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Item 2. Management’s Discussion and Analysis

2023-10-05 compared with 2023-04-06 · 141 added, 256 removed, 75 unchanged (84% of the section changed)

4 unchanged sentences

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,” “improve,” “leverage,” “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, acquisition of the remaining equity interest in Lamb-Weston/Meijer v.o.f.

(“LW EMEA”), including the anticipated benefits of the transaction, and business and financial outlook and prospects, as well as supply chain constraints, inflation, our industry, and global economic conditions.

Words such as “will,” “continue,” “may,” “expect,” “would,” “believe,” “deliver,” “counter,” “manage,” “anticipate,” “drive,” “leverage,” “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 expenditures and investments, pricing actions, cash flows, liquidity, dividends, enterprise resource planning (“ERP”) system implementation, integration of our former European joint venture, Lamb-Weston/Meijer v.o.f.

(“LW EMEA”), and business and financial outlook and prospects, as well as 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.

5 unchanged sentences

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;

risks related to disruption of management time from ongoing business operations due to integration efforts related to the LW EMEA acquisition;

failure to realize the benefits expected from the LW EMEA acquisition;

the effect of the LW EMEA 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 LW EMEA;

levels of pension, labor and people-related expenses;

levels of labor and people-related expenses;

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

our ability to execute on large capital projects, including construction of new production lines or facilities;

the competitive environment and related conditions in the markets in which we and our joint ventures operate;

political and economic conditions of the countries in which we and our joint ventures conduct business and other factors related to our international operations;

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

the competitive environment and related conditions in the markets in which we operate;

political and economic conditions of the countries in which we conduct business and other factors related to our international operations;

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

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

3 unchanged sentences

changes in our relationships with our growers or significant customers;

the success of our joint ventures;

actions of governments and regulatory factors affecting our businesses or joint ventures;

actions of governments and regulatory factors affecting our businesses;

the ultimate outcome of litigation or any product recalls;

4 unchanged sentences

Lamb Weston Holdings, Inc.

(“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.

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

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

(“we,” “us,” “our,” the “Company,” or “Lamb Weston”) is a leading global producer, distributor, and marketer of value-added frozen potato products.

We are the number one supplier of value-added frozen potato products in North America and a leading supplier of value-added frozen potato products internationally, with a strong and growing presence in high-growth emerging markets.

We offer a broad product portfolio to a diverse channel and customer base in over 100 countries.

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

1 unchanged sentence

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 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 their most directly comparable GAAP financial measures, gross profit, income from operations, net income, or diluted earnings per share, as applicable.

Executive Summary

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

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

Refer to “Non-GAAP Financial Measures” below for the definition of Adjusted EBITDA, and a reconciliation of this non-GAAP financial measure to its most directly comparable GAAP financial measure, net income.

For more information, refer to the “Results of Operations” and “Non-GAAP Financial Measures” sections below.

● Net sales increased 31% to $1,253.6 million

● Income from operations increased 99% to $266.3 million

● Net income increased 64% to $175.1 million, and diluted earnings per share increased 66% to $1.21, including items impacting comparability, as discussed below, of a net loss of $43.0 million ($32.3 million after-tax, or $0.22 per share)

● Adjusted Income from Operations increased 96% to $262.0 million

● Adjusted Net Income increased 125% to $207.4 million, and Adjusted Diluted EPS increased 127% to $1.43

● Adjusted EBITDA including unconsolidated joint ventures increased 72% to $345.5 million

● We returned $35.2 million of cash to stockholders through dividends, and $12.2 million through share repurchases

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.

Overall volume was flat as growth in shipments to large chain restaurant and retail channel customers in North America offset the impact of exiting certain lower-priced and lower-margin business as we continue to strategically manage our customer and product mix due to capacity constraints.

To a lesser extent, softer traffic at casual dining and full-service restaurants in North America also tempered volume.

As compared to the prior year period, demand for frozen potato products in the U.S.

and most key international markets was solid, although the widespread emergence of COVID-19 variants tempered demand and restaurant traffic in the prior year period.

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

The following items impacted comparability of our third 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:

● The decrease in equity method investment earnings included a $47.3 million unrealized loss ($35.1 million after-tax, or $0.24 per share) in the third 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 $19.3 million unrealized gain ($14.3 million after-tax, or $0.10 per share) in the prior year quarter.

● SG&A included a net $4.3 million gain ($2.8 million after-tax, or $0.02 per share), related to actions taken to mitigate the effect of changes in currency rates on our purchase of the remaining equity interest in LW EMEA, net of other acquisition-related costs.

On February 28, 2023, we acquired the remaining equity interest in LW EMEA for consideration consisting of €531.6 million ($564.0 million) in cash, subject to certain post-closing adjustments pursuant to the purchase agreement, and 1,952,421 shares of our common stock.

With the completion of the transaction, we own 100% of LW EMEA.

Starting in the fourth fiscal quarter, we will consolidate LW EMEA’s financial results in our consolidated financial statements and include LW EMEA’s operating results within our Global segment.

During the remainder of fiscal 2023, we expect the macroeconomic environment to remain challenging.

Excluding the impact of consolidating the financial results of LW EMEA, for our fiscal fourth quarter, we expect net sales growth versus the prior year period to be primarily driven by increases in price/mix in each of our core business segments.

We expect volume will be pressured as we exit certain lower-priced and lower-margin business to manage customer and product mix.

We also expect sales volume trends and demand will remain 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 expand as compared to the prior year period due to the carryover benefits of pricing actions taken in fiscal 2022, as well as actions being taken in fiscal 2023, to offset higher costs for raw potatoes and other key inputs, and that the resulting increase in gross profit will be partially offset by higher SG&A.

As previously noted, beginning in the fourth fiscal quarter, we will consolidate LW EMEA’s financial results in our financial statements.

We believe in the long-term health and growth outlook for the frozen potato category, and believe that Lamb Weston is well-positioned to drive sustainable, profitable growth, and to better serve customers around the world as we seek to leverage the commercial and operational benefits of our former joint venture in Europe, as well as our capacity expansion investments in the U.S., China, Argentina, and the Netherlands.

Executive Summary

In the first quarter of fiscal 2024, we drove solid sales growth and earnings growth, reflecting:

the carryover benefit of pricing actions taken in the prior year to counter input cost inflation;

incremental sales and earnings from the acquisitions of the remaining equity interest in LW EMEA, our former joint venture in Europe, and an additional equity interest in Lamb Weston Alimentos Modernos S.A.

(“LWAMSA”), our joint venture in Argentina;

the timing of trade spending in North America;

favorable mix;

and supply chain productivity savings.

Sales volumes, excluding the benefit of acquisitions, declined, primarily due to our decisions to strategically manage our customer and product mix by exiting certain lower-priced and lower-margin business.

Volume elasticities remained low.

Overall demand for frozen potato products in the North America and most key international markets remained solid, although restaurant traffic trends continued to be soft compared to pre-pandemic traffic levels as consumers faced persistent inflation, including for food purchased away from home.

Gross profit in the first quarter increased as favorable price/mix, including benefits from the timing of trade spending, more than offset higher input and manufacturing costs on a per pound basis as well as the impact of lower sales volumes.

Incremental earnings from the consolidation of the financial results of LW EMEA also contributed to the increase.

The gross profit increase was partially offset by higher selling, general and administrative (“SG&A”) expenses, resulting in an increase in income from operations.

Higher income from operations drove the increase in net income and diluted EPS.

In the first quarter of fiscal 2024, we generated net cash from operating activities of $334.6 million, up $142.5 million versus the prior year quarter, due to higher earnings, partially offset by increased working capital.

We ended the first quarter with $163.3 million of cash and cash equivalents and a $1.0 billion undrawn U.S.

revolving credit facility.

In addition, we returned $140.8 million to our common stockholders, including $100.0 million of share repurchases and $40.8 million in cash dividends.

In fiscal 2024, we expect to deliver net sales and earnings growth, and to benefit from incremental sales and earnings during the first three quarters of the fiscal year attributable to the consolidation of the financial results of LW EMEA, as compared to the first three quarters of fiscal 2023.

In addition to the incremental sales related to the consolidation of LW EMEA, we expect our net sales growth to be largely driven by pricing actions to counter input cost inflation, and expect sales volumes will be pressured by our decisions to strategically manage our customer and product mix by exiting certain lower-priced and lower-margin business.

We also anticipate that demand for our products in the near term may be tempered by softer restaurant traffic trends in North America and other key markets as our customers and consumers both respond to challenging macroeconomic environments.

We expect our earnings growth to be largely driven by sales and gross profit growth, and that the rate of input cost inflation, driven largely by higher potato costs, will, in aggregate, moderate as compared to fiscal 2023 inflation rates.

We anticipate that the increase in gross profit will be partially offset by higher SG&A, reflecting:

incremental expense attributable to the consolidation of the financial results of LW EMEA;

increased investments to upgrade our information systems and ERP infrastructure;

non-cash amortization of intangible assets associated with the acquisition of the remaining equity interest in LW EMEA as well as prior investments in our ERP infrastructure;

and higher compensation and benefits expense due to increased employee headcount.

We believe in the long-term growth outlook for the frozen potato category and that Lamb Weston is well-positioned to drive sustainable, profitable growth, and to better serve customers around the world as we seek to leverage commercial and operational benefits from our acquisition of the remaining equity interest in LW EMEA (the “LW EMEA Acquisition”), as well as the benefits we expect from our previously announced capacity expansion investments in China, the U.S., Argentina, and the Netherlands.

Results of Operations

We have four reportable segments:

Global, Foodservice, Retail, and Other.

We report net sales and product contribution margin by segment and on a consolidated basis.

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

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 February 26, 2023 compared to Thirteen Weeks Ended February 27, 2022

Net Sales, Gross Profit, and Product Contribution Margin

Effective May 29, 2023, to align with our expanded global footprint following the completion of our acquisition of the remaining 50% interest in LW EMEA, management, including our chief executive officer (who is our chief operating decision maker), began managing operations in two business segments based on management’s change to the way it monitors performance, aligns strategies, and allocates resources.

As a result of this change, we now have two operating segments, each of which is a reportable segment:

North America and International.

We report net sales and Adjusted EBITDA by segment and on a consolidated basis, which are the primary measures reported to our chief operating decision maker for purposes of allocating resources to our segments and assessing their performance.

Adjusted EBITDA is a non-GAAP financial measure.

For additional information on our reportable segments, Segment Adjusted EBITDA, and Adjusted EBITDA, see Note 12, Segments, of the Condensed Notes to Consolidated Financial Statements in “Part I, Item 1.

Financial Statements” of this report and “Non-GAAP Financial Measures” below.

Prior period segment data has been retrospectively adjusted to conform with current period classification.

Thirteen Weeks Ended August 27, 2023 compared to Thirteen Weeks Ended August 28, 2022

Net Sales and Segment Adjusted EBITDA

Thirteen Weeks Ended

(in millions, except percentages)

Increase (Decrease)

Segment net sales

Segment product contribution margin

Advertising and promotion expenses

Compared to the prior year quarter, net sales for the third quarter of fiscal 2023 increased $298.6 million, or 31%, to $1,253.6 million.

Price/mix increased 31%, reflecting the benefit of pricing actions across each of our core business segments to counter input and manufacturing cost inflation.

Overall volume was flat as growth in shipments to large chain restaurant customers in North America and into retail channels offset the impact of exiting certain lower-priced and lower-margin business as we continue to strategically manage our customer and product mix due to capacity constraints, and to a lesser extent, softer traffic at casual dining and full-service restaurants in North America.

Global segment net sales increased $160.6 million, or 33%, to $648.5 million.

Price/mix increased 33%, driven by domestic and international pricing actions to counter inflationary pressures.

Volume was flat as solid growth from key customers in North America offset the impact of exiting certain lower-priced and lower-margin business in international and domestic markets.

Foodservice segment net sales increased $65.5 million, or 22%, to $360.0 million.

Price/mix increased 25%, while volume decreased 3%.

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

Incremental losses of certain lower-priced and lower-margin business, and to a lesser extent, softer traffic at casual dining and full-service restaurants, drove the volume decline.

Retail segment net sales increased $72.4 million, or 50%, to $216.0 million.

Price/mix increased 44%, driven by the carryover benefits of pricing actions taken in the prior year, as well as actions taken in fiscal 2023, across the branded and private label portfolios to counter inflationary pressures.

Volume rose 6%, driven by strong growth in branded products as customer service rates improved, as well as more modest growth in private label products.

Other segment net sales increased $0.1 million to $29.1 million.

Price/mix and sales volumes in our vegetable business were essentially flat.

Gross Profit and Product Contribution Margin

Gross profit increased $176.8 million, or 80%, to $397.8 million, as benefits from pricing actions more than offset the impact of higher manufacturing costs on a per-pound basis.

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

raw potatoes, edible oils, ingredients such as grains and starches used in product coatings, labor, and energy.

The increase in gross profit included an $8.7 million decrease in unrealized mark-to-market adjustments associated with commodity hedging contracts, which includes a $5.1 million loss in the third quarter, compared with a $3.6 million gain related to these items in the prior year quarter.

Our overall product contribution margin, defined as gross profit less A&P, increased $171.3 million, or 79%, to $388.8 million.

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

Global segment product contribution margin increased $94.5 million, or 129%, to $167.5 million.

Pricing actions drove the increase, more than offsetting higher manufacturing costs per pound.

Global segment cost of sales was $478.8 million, up 16% compared to the third quarter of fiscal 2022, primarily due to higher input and manufacturing costs.

Foodservice segment product contribution margin increased $36.2 million, or 34%, to $142.9 million.

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

Foodservice segment cost of sales was $215.1 million, up 15% compared to the third quarter of fiscal 2022, primarily due to higher input and manufacturing costs, partially offset by lower sales volumes.

Retail segment product contribution margin increased $51.0 million, or 161%, to $82.6 million.

Pricing actions drove the increase, which was partially offset by higher manufacturing costs per pound and a $3.3 million increase in A&P.

Retail segment cost of sales was $128.6 million, a 16% increase compared to the third quarter of fiscal 2022, primarily due to higher input and manufacturing costs and higher sales volumes.

Other segment product contribution margin decreased $10.4 million to a loss of $4.2 million in the third quarter of fiscal 2023, as compared to earnings of $6.2 million in the third quarter of fiscal 2022.

These amounts include a $7.5 million loss and a $2.8 million gain related to unrealized mark-to-market adjustments and realized settlements associated with commodity hedging contracts reported in this segment in fiscal 2023 and 2022, respectively.

Excluding these mark-to-market adjustments and realized settlements, Other segment product contribution margin declined $0.1 million.

Selling, General and Administrative Expenses

SG&A increased $44.3 million to $131.5 million in the third quarter of fiscal 2023, and includes a net $4.3 million gain ($2.8 million after-tax, or $0.02 per share) related to actions taken to mitigate the effect of changes in currency rates on our purchase of the remaining equity interest in LW EMEA, net of other acquisition-related costs.

Excluding items impacting comparability, SG&A increased $48.6 million to $135.8 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, as well as a $5.5 million increase in A&P.

Interest Expense, Net

Compared with the prior year quarter, interest expense, net was flat, as the impact of higher interest rates on our floating rate debt offset higher capitalized interest and interest income.

Income Tax Expense

Income tax expense for the third quarter of fiscal 2023 and 2022 was $42.1 million and $31.1 million, respectively.

The effective income tax rate (calculated as the ratio of income tax expense to pre-tax income, inclusive of equity method investment earnings) was 19.4% and 22.6% for the third quarter of fiscal 2023 and 2022, respectively.

Excluding items impacting comparability, our effective tax rate for the third quarter of fiscal 2023 and 2022 was 20.3% and 22.0%, respectively.

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 and currency, permanent differences, and discrete items.

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 (loss) based on our equity interest in them.

Our share of earnings and loss from our equity method investments was a loss of $23.3 million and earnings of $29.7 million for the third quarter of fiscal 2023 and 2022, respectively.

Equity method investment earnings (loss) included a $45.6 million unrealized loss related to mark-to-market adjustments associated with currency and commodity hedging contracts in the third quarter of fiscal 2023, of which $47.3 million ($35.1 million after-tax, or $0.24 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 $19.6 million unrealized gain for mark-to-market adjustments, of which $19.3 million ($14.3 million after-tax, or $0.10 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 $12.2 million compared to the prior year quarter, reflecting favorable price/mix, partially offset by higher manufacturing costs, in both Europe and the U.S.

Thirty-Nine Weeks Ended February 26, 2023 compared to Thirty-Nine Weeks Ended February 27, 2022

Net Sales, Gross Profit, and Product Contribution Margin

Thirty-Nine Weeks Ended

(in millions, except percentages)

Segment net sales

Segment product contribution margin

Advertising and promotion expenses

Compared to the prior year period, net sales increased $709.9 million, or 24%, to $3,655.7 million.

Price/mix increased 27%, 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 3%, primarily reflecting an inability to fully serve customer demand in our foodservice and retail channels as well as the exiting of certain lower-priced and lower-margin business to strategically manage customer and product mix.

The impact of supply chain disruptions during the first three quarters of fiscal 2023, including the effects of commodities shortages and onboarding new production workers, and changes in product mix affected 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 North America as consumers face a challenging macroeconomic environment also affected shipments.

Global segment net sales increased $395.2 million, or 26%, to $1,901.0 million.

Price/mix increased 26%, driven by domestic and international product and freight pricing actions to counter inflationary pressures.

Volume was flat as solid growth from key customers in North America and the benefit of acquiring a controlling interest in LWAMSA in early fiscal 2023 offset the impact of exiting certain lower-priced and lower-margin business in international and domestic markets.

Foodservice segment net sales increased $154.4 million, or 17%, to $1,084.2 million.

Price/mix increased 26%, driven by the carryover benefits of product and freight pricing actions taken in the prior year, as well as actions taken in fiscal 2023 to counter inflationary pressures.

Volume fell 9%, reflecting a combination of:

the impact on customer service rates from supply chain disruptions;

incremental losses of certain lower-priced and lower-margin business;

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

Retail segment net sales increased $158.3 million, or 38%, to $577.0 million.

Price/mix increased 41%, while volume decreased 3%.

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

The decline in the segment’s overall volume was due to the impact on customer service rates from supply chain disruptions, as well as incremental losses of certain lower-priced and lower-margin private label business.

Branded product volumes increased as compared to the prior year period.

Other segment net sales increased $2.0 million, or 2%, to $93.5 million.

Price/mix increased 4% and was driven by higher prices in our vegetable business.

Volume declined 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 $474.9 million, or 82%, to $1,052.7 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:

raw potatoes;

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

and transportation.

The increase in potato costs per pound were driven by higher contract prices, reflecting increased costs for growers, as well as the impact of extreme summer heat that negatively affected the yield and quality of potato crops in the Pacific Northwest in fall 2021.

The increase in manufacturing costs per pound also reflect the effects of supply chain disruptions.

Our overall product contribution margin increased $467.4 million, or 83%, to $1,032.6 million.

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

Global segment product contribution margin increased $225.7 million, or 115%, to $422.2 million.

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

Global segment cost of sales was $1,474.4 million, up 13% compared to the first three quarters of fiscal 2022, primarily due to higher input and manufacturing and distribution costs.

Foodservice segment product contribution margin increased $104.4 million, or 34%, to $411.9 million.

Pricing actions drove the increase, which 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 $667.4 million, up 8% compared to the first three quarters of fiscal 2022, due to higher input and manufacturing and distribution costs, partially offset by lower sales volumes.

Retail segment product contribution margin increased $129.2 million, or 191%, to $197.0 million.

Pricing actions largely drove the increase, which was partially offset by higher manufacturing and distribution costs per pound and a $4.3 million increase in A&P.

Retail segment cost of sales was $369.5 million, up 7% compared to the first three quarters of fiscal 2022, primarily due to higher input and manufacturing and distribution costs, partially offset by lower sales volumes.

Other segment product contribution margin increased $8.1 million to $1.5 million in the first three quarters of fiscal 2023, as compared to a loss of $6.6 million in the first three quarters of fiscal 2022.

These amounts include losses of $14.3 million and $14.1 million related to unrealized mark-to-market adjustments and realized settlements associated with commodity hedging contracts reported in this segment in fiscal 2023 and 2022, respectively.

Excluding these mark-to-market adjustments and realized settlements, Other segment product contribution margin increased $8.3 million, largely due to pricing actions in our vegetable business.

North America

International

Segment Adjusted EBITDA

North America

International

Compared to the prior year quarter, net sales for the first quarter of fiscal 2024 increased $539.7 million, or 48%, to $1,665.3 million, and included $374.9 million of incremental sales attributable to the consolidation of the financial results of (1) LW EMEA, following the completion of the LW EMEA Acquisition in February 2023, and (2) LWAMSA, following our acquisition in July 2022 of an additional 40% equity interest in LWAMSA (the “LWAMSA Acquisition” and, together with the LW EMEA Acquisition, the “Acquisitions”).

Net sales, excluding the incremental sales attributable to the Acquisitions, grew 15% versus the prior year quarter.

Price/mix increased 23%, reflecting the benefit of pricing actions across each of our business segments to counter input and manufacturing cost inflation, the timing of trade spending in North America, and favorable mix, partially offset by lower customer transportation charges.

Volume declined 8%, primarily reflecting our decisions to exit certain lower-priced and lower-margin business as we continue to strategically manage customer and product mix.

To a lesser extent, inventory destocking by certain customers in international markets and in select U.S.

retail channels also pressured volumes.

Volume elasticities in response to inflation-based pricing actions across our portfolio have generally been low.

North America segment net sales, which includes all sales to customers in the U.S., Canada, and Mexico, increased $179.8 million, or 19%, to $1,135.4 million.

Price/mix increased 24%, reflecting the carryover benefit of pricing actions taken in fiscal 2023 to counter inflationary pressures, as well as favorable mix, partially offset by lower customer transportation charges.

Volume declined 5%, primarily reflecting our decisions to exit certain lower-priced and lower-margin business.

To a lesser extent, lower shipments in response to inventory destocking by certain customers also pressured volumes.

International segment net sales, which includes all sales to customers outside of North America, increased $359.9 million, or 212%, to $529.9 million, and included $374.9 million of incremental sales attributable to the Acquisitions.

International segment net sales, excluding the incremental sales attributable to the Acquisitions, declined 9%.

Price/mix increased 18%, driven by the carryover benefit of pricing actions taken in fiscal 2023 to counter inflationary pressures, as well as favorable mix, partially offset by lower customer transportation charges.

Volume declined 27%, primarily reflecting our decisions to exit certain lower-priced and lower-margin business.

To a lesser extent, lower shipments in response to inventory destocking by certain customers in several markets in the Asia-Pacific region also pressured volume.

Gross profit increased $226.2 million, or 83%, to $499.5 million, and included $22.5 million of costs ($16.7 million after-tax, or $0.11 per share) associated with the sale of inventory stepped-up to fair value in the LW EMEA Acquisition, and a $31.7 million ($23.8 million after-tax, or $0.16 per share) unrealized gain related to mark-to-market adjustments associated with commodity hedging contracts.

The prior year quarter included a $4.0 million ($3.0 million after-tax, or $0.02 per share) unrealized loss related to mark-to-market adjustments associated with commodity hedging contracts.

We have identified LW EMEA integration and acquisition-related items as items impacting comparability, and all unrealized mark-to-market gains and losses related to commodity derivatives as adjustments, in the current and prior year quarters.

Excluding unrealized mark-to-market commodity gains and losses and items impacting comparability, gross profit increased $213.0 million, driven primarily by:

benefits from pricing actions, which more than offset the impact of higher costs on a per pound basis and lower sales volumes;

the timing of trade spending in North America;

and incremental earnings attributable to the consolidation of the financial results of LW EMEA.

The higher costs per pound reflected mid-to-high-single-digit cost inflation for key inputs, including:

raw potatoes, labor, ingredients such as grains and starches used in product coatings, and energy.

The increase in per pound costs was partially offset by lower costs for edible oils and transportation.

Selling, General and Administrative Expenses

SG&A increased $88.2 million to $357.6 million in the first three quarters of fiscal 2023, and includes a net $30.8 million gain ($22.0 million after-tax, or $0.15 per share) related to actions taken to mitigate the effect of changes in currency rates on our purchase of the remaining equity interest in LW EMEA, net of other acquisition-related costs.

Excluding items impacting comparability, SG&A increased $119.0 million to $388.4 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, as well as a $7.5 million increase in A&P.

SG&A increased $59.9 million to $176.2 million in the first quarter of fiscal 2024, and included $4.0 million of LW EMEA integration and acquisition-related expenses ($3.0 million after-tax, or $0.02 per share), $4.4 million ($3.3 million after-tax, or $0.02 per share) of unrealized losses related to mark-to-market adjustments associated with currency hedging contracts, and $7.4 million ($5.5 million after-tax, or $0.04 per share) of foreign currency exchange losses.

The prior year quarter included $1.0 million ($0.7 million after-tax, with no per share impact) of foreign currency exchange losses.

Excluding these items, SG&A increased $45.1 million to $160.4 million, primarily due to incremental expenses attributable to the consolidation of the financial results of LW EMEA, and higher expenses related to improving our information systems and ERP infrastructure.

Segment Adjusted EBITDA

North America Segment Adjusted EBITDA increased $147.6 million to $379.4 million.

The carryover benefit of pricing actions, the timing of trade spending, and favorable mix drove the increases, which were partially offset by higher costs per pound and the impact of lower volumes.

International Segment Adjusted EBITDA increased $56.5 million to $89.6 million, up 171 percent and excluded $22.5 million of costs ($16.7 million after-tax, or $0.11 per share) associated with the sale of inventory stepped-up to fair value in the LW EMEA Acquisition.

Incremental earnings from the consolidation of the financial results of LW EMEA and favorable price/mix drove the increases, which were partially offset by higher costs per pound and the impact of lower volumes.

Interest Expense, Net

Compared with the first three quarters of fiscal 2022, interest expense, net decreased $59.7 million to $76.4 million.

The first three quarters 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 outstanding 4.625% senior notes due 2024 (the “2024 Notes”) and 4.875% senior notes due 2026 (the “2026 Notes”).

Excluding items impacting comparability, interest expense declined $6.4 million as higher capitalized interest and interest income more than offset the impact of higher interest rates on our floating rate debt.

Compared with the prior year quarter, interest expense, net increased $4.7 million to $30.7 million, reflecting the impact of higher total debt outstanding and higher interest rates on our floating rate debt, partially offset by higher capitalized interest related to our manufacturing expansion projects and interest income.

Income Tax Expense

Income tax expense for the first three quarters of fiscal 2023 and 2022 was $152.6 million and $49.4 million, respectively.

The effective income tax rate (calculated as the ratio of income tax expense to pre-tax income, inclusive of equity method investment earnings) was 23.0% and 22.6% for the first three quarters of fiscal 2023 and 2022, respectively.

Excluding items impacting comparability, our effective tax rates for the first three quarters of fiscal 2023 and 2022 were 23.4% and 22.5%, respectively.

Income tax expense for the first quarter of fiscal 2024 and 2023 was $69.9 million and $73.7 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 22.9% and 24.1% for the first quarter of fiscal 2024 and 2023, respectively.

Excluding foreign currency exchange and unrealized mark-to-market derivative gains and losses and items impacting comparability, our effective tax rate for the first quarter of fiscal 2024 and 2023 was 23.1% and 25.0%, respectively.

The effective tax rate varies from the U.S.

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Equity Method Investment Earnings

Equity method investments earnings were $44.0 million and $46.0 million for the first three quarters of fiscal 2023 and 2022, respectively.

Equity method investment earnings included a $31.1 million unrealized loss related to mark-to-market adjustments associated with currency and commodity hedging contracts in the first three quarters of fiscal 2023, of which $37.8 million ($28.1 million after-tax, or $0.18 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 first three quarters of fiscal 2022 included a $27.5 million unrealized gain for mark-to-market adjustments, of which $30.6 million ($22.7 million after-tax, or $0.16 per share) related to gains in natural gas and electricity derivatives.

Equity method investment earnings in the first three quarters 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% equity 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 50% equity interest in LWAMSA) and the other mark-to-market adjustments, earnings from equity method investments increased $41.5 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.

Equity method investment earnings from unconsolidated joint ventures were $12.1 million and $174.6 million for the first quarter of fiscal 2024 and 2023, respectively.

The results in the current quarter include earnings associated with our 50% interest in Lamb Weston/RDO Frozen, an unconsolidated joint venture in the U.S., while results in the prior year quarter also included earnings associated with our 50% interests in LW EMEA and LWAMSA.

The results in the prior year quarter include a $144.5 million unrealized gain related to mark-to-market adjustments associated with currency and commodity hedging contracts ($107.2 million after-tax, or $0.74 per share), and a $15.1 million gain (before and after-tax, or $0.10 per share) recognized in connection with the LWAMSA Acquisition, which related to remeasuring our previously held 50% ownership interest to fair value.

Excluding these items, equity method investment earnings declined $2.9 million compared to the prior year quarter, largely due to LW EMEA earnings being included in the prior year quarter.

Liquidity and Capital Resources

Sources and Uses of Cash

We ended the first three quarters of fiscal 2023 with $675.0 million of cash and cash equivalents and $994.6 million of availability under our revolving credit facility, net of letters of credit.

As of February 26, 2023, no borrowings were outstanding under the revolving credit facility.

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.

As of August 27, 2023, we had $163.3 million of cash and cash equivalents and a $1.0 billion undrawn U.S.

revolving credit facility.

We believe we have sufficient liquidity to meet our business requirements for at least the next 12 months.

Cash generated by operations, supplemented by our cash and cash equivalents and availability under our credit facilities, is our primary source of liquidity for funding business requirements.

Our funding requirements include capital expenditures for announced manufacturing expansions in China, Idaho, the Netherlands, and Argentina, as well as capital investments to upgrade information systems and ERP infrastructure, working capital requirements, and dividends.

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:

Thirty-Nine Weeks Ended

Thirteen Weeks Ended

(in millions)

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Effect of exchange rate changes on cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Net decrease in cash and cash equivalents

Cash and cash equivalents, beginning of period

Cash and cash equivalents, end of period

Operating Activities

In the first three quarters of fiscal 2023, cash provided by operating activities increased $161.1 million to $335.1 million, compared with $174.0 million in the same period a year ago.

The increase related to a $213.9 million increase in income from operations, adjusted for non-cash income and expenses, partially offset by $52.8 million of cash used for unfavorable changes in working capital.

In the first quarter of fiscal 2024, cash provided by operating activities increased $142.5 million to $334.6 million, compared with $192.1 million in the same period a year ago.

The increase related to a $169.1 million increase in income from operations, adjusted for non-cash income and expenses, partially offset by $26.6 million of cash used for unfavorable changes in working capital, primarily related to the timing of incentive accruals and accounts payable payments.

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.

These unfavorable changes were partially offset by an increase in accrued liabilities due to higher compensation and benefits accrued in fiscal 2023, compared with the prior year period, a decrease in prepaid expenses and other current assets due to differences between contracted volumes and actual usage for grower storage as well as timing of advances to growers, an increase in accounts payable due to timing, and a decrease in receivables attributable to timing of collection of accounts receivable.

Investing Activities

Investing activities used $535.7 million of cash in the first three quarters of fiscal 2023, compared with $226.2 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 $700 million to $725 million in fiscal 2023, including capital expenditures at LW EMEA, but excluding the purchase price to acquire equity interests in our joint ventures in Europe and Argentina.

During the first three quarters of fiscal 2023, we also used $42.3 million to acquire an additional equity interest in our joint venture in Argentina and used $67.6 million to largely acquire assets associated with the improvement of our information and technology services infrastructure.

On February 28, 2023, we acquired the remaining equity interest in LW EMEA for €531.6 million ($564.0 million) in cash, subject to certain post-closing adjustments pursuant to the purchase agreement, and 1,952,421 shares of our common stock.

With the completion of the transaction, we own 100% of LW EMEA.

We funded the cash portion of the acquisition with the proceeds from a $450.0 million term loan and $114.0 million of cash on hand.

Investing activities used $304.8 million of cash in the first quarter of fiscal 2024, compared with $166.9 million in the same period in the prior year.

The increase primarily relates to our investments to expand our french fry and chopped and formed capacity and other facility modernization efforts in American Falls, Idaho;

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

We also used $37.4 million to upgrade our information systems and ERP infrastructure.

We expect to use approximately $800 million to $900 million in fiscal 2024 as we continue construction of our capacity expansion efforts in China, Idaho, the Netherlands and Argentina, as well as capital investments to upgrade our information systems and ERP infrastructure.

Financing Activities

During the first three quarters of fiscal 2023, financing activities primarily related to issuing a new term loan facility for net proceeds of $450.0 million and borrowing $59.1 million and $1.7 million under our RMB-denominated loan facility and other credit facilities, respectively, offset by $24.6 million of debt and financing obligation repayments, and the payment of $105.8 million of cash dividends to our common stockholders.

In addition, we used $47.2 million of cash to repurchase 529,167 shares of our common stock at an average price of $76.66 per share and withheld 83,973 shares from employees to cover income and payroll taxes on equity awards that vested during the period.

In the first three quarters of fiscal 2022, cash used for financing activities primarily related to issuing U.S.

dollar-denominated senior notes and a RMB-denominated loan facility for combined net proceeds of $1,669.2 million, offset by $1,690.1 million of debt and financing obligation repayments, including cash used to redeem our previously outstanding 2024 Notes and 2026 Notes, the payment of $103.0 million of cash dividends to common stockholders, and the payment of an aggregate call premium of $39.6 million relating to redeeming the 2024 Notes and 2026 Notes.

In addition, we used $133.7 million of cash to repurchase 2,027,891 shares of our common stock at an average price of $62.15 per share and withheld 116,780 shares from employees to cover income and payroll taxes on equity awards that vested during the period.

During the first quarter of fiscal 2024, we used $113.5 million of cash to repurchase 992,365 shares of our common stock at an average price of $100.77 per share and withheld 132,067 shares from employees to cover income and payroll taxes on equity awards that vested during the period.

In addition, we paid $40.8 million of cash dividends to common stockholders and repaid $18.9 million of short-term borrowings and $13.7 million of debt and financing obligations.

These financing uses were partially offset by $15.1 million of borrowings on other credit facilities.

In the first quarter of fiscal 2023, cash used for financing activities primarily related to additional borrowings under our RMB-denominated loan facility, which generated net proceeds of $13.8 million, offset by $8.0 million of debt and financing obligation repayments.

We also paid $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.

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

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

At February 26, 2023, we were in compliance with the financial covenant ratios and other covenants contained in our credit agreements.

At August 27, 2023, we were in compliance with the financial covenant ratios and other covenants contained in our credit agreements.

Obligations and Commitments

Except for our acquisition of the remaining equity interest in LW EMEA, as discussed in this MD&A, and the related liabilities assumed from the acquisition, there have been no material changes to the contractual obligations disclosed in “Management's Discussion and Analysis of Financial Condition and Results of Operations"

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

in the Form 10-K.

Non-GAAP Financial Measures

To supplement the financial information included in this report, we have presented product contribution margin on a consolidated basis, Adjusted EBITDA, Adjusted EBITDA including unconsolidated joint ventures, 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.

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

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

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

Management uses these non-GAAP financial measures to assist in analyzing what management views as our core operating performance for purposes of business decision making.

Management believes that presenting these non-GAAP financial measures provides investors with useful supplemental information because they (i) provide meaningful supplemental information regarding financial performance by excluding certain items affecting comparability between periods, (ii) permit investors to view performance using the same tools that management uses to budget, make operating and strategic decisions, and evaluate historical performance, and (iii) otherwise provide supplemental information that may be useful to investors in evaluating our results.

In addition, we believe that the presentation of these non-GAAP financial measures, when considered together with the most directly comparable GAAP financial measures and the reconciliations to those GAAP financial measures, provides investors with additional tools to understand the factors and trends affecting our underlying business than could be obtained absent these disclosures.

The non-GAAP financial measures provided in this report should be viewed in addition to, and not as an alternative for, financial measures prepared in accordance with GAAP that are presented in this report.

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

For example, the non-GAAP financial measures presented in this report 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 we do.

See “Results of Operations – Thirteen Weeks Ended February 26, 2023 compared to Thirteen Weeks Ended February 27, 2022 – Net Sales, Gross Profit, and Product Contribution Margin” and “Results of Operations – Thirty-Nine Weeks Ended February 26, 2023 compared to Thirty-Nine Weeks Ended February 27, 2022 – 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:

To supplement the financial information included in this report, we have presented Adjusted EBITDA, which is considered a non-GAAP financial measure.

Management uses this non-GAAP financial measure to assist in analyzing what management views as our core operating performance for purposes of business decision making.

Management believes that presenting this non-GAAP financial measure provides investors with useful supplemental information because it (i) provides meaningful supplemental information regarding financial performance by excluding foreign currency exchange and unrealized mark-to-market derivative gains and losses and items affecting comparability between periods, (ii) permits investors to view performance using the same tools that management uses to budget, make operating and strategic decisions, and evaluate historical performance, and (iii) otherwise provides supplemental information that may be useful to investors in evaluating our financial results.

In addition, we believe that the presentation of this non-GAAP financial measure, when considered together with the most directly comparable GAAP financial measure and the reconciliation to this GAAP financial measure, provides investors with additional tools to understand the factors and trends affecting our underlying business than could be obtained absent these disclosures.

The non-GAAP financial measure presented in this report should be viewed in addition to, and not as an alternative for, financial measures prepared in accordance with GAAP that are also presented in this report.

This measure is not a substitute for its comparable GAAP financial measure, net income, and there are limitations to using non-GAAP financial measures.

For example, the non-GAAP financial measure presented in this report may differ from similarly titled non-GAAP financial measures presented by other companies, and other companies may not define this non-GAAP financial measure the same way we do.

The following table reconciles net income to Adjusted EBITDA:

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

(in millions)

Equity method investment loss (earnings)

Interest expense, net

Income tax expense

Income from operations

Depreciation and amortization

Income from operations including equity method investment earnings

Depreciation and amortization (a)

Unrealized derivative (gains) losses

Unconsolidated joint venture unrealized derivative gains

Foreign currency exchange losses

Items impacting comparability:

Acquisition-related items, net (a)

Inventory step-up from acquisition

Integration and acquisition-related items, net

Gain on acquisition of interest in joint venture

Adjusted EBITDA

Unconsolidated Joint Ventures

Equity method investment (loss) earnings

Interest expense, income tax expense, and depreciation and

amortization included in equity method investment earnings

Items impacting comparability

Impact of LW EMEA natural gas and electricity derivatives (b)

Gain on acquisition of interest in joint venture (c)

Adjusted EBITDA from unconsolidated joint ventures

Adjusted EBITDA including unconsolidated joint ventures

(a) Income from operations for the thirteen weeks and thirty-nine weeks ended February 26, 2023 included a net $4.3 million gain ($2.8 million after-tax, or $0.02 per share) and a net $30.8 million gain ($22.0 million after-tax, or $0.15 per share), respectively, related to actions taken to mitigate the effect of changes in currency rates on our fourth quarter purchase of the remaining equity interest in LW EMEA, net of other acquisition-related costs.

(b) Equity method investment earnings (loss) for the thirteen weeks ended February 26, 2023 and February 27, 2022 included a $47.3 million unrealized loss ($35.1 million after-tax, or $0.24 per share) and a $19.3 million unrealized gain ($14.3 million after-tax, or $0.10 per share), respectively;

and for the thirty-nine weeks ended February 26, 2023 and February 27, 2022, included unrealized losses of $37.8 million ($28.1 million after-tax, or $0.18 per share) and unrealized gains of $30.6 million ($22.7 million after-tax, or $0.16 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.

(c) Equity method investment earnings for the thirty-nine weeks ended February 26, 2023 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% equity interest in our Argentina joint venture, increasing our equity ownership from 50% to 90%.

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

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 LW EMEA natural gas and electricity derivatives (b)

Acquisition-related items, net (c)

Total items impacting comparability

For Thirty-Nine Weeks Ended

(in millions, except per share amounts)

Income from Operations

Items impacting comparability:

Impact of LW EMEA natural gas and electricity derivatives (b)

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 144.8 million and 145.5 million for the thirteen weeks ended February 26, 2023 and February 27, 2022, respectively, and 144.7 million and 146.2 million for the thirty-nine weeks ended February 26, 2023 and February 27, 2022, respectively .

(b) 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 (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.

(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 the acquisition of an additional 40% equity interest in our Argentina joint venture.

(e) The thirty-nine weeks ended February 27, 2022, 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.

(a) Depreciation and amortization included interest expense, income tax expense, and depreciation and amortization included in equity method investment earnings of $2.2 million and $8.9 million for the thirteen weeks ended August 27, 2023 and August 28, 2022, respectively.

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 three quarters of fiscal 2023.

There were no material changes to these critical accounting policies and estimates during the first quarter of fiscal 2024 .

New and Recently Adopted Accounting Pronouncements

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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