on our lease financing obligations ranged from 2.08 % to 4.10 % as of February 27, 2022, and 2.49 % to 4.10 % as of May 30, 2021.

(b) Excludes debt issuance costs of $ 3.4 million and $ 2.1 million as of February 27, 2022 and May 30, 2021, respectively, related to our Amended Revolving Credit Facility, which are recorded in “Other assets” on our Consolidated Balance Sheets.

RMB Loan Facility

On February 18, 2022 , our wholly owned subsidiary, Ulanqab Lamb Weston Food Co., Ltd., entered into a facility agreement with certain lenders and HSBC Bank (China) Company Limited, Shanghai Branch, as the facility agent, providing for a RMB 1,079.0 million (approximately $ 170 million based on prevailing interest exchange rates on February 27, 2022) term loan facility (the “RMB Loan Facility”).

Borrowings under the RMB Loan Facility bear interest at the prime rate for five-year loans published by the PRC National Interbank Funding Center plus 0.30 %.

The RMB Loan Facility will be used for fixed asset investments in the People’s Republic of China (“PRC”) and matures on February 18, 2027 .

The RMB Loan Facility contains covenants that are standard for credit facilities originated in the PRC, including, among others, covenants with regards to mergers and consolidations and asset sales, and is subject to acceleration upon various events of default.

Payment obligations under the RMB Loan Facility are unconditionally guaranteed by Lamb Weston.

4.125 % Senior Notes due 2030 and 4.375 % Senior Notes due 2032

On November 8, 2021 , we issued (i) $ 970.0 million aggregate principal amount of 4.125 % senior notes due 2030 (“2030 Notes”) and (ii) $ 700.0 million aggregate principal amount of 4.375 % senior notes due 2032 (“2032 Notes” and, together with the 2030 Notes, the “Notes”) pursuant to indentures, dated as of November 8, 2021 (together, the “Indentures”), among Lamb Weston, as issuer, certain of our subsidiaries named therein as guarantors and Computershare Trust Company, N.A., as trustee.

Our obligations under the 2030 Notes and 2032 Notes are unconditionally guaranteed on a senior unsecured basis by each of our subsidiaries that guarantee our obligations under our existing credit facilities.

Interest payments on the Notes are due semi-annually each January 31 and July 31, with the first interest payment due on July 31, 2022.

The 2030 and 2032 Notes will mature on January 31, 2030 and 2032 , respectively, unless earlier redeemed or repurchased, and are subject to the terms and conditions set forth in the applicable Indenture.

We may redeem some or all of the Notes at the redemption prices and on the terms specified in the applicable Indenture.

If we experience specific kinds of changes in control and certain negative actions are taken with respect to the ratings of the Notes of a series, we must offer to repurchase such Notes on the terms set forth in the applicable Indenture.

The Notes are effectively subordinated to all of our existing and future secured debt, rank equally with all of our existing and future senior debt and rank senior to all of our existing and future subordinated debt.

The guarantees of the Notes are effectively subordinated to all of the guarantors’ existing and future secured debt, rank equally with all of their existing and future senior debt and rank senior to all of their existing and future subordinated debt.

The Notes are structurally subordinated to all of the liabilities of our non-guarantor subsidiaries.

The Indentures limit our ability and the ability of our subsidiaries to, among other things, incur or suffer to exist liens and consolidate, merge, amalgamate or transfer all or substantially all of our assets.

The Indentures contain customary events of default that include, among other things (subject in certain cases to customary grace and cure periods):

non-payment of principal, interest or premium;

failure to perform or observe covenants;

cross-acceleration with certain other indebtedness;

certain judgments;

and certain events of bankruptcy or insolvency.

Generally, if an event of default occurs (subject to certain exceptions), the trustee or the holders of at least 25 % in aggregate principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately.

In connection with the 2030 Notes and 2032 Notes issuance, we capitalized $ 17.5 million of debt issuance costs within long-term debt on our Consolidated Balance Sheet.

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

On November 18, 2021, we used the net proceeds of the issuance of the 2030 Notes and 2032 Notes, together with cash on hand, to redeem all of our outstanding $ 833.0 million aggregate principal amount of 4.625 % senior notes due 2024 (the “2024 Notes”) and $ 833.0 million aggregate principal amount of 4.875 % senior notes due 2026 (the “2026 Notes”).

The 2024 Notes were redeemed at a price of 102.313 % of the principal amount and the 2026 Notes were redeemed at a price of 102.438 % of the principal amount.

The aggregate call premium for the 2024 Notes and 2026 Notes was $ 39.6 million (included in the redemption prices noted above) and in connection with these redemptions, we also wrote off $ 13.7 million of previously unamortized debt issuance costs.

Both of these amounts are included as “Interest Expense, net” in our Consolidated Statements of Earnings for the thirty-nine weeks ended February 27, 2022.

Amended Revolving Credit Facility

On August 11, 2021, we amended our credit agreement, dated as of November 9, 2016 (“Amended Revolving Credit Facility”).

The Amended Revolving Credit Facility, among other things, increased the aggregate principal amount of available revolving credit facility borrowings to $ 1.0 billion and extended the maturity date to August 11, 2026 .

In addition, we may add incremental term loan facilities, increase commitments and/or add new revolving commitments in an aggregate principal amount of $ 650.0 million or greater based on conditions described in the agreement.

Borrowings under the Amended Revolving Credit Facility bear interest at LIBOR, the Base Rate, the Alternative Currency Daily Rate, or the Alternative Currency Term Rate (each as defined in the Amended Revolving Credit Facility) plus an applicable rate ranging from 1.125 % to 1.75 % for LIBOR-based loans, Alternative Currency Daily Rate-based loans, and Alternative Currency Term Rate-based loans and from 0.125 % to 0.75 % for Base Rate-based loans, depending upon our consolidated net leverage ratio.

In addition to paying interest, we pay an annual commitment fee for undrawn amounts at a rate of 0.15 % to 0.25 %, depending on our consolidated net leverage ratio.

The Amended Revolving Credit Facility requires us to maintain a consolidated net leverage ratio no greater than 5.00 to 1.00, decreasing to 4.75 to 1.00 on February 23, 2025 through maturity;

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

At February 27, 2022, we had no borrowings outstanding under the Amended Revolving Credit Facility and $ 994.6 million of availability under the facility, which is net of outstanding letters of credit of $ 5.4 million.

For the thirty-nine weeks ended February 27, 2022, we had no borrowings under the facility.

Term A-1 and A-2 Loan Facilities

On August 11, 2021, in connection with the Amended Revolving Credit Facility, we amended the credit agreement, dated as of June 28, 2019, relating to our Term A-1 and A-2 Loan Facilities (“Term Loan Facilities”), to, among other things, modify the Term Loan Facilities to make conforming changes to the covenants under the agreement.

Under the amended Term Loan Facilities, we are required to maintain a consolidated net leverage ratio no greater than 5.00 to 1.00 , decreasing to 4.75 to 1.00 on February 23, 2025 through maturity;

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

For the thirty-nine weeks ended February 27, 2022 and February 28, 2021, we paid $ 64.7 million and $ 65.2 million of interest on debt, respectively.

(a) The effective average interest rate on this facility was 4.60 % as of August 28, 2022.

(b) The interest rates on our lease financing obligations ranged from 2.08 % to 3.32 % as of August 28, 2022 and May 29, 2022.

(c) Excludes debt issuance costs of $ 3.1 million and $ 3.3 million as of August 28, 2022 and May 29, 2022, respectively, related to our revolving credit facility, which are recorded in “Other assets” on our Consolidated Balance Sheets.

At August 28, 2022, we had no borrowings outstanding under our revolving credit facility and $ 994.6 million of availability under the facility, which is net of outstanding letters of credit of $ 5.4 million.

For the thirteen weeks ended August 28, 2022, we had no borrowings under the facility.

For the thirteen weeks ended August 28, 2022 and August 29, 2021, we paid $ 56.8 million and $ 2.7 million of interest on debt, respectively.

For more information on our debt and financing obligations, interest rates, and debt covenants, see Note 7, Debt and Financing Obligations, of the Notes to Consolidated Financial Statements in “Part II, Item 8.

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

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

During the thirty-nine weeks ended February 27, 2022, we granted 0.4 million and 0.1 million RSUs and Performance Shares, respectively, at an average grant date fair value of $ 65.99 .

As of February 27, 2022, 7.1 million shares were available for future grant under the plan.

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

As of August 28, 2022, 6.2 million shares were available for future grant under the plan.

We grant RSUs to eligible employees and non-employee directors.

The employee RSUs generally vest over a three-year period while the non-employee director RSUs generally vest after one year .

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

Compensation expense is recognized over the period the employee or non-employee director provides service in exchange for the award.

Performance Shares

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

Awards actually earned range from 0 % to 200 % of the targeted number of Performance Shares for each of the performance periods.

Awards, if earned, would be paid in shares of our common stock.

Subject to limited exceptions set forth in our stock plan, any shares earned will generally vest over a three-year service period.

The value of these Performance Shares is adjusted based upon the market price of our common stock and the anticipated attainment of Company-wide performance goals at the end of each reporting period and amortized as compensation expense over the service period.

We have also granted Performance Shares with vesting contingent upon relative total shareholder return goals, and, under special circumstances, stock price growth goals.

Awards actually earned range from 0 % to 200 % , in the case of awards contingent on total shareholder return goals, or 0 % to 300 % , in the case of awards contingent on stock price growth goals, of the targeted number of Performance Shares.

These Performance Shares are equity-settled awards that vest over a three-year service period, and the number of units that actually vest is determined based on the achievement of the performance criteria set forth in the respective award agreement.

The awards are measured based on estimated fair value as of the date of grant using a Monte Carlo simulation, and are amortized over the service period.

The weighted average Monte Carlo assumptions for Performance Shares granted during the thirteen weeks ended August 28, 2022 were:

Dividend yield (%)

Expected volatility of stock (%)

Risk-free interest rate (%)

Expected life (years)

Weighted average grant date fair value per unit

91.43 - $ 118.97

Stock Options

Under special circumstances, we have granted options to employees for the purchase of stock at exercise prices equal to the fair market value of the underlying stock on the grant date.

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

The weighted average Black-Sholes assumptions for stock options granted during the thirteen weeks ended August 28, 2022 were:

Weighted average fair value

Dividend yield (%)

Expected volatility of stock (%)

Risk-free interest rate (%)

Expected life of stock option (years)

Weighted average exercise price per share

Stock Based Compensation Grants

During the thirteen weeks ended August 28, 2022, we granted 0.3 million, 0.3 million, and 0.6 million RSUs, Performance Shares, and stock options, respectively, at an average grant date fair value of $ 79.47 , $ 92.85 , and $ 25.90 , respectively.

Compensation Expense

Our stock-based compensation expense is recorded in “Selling, general and administrative expenses.” Compensation expense for stock-based awards recognized in the Consolidated Statements of Earnings, net of forfeitures, was as follows:

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

(in millions)

Stock-settled RSUs

Performance Shares

Stock options

Total compensation expense

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

Based on estimates at February 27, 2022, total unrecognized compensation expense related to stock-based awards was as follows:

(dollars in millions)

Based on estimates at August 28, 2022, total unrecognized compensation expense related to stock-based awards was as follows:

(in millions, except data in years)

Period (in years)

1 unchanged sentence

Performance Shares

Stock options

Total unrecognized compensation expense

FAIR VALUE MEASUREMENTS

For information about our fair value policies, methods and assumptions used in estimating the fair value of our financial assets and liabilities, see Note 1, Nature of Operations and Summary of Significant Accounting Policies and Note 12, Fair Value Measurements, of the Notes to Consolidated Financial Statements in "Part II, Item 8.

Financial Statements and Supplementary Data"

of the Form 10-K.

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

The following table presents our financial assets and liabilities measured at fair value on a recurring basis based upon the level within the fair value hierarchy in which the fair value measurements fall:

As of February 27, 2022

As of August 28, 2022

(in millions)

Fair Value of Assets (Liabilities)

(Liabilities)

Derivative assets (a)

Derivative liabilities (a)

Deferred compensation liabilities (b)

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(in millions)

Fair Value of Assets (Liabilities)

(Liabilities)

Derivative assets (a)

1 unchanged sentence

Fair value, net

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

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

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

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

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

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

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

1 unchanged sentence

Deferred compensation liabilities are primarily presented within “Other noncurrent liabilities” on our Consolidated Balance Sheets.

At February 27, 2022, we had $ 2,170.0 million of fixed-rate and $ 576.9 million of variable-rate debt outstanding.

At August 28, 2022, we had $ 2,170.0 million of fixed-rate and $ 587.6 million of variable-rate debt outstanding.

Based on current market rates, the fair value of our fixed-rate debt was estimated to be $ 2,006.2 million.

3 unchanged sentences

Share Repurchase Program

In December 2018, our Board of Directors authorized a program, with no expiration date, to repurchase shares of our common stock in an amount not to exceed $ 250.0 million in the aggregate.

In December 2021, our Board of Directors authorized the repurchase of an additional $ 250.0 million of our common stock under this share repurchase program.

During the thirteen weeks ended February 27, 2022, we repurchased 763,777 shares for $ 50.0 million, or a weighted-average price of $ 65.46 per share.

During the thirty-nine weeks ended February 27, 2022, we repurchased 2,027,891 shares for $ 126.0 million, or a weighted-average price of $ 62.15 per share.

As of February 27, 2022, $ 293.6 million remained authorized for repurchase under the program.

During the thirty-nine weeks ended February 27, 2022, we paid $ 103.0 million of dividends to common stockholders.

On March 4, 2022, we paid $ 35.4 million of dividends to stockholders of record as of the close of business on February 4, 2022.

On March 24, 2022 , our Board of Directors declared a dividend of $ 0.245 per share of common stock.

The dividend will be paid on June 3, 2022 , to stockholders of record as of the close of business on May 6, 2022 .

Our Board of Directors authorized a program, with no expiration date, to repurchase up to $ 500.0 million of our common stock.

During the thirteen weeks ended August 28, 2022, we repurchased 404,476 shares for $ 28.4 million, or a weighted average price of $ 70.11 per share.

As of August 28, 2022, $ 240.6 million remained authorized for repurchase under the program.

During the thirteen weeks ended August 28, 2022, we paid $ 35.3 million of dividends to common stockholders.

On September 2, 2022, we paid $ 35.2 million of dividends to stockholders of record as of the close of business on August 5, 2022.

On September 28, 2022 , our Board of Directors declared a dividend of $ 0.245 per share of common stock.

The dividend will be paid on December 2, 2022 , to stockholders of record as of the close of business on November 4, 2022 .

Accumulated Other Comprehensive Income (“AOCI”)

Changes in AOCI, net of taxes, as of February 27, 2022 were as follows:

Changes in AOCI, net of taxes, as of August 28, 2022 were as follows:

Post-Retirement

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Net current-period other comprehensive income (loss)

Balance as of February 27, 2022

Balance as of August 28, 2022

We have four operating segments, each of which is a reportable segment:

3 unchanged sentences

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

(in millions)

4 unchanged sentences

Income from operations

Interest expense, net (c)

Interest expense, net

Income tax expense

Equity method investment earnings

Equity method investment earnings (c)

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

1 unchanged sentence

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

(c) The thirty-nine weeks ended February 27, 2022, includes a loss on the extinguishment of debt of $ 53.3 million, which includes an aggregate call premium of $ 39.6 million related to the redemption of the 2024 Notes and 2026 Notes, and the write-off of $ 13.7 million of previously unamortized debt issuance costs associated with those notes.

(c) Equity method investment earnings for the thirteen weeks ended August 28, 2022 and August 29, 2021 include a $ 146.3 million and $ 5.0 million unrealized gain, respectively, related to mark-to-market adjustments associated with changes in natural gas and electricity derivatives as commodity markets in Europe have experienced significant volatility.

In July 2022, we acquired an additional 40 % interest in LWAMSA, increasing our total ownership from 50 % to 90 %.

See Note 6, Joint Venture Investments, for more information.

COMMITMENTS, CONTINGENCIES, GUARANTEES AND LEGAL PROCEEDINGS

7 unchanged sentences

An estimated loss is recognized when it is considered probable that a liability has been incurred and when the amount of loss can be reasonably estimated.

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

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

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 1. Financial Statements