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Item 2. Management’s Discussion and Analysis

2023-01-05 compared with 2022-10-05 · 222 added, 119 removed, 127 unchanged (73% of the section changed)

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

Words such as “will,” “continue,” “may,” “expect,” “would,” “believe,” “increase,” “implement,” “mitigate,” “manage,” “grow,” “improve,” “outlook,” and variations of such words and similar expressions are intended to identify forward-looking statements.

Examples of forward-looking statements include, but are not limited to, statements regarding our plans, execution, capital investments, operational costs, pricing actions, cash flows, liquidity, dividends, enterprise resource planning (“ERP”) system implementation and business and financial outlook and prospects, as well as supply chain constraints, inflation, our industry, and the global economy.

Words such as “will,” “continue,” “may,” “expect,” “would,” “believe,” “acquire,” “increase,” “implement,” “improve,” “outlook,” and variations of such words and similar expressions are intended to identify forward-looking statements.

Examples of forward-looking statements include, but are not limited to, statements regarding our plans, execution, capital investments, operational costs, pricing actions, cash flows, liquidity, dividends, enterprise resource planning (“ERP”) system implementation, pending acquisition of the remaining equity interest in our European joint venture, Lamb-Weston/Meijer v.o.f.

(“LWM”), including the anticipated benefits of the transaction, the expected timing of the completion of the transaction, related financing and the ability of the parties to complete the transaction, and business and financial outlook and prospects, as well as supply chain constraints, inflation, our industry, and global economic conditions.

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

Readers of this report should understand that these statements are not guarantees of performance or results.

Many factors could affect our actual financial results and cause them to vary materially from the expectations contained in the forward-looking statements, including those set forth in this report.

Many factors could affect these forward-looking statements and our actual financial results and cause them to vary materially from the expectations contained in the forward-looking statements, including those set forth in this report.

These risks and uncertainties include, among other things:

the availability and prices of raw materials;

the availability and prices of raw materials and other commodities;

labor shortages and other operational challenges;

an uncertain general economic environment, including inflationary pressures and recessionary concerns, any of which could adversely impact our business, financial condition or results of operations, including the demand and prices for our products;

the occurrence of any event, change or other circumstances that could give rise to the termination of our agreement to acquire the remaining equity interest in LWM;

the risk that the necessary regulatory approvals for the LWM acquisition may not be obtained or may be obtained subject to conditions that are not anticipated;

the risk that the LWM acquisition will not be consummated in a timely manner or at all;

risks that any of the closing conditions to the LWM acquisition may not be satisfied or may not be satisfied in a timely manner;

risks related to disruption of management time from ongoing business operations due to the LWM acquisition;

failure to realize the benefits expected from the LWM acquisition;

and the effect of the announcement of the LWM acquisition on our ability to retain customers and retain and hire key personnel, maintain relationships with suppliers and on our operating results and businesses generally;

risks associated with integrating acquired businesses, including LWM;

disruptions in the global economy caused by the war in Ukraine and the possible related heightening of our other known risks;

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disruption of our access to export mechanisms;

risks associated with possible acquisitions, including our ability to complete acquisitions or integrate acquired businesses;

risks associated with other possible acquisitions;

our debt levels;

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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 EBITDA, Adjusted EBITDA including unconsolidated joint ventures, Adjusted Net Income, 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, Adjusted Net Income, and Adjusted Diluted EPS, and a reconciliation of these non-GAAP financial measures to gross profit, net income, or diluted earnings per share, as applicable.

generally accepted accounting principles (“GAAP”) and certain other financial data (including product contribution margin, on a consolidated basis, Adjusted EBITDA, Adjusted EBITDA including unconsolidated joint ventures, Adjusted Income from Operations, Adjusted Net Income, 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, Adjusted Income from Operations, Adjusted Net Income, and Adjusted Diluted EPS, and a reconciliation of these non-GAAP financial measures to gross profit, income from operations, net income, or diluted earnings per share, as applicable.

Executive Summary

The following highlights our financial results in the first quarter of fiscal 2023, compared with the prior year quarter.

The following highlights our financial results in the second quarter of fiscal 2023, compared with the prior year quarter.

For more information, refer to the “Results of Operations” section below.

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● Income from operations increased 138% to $271.8 million

● Net income increased 678% to $231.9 million, and diluted earnings per share increased 700% to $1.60, including items impacting comparability of $161.4 million ($123.7 million after-tax, or $0.85 per share)

● Net income increased 217% to $103.1 million, and diluted earnings per share increased 223% to $0.71, including items impacting comparability, as discussed below, of $110.3 million ($82.3 million after-tax, or $0.57 per share)

● Adjusted Income from Operations increased 114% to $245.3 million

● Adjusted Net Income increased 171% to $185.4 million, and Adjusted Diluted EPS increased 172% to $1.28

● Adjusted EBITDA including unconsolidated joint ventures increased 92% to $334.6 million

● We returned $63.7 million of cash to stockholders, including $35.3 million in dividends and $28.4 million of share repurchases

We drove strong sales, earnings growth, and gross margin expansion in the quarter by executing pricing actions across each of our business segments and generating productivity savings to counter significant input, manufacturing, and supply chain cost inflation.

The increase in net sales was partially offset by a decline in sales volume, primarily reflecting softer restaurant traffic and demand trends in the U.S., especially at casual dining and full-service restaurants, as consumers adjusted to the severe inflationary environment.

● We returned $35.2 million of cash to stockholders through dividends

We drove strong sales growth, earnings growth, and gross margin expansion in the quarter by continuing to execute pricing actions across each of our business segments to counter significant input, manufacturing, and supply chain cost inflation.

The increase in net sales was partially offset by a decline in sales volume, primarily reflecting an inability to fully serve customer demand in our foodservice and retail channels due to the impact of supply chain disruptions on run-rates and throughput in our production facilities, and to a lesser extent, softer restaurant traffic and demand trends in the U.S., especially at casual dining and full-service restaurants, as consumers adjusted to the severe inflationary environment.

Overall traffic at large quick service restaurants (“QSR”) in the U.S.

remained solid.

Our sales volume also reflects our inability to fully serve customer demand in our foodservice and retail channels due to widespread industry supply chain constraints, including labor and commodities shortages, that affected production run-rates and throughput in our factories.

The increase in our net income was driven by higher income from operations as well as sharply higher equity method investment earnings, which include our share of earnings from our unconsolidated joint ventures.

In the first quarter of fiscal 2023, the increase in equity method investment earnings included a $146.3 million unrealized gain ($108.6 million after-tax, or $0.75 per share) on derivatives for natural gas and electricity contracts in Europe, reflecting the volatility of those energy markets in that region.

Equity method investment earnings also included a $15.1 million gain (before and after-tax, or $0.10 per share) recognized in connection with our acquisition of an additional 40% interest in Lamb Weston Alimentos Modernos S.A.

The gain related to the remeasuring of our previously held 50% ownership interest to fair value.

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

We have identified both of these gains as items impacting comparability and have excluded their impact when providing Adjusted Net Income, Adjusted Diluted EPS, and Adjusted EBITDA including unconsolidated joint ventures.

In September 2022, Lamb-Weston/Meijer v.o.f.

("LWM"), our joint venture in Europe, completed the previously announced withdrawal from its joint venture in Russia.

In the remainder of fiscal 2023, we expect price/mix to increase versus the prior year largely due to carryover benefits of pricing actions taken in the prior year as well as earlier in fiscal 2023 to counter manufacturing and distribution cost inflation.

We expect demand and sales volumes growth will continue to be volatile as consumers respond to the current inflationary environment, and that our volume will be affected by production capacity and logistics constraints due to disruptions in the global supply chain network.

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, as well as efforts to divert the production volumes to higher-margin sales channels in the U.S.

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 to approach normalized annual levels based on our continued successful implementation of our pricing actions to offset input and transportation costs inflation, as well as our preliminary assessment that the overall quality of the 2022 potato crop will be in line with historical averages, although significant heat waves late in the season affected yields in our growing regions in the Pacific Northwest.

We expect LWM’s earnings will be affected by a below-average potato crop in Europe resulting from high temperatures and drought conditions, as well as likely production disruptions resulting from energy constraints.

While the near-term global demand trends may be volatile as consumers navigate this inflationary environment, our recent announcement to expand capacity in Argentina, along with our ongoing investments in Idaho and China, demonstrate our confidence in the long-term health and growth outlook of the frozen potato category.

The increase in net income was driven by higher sales and gross profit and lower interest expense, and was partially offset by sharply lower equity method investment earnings and higher selling, general and administrative expenses (“SG&A”).

The following items impacted comparability of our second quarter results and were excluded when providing Adjusted Income from Operations, Adjusted Net Income, Adjusted Diluted EPS, Adjusted EBITDA, and Adjusted EBITDA including unconsolidated joint ventures:

● Interest expense in the prior year quarter included a loss of $53.3 million ($40.5 million after-tax, or $0.28 per share) associated with the extinguishment of debt (see “Liquidity and Capital Resources”).

● The decrease in equity method investment earnings included a $136.8 million unrealized loss ($101.5 million after-tax, or $0.70 per share) in the second quarter of fiscal 2023 related to mark-to-market adjustments associated

with natural gas and electricity hedging contracts in Europe, reflecting the volatility of those energy markets in that region, and a $6.3 million unrealized gain ($4.7 million after-tax, or $0.03 per share) in the prior year quarter.

● SG&A included a net $26.5 million gain ($19.2 million after-tax, or $0.13 per share), related to actions taken to mitigate the effect of changes in currency rates on the pending purchase of the remaining ownership interest in LWM, net of other acquisition-related costs.

In October 2022, we entered into an agreement to acquire the remaining interest in LWM for consideration consisting of €525.0 million in cash and €175.0 million in shares of our common stock.

Upon completion of the transaction, we will own 100% of LWM.

We expect to close this transaction in the fourth quarter of fiscal 2023, subject to customary regulatory approvals.

After closing, we will include LWM’s operating results within our Global segment.

During the second half of fiscal 2023, we expect increases in price/mix in each of our core business segments to be the primary driver of net sales growth versus the prior year period.

We expect supply chain disruptions, including the effects of commodities shortages and onboarding new production workers, and changes in product mix will continue to impact run-rates and throughput in our production facilities, and affect our customer fulfillment rates.

We also expect sales volume trends and demand will continue to be volatile as consumers in the U.S.

and our key international markets continue to respond to the current inflationary environment.

We expect our gross margins will be largely consistent with the levels that we delivered in the first half of the year due to the carryover benefits of pricing actions taken in fiscal 2022, as well as actions being taken in fiscal 2023 to offset input cost inflation, including an increase in raw potato costs as a result of higher contract rates and the impact of below-average crop yields as a result of significant heat waves late in the season in our growing regions in the Pacific Northwest.

We expect LWM’s earnings may improve as compared to the prior year period as a result of the continued implementation of pricing actions to counter cost inflation.

While the near-term global demand trends may be volatile as consumers navigate the current challenging macroenvironment, our investments to expand capacity in Idaho, China, and Argentina, along with our intent to acquire the remaining equity interest in our LWM joint venture, reflect our belief in the long-term health and growth outlook of the frozen potato category.

Results of Operations

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Product contribution margin, when presented on a consolidated basis, is a non-GAAP financial measure.

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 A&P expenses.

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

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

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.

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

Financial Statements” of this report.

Thirteen Weeks Ended August 28, 2022 compared to Thirteen Weeks Ended August 29, 2021

Thirteen Weeks Ended November 27, 2022 compared to Thirteen Weeks Ended November 28, 2021

Net Sales, Gross Profit, and Product Contribution Margin

Thirteen Weeks Ended

(dollars in millions)

(in millions, except percentages)

Segment net sales

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Advertising and promotion expenses

Compared to the prior year quarter, Lamb Weston’s net sales for the first quarter of fiscal 2023 increased $141.4 million, or 14%, to $1,125.6 million.

Price/mix increased 19%, reflecting the benefit of pricing actions across each of our core business segments to offset input, manufacturing, and transportation cost inflation.

Volume declined 5%, primarily reflecting softer casual dining and full-service restaurant traffic in the U.S.

as well as the timing of shipments to large chain restaurant customers.

Shipments into foodservice and retail channels in the U.S.

continued to be affected by an inability to fully serve customer demand due to widespread industry supply chain constraints, including labor and commodities shortages, that impacted production run-rates and throughput in our production facilities.

Compared to the prior year quarter, net sales for the second quarter of fiscal 2023 increased $269.9 million, or 27%, to $1,276.5 million.

Price/mix increased 30%, reflecting the benefit of pricing actions across each of our core business segments to counter input, manufacturing, and transportation cost inflation.

Volume declined 3%, primarily reflecting an inability to fully serve customer demand in our foodservice and retail channels.

The impact of supply chain disruptions during the quarter, including the effects of commodities shortages and onboarding new production workers, continued to affect production run-rates and throughput in our production facilities as well as customer order fulfillment rates.

To a lesser extent, softer casual dining and full-service restaurant traffic in the U.S.

also contributed to the decline as consumers face a challenging macroeconomic environment.

Global segment net sales increased $176.1 million, or 34%, to $692.8 million.

Price/mix increased 14% while volume decreased 2%.

Price/mix increased 31% and volume increased 3%.

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.

The timing of shipments to large QSR chain customers in the U.S., including the effect of lapping a notable limited time product offering in the prior year quarter, largely drove the decline in volume.

Export shipments declined modestly, primarily due to production volumes being diverted to higher-margin sales channels in the U.S.

The impact of acquiring a controlling interest in Lamb Weston Alimentos Modernos S.A.

(“LWAMSA”) in early fiscal 2023, growth in international shipments, and strength in domestic QSR limited time product offerings largely drove the increase in volume.

Foodservice segment net sales increased $44.0 million, or 14%, to $357.9 million.

Price/mix increased 26% and volume decreased 12%.

The carryover benefits of product and freight pricing actions taken in the prior year as well as early in fiscal 2023 to offset inflation drove the increase in price/mix.

Demand in the segment’s restaurant and non-commercial channels (such as lodging and hospitality, healthcare, schools and universities, sports and entertainment, and workplace environments) softened along with restaurant traffic as consumers adjusted to the severe inflationary environment.

The slowdown in restaurant traffic and consumer demand was more pronounced in casual dining and other full-service restaurants than in QSRs.

Shipments were also affected by an inability to fully serve customer demand due to widespread industry supply chain constraints, including labor and commodities shortages, that impacted production run-rates and throughput in our production facilities, as well as incremental losses of certain low-margin non-commercial business.

Retail segment net sales increased $37.1 million, or 28%, to $169.6 million.

Price/mix increased 25%, while volume decreased 11%.

The carryover benefits of pricing actions across the branded and private label portfolios taken in the prior year as well as earlier in fiscal 2023 to offset inflation drove the increase in price/mix.

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

Shipments of branded products increased, although growth was tempered by an inability to fully serve customer demand due to constrained production run-rates and throughput in our production facilities.

Net sales in our Other segment increased $0.9 million, or 3%, to $30.0 million.

The carryover benefits of product and freight pricing actions taken in the prior year, as well as actions taken in fiscal 2023 to counter inflation, drove the increase in price/mix.

Volume fell, reflecting a combination of:

the supply chain disruptions on run-rates and throughput in our production facilities;

incremental losses of certain low-margin business;

and, to a lesser extent, a slowdown in restaurant traffic and consumer demand in casual dining and other full-service restaurants.

Retail segment net sales increased $48.9 million, or 34%, to $191.5 million.

Price/mix increased 43%, while volume decreased 9%.

The increase in price/mix was driven by higher prices in our vegetable business, while the decrease in volume reflected the negative effect of the extreme summer heat on the yield and quality of the vegetable crops.

The carryover benefits of product and freight pricing actions across the branded and private label portfolios taken in the prior year, as well as actions taken in fiscal 2023 to counter inflation, drove the increase in price/mix.

While consumer demand for frozen potato products remained strong, volume fell largely due to the impact of supply chain disruptions on run-rates and throughput in our production facilities, as well as incremental losses of certain low-margin, private label business.

Other segment net sales increased $0.9 million, or 3%, to $34.3 million.

Price/mix increased 5% and was driven by higher prices in our vegetable business.

Volume decreased 2%, reflecting the negative effect of the extreme summer heat on the yield and quality of the vegetable crops.

Gross Profit and Product Contribution Margin

Gross profit increased $122.0 million, or 81%, to $273.3 million, as the benefits from higher price/mix and productivity initiatives more than offset the impact of higher manufacturing and distribution costs on a per-pound basis, as well as lower sales volumes.

Gross profit increased $176.1 million, or 86%, to $381.6 million, as benefits from pricing actions more than offset the impact of higher manufacturing and distribution costs on a per-pound basis, as well as lower sales volumes.

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

edible oils, ingredients such as grains and starches used in product coatings, labor costs, and transportation costs.

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

The increase in gross profit also included a $2.8 million increase in unrealized mark-to-market adjustments associated with commodity hedging contracts, which includes a $4.0 million loss in the first quarter, compared with a $6.8 million loss related to these items in the prior year quarter.

Lamb Weston’s overall product contribution margin, defined as gross profit less A&P expenses, increased $121.6 million, or 83%, to $268.8 million.

The increase was largely due to higher gross profit (as described above).

edible oils, ingredients such as grains and starches used in product coatings, labor, and transportation and warehousing.

The increase in costs per pound also reflected higher costs associated with the impact of extreme summer heat that negatively affected the yield and quality of potato crops in the Pacific Northwest in fall 2021, as well as the effects of supply chain disruptions on run-rates and throughput in our production facilities.

The increase in gross profit also included a $6.5 million increase in unrealized mark-to-market adjustments associated with commodity hedging contracts, which includes a $0.4 million gain in the second quarter, compared with a $6.1 million loss related to these items in the prior year quarter.

Our overall product contribution margin, defined as gross profit less A&P expenses, increased $174.5 million, or 87%, to $375.0 million.

The increase was largely driven by higher sales and gross profit (as described above).

Global segment product contribution margin increased $90.1 million, or 111%, to $171.0 million.

Favorable price/mix, primarily reflecting the benefit of pricing actions, drove the increase, more than offsetting higher manufacturing and distribution costs per pound.

Global segment cost of sales was $475.1 million, up 4% compared to the first quarter of fiscal 2022, primarily due to higher manufacturing and distribution costs, partially offset by lower sales volumes.

Pricing actions and favorable mix drove the increase, more than offsetting higher manufacturing and distribution costs per pound.

As a result of the cumulative benefit of pricing actions and mix improvement efforts during the past two years to counter input cost inflation, the Global segment’s product contribution margin percentage in the second quarter approached pre-pandemic levels.

Global segment cost of sales was $520.5 million, up 20% compared to the second quarter of fiscal 2022, primarily due to higher manufacturing and distribution costs, as well as higher sales volumes.

Foodservice segment product contribution margin increased $26.4 million, or 25%, to $130.8 million.

Favorable price drove the increase, and was partially offset by higher manufacturing and distribution costs per pound, and the impact of lower sales volumes.

Foodservice segment cost of sales was $226.9 million, up 1% compared to the first quarter of fiscal 2022, primarily due to higher manufacturing and distribution costs, partially offset by lower sales volumes.

Pricing actions drove the increase, and was partially offset by higher manufacturing and distribution costs per pound, unfavorable mix, and the impact of lower sales volumes.

Foodservice segment cost of sales was $225.4 million, up 8% compared to the second quarter of fiscal 2022, primarily due to higher manufacturing and distribution costs, partially offset by lower sales volumes.

Retail segment product contribution margin increased $44.3 million, or 207%, to $65.7 million.

The benefits of pricing actions and favorable mix drove the increase, partially offset by higher manufacturing and distribution costs per pound.

Retail segment cost of sales was $118.6 million, a 3% increase compared to the first quarter of fiscal 2022, primarily due to higher manufacturing and distribution costs, partially offset by lower sales volumes.

Other segment product contribution margin increased $4.8 million to a loss of $1.8 million in the first quarter of fiscal 2023, as compared to a loss of $6.6 million in the first quarter of fiscal 2022.

These amounts include a $8.8 million loss related to unrealized mark-to-market adjustments and realized settlements associated with commodity hedging contracts reported in the Other segment in fiscal 2023, and a $8.2 million loss related to the contracts in fiscal 2022.

Excluding these mark-to-market adjustments and realized settlements, Other segment product contribution margin increased $5.4 million, largely due to favorable price in our vegetable business.

Pricing actions drove the increase, partially offset by higher manufacturing and distribution costs per pound.

Retail segment cost of sales was $122.2 million, a 3% increase compared to the second quarter of fiscal 2022, primarily due to higher manufacturing and distribution costs, partially offset by lower sales volumes.

Other segment product contribution margin increased $13.7 million to $7.5 million in the second quarter of fiscal 2023, as compared to a loss of $6.2 million in the second quarter of fiscal 2022.

These amounts include a $2.0 million gain and an $8.6 million loss related to unrealized mark-to-market adjustments and realized settlements associated with commodity hedging contracts reported in the Other segment in fiscal 2023 and 2022, respectively.

Excluding these mark-to-market adjustments and realized settlements, Other segment product contribution margin increased $3.1 million, largely due to pricing actions in our vegetable business.

Selling, General and Administrative Expenses

SG&A increased $25.2 million to $116.3 million in the first quarter of fiscal 2023, as compared to $91.1 million in the first quarter of fiscal 2022, primarily due to higher compensation and benefits expense, and higher expenses related to improving our information and technology services infrastructure.

SG&A increased $18.7 million to $109.8 million in the second quarter of fiscal 2023, and includes a net $26.5 million gain ($19.2 million after-tax, or $0.13 per share) related to actions taken to mitigate the effect of changes in currency rates on the pending purchase of the remaining ownership interest in LWM, net of other acquisition-related costs.

Excluding items impacting comparability, SG&A increased $45.2 million to $136.3 million, primarily due to higher compensation and benefits expense, and to a lesser extent, higher expenses related to improving our information systems and ERP infrastructure.

Interest Expense, Net

Compared with the prior year quarter, interest expense, net decreased $1.9 million to $26.0 million, primarily reflecting higher capitalized interest and higher interest income.

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

Compared with the prior year quarter, interest expense, net decreased $57.8 million to $24.6 million, primarily reflecting a loss on extinguishment of debt in the prior year quarter of $53.3 million ($40.5 million after-tax, or $0.28 per share) associated with the redemption in full of our outstanding 4.625% senior notes due 2024 (the “2024 Notes”) and 4.875% senior notes due 2026 (the “2026 Notes”).

In addition, capitalized interest and interest income were each higher versus the prior year quarter.

Income Tax Expense

Income tax expense for the first quarter of fiscal 2023 and 2022 was $73.7 million and $8.7 million, respectively.

The effective income tax rate (calculated as the ratio of income tax expense to pre-tax income, inclusive of equity method investment earnings) was 24.1% and 22.6% for the first quarter of fiscal 2023 and 2022, respectively.

Income tax expense for the second quarter of fiscal 2023 and 2022 was $36.8 million and $9.6 million, respectively.

The effective income tax rate (calculated as the ratio of income tax expense to pre-tax income, inclusive of equity method investment earnings) was 26.3% and 22.8% for the second quarter of fiscal 2023 and 2022, respectively.

Excluding items impacting comparability, our effective tax rate for the second quarter of fiscal 2023 and 2022 was 25.9% and 23.4%, respectively.

The effective tax rate varies from the U.S.

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

Excluding items impacting comparability, our effective tax rate for the first quarter of fiscal 2023 was 25.0%.

Equity Method Investment Earnings

Equity Method Investment Earnings (Loss)

We conduct business through unconsolidated joint ventures in Europe and the U.S.

and include our share of the earnings based on our economic ownership interest in them.

Our share of earnings from our equity method investments was $174.6 million and $6.2 million for the first quarter of fiscal 2023 and 2022, respectively.

Equity method investment earnings included a $144.6 million unrealized gain related to mark-to-market adjustments associated with currency and commodity hedging contracts in the first quarter of fiscal 2023, of which $146.3 million ($108.6 million after-tax, or $0.75 per share) related to changes in natural gas and electricity derivatives as commodity markets in Europe have experienced significant volatility.

Equity method investment earnings in the prior year quarter included a $4.3 million unrealized gain for mark-to-market adjustments, of which $5.0 million related to changes in natural gas and electricity derivatives.

Equity method investment earnings in the first quarter of fiscal 2023 also included a $15.1 million gain (before and after-tax, or

$0.10 per share) recognized in connection with the Company’s acquisition of an additional 40% interest in LWAMSA.

The gain related to remeasuring our previously held 50% ownership interest to fair value.

Excluding the items impacting comparability noted above and the other mark-to-market adjustments, earnings from equity method investments increased $13.0 million compared to the prior year quarter, reflecting favorable price/mix, partially offset by higher manufacturing and distribution costs in both Europe and the U.S.

and include our share of the earnings (loss) based on our economic ownership interest in them.

Our share of earnings and loss from our equity method investments was a loss of $107.3 million and earnings of $10.1 million for the second quarter of fiscal 2023 and 2022, respectively.

Equity method investment earnings (loss) included a $130.1 million unrealized loss related to mark-to-market adjustments associated with currency and commodity hedging contracts in the second quarter of fiscal 2023, of which $136.8 million ($101.5 million after-tax, or $0.70 per share) related to losses in natural gas and electricity derivatives as commodity markets in Europe have experienced significant volatility.

Equity method investment earnings in the prior year quarter included a $3.6 million unrealized gain for mark-to-market adjustments, of which $6.3 million ($4.7 million after-tax, or $0.03 per share) related to gains in natural gas and electricity derivatives.

Excluding the items impacting comparability noted above (mark-to-market adjustments related to natural gas and electricity derivatives) and the other mark-to-market adjustments, earnings from equity method investments increased $16.3 million compared to the prior year quarter, reflecting favorable price/mix, partially offset by higher manufacturing and distribution costs, in both Europe and the U.S.

Twenty-Six Weeks Ended November 27, 2022 compared to Twenty-Six Weeks Ended November 28, 2021

Net Sales, Gross Profit, and Product Contribution Margin

Twenty-Six Weeks Ended

(in millions, except percentages)

Segment net sales

Segment product contribution margin

Advertising and promotion expenses

Compared to the first half of fiscal 2022, net sales increased $411.3 million, or 21%, to $2,402.1 million.

Price/mix increased 26%, reflecting the benefit of product and freight pricing actions across each of our core business segments to counter input, manufacturing, and transportation cost inflation.

Volume declined 5%, primarily reflecting an inability to fully serve customer demand in our foodservice and retail channels.

The impact of supply chain disruptions during the first half of fiscal 2023, including the effects of commodities shortages and onboarding new production workers, continued to affect production run-rates and throughput in our production facilities as well as customer order fulfillment rates.

To a lesser extent, softer casual dining and full-service restaurant traffic in the U.S.

as consumers face a challenging macroeconomic environment.

Global segment net sales increased $234.6 million, or 23%, to $1,252.5 million.

Price/mix increased 23%, while volume was flat.

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

The impact of acquiring a controlling interest in LWAMSA in early fiscal 2023 and growth in international shipments offset a decline in domestic volumes.

Foodservice segment net sales increased $89.0 million, or 14%, to $724.3 million.

Price/mix increased 25%, while volume decreased 11%.

The carryover benefits of product and freight pricing actions taken in the prior year, as well as actions taken in fiscal 2023 to counter inflation, drove the increase in price/mix.

Volume fell, reflecting a combination of:

the impact of supply chain disruptions on run-rates and throughput in our production facilities;

incremental losses of certain low-margin business;

and a slowdown in restaurant traffic and consumer demand in casual dining and other full-service restaurants.

Retail segment net sales increased $85.9 million, or 31%, to $361.0 million.

Price/mix increased 38%, while volume decreased 7%.

While consumer demand for frozen potato products remained strong, the decline in the segment’s overall volume was due largely to the impact of supply chain disruptions on run-rates and throughput in our production facilities for branded products, as well as incremental losses of certain low-margin, private label business.

Other segment net sales increased $1.8 million, or 3%, to $64.3 million.

Price/mix increased 8% and was driven by higher prices in our vegetable business.

Volume decreased 5%, reflecting the negative effect of the extreme summer heat on the yield and quality of the vegetable crops.

Gross Profit and Product Contribution Margin

Gross profit increased $298.1 million, or 84%, to $654.9 million, as benefits from pricing actions more than offset the impact of higher manufacturing and distribution costs on a per-pound basis, as well as lower sales volumes.

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

ingredients, such as grains and starches used in product coatings;

transportation;

The increase in costs per pound also reflected higher costs associated with the impact of extreme summer heat that negatively affected the yield and quality of potato crops in the Pacific Northwest in fall 2021, as well as the effects of supply chain disruptions on run-rates and throughput in our production facilities.

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

Our overall product contribution margin increased $296.1 million, or 85%, to $643.8 million.

The increase was largely due to higher sales and gross profit (as described above).

Global segment product contribution margin increased $131.2 million, or 106%, to $254.7 million.

Pricing actions drove the increase, more than offsetting higher manufacturing and distribution costs per pound, as well as unfavorable mix.

Global segment cost of sales was $995.6 million, up 12% compared to the first half of fiscal 2022, primarily due to higher manufacturing and distribution costs.

Foodservice segment product contribution margin increased $68.3 million, or 34%, to $269.1 million.

Pricing actions drove the increase, and was partially offset by higher manufacturing and distribution costs per pound, unfavorable mix, and the impact of lower sales volumes.

Foodservice segment cost of sales was $452.3 million, up 5% compared to the first half of fiscal 2022, due to higher manufacturing and distribution costs, partially offset by lower sales volumes.

Retail segment product contribution margin increased $78.2 million, or 216%, to $114.4 million.

Pricing actions drove the increase, partially offset by higher manufacturing and distribution costs per pound.

Retail segment cost of sales was $240.9 million, up 3% compared to the first half of fiscal 2022, primarily due to higher manufacturing and distribution costs, partially offset by lower sales volumes.

Other segment product contribution margin increased $18.4 million to $5.6 million in the first half of fiscal 2023, as compared to a loss of $12.8 million in the first half of fiscal 2022.

These amounts include a $6.9 million loss related to unrealized mark-to-market adjustments and realized settlements associated with commodity hedging contracts, and a $16.9 million loss related to the contracts in fiscal 2022.

Excluding these mark-to-market adjustments and realized settlements, Other segment product contribution margin increased $8.4 million, largely due to pricing actions in our vegetable business.

Selling, General and Administrative Expenses

SG&A increased $43.9 million to $226.1 million in the first half of fiscal 2023, and includes a net $26.5 million gain ($19.2 million after-tax, or $0.13 per share) related to actions taken to mitigate the effect of changes in currency rates on the pending purchase of the remaining ownership interest in LWM, net of other acquisition-related costs.

Excluding items impacting comparability, SG&A increased $70.4 million to $252.6 million, primarily due to higher compensation and benefits expense, and higher expenses related to improving our information systems and ERP infrastructure.

Interest Expense, Net

Compared with the first half of fiscal 2022, interest expense, net decreased $59.7 million to $50.6 million.

The first half of fiscal year 2022 includes a $53.3 million ($40.5 million after-tax or $0.28 per share) loss on extinguishment of debt associated with the redemption in full of our 2024 Notes and 2026 Notes.

Income Tax Expense

Income tax expense for the first half of fiscal 2023 and 2022 was $110.5 million and $18.3 million, respectively.

The effective income tax rate (calculated as the ratio of income tax expense to pre-tax income, inclusive of equity method investment earnings) was 24.8% and 22.7% for the first half of fiscal 2023 and 2022, respectively.

Excluding items impacting comparability, our effective tax rates for the first half of fiscal 2023 and 2022 were 25.5% and 23.0%.

The effective tax rate varies from the U.S.

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

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

Equity Method Investment Earnings

Equity method investments earnings were $67.3 million and $16.3 million for the first half of fiscal 2023 and 2022, respectively.

Equity method investment earnings included a $14.4 million unrealized gain related to mark-to-market adjustments associated with currency and commodity hedging contracts in the first half of fiscal 2023, of which $9.5 million ($7.0 million after-tax, or $0.05 per share) related to gains in natural gas and electricity derivatives as commodity markets in Europe have experienced significant volatility.

Equity method investment earnings in the first half of fiscal 2022 included a $7.9 million unrealized gain for mark-to-market adjustments, of which $11.3 million ($8.4 million after-tax, or $0.06 per share) related to gains in natural gas and electricity derivatives.

Equity method investment earnings in the first half of fiscal 2023 also included a $15.1 million gain (before and after-tax, or $0.10 per share) recognized in connection with remeasuring our previously held 50% ownership interest in LWAMSA to fair value.

Excluding the items impacting comparability noted above (mark-to-market adjustments related to natural gas and electricity derivatives and the remeasurement of our previously held ownership interest in LWAMSA) and the other mark-to-market adjustments, earnings from equity method investments increased $29.4 million compared to the prior year, reflecting favorable price/mix, partially offset by higher manufacturing and distribution costs, in both Europe and the U.S.

Liquidity and Capital Resources

Sources and Uses of Cash

We ended the first quarter of fiscal 2023 with $485.3 million of cash and cash equivalents and $994.6 million of availability under our revolving credit facility, net of letters of credit.

At the end of the first quarter of fiscal 2023, no borrowings were outstanding under the revolving credit facility.

We ended the first half of fiscal 2023 with $419.4 million of cash and cash equivalents and $994.6 million of availability under our revolving credit facility, net of letters of credit.

As of November 27, 2022, no borrowings were outstanding under the revolving credit facility.

In October 2022, we entered into an agreement to acquire the remaining interest in LWM for consideration consisting of €525.0 million in cash and €175.0 million in shares of our common stock.

We expect to close the transaction in the fourth quarter of fiscal 2023, subject to customary regulatory approvals.

We expect to fund the cash portion of this acquisition with new borrowings and cash on hand.

We believe we have sufficient liquidity to meet projected capital expenditures, service existing debt and meet working capital requirements for at least the next 12 months with current cash balances and cash from operations, and in the longer term, supplemented as necessary by available borrowings under our currently undrawn 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:

Thirteen Weeks Ended

Twenty-Six Weeks Ended

(in millions)

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Effect of exchange rate changes on cash and cash equivalents

Net (decrease) increase in cash and cash equivalents

Net decrease in cash and cash equivalents

Operating Activities

In the first quarter of fiscal 2023, cash provided by operating activities increased $30.3 million to $192.1 million, compared with $161.8 million in the same period a year ago.

In the first half of fiscal 2023, cash provided by operating activities increased $80.5 million to $288.0 million, compared with $207.5 million in the same period a year ago.

The increase related to a $128.5 million increase in income from operations, adjusted for non-cash income and expenses, offset by $48.0 million of cash used for unfavorable changes in working capital.

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

Unfavorable changes in working capital primarily related to higher-cost finished goods inventories, due primarily to increased potato and input cost inflation, and a decrease in accrued liabilities due to a shift in the timing of interest payments for our senior notes due 2030 and 2032, which were issued in fiscal 2022.

These unfavorable changes were partially offset by a decrease in receivables due to timing of collections, and an increase in income taxes payable due to higher taxable income in the first quarter of fiscal 2023, compared with the prior year quarter.

Unfavorable changes in working capital primarily related to higher-cost finished goods inventories, due primarily to increased potato and input cost inflation.

These unfavorable changes were partially offset by an increase in accounts payable due to timing, an increase in accrued liabilities due to higher compensation and benefits accrued in fiscal 2023, compared with the prior year period, and an increase in income taxes payable due to higher taxable income in fiscal 2023, compared with the prior year period.

Investing Activities

Investing activities used $166.9 million of cash in the first quarter of fiscal 2023, compared with $78.8 million in the same period in the prior year.

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

We expect to use approximately $475 million to $525 million for capital expenditures, excluding acquisitions, in fiscal 2023.

We also used $42.3 million to acquire an additional ownership interest in our joint

venture in Argentina and used $20.0 million to acquire assets associated with the improvement of our information and technology services infrastructure.

Investing activities used $311.0 million of cash in the first half of fiscal 2023, compared with $147.6 million in the same period in the prior year.

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

We expect to use approximately $475 million to $525 million for capital expenditures, excluding our pending acquisition of LWM and other acquisitions, if any, in fiscal 2023.

We also used $42.3 million to acquire an additional ownership interest in our joint venture in Argentina and used $37.4 million to acquire assets associated with the improvement of our information and technology services infrastructure.

Financing Activities

During the first quarter of fiscal 2023, cash used for financing activities decreased $12.3 million to $63.5 million, compared with $75.8 million used during the same period a year ago.

During the first quarter of fiscal 2023, financing activities primarily related to additional borrowings under the RMB-denominated loan facility for net proceeds of $13.8 million, offset by $8.0 million of debt and financing obligation repayments, and the payment of $35.3 million of cash dividends to common stockholders.

In addition, we used $28.4 million of cash to repurchase 404,476 shares of our common stock at an average price of $70.11 and withheld 77,756 shares from employees to cover income and payroll taxes on equity awards that vested during the period.

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

We also used $26.0 million of cash to repurchase 395,361 shares of our common stock at an average price of $65.86 and withheld 111,488 shares from employees to cover income and payroll taxes on equity awards that vested during the period.

In the first half of fiscal 2023, cash used for financing activities decreased $122.7 million to $96.6 million, compared with $219.3 million used during the same period a year ago.

During the first half of fiscal 2023, financing activities primarily related to $23.3 million of additional borrowings under our RMB-denominated loan facility, offset by $16.7 million of debt and financing obligation repayments, and the payment of $70.6 million of cash dividends to our common stockholders.

In addition, we used $34.9 million of cash to repurchase 404,476 shares of our common stock at an average price of $70.11 per share and withheld 82,042 shares from employees to cover income and payroll taxes on equity awards that vested during the period.

In the first half of fiscal 2022, financing activities primarily related to issuing senior notes, which generated net proceeds of $1,655.4 million, debt and financing obligation repayments of $1,682.1 million, including the redemption of the 2024 Notes and 2026 Notes, the payment of $68.7 million of cash dividends to our common stockholders, and the payment of an aggregate redemption premium of $39.6 million relating to the notes redemption.

In addition, $83.5 million related to the repurchase of 1,264,114 shares of our common stock at an average price of $60.15 per share and withholding 114,530 shares from employees to cover income and payroll taxes on equity awards that vested during the period.

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

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

At August 28, 2022, we were in compliance with the financial covenant ratios and other covenants contained in our credit agreements.

At November 27, 2022, we were in compliance with the financial covenant ratios and other covenants contained in our credit agreements.

Obligations and Commitments

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

Except for our pending acquisition of the remaining ownership interest in LWM as discussed in this MD&A, there have been no material changes to the contractual obligations disclosed in “Management's Discussion and Analysis of Financial Condition and Results of Operations"

in the Form 10-K.

Non-GAAP Financial Measures

To supplement the financial information included in this report, we have presented product contribution margin on a consolidated basis, Adjusted EBITDA, Adjusted EBITDA including unconsolidated joint ventures, Adjusted Net Income, 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 Income from Operations, Adjusted Net Income, and Adjusted Diluted EPS, 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.

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

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

Our management also uses Adjusted Income from Operations, Adjusted EBITDA and Adjusted EBITDA including unconsolidated joint ventures.

These non-GAAP financial measures reflect management’s exclusion of items impacting comparability between periods as management believes these items are not necessarily reflective of the underlying operating trends of our business.

We use these non-GAAP financial measures as a means to evaluate the underlying performance of our business on an ongoing basis, and we believe these measures, when considered together with the corresponding GAAP financial measures and the reconciliations to those measures, provide useful supplemental information regarding the factors and trends affecting Lamb Weston’s business than could be obtained absent these disclosures.

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

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

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

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

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

See “Results of Operations – Thirteen Weeks Ended August 28, 2022 compared to Thirteen Weeks Ended August 29, 2021 – Net Sales, Gross Profit, and Product Contribution Margin” above for a reconciliation of product contribution margin on a consolidated basis to gross profit.

See “Results of Operations – Thirteen Weeks Ended November 27, 2022 compared to Thirteen Weeks Ended November 28, 2021 – Net Sales, Gross Profit, and Product Contribution Margin” and “Results of Operations – Twenty-Six Weeks Ended November 27, 2022 compared to Twenty-Six Weeks Ended November 28, 2021 – Net Sales, Gross Profit, 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:

Thirteen Weeks Ended

Twenty-Six Weeks Ended

(in millions)

Equity method investment earnings

Equity method investment loss (earnings)

Interest expense, net

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Unconsolidated Joint Ventures

Equity method investment earnings

Equity method investment earnings (loss)

Interest expense, income tax expense, and depreciation and

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Impact of LWM natural gas and electricity derivatives (a)

Gain on acquisition of interest in joint venture (b)

LWM acquisition-related items, net (b)

Gain on acquisition of interest in joint venture (c)

Adjusted EBITDA from unconsolidated joint ventures

Adjusted EBITDA including unconsolidated joint ventures

(a) Equity method investment earnings for the thirteen weeks ended August 28, 2022 and August 29, 2021 included a $146.3 million ($108.6 million after-tax, or $0.75 per share) and $5.0 million ($3.7 million after-tax, or $0.02 per share) 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.

(b) Equity method investment earnings for the thirteen weeks ended August 28, 2022 included a $15.1 million gain (before and after-tax, or $0.10 per share) recognized in connection with our acquisition of an additional 40% interest in our Argentina joint venture, increasing our ownership from 50% to 90%.

(a) Equity method investment earnings (loss) for the thirteen weeks ended November 27, 2022 and November 28, 2021 included a $136.8 million unrealized loss ($101.5 million after-tax, or $0.70 per share) and a $6.3 million unrealized gain ($4.7 million after-tax, or $0.03 per share), respectively;

and for the twenty-six weeks ended November 27, 2022 and November 28, 2021, included unrealized gains of $9.5 million ($7.0 million after-tax, or $0.05 per share) and $11.3 million ($8.4 million after-tax, or $0.06 per share), 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.

(b) Income from operations for the thirteen and twenty-six weeks ended November 27, 2022 included a net $26.5 million gain ($19.2 million after-tax, or $0.13 per share) related to actions taken to mitigate the effect of changes in currency rates on the pending purchase of the remaining ownership interest in LWM, net of other acquisition-related costs.

(c) Equity method investment earnings for the twenty-six weeks ended November 27, 2022 included a $15.1 million gain (before and after-tax, or $0.10 per share) recognized in connection with our acquisition of an additional 40% interest in our Argentina joint venture, increasing our ownership from 50% to 90%.

The gain related to the remeasuring of our previously held 50% ownership interest to fair value.

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

The following tables reconcile income from operations to Adjusted Income from Operations, net income to Adjusted Net Income, and diluted EPS to Adjusted Diluted EPS:

For the Thirteen Weeks Ended

(in millions, except per share amounts)

Income from Operations

Items impacting comparability:

Impact of LWM natural gas and electricity derivatives (b)

Gain on acquisition of interest in joint venture (c)

LWM acquisition-related items, net (c)

Loss on extinguishment of debt (e)

Total items impacting comparability

(a) Diluted weighted average common shares were 144.6 million and 146.9 million for the thirteen weeks ended August 28, 2022 and August 29, 2021, respectively.

For the Twenty-six Weeks Ended

(in millions, except per share amounts)

Income from Operations

Items impacting comparability:

Impact of LWM natural gas and electricity derivatives (b)

LWM acquisition-related items, net (c)

Gain on acquisition of interest in joint venture (d)

Loss on extinguishment of debt (e)

Total items impacting comparability

(a) Diluted weighted average common shares were 144.6 million and 146.3 million for the thirteen weeks ended November 27, 2022 and November 28, 2021, respectively, and 144.6 million and 146.6 million for the twenty-six weeks ended November 27, 2022 and November 28, 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.

See footnote (b) 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) See footnote (b) 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.

(d) See footnote (c) 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.

There was no tax on the gain associated with purchasing an additional 40% interest in our Argentina joint venture.

(e) The thirteen and twenty-six weeks ended November 28, 2021, include a loss on the extinguishment of debt of $53.3 million ($40.5 million after-tax), which consists of an aggregate redemption 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 debt issuance costs associated with those notes.

Off-Balance Sheet Arrangements

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included in the Form 10-K.

There were no material changes to these critical accounting policies and estimates during the first quarter of fiscal 2023.

There were no material changes to these critical accounting policies and estimates during the first half of fiscal 2023.

New and Recently Adopted Accounting Pronouncements

For a list of our new and recently adopted accounting pronouncements, see Note 1, Nature of Operations and Summary of Significant Accounting Policies, of the Condensed Notes to Consolidated Financial Statements in “Part I, Item 1.

Financial Statements” of this report.

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

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

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

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis