UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
For the quarterly period ended November 25, 201824, 2019
OR
For
For the transition period from to
Commission File Number: 1-37830
LAMB WESTON HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware |
| 61-1797411 |
(State or other jurisdiction of |
| (I.R.S. Employer |
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599 S. Rivershore Lane |
| 83616 |
(Address of principal executive offices) |
| (Zip Code) |
(208) (208) 938-1047
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Indicate
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered | |
Common Stock, $1.00 par value | | | LW | | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:
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Large accelerated filer | ☒ | | Accelerated filer | ☐ | | |
Non-accelerated filer | ☐ | | Smaller reporting company | ☐ | | |
Emerging growth company | ☐ | | | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of December 28, 2018,27, 2019, the Registrant had 146,492,043146,092,112 shares of common stock, par value $1.00 per share, outstanding.
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| Management's Discussion and Analysis of Financial Condition and Results of Operations |
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All reports we file with the U.S. Securities and Exchange Commission (SEC)(“SEC”) are available free of charge via the Electronic Data Gathering Analysis and Retrieval (EDGAR)(“EDGAR”) System on the SEC’s website at www.sec.gov. We also provide copies of our SEC filings at no charge upon request and make electronic copies of our reports available through our website at www.lambweston.com as soon as reasonably practicable after filing such material with the SEC.
2
PART I — FINANCIAL INFORMATION
Lamb Weston Holdings, Inc.
Consolidated Statements of Earnings
(unaudited, dollars in millions, except per-shareper share amounts)
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| Thirteen Weeks Ended |
| Twenty-Six Weeks Ended | ||||||||
| November 25, |
| November 26, |
| November 25, |
| November 26, | ||||
| 2018 |
| 2017 |
| 2018 |
| 2017 | ||||
Net sales | $ | 911.4 |
| $ | 824.6 |
| $ | 1,826.3 |
| $ | 1,642.1 |
Cost of sales |
| 662.4 |
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| 616.4 |
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| 1,346.7 |
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| 1,237.6 |
Gross profit |
| 249.0 |
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| 208.2 |
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| 479.6 |
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| 404.5 |
Selling, general and administrative expenses |
| 75.0 |
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| 68.4 |
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| 153.0 |
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| 127.1 |
Income from operations |
| 174.0 |
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| 139.8 |
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| 326.6 |
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| 277.4 |
Interest expense, net |
| 26.2 |
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| 27.4 |
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| 53.0 |
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| 52.6 |
Income before income taxes and equity method earnings |
| 147.8 |
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| 112.4 |
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| 273.6 |
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| 224.8 |
Income tax expense |
| 34.0 |
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| 41.5 |
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| 68.3 |
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| 85.6 |
Equity method investment earnings |
| 10.2 |
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| 12.1 |
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| 30.1 |
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| 32.1 |
Net income |
| 124.0 |
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| 83.0 |
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| 235.4 |
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| 171.3 |
Less: Income attributable to noncontrolling interests |
| 5.0 |
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| 6.4 |
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| 8.6 |
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| 11.3 |
Net income attributable to Lamb Weston Holdings, Inc. | $ | 119.0 |
| $ | 76.6 |
| $ | 226.8 |
| $ | 160.0 |
Earnings per share |
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Basic | $ | 0.74 |
| $ | 0.52 |
| $ | 1.47 |
| $ | 1.08 |
Diluted | $ | 0.74 |
| $ | 0.52 |
| $ | 1.47 |
| $ | 1.08 |
Dividends declared per common share | $ | 0.19125 |
| $ | 0.18750 |
| $ | 0.38250 |
| $ | 0.37500 |
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| | Thirteen Weeks Ended | | Twenty-Six Weeks Ended | ||||||||
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| November 24, |
| November 25, |
| November 24, |
| November 25, | ||||
| | 2019 | | 2018 | | 2019 | | 2018 | ||||
Net sales | | $ | 1,019.2 | | $ | 911.4 | | $ | 2,008.2 | | $ | 1,826.3 |
Cost of sales | | | 734.1 | | | 662.4 | | | 1,474.5 | | | 1,346.7 |
Gross profit | | | 285.1 | | | 249.0 | | | 533.7 | | | 479.6 |
Selling, general and administrative expenses | | | 91.6 | | | 75.0 | | | 170.2 | | | 153.0 |
Income from operations | | | 193.5 | | | 174.0 | | | 363.5 | | | 326.6 |
Interest expense, net | | | 25.4 | | | 26.2 | | | 53.6 | | | 53.0 |
Income before income taxes and equity method earnings | |
| 168.1 | |
| 147.8 | |
| 309.9 | |
| 273.6 |
Income tax expense | | | 42.7 | | | 34.0 | | | 79.4 | | | 68.3 |
Equity method investment earnings | | | 15.0 | | | 10.2 | | | 25.6 | | | 30.1 |
Net income | |
| 140.4 | |
| 124.0 | |
| 256.1 | |
| 235.4 |
Less: Income attributable to noncontrolling interests | | | — | | | 5.0 | | | — | | | 8.6 |
Net income attributable to Lamb Weston Holdings, Inc. | | $ | 140.4 | | $ | 119.0 | | $ | 256.1 | | $ | 226.8 |
Earnings per share | | | | | | | | | | | | |
Basic | | $ | 0.96 | | $ | 0.74 | | $ | 1.75 | | $ | 1.47 |
Diluted | | $ | 0.95 | | $ | 0.74 | | $ | 1.74 | | $ | 1.47 |
See Condensed Notes to Consolidated Financial Statements.
3
Lamb Weston Holdings, Inc.
Consolidated Statements of Comprehensive Income (Loss)
(unaudited, dollars in millions)
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| Thirteen Weeks Ended |
| Thirteen Weeks Ended |
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| November 25, 2018 |
| November 26, 2017 |
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| Tax |
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| Tax |
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| Pre-Tax |
| (Expense) |
| After-Tax |
| Pre-Tax |
| (Expense) |
| After-Tax |
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| Amount |
| Benefit |
| Amount |
| Amount |
| Benefit |
| Amount |
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Net income |
| $ | 158.0 |
| $ | (34.0) |
| $ | 124.0 |
| $ | 124.5 |
| $ | (41.5) |
| $ | 83.0 |
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Other comprehensive income (loss): |
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Reclassification of post-retirement benefits out of accumulated other comprehensive income |
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| 0.2 |
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| — |
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| 0.2 |
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| — |
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| — |
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| — |
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Unrealized currency translation losses |
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| (7.6) |
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| — |
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| (7.6) |
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| (0.4) |
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| — |
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| (0.4) |
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Comprehensive income (loss) |
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| 150.6 |
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| (34.0) |
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| 116.6 |
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| 124.1 |
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| (41.5) |
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| 82.6 |
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Less: Comprehensive income attributable to noncontrolling interests |
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| 5.0 |
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| — |
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| 5.0 |
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| 6.4 |
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| — |
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| 6.4 |
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Comprehensive income (loss) attributable to Lamb Weston Holdings, Inc. |
| $ | 145.6 |
| $ | (34.0) |
| $ | 111.6 |
| $ | 117.7 |
| $ | (41.5) |
| $ | 76.2 |
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| | Thirteen Weeks Ended | | Thirteen Weeks Ended | ||||||||||||||
| | November 24, 2019 | | November 25, 2018 | ||||||||||||||
| | | | | Tax | | | | | | | | Tax | | | | ||
| | Pre-Tax | | (Expense) | | After-Tax | | Pre-Tax | | (Expense) | | After-Tax | ||||||
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| Amount |
| Benefit |
| Amount |
| Amount |
| Benefit |
| Amount | ||||||
Net income | | $ | 183.1 | | $ | (42.7) | | $ | 140.4 | | $ | 158.0 | | $ | (34.0) | | $ | 124.0 |
Other comprehensive income (loss): | | | | | | | | | | | | | | | | | |
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Reclassification of post-retirement benefits out of accumulated other comprehensive income (loss) | | | 0.2 | | | (0.1) | | | 0.1 | | | 0.2 | | | — | |
| 0.2 |
Unrealized currency translation gains (losses) | | | (0.4) | | | 1.0 | | | 0.6 | | | (7.6) | |
| — | |
| (7.6) |
Comprehensive income (loss) | |
| 182.9 | |
| (41.8) | |
| 141.1 | |
| 150.6 | |
| (34.0) | |
| 116.6 |
Less: Comprehensive income attributable to noncontrolling interests | | | — | | | — | |
| — | | | 5.0 | |
| — | |
| 5.0 |
Comprehensive income (loss) attributable to Lamb Weston Holdings, Inc. | | $ | 182.9 | | $ | (41.8) | | $ | 141.1 | | $ | 145.6 | | $ | (34.0) | | $ | 111.6 |
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| Twenty-Six Weeks Ended |
| Twenty-Six Weeks Ended |
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| November 25, 2018 |
| November 26, 2017 |
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| Tax |
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| Tax |
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| Pre-Tax |
| (Expense) |
| After-Tax |
| Pre-Tax |
| (Expense) |
| After-Tax |
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| Amount |
| Benefit |
| Amount |
| Amount |
| Benefit |
| Amount |
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Net income |
| $ | 303.7 |
| $ | (68.3) |
| $ | 235.4 |
| $ | 256.9 |
| $ | (85.6) |
| $ | 171.3 |
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Other comprehensive income (loss): |
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Reclassification of post-retirement benefits out of accumulated other comprehensive income (loss) |
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| 0.4 |
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| (0.1) |
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| 0.3 |
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| (0.1) |
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| — |
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| (0.1) |
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Unrealized currency translation gains (losses) |
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| (11.9) |
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| — |
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| (11.9) |
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| 14.8 |
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| — |
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| 14.8 |
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Comprehensive income (loss) |
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| 292.2 |
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| (68.4) |
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| 223.8 |
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| 271.6 |
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| (85.6) |
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| 186.0 |
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Less: Comprehensive income attributable to noncontrolling interests |
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| 8.6 |
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| — |
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| 8.6 |
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| 11.3 |
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| 11.3 |
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Comprehensive income (loss) attributable to Lamb Weston Holdings, Inc. |
| $ | 283.6 |
| $ | (68.4) |
| $ | 215.2 |
| $ | 260.3 |
| $ | (85.6) |
| $ | 174.7 |
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| | Twenty-Six Weeks Ended | | Twenty-Six Weeks Ended | ||||||||||||||
| | November 24, 2019 | | November 25, 2018 | ||||||||||||||
| | | | | Tax | | | | | | | | Tax | | | | ||
| | Pre-Tax | | (Expense) | | After-Tax | | Pre-Tax | | (Expense) | | After-Tax | ||||||
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| Amount |
| Benefit |
| Amount |
| Amount |
| Benefit |
| Amount | ||||||
Net income | | $ | 335.5 | | $ | (79.4) | | $ | 256.1 | | $ | 303.7 | | $ | (68.3) | | $ | 235.4 |
Other comprehensive income (loss): | |
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Reclassification of post-retirement benefits out of accumulated other comprehensive income (loss) | |
| 0.4 | | | (0.1) | |
| 0.3 | |
| 0.4 | | | (0.1) | |
| 0.3 |
Unrealized currency translation losses | |
| (9.5) | |
| 1.0 | |
| (8.5) | |
| (11.9) | |
| — | |
| (11.9) |
Comprehensive income (loss) | |
| 326.4 | |
| (78.5) | |
| 247.9 | |
| 292.2 | |
| (68.4) | |
| 223.8 |
Less: Comprehensive income attributable to noncontrolling interests | |
| — | |
| — | |
| — | |
| 8.6 | |
| — | |
| 8.6 |
Comprehensive income (loss) attributable to Lamb Weston Holdings, Inc. | | $ | 326.4 | | $ | (78.5) | | $ | 247.9 | | $ | 283.6 | | $ | (68.4) | | $ | 215.2 |
See Condensed Notes to Consolidated Financial Statements.
4
Lamb Weston Holdings, Inc.
(unaudited, dollars in millions, except share data)
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| November 25, |
| May 27, | ||
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| 2018 |
| 2018 | ||
ASSETS |
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Current assets: |
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Cash and cash equivalents |
| $ | 121.6 |
| $ | 55.6 |
Receivables, less allowance for doubtful accounts of $0.6 and $0.6 |
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| 340.1 |
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| 225.9 |
Inventories |
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| 628.2 |
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| 549.7 |
Prepaid expenses and other current assets |
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| 44.7 |
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| 99.2 |
Total current assets |
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| 1,134.6 |
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| 930.4 |
Property, plant and equipment, net |
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| 1,521.4 |
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| 1,420.8 |
Goodwill |
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| 132.6 |
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| 135.1 |
Intangible assets, net |
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| 34.4 |
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| 35.4 |
Equity method investments |
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| 218.2 |
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| 219.8 |
Other assets |
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| 11.3 |
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| 11.1 |
Total assets |
| $ | 3,052.5 |
| $ | 2,752.6 |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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Current liabilities: |
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Short-term borrowings |
| $ | 13.1 |
| $ | 9.6 |
Current portion of long-term debt and financing obligations |
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| 39.5 |
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| 38.7 |
Accounts payable |
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| 376.2 |
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| 254.4 |
Accrued liabilities |
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| 268.0 |
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| 216.0 |
Total current liabilities |
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| 696.8 |
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| 518.7 |
Long-term liabilities: |
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Long-term debt, excluding current portion |
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| 2,321.8 |
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| 2,336.7 |
Deferred income taxes |
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| 114.8 |
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| 92.1 |
Other noncurrent liabilities |
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| 86.2 |
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| 84.3 |
Total long-term liabilities |
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| 2,522.8 |
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| 2,513.1 |
Commitments and contingencies |
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Redeemable noncontrolling interest |
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| 55.6 |
Stockholders' equity: |
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Common stock of $1.00 par value, 600,000,000 shares authorized; 146,616,397 and 146,395,866 shares issued |
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| 146.6 |
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| 146.4 |
Additional distributed capital |
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| (900.9) |
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| (900.4) |
Retained earnings |
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| 610.4 |
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| 426.4 |
Accumulated other comprehensive loss |
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| (15.9) |
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| (4.3) |
Treasury stock, at cost, 124,494 and 63,534 common shares |
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| (7.3) |
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| (2.9) |
Total stockholders' deficit |
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| (167.1) |
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| (334.8) |
Total liabilities and stockholders’ equity |
| $ | 3,052.5 |
| $ | 2,752.6 |
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| | November 24, | | May 26, | ||
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| 2019 |
| 2019 | ||
ASSETS |
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Current assets: |
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Cash and cash equivalents |
| $ | 23.8 | | $ | 12.2 |
Receivables, less allowance for doubtful accounts of $1.3 and $1.3 | |
| 399.7 | |
| 340.1 |
Inventories | |
| 636.0 | |
| 498.3 |
Prepaid expenses and other current assets | |
| 47.8 | |
| 110.9 |
Total current assets | |
| 1,107.3 | |
| 961.5 |
Property, plant and equipment, net | |
| 1,552.3 | |
| 1,597.8 |
Operating lease assets | | | 162.9 | | | — |
Equity method investments | | | 257.9 | | | 224.6 |
Goodwill | |
| 307.2 | |
| 205.9 |
Intangible assets, net | |
| 39.8 | |
| 37.6 |
Other assets | |
| 39.4 | |
| 20.7 |
Total assets | | $ | 3,466.8 | | $ | 3,048.1 |
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LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | | |
Current liabilities: | |
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Short-term borrowings | | $ | 9.9 | | $ | 8.4 |
Current portion of long-term debt and financing obligations | | | 36.1 | | | 38.0 |
Accounts payable | |
| 406.0 | |
| 289.2 |
Accrued liabilities | |
| 217.4 | |
| 217.2 |
Total current liabilities | |
| 669.4 | |
| 552.8 |
Long-term liabilities: | | | | | | |
Long-term debt and financing obligations, excluding current portion | |
| 2,203.7 | |
| 2,280.2 |
Deferred income taxes | | | 149.5 | | | 125.7 |
Other noncurrent liabilities | |
| 243.1 | |
| 94.0 |
Total long-term liabilities | | | 2,596.3 | | | 2,499.9 |
Commitments and contingencies | | | | | | |
Stockholders' equity: | |
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Common stock of $1.00 par value, 600,000,000 shares authorized; 146,837,024 and 146,654,827 shares issued | |
| 146.8 | |
| 146.7 |
Additional distributed capital | |
| (877.0) | |
| (890.3) |
Retained earnings | |
| 1,021.9 | |
| 803.6 |
Accumulated other comprehensive loss | |
| (33.5) | |
| (25.3) |
Treasury stock, at cost, 833,820 and 585,794 common shares | | | (57.1) | | | (39.3) |
Total stockholders' equity (deficit) | |
| 201.1 | |
| (4.6) |
Total liabilities and stockholders’ equity | | $ | 3,466.8 | | $ | 3,048.1 |
See Condensed Notes to Consolidated Financial Statements.
5
Lamb Weston Holdings, Inc.
Consolidated Statements of Stockholders’ Equity
(unaudited, dollars in millions, except shares and per share data)
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| | Thirteen Weeks Ended November 24, 2019 and November 25, 2018 | |||||||||||||||||||
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| Additional |
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| Accumulated |
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| | Common Stock, | | Common | | Treasury | | Paid-in | | | | | Other | | | | |||||
| | net of Treasury | | Stock | | Stock | | (Distributed) | | Retained | | Comprehensive | | Total | |||||||
| | Shares |
| Amount |
| Amount |
| Capital |
| Earnings |
| Income (Loss) |
| Equity | |||||||
Balance at August 25, 2019 | | | 146,062,722 | | $ | 146.8 | | $ | (46.7) | | $ | (884.7) | | $ | 911.1 |
| $ | (34.2) |
| $ | 92.3 |
Dividends declared, $0.20000 per share | | | — | | | — | | | — | | | — | | | (29.2) | | | — | | | (29.2) |
Common stock issued | | | 76,787 | | | — | | | — | | | 0.2 | | | — | | | — | | | 0.2 |
Stock-settled, stock-based compensation expense | | | — | | | — | | | — | | | 7.2 | | | — | | | — | | | 7.2 |
Repurchase of common stock and common stock withheld to cover taxes | | | (136,305) | | | — | | | (10.4) | | | — | | | — | | | — | | | (10.4) |
Other | | | — | | | — | | | — | | | 0.3 | | | (0.4) | | | — | | | (0.1) |
Comprehensive income | | | — | | | — | | | — | | | — | | | 140.4 | | | 0.7 | | | 141.1 |
Balance at November 24, 2019 | | | 146,003,204 | | $ | 146.8 | | $ | (57.1) | | $ | (877.0) | | $ | 1,021.9 | | $ | (33.5) | | $ | 201.1 |
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Balance at August 26, 2018 | | | 146,447,756 | | $ | 146.6 | | $ | (6.8) | | $ | (896.4) | | $ | 519.7 | | $ | (8.5) | | $ | (245.4) |
Increase in redemption value of noncontrolling interests in excess of earnings allocated | | | — | | | — | | | — | | | (10.0) | | | — | | | — | | | (10.0) |
Dividends declared, $0.19125 per share | | | — | | | — | | | — | | | — | | | (28.0) | | | — | | | (28.0) |
Common stock issued | | | 51,064 | | | — | | | — | | | 0.3 | | | — | | | — | | | 0.3 |
Stock-settled, stock-based compensation expense | | | — | | | — | | | — | | | 5.0 | | | — | | | — | | | 5.0 |
Common stock withheld to cover taxes | | | (6,917) | | | — | | | (0.5) | | | — | | | — | | | — | | | (0.5) |
Other | | | — | | | — | | | — | | | 0.2 | | | (0.3) | | | — | | | (0.1) |
Comprehensive income (loss) | | | — | | | — | | | — | | | — | | | 119.0 | | | (7.4) | | | 111.6 |
Balance at November 25, 2018 | | | 146,491,903 | | $ | 146.6 | | $ | (7.3) | | $ | (900.9) | | $ | 610.4 | | $ | (15.9) | | $ | (167.1) |
| | | | | | | | | | | | | | | | | | | | | |
| | Twenty-Six Weeks Ended November 24, 2019 and November 25, 2018 | |||||||||||||||||||
| | | |
| | |
| | |
| Additional |
| | |
| Accumulated |
| | | ||
| | Common Stock, | | Common | | Treasury | | Paid-in | | | | | Other | | | | |||||
| | net of Treasury | | Stock | | Stock | | (Distributed) | | Retained | | Comprehensive | | Total | |||||||
| | Shares |
| Amount |
| Amount |
| Capital |
| Earnings |
| Income (Loss) |
| Equity | |||||||
Balance at May 26, 2019 | | | 146,069,033 | | $ | 146.7 | | $ | (39.3) | | $ | (890.3) | | $ | 803.6 |
| $ | (25.3) |
| $ | (4.6) |
Adoption of ASC 842 leases | | | — | | | — | | | — | | | — | | | 20.5 | | | — | | | 20.5 |
Dividends declared, $0.40000 per share | | | — | | | — | | | — | | | — | | | (58.4) | | | — | | | (58.4) |
Common stock issued | | | 182,197 | | | 0.1 | | | — | | | 0.1 | | | — | | | — | | | 0.2 |
Stock-settled, stock-based compensation expense | | | — | | | — | | | — | | | 12.6 | | | — | | | — | | | 12.6 |
Repurchase of common stock and common stock withheld to cover taxes | | | (248,026) | | | — | | | (17.8) | | | — | | | — | | | — | | | (17.8) |
Other | | | — | | | — | | | — | | | 0.6 | | | 0.1 | | | — | | | 0.7 |
Comprehensive income (loss) | | | — | |
| — | | | — | | | — | | | 256.1 | | | (8.2) | | | 247.9 |
Balance at November 24, 2019 | | | 146,003,204 | | $ | 146.8 | | $ | (57.1) | | $ | (877.0) | | $ | 1,021.9 | | $ | (33.5) | | $ | 201.1 |
| | | | | | | | | | | | | | | | | | | | | |
Balance at May 27, 2018 | | | 146,332,332 | | $ | 146.4 | | $ | (2.9) | | $ | (900.4) | | $ | 426.4 | | $ | (4.3) | | $ | (334.8) |
Adoption of ASC 606 revenue from contracts with customers | | | — | | | — | | | — | | | — | | | 13.7 | | | — | | | 13.7 |
Increase in redemption value of noncontrolling interests in excess of earnings allocated | | | — | | | — | | | — | | | (10.9) | | | — | | | — | | | (10.9) |
Dividends declared, $0.38250 per share | | | — | | | — | | | — | | | — | | | (56.0) | | | — | | | (56.0) |
Common stock issued | | | 220,531 | | | 0.2 | | | — | | | 0.9 | | | (0.1) | | | — | | | 1.0 |
Stock-settled, stock-based compensation expense | | | — | | | — | | | — | | | 9.2 | | | — | | | — | | | 9.2 |
Common stock withheld to cover taxes | | | (60,960) | | | — | | | (4.4) | | | — | | | — | | | — | | | (4.4) |
Other | | | — | | | — | | | — | | | 0.3 | | | (0.4) | | | — | | | (0.1) |
Comprehensive income (loss) | | | — | | | — | | | — | | | — | | | 226.8 | | | (11.6) | | | 215.2 |
Balance at November 25, 2018 | | | 146,491,903 | | $ | 146.6 | | $ | (7.3) | | $ | (900.9) | | $ | 610.4 | | $ | (15.9) | | $ | (167.1) |
See Condensed Notes to Consolidated Financial Statements
6
Lamb Weston Holdings, Inc.
Consolidated Statements of Cash Flows
(unaudited, dollars in millions)
|
|
|
|
|
|
|
|
| Twenty-Six Weeks Ended | ||||
|
| November 25, |
| November 26, | ||
|
| 2018 |
| 2017 | ||
Cash flows from operating activities |
|
|
|
|
|
|
Net income |
| $ | 235.4 |
| $ | 171.3 |
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
Depreciation and amortization of intangibles and debt issuance costs |
|
| 77.2 |
|
| 66.6 |
Stock-settled, stock-based compensation expense |
|
| 9.2 |
|
| 6.5 |
Earnings of joint ventures in excess of distributions |
|
| (4.5) |
|
| (9.3) |
Deferred income taxes |
|
| 27.9 |
|
| 19.4 |
Pension expense, net of contributions |
|
| 3.8 |
|
| 3.9 |
Other |
|
| 2.4 |
|
| (2.4) |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
Receivables |
|
| (28.2) |
|
| (39.2) |
Inventories |
|
| (149.4) |
|
| (137.9) |
Income taxes payable/receivable, net |
|
| 3.7 |
|
| 6.5 |
Prepaid expenses and other current assets |
|
| 51.0 |
|
| 36.3 |
Accounts payable |
|
| 114.8 |
|
| 89.1 |
Accrued liabilities |
|
| (26.5) |
|
| (28.6) |
Net cash provided by operating activities |
| $ | 316.8 |
| $ | 182.2 |
Cash flows from investing activities |
|
|
|
|
|
|
Additions to property, plant and equipment |
|
| (170.4) |
|
| (154.0) |
Other |
|
| 1.7 |
|
| (1.7) |
Net cash used for investing activities |
| $ | (168.7) |
| $ | (155.7) |
Cash flows from financing activities |
|
|
|
|
|
|
Proceeds from short-term borrowings, net |
|
| 4.3 |
|
| 66.1 |
Debt repayments |
|
| (20.3) |
|
| (19.3) |
Dividends paid |
|
| (56.0) |
|
| (54.8) |
Cash distributions paid to noncontrolling interest |
|
| (6.1) |
|
| (6.7) |
Other |
|
| (3.3) |
|
| (1.2) |
Net cash used for financing activities |
| $ | (81.4) |
| $ | (15.9) |
Effect of exchange rate changes on cash and cash equivalents |
|
| (0.7) |
|
| 3.4 |
Net increase in cash and cash equivalents |
|
| 66.0 |
|
| 14.0 |
Cash and cash equivalents, beginning of the period |
|
| 55.6 |
|
| 57.1 |
Cash and cash equivalents, end of period |
| $ | 121.6 |
| $ | 71.1 |
| | | | | | |
| | Twenty-Six Weeks Ended | ||||
|
| November 24, |
| November 25, | ||
| | 2019 | | 2018 | ||
Cash flows from operating activities | | | | | | |
Net income | | $ | 256.1 | | $ | 235.4 |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
Depreciation and amortization of intangibles and debt issuance costs | | | 91.7 | | | 77.2 |
Stock-settled, stock-based compensation expense | | | 12.6 | | | 9.2 |
Earnings of joint ventures in excess of distributions | | | (7.6) | | | (4.5) |
Deferred income taxes | | | 17.2 | | | 27.9 |
Other | | | 2.0 | | | 6.2 |
Changes in operating assets and liabilities, net of acquisition: | | | | | | |
Receivables | | | (55.2) | | | (28.2) |
Inventories | | | (133.4) | | | (149.4) |
Income taxes payable/receivable, net | | ��� | 17.5 | | | 3.7 |
Prepaid expenses and other current assets | | | 46.3 | | | 51.0 |
Accounts payable | | | 126.4 | | | 114.8 |
Accrued liabilities | | | (28.3) | | | (26.5) |
Net cash provided by operating activities | | $ | 345.3 | | $ | 316.8 |
Cash flows from investing activities | | | | | | |
Acquisition of business, net of cash acquired | | | (116.7) | | | — |
Additions to property, plant and equipment | | | (88.1) | | | (170.4) |
Additions to other long-term assets | | | (19.3) | | | — |
Investment in equity method joint venture | | | (17.1) | | | — |
Other | | | 1.0 | | | 1.7 |
Net cash used for investing activities | | $ | (240.2) | | $ | (168.7) |
Cash flows from financing activities | | | | | | |
Proceeds from issuance of debt | | | 299.3 | | | — |
Repayments of debt and financing obligations | | | (318.1) | | | (20.3) |
Dividends paid | | | (58.5) | | | (56.0) |
Repurchase of common stock and common stock withheld to cover taxes | | | (17.8) | | | (4.4) |
Proceeds (payments) of short-term borrowings, net | |
| 1.4 | |
| 4.3 |
Cash distributions paid to noncontrolling interest | | | — | | | (6.1) |
Other | | | 0.1 | | | 1.1 |
Net cash used for financing activities | | $ | (93.6) | | $ | (81.4) |
Effect of exchange rate changes on cash and cash equivalents | | | 0.1 | | | (0.7) |
Net increase in cash and cash equivalents | |
| 11.6 | |
| 66.0 |
Cash and cash equivalents, beginning of the period | | | 12.2 | | | 55.6 |
Cash and cash equivalents, end of period | | $ | 23.8 | | $ | 121.6 |
See Condensed Notes to Consolidated Financial Statements.
67
Condensed Notes to Consolidated Financial Statements
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Lamb Weston Holdings, Inc. (“we,” “us,” “our,” the “Company,” or “Lamb Weston”), along with its joint venture partners, is a leading global producer, distributor, and marketer of value-added frozen potato products and is headquartered in Eagle, Idaho. We have four4 reportable segments: Global, Foodservice, Retail, and Other. See Note 16,15, Segments, for additional information on our reportable segments.
On November 9, 2016, Lamb Weston separated from Conagra Brands, Inc. (formerly, ConAgra Foods, Inc., “Conagra”) and became an independent publicly traded company through the pro rata distribution by Conagra of 100% of the outstanding common stock of Lamb Weston to Conagra stockholders (“Separation”). Approximately 146 million shares of Lamb Weston common stock were distributed on November 9, 2016, to Conagra stockholders.
Basis of Presentation
The unaudited quarterly Consolidated Financial Statementsaccompanying consolidated financial statements present the financial results of Lamb Weston for the thirteen and twenty-six weeks ended November 25, 201824, 2019 and November 26, 2017,25, 2018, and have been prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States of America. TheThese financial statements are unaudited but include all adjustments (consisting only of normal recurring adjustments) that management considerswe consider necessary for a fair presentation of such financial statements. The preparation of financial statements involves the use of estimates and accruals. Actual results may vary from those estimates. Results for interim periods should not be considered indicative of results for our full fiscal year, which ends the last Sunday in May. These quarterly financial statements and condensed notes should be read together with the combined and consolidated financial statements and notes in our Annual Report on Form 10-K for the fiscal year ended May 27, 201826, 2019 (the “Form 10-K”), which we filed with the Securities and Exchange Commission on July 26, 2018.25, 2019.
Our consolidated financial statements include the accounts of Lamb Weston and all of its majority-owned subsidiaries. In addition, the accounts of all variable interest entities for which we are the primary beneficiary are included in our consolidated financial statements from the date such determination was made. Intercompany investments, accounts, and transactions have been eliminated.
Certain amounts in the prior period consolidated financial statements have been reclassified to conform with the current period presentation.
New and Recently Issued Accounting StandardsPronouncements
Recently Adopted Accounting Standards AdoptedPronouncements
Leases
In August 2018,February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-15, Intangibles—Goodwill2016-02, Leases (Topic 842) (“ASC 842”). We adopted the provisions of the guidance effective May 27, 2019 (the beginning of our fiscal year), using the modified retrospective transition method and Other—Internal-Use Software (Subtopic 350-40)prior periods were not recast. The adoption of the standard resulted in a $26.6 million ($20.5 million, net of tax) cumulative-effect adjustment to the opening balance of retained earnings for the elimination of $38.7 million of land and $65.3 million of finance lease obligations related to a sale leaseback. The adoption also resulted in the recognition of approximately $155 million of right of use assets and short-term and long-term liabilities recorded on our consolidated balance sheet related to operating leases. We elected to adopt certain of the optional practical expedients including electing to not reassess lease classification, initial direct costs of existing leases, or whether existing contracts contain a lease. In addition, we elected to account for each contract’s lease and non-lease components as a single lease component. The standard did not have a material impact on our results of operations or cash flows. See Note 6, Leases, for more information.
Accounting Pronouncements Not Yet Adopted
Receivables – Credit Losses
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This update amends the impairment or incurred model by requiring the use of forward-looking information to assess the allowance for doubtful accounts. This guidance is effective in fiscal 2021 (beginning June 1, 2020), including interim periods, with early adoption permitted. In May 2019, the FASB issued ASU 2019-05, Financial Instruments – Credit Losses (Topic 326): Targeted Transition Relief. This update provides guidance on when implementation costs may be capitalized astargeted transition relief allowing for an asset relatedirrevocable one-time election upon adoption of the new credit losses standard to service contracts and which costs should be expensedmeasure
8
financial assets previously measured at amortized cost using the same model as iffair value option. This guidance is effective concurrent with the cloud computing arrangement included a software license. The amendments in this update also require companies to expense capitalized implementation costs over the termadoption of the hosting arrangement, including periods covered by renewal options that are reasonably certain to be exercised. We have elected to early adopt this standard on a prospective basis.ASU 2016-13. The adoption of this standard didis not expected to have a significant impact on our financial statements.
In March 2017, the FASB issued ASU 2017-07, Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. This ASU requires employers to disaggregate the service cost component from the other components of net benefit cost and report it in the same line item(s) as other employee compensation costs arising from services rendered during the period. All other non-service components are required to be separate from the service cost component and outside a subtotal of income from operations. These non-service components are not eligible for capitalization. Changes to the presentation of benefit costs are required to be
7
adopted retrospectively, while changes to the capitalization of service costs into inventories are required to be adopted prospectively. We adopted the provisions of this guidance in fiscal 2019 (beginning May 28, 2018). The adoption of this standard did not have a significant impact on our financial statements. See Note 10, EmployeeDefined Benefit Plans and Other Post-Retirement Benefits, for the amount of each component of net periodic pension and other post-retirement benefit costs we reported historically.
Effective May 28, 2018, we adopted ASU 2014-09, Revenue from Contracts with Customers, and its related amendments, collectively known as Accounting Standards Codification (“ASC”), 606 using the modified retrospective method. See Note 2, Revenue from Contracts with Customers, for more information.
Accounting Standards Not Yet Adopted
In December 2018, SEC Release No. 33-10532, Disclosure Update and Simplification, became effective, amending certain disclosure requirements that were redundant or outdated. The amendments include removing the requirement to disclose the historical and pro forma ratio of earnings to fixed charges and the related exhibit, as well as replacing the requirement to disclose the high and low trading prices of our common stock with a requirement to disclose the ticker symbol of our common stock. In addition, the amendments expanded the disclosure requirements on the analysis of stockholders' equity for interim financial statements. Under the amendments, an analysis of changes in each caption of stockholders' equity presented in the balance sheet must be provided in a note or separate statement. This final rule regarding the analysis of stockholders’ equity is effective for the third quarter of our fiscal 2019 and the other changes will apply to our fiscal 2019 Form 10-K.
In August 2018, the FASB issued ASU 2018-14, Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic 715-20): Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans. This update amends ASC 715 to removeremoves disclosures that are no longer considered cost beneficial, clarifies the specific requirements of disclosures, and adds disclosure requirements identified as relevant to defined benefit pension and other postretirement plans. The ASU’s changes related to disclosures are part of the FASB’s disclosure framework project. This guidance is effective for our fiscal 2022 (beginning May 31, 2021) with early adoption permitted. The adoption of this standard is not expected to have a significant impact on our financial statements.
In February 2016, the FASB issued ASC Topic 842, Leases, which requires lessees to reflect most leases on their balance sheet as liabilities and assets. The primary impact upon adoption will be the recognition, on a discounted basis, of our minimum commitments under noncancelable operating leases as lease liabilities and right-of-use assets (“ROU assets”) representing our right to use the underlying assets for the lease terms. In July 2018, the FASB issued ASU 2018-11: Leases (Topic 842): Targeted Improvements which amended ASC Topic 842 to provide companies an alternate transition method to apply the transition provisions of the new lease standard at its adoption date instead of the earliest comparative period presented in the financial statements. We plan to utilize this alternate transition method and will record a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. We will adopt this standard on May 27, 2019, the beginning of our 2020 fiscal year.
To prepare for the implementation of ASC Topic 842, we formed an implementation team, including representatives from accounting, treasury, tax, legal, supply chain, and information technology. We utilized surveys to gather initial information regarding existing leases and the processes that currently exist to procure, track and account for leases globally. We are in the process of implementing our lease software solution and are continuing to identify changes to our business processes, systems and controls to support adoption of the new standard. When adopted, this ASC will result in a material increase for ROU assets and lease liabilities on our Consolidated Balance Sheet.
There were no other accounting standardspronouncements recently issued that had or are expected to have a material impact on our financial statements.
8
2. REVENUE FROM CONTRACTS WITH CUSTOMERS
On May 28, 2018, we adopted ASU 2014-09, Revenue from Contracts with Customers (“new revenue standard”), using the modified retrospective method. We recognized the cumulative effect of initially applying the new revenue standard as an adjustment to opening retained earnings. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.
We recorded a net increase to opening retained earnings of $13.7 million as of May 28, 2018, due to the cumulative impact of adopting the new revenue standard, with the impact related to our customized products. The impacts of the adoption of the new revenue standard on our consolidated financial statements were as follows (in millions, except per share amounts):
Consolidated Statements of Earnings
|
|
|
|
|
|
|
|
|
|
|
| Thirteen Weeks Ended November 25, 2018 | |||||||
|
| As Reported |
| Balances Without Adoption of ASC 606 |
| Impact of Adoption Increase (Decrease) | |||
Net sales |
| $ | 911.4 |
| $ | 906.3 |
| $ | 5.1 |
Cost of sales |
|
| 662.4 |
|
| 659.3 |
|
| 3.1 |
Income from operations |
|
| 174.0 |
|
| 172.0 |
|
| 2.0 |
Income tax expense |
|
| 34.0 |
|
| 33.4 |
|
| 0.6 |
Net income attributable to Lamb Weston Holdings, Inc. |
|
| 119.0 |
|
| 117.6 |
|
| 1.4 |
Earnings per share |
|
|
|
|
|
|
|
|
|
Basic |
| $ | 0.74 |
| $ | 0.73 |
| $ | 0.01 |
Diluted |
| $ | 0.74 |
| $ | 0.73 |
| $ | 0.01 |
|
|
|
|
|
|
|
|
|
|
|
| Twenty-Six Weeks Ended November 25, 2018 | |||||||
|
| As Reported |
| Balances Without Adoption of ASC 606 |
| Impact of Adoption Increase (Decrease) | |||
Net sales |
| $ | 1,826.3 |
| $ | 1,823.7 |
| $ | 2.6 |
Cost of sales |
|
| 1,346.7 |
|
| 1,345.1 |
|
| 1.6 |
Income from operations |
|
| 326.6 |
|
| 325.6 |
|
| 1.0 |
Income tax expense |
|
| 68.3 |
|
| 68.0 |
|
| 0.3 |
Net income attributable to Lamb Weston Holdings, Inc. |
|
| 226.8 |
|
| 226.1 |
|
| 0.7 |
Earnings per share |
|
|
|
|
|
|
|
|
|
Basic |
| $ | 1.47 |
| $ | 1.47 |
| $ | — |
Diluted |
| $ | 1.47 |
| $ | 1.46 |
| $ | 0.01 |
9
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
| As of November 25, 2018 | |||||||
|
| As Reported |
| Balances Without Adoption of ASC 606 |
| Impact of Adoption Increase (Decrease) | |||
Receivables, less allowance for doubtful accounts |
| $ | 340.1 |
| $ | 250.8 |
| $ | 89.3 |
Inventories |
|
| 628.2 |
|
| 698.9 |
|
| (70.7) |
Deferred income taxes |
|
| 114.8 |
|
| 110.6 |
|
| 4.2 |
Retained earnings |
|
| 610.4 |
|
| 596.0 |
|
| 14.4 |
Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
| Twenty-Six Weeks Ended November 25, 2018 | |||||||
|
| As Reported |
| Balances Without Adoption of ASC 606 |
| Impact of Adoption Increase (Decrease) | |||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
Net income |
| $ | 235.4 |
| $ | 234.7 |
| $ | 0.7 |
Deferred income taxes |
|
| 27.9 |
|
| 27.8 |
|
| 0.1 |
Receivables |
|
| (28.2) |
|
| (25.5) |
|
| (2.7) |
Inventories |
|
| (149.4) |
|
| (151.3) |
|
| 1.9 |
Historically, we recognized revenue on a point-in-time basis in all of our segments. The trigger for point-in-time recognition is when the customer takes title to the goods and assumes the risks and rewards for the goods. The adoption of ASC 606 did not have a material impact on our revenue recognition for point-in-time product sales. However, there are certain products that we manufacture to customers’ unique recipes (customized products). Due to costs associated with reworking, transporting, and repackaging these products, we concluded that these products do not have an alternative future use at a reasonable profit margin under ASC 606.
The customized product sales are covered by purchase orders. Once the customized product is manufactured per the purchase order, we have an enforceable right to payment for the products. As such, the adoption of ASC 606 resulted in the acceleration of revenue for customized products at the time we have a legally enforceable right to payment since these products do not have an alternative use at a reasonable profit margin. Sales of customized products are recurring, thereby limiting the net impact of the adoption of ASC 606, and we do not expect it to have a material impact on future results of operations and cash flows.
10
Our operations are principally in the United States. With respect to operations outside of the United States, no single foreign country or geographic region was significant to our consolidated operations in the first half of fiscal 2019, or in fiscal 2018, 2017, and 2016. While the nature of our contracts can vary based on the business, customer type, and region, in all instances it is our customary business practice to receive a valid order from the customer, in which each parties’ rights and related payment terms are clearly identifiable. The adoption of ASC 606 had the following impact on segment net sales (in millions):
|
|
|
|
|
|
|
|
|
|
|
| Thirteen Weeks Ended November 25, 2018 | |||||||
|
| As Reported |
| Balances Without Adoption of ASC 606 |
| Impact of Adoption Increase (Decrease) | |||
Net sales: |
|
|
|
|
|
|
|
|
|
Global |
| $ | 470.0 |
| $ | 464.7 |
| $ | 5.3 |
Foodservice |
|
| 279.7 |
|
| 280.4 |
|
| (0.7) |
Retail |
|
| 123.9 |
|
| 123.8 |
|
| 0.1 |
Other |
|
| 37.8 |
|
| 37.4 |
|
| 0.4 |
Total net sales |
| $ | 911.4 |
| $ | 906.3 |
| $ | 5.1 |
|
|
|
|
|
|
|
|
|
|
|
| Twenty-Six Weeks Ended November 25, 2018 | |||||||
|
| As Reported |
| Balances Without Adoption of ASC 606 |
| Impact of Adoption Increase (Decrease) | |||
Net sales: |
|
|
|
|
|
|
|
|
|
Global |
| $ | 936.8 |
| $ | 933.2 |
| $ | 3.6 |
Foodservice |
|
| 577.5 |
|
| 578.4 |
|
| (0.9) |
Retail |
|
| 240.1 |
|
| 239.9 |
|
| 0.2 |
Other |
|
| 71.9 |
|
| 72.2 |
|
| (0.3) |
Total net sales |
| $ | 1,826.3 |
| $ | 1,823.7 |
| $ | 2.6 |
Performance Obligations and Significant Judgments
Our principal business is to manufacture and sell frozen potato products. We also sell frozen vegetables and appetizers. As a general rule, none of our businesses provide equipment installation or other ancillary services outside producing, packaging, and shipping products to customers.
Our revenue is primarily derived from fixed consideration; however, we do have contract terms that give rise to variable consideration, primarily cash discounts, coupons, and rebates, as well as other sales incentives and trade promotion allowances described in Note 1, Nature of Operations and Summary of Significant Accounting Policies, of the Notes to Combined and Consolidated Financial Statements in "Part II, Item 8. Financial Statements and Supplementary Data" of the Form 10-K. We estimate sales incentives and trade promotions based on historical experience to record reductions in revenue which is consistent with methods outlined in ASC 606.
Contracts or purchase orders with customers could include a single type of product or multiple types or grades of products. Regardless, the contracted price with the customer is agreed to at the individual product level outlined in the customer contracts or purchase orders. We do not bundle prices; however, we do negotiate with customers on pricing and rebates for the same products based on a variety of factors (e.g. level of contractual volume). We’ve concluded that the prices negotiated with each individual customer are representative of the stand-alone selling price of the product.
Generally, we recognize revenue on a point in time basis when the customer takes title to the goods and assumes the risks, rewards, or control of the goods. However, we recognize revenue over time for customized products as they are produced and we have a purchase order providing a legally enforceable right to payment for the goods.
11
Practical Expedients and Exemptions
As part of our adoption of the new revenue standard, we elected to account for shipping and handling activities as fulfillment activities and recognize the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset we would recognize is one year or less. The election of these practical expedients results in accounting treatments consistent with our historical accounting policies and therefore, these elections and expedients do not have a material impact on the comparability of our financial statements.
3.2. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per common share for the periods presented (dollars and shares in millions)millions, except per share amounts):
| | | | | | | | | | | | |
| | Thirteen Weeks Ended | | Twenty-Six Weeks Ended | ||||||||
|
| November 24, |
| November 25, |
| November 24, |
| November 25, | ||||
| | 2019 | | 2018 | | 2019 | | 2018 | ||||
Numerator: |
| |
|
| |
|
| |
|
| |
|
Net income attributable to Lamb Weston Holdings, Inc. | | $ | 140.4 | | $ | 119.0 | | $ | 256.1 | | $ | 226.8 |
Less: Increase in redemption value of noncontrolling interests in excess of earnings allocated, net of tax benefits (a) | |
| — | |
| 10.0 | |
| — | |
| 10.9 |
Net income available to Lamb Weston common stockholders | | $ | 140.4 | | $ | 109.0 | | $ | 256.1 | | $ | 215.9 |
| | | | | | | | | | | | |
Denominator: | |
|
| |
|
| |
|
| |
|
|
Basic weighted average common shares outstanding | |
| 146.2 | |
| 146.6 | |
| 146.2 | |
| 146.5 |
Add: Dilutive effect of employee incentive plans (b) | |
| 0.9 | |
| 0.8 | |
| 0.9 | |
| 0.8 |
Diluted weighted average common shares outstanding | |
| 147.1 | |
| 147.4 | |
| 147.1 | |
| 147.3 |
| | | | | | | | | | | | |
Earnings per share (a) | | | | | | | | | | | | |
Basic | | $ | 0.96 | | $ | 0.74 | | $ | 1.75 | | $ | 1.47 |
Diluted | | $ | 0.95 | | $ | 0.74 | | $ | 1.74 | | $ | 1.47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Thirteen Weeks Ended |
| Twenty-Six Weeks Ended | ||||||||
|
| November 25, |
| November 26, |
| November 25, |
| November 26, | ||||
|
| 2018 |
| 2017 |
| 2018 |
| 2017 | ||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Lamb Weston Holdings, Inc. |
| $ | 119.0 |
| $ | 76.6 |
| $ | 226.8 |
| $ | 160.0 |
Less: Increase in redemption value of noncontrolling interests in excess of earnings allocated (a) |
|
| 10.0 |
|
| 0.5 |
|
| 10.9 |
|
| 1.3 |
Net income available to Lamb Weston common stockholders |
| $ | 109.0 |
| $ | 76.1 |
| $ | 215.9 |
| $ | 158.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average common shares outstanding |
|
| 146.6 |
|
| 146.3 |
|
| 146.5 |
|
| 146.3 |
Add: Dilutive effect of employee incentive plans (b) |
|
| 0.8 |
|
| 0.6 |
|
| 0.8 |
|
| 0.5 |
Diluted weighted average common shares outstanding |
|
| 147.4 |
|
| 146.9 |
|
| 147.3 |
|
| 146.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share (a) |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | 0.74 |
| $ | 0.52 |
| $ | 1.47 |
| $ | 1.08 |
Diluted |
| $ | 0.74 |
| $ | 0.52 |
| $ | 1.47 |
| $ | 1.08 |
(a) |
| In November 2018, we entered into an agreement to acquire the remaining 50.01% interest in Lamb Weston BSW, LLC (“Lamb Weston BSW”). Our Consolidated Statements of Earnings includes 100% of Lamb Weston BSW’s earnings beginning November 2, 2018. During the thirteen and twenty-six weeks ended November 25, 2018, net income available to common stockholders and earnings per share included accretion expense, net of estimated tax benefits, of $9.5 million, or $0.06 per share, |
(b) |
| Potentially dilutive shares of common stock from employee incentive plans are determined by applying the treasury stock method to the assumed exercise of outstanding stock options and the assumed vesting of outstanding restricted stock units and performance awards. As of November 24, 2019and November 25, 2018 |
4. RELATED PARTY TRANSACTIONS
Prior to the Separation, our business was included in the Commercial Foods segment of Conagra. As a result, our transactions with Conagra were considered related party transactions. In connection with the Separation, we entered into a separation and distribution agreement, as well as various other agreements that governed our relationships with Conagra following the Separation, including a transition services agreement, tax matters agreement, employee matters agreement, and trademark license agreement. Under the transition services agreement, Conagra provided a number of corporate staff services to us based on direct and indirect costs associated with rendering those services. These services included information technology, accounting, and human resources. The thirteen and twenty-six weeks ended November 26, 2017 include $0.8 million and $2.1 million, respectively, of expenses related to the transition services agreement. In April 2018, we concluded our transition services agreement with Conagra.
129
5.3. INCOME TAXES
Income tax expense was $42.7 million and $34.0 million for the thirteen weeks ended November 24, 2019 and November 25, 2018, respectively; and November 26, 2017, was $34.0$79.4 million and $41.5$68.3 million respectively; and for the twenty-six weeks ended November 25, 201824, 2019 and November 26, 2017, was $68.3 million and $85.6 million,25, 2018, 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 approximately 21.5%23.3% and 33.3%21.5% for the thirteen weeks ended November 24, 2019 and November 25, 2018, and November 26, 2017, respectively; and approximately 23.7% and 22.5% for the twenty-six weeks ended November 25, 201824, 2019 and November 26, 2017, was 22.5% and 33.3%,25, 2018, respectively, in our Consolidated Statements of Earnings. The lower rate in the thirteen and twenty-six weeks ended November 25, 2018, is primarily attributable to the U.S. Tax Cuts and Jobs Act (the “Tax Act”) enacted in December 2017. Notably, the Tax Act reduced the U.S. federal corporate tax rate from 35% to 21%, assessed a one-time transition tax on earnings of non-U.S. subsidiaries that have not been taxed previously in the U.S., limited the tax deductibility of interest, provided for immediate deductions for certain new investments instead of deductions for depreciation expense over time, modified or repealed many business deductions and credits, and created new taxes on certain future foreign sourced earnings. The effective tax rate varies from the U.S. federal statutory tax rate of 21% for fiscal 2019 principally due to the impact of U.S. state taxes, foreign taxes, permanent differences, and discrete items.
In connection with our initial analysis of the Tax Act, we recorded a net tax benefit of $28.4 million in fiscal 2018. The net tax benefit consisted of a net tax benefit for the re-measurement of U.S. deferred taxes of $39.9 million and an expense for the transition tax of $11.5 million. The estimates reported in fiscal 2018 were not adjusted in the twenty-six week period ended November 25, 2018. We have now completed our accounting estimates for all of the enactment-date income tax effects of the Tax Act in accordance with the SAB 118 measurement period.
Income Taxes Paid
Income taxes paid, net of refunds, were $44.4 million and $36.0 million and $60.2 million induring the twenty-six weeks ended November 24, 2019 and November 25, 2018, and November 26, 2017, respectively.
Unrecognized Tax Benefits
There have been no material changes to the unrecognized tax benefits disclosed in Note 4,5, Income Taxes, of the Notes to Combined and Consolidated Financial Statements in "Part II, Item 8. Financial Statements and Supplementary Data" of the Form 10-K, and we do not expect any significant changes to unrecognized tax benefits in the next 12 months.
4. INVENTORIES
6. INVENTORIES
Inventories are valued at the lower of cost (determined using the first-in, first-out method) or net realizable value and include all costs directly associated with manufacturing products: materials, labor, and manufacturing overhead. The components of inventories were as follows (dollars in millions):
|
|
|
|
|
|
|
|
| November 25, |
| May 27, | ||
|
| 2018 |
| 2018 | ||
Raw materials and packaging |
| $ | 218.9 |
| $ | 87.2 |
Finished goods |
|
| 375.6 |
|
| 430.5 |
Supplies and other |
|
| 33.7 |
|
| 32.0 |
Inventories (a) |
| $ | 628.2 |
| $ | 549.7 |
|
|
| | | | | | |
|
| November 24, | | May 26, | ||
| | 2019 |
| 2019 | ||
Raw materials and packaging | | $ | 213.5 |
| $ | 93.1 |
Finished goods | |
| 386.7 |
|
| 371.4 |
Supplies and other | |
| 35.8 |
|
| 33.8 |
Inventories | | $ | 636.0 |
| $ | 498.3 |
13
7.5. PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment were as follows (dollars in millions):
| | | | | | |
|
| November 24, | | May 26, | ||
| | 2019 |
| 2019 | ||
Land and land improvements (a) | | $ | 107.0 | | $ | 142.2 |
Buildings, machinery, and equipment | |
| 2,606.8 | |
| 2,542.3 |
Furniture, fixtures, office equipment, and other | |
| 106.8 | |
| 105.2 |
Construction in progress | |
| 71.7 | |
| 84.8 |
Property, plant and equipment, at cost | |
| 2,892.3 | |
| 2,874.5 |
Less accumulated depreciation | |
| (1,340.0) | |
| (1,276.7) |
Property, plant and equipment, net | | $ | 1,552.3 | | $ | 1,597.8 |
|
|
|
|
|
|
|
|
| November 25, |
| May 27, | ||
|
| 2018 |
| 2018 | ||
Land and land improvements |
| $ | 141.5 |
| $ | 139.8 |
Buildings, machinery, and equipment |
|
| 2,249.5 |
|
| 2,212.6 |
Furniture, fixtures, office equipment, and other |
|
| 100.1 |
|
| 101.0 |
Construction in progress |
|
| 248.6 |
|
| 127.9 |
Property, plant and equipment, at cost |
|
| 2,739.7 |
|
| 2,581.3 |
Less accumulated depreciation |
|
| (1,218.3) |
|
| (1,160.5) |
Property, plant and equipment, net |
| $ | 1,521.4 |
| $ | 1,420.8 |
(a) | Effective May 27, 2019, we adopted ASC 842 and we eliminated $38.7 million of land, related to a sale leaseback, as part of the cumulative-effect adjustment. See Note 1, Nature of Operations and Summary of Significant Accounting Policies, for more information. |
10
Depreciation expense was $36.9$43.9 million and $33.9$36.9 million for the thirteen weeks ended November 24, 2019 and November 25, 2018, and November 26, 2017, respectively; and $73.7$86.5 million and $63.2$73.7 million for the twenty-six weeks ended November 25, 201824, 2019 and November 26, 2017,25, 2018, respectively. At November 25, 201824, 2019 and May 27, 2018,26, 2019, purchases of property, plant and equipment included in accounts payable were $35.8 $14.7million and $27.9$27.1 million, respectively.
The amounts of interestInterest capitalized inwithin construction in progress for the thirteen weeks ended November 24, 2019 and November 25, 2018, and November 26, 2017, were $2.1 $0.7million and $0.5$2.1 million, respectively; and $3.5$1.2 million and $2.8$3.5 million for the twenty-six weeks ended November 24, 2019 and November 25, 2018, and November 26, 2017, respectively.
6. LEASES
8. GOODWILL AND OTHER IDENTIFIABLE INTANGIBLE ASSETS
We lease various real estate, including certain operating facilities, warehouses, office space, and land. We also lease material handling equipment, vehicles, and certain other equipment. Our leases have remaining lease terms of one to 21 years. Leases having a lease term of twelve months or less are not recorded on the balance sheet and the related lease expense is recognized as costs are incurred.
Changes
Lease assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from these leases. Effective May 27, 2019, operating lease assets and liabilities are recognized at the commencement date of the lease based on the present value of the lease payments over the lease term. Our leases may include options to extend or terminate these leases. These options to extend are included in the carryinglease term when it is reasonably certain that we will exercise that option. Some leases have variable payments, however, because they are not based on an index or rate, they are not included in lease assets and liabilities. Variable payments for leases of land and buildings primarily relate to common area maintenance, insurance, taxes, and utilities. Variable payments for equipment, vehicles, and leases within supply agreements primarily relate to usage, repairs, and maintenance.
The components of total lease costs, net of an insignificant amount of goodwill as allocated to each segmentsublease income, consisted of the following (dollars in millions):
| | | | | | | | | |
| | Thirteen Weeks Ended November 24, 2019 (a) | |||||||
| | Operating |
| Finance | | | |||
| | Leases | | Leases | | Total | |||
Operating lease costs | | $ | 6.6 | | $ | — | | $ | 6.6 |
Short-term, variable, and other lease costs, net | | | 0.8 | | | — | | | 0.8 |
Amortization of lease assets | | | — | | | 0.8 | | | 0.8 |
Interest on lease liabilities | | | — | | | 0.2 | | | 0.2 |
Total lease costs, net | | $ | 7.4 | | $ | 1.0 | | $ | 8.4 |
| | | | | | | | | |
| | Twenty-Six Weeks Ended November 24, 2019 (a) | |||||||
| | Operating |
| Finance | | | |||
| | Leases | | Leases | | Total | |||
Operating lease costs | | $ | 11.4 | | $ | — | | $ | 11.4 |
Short-term, variable, and other lease costs, net | | | 2.8 | | | — | | | 2.8 |
Amortization of lease assets | | | — | | | 1.5 | | | 1.5 |
Interest on lease liabilities | | | — | | | 0.4 | | | 0.4 |
Total lease costs, net | | $ | 14.2 | | $ | 1.9 | | $ | 16.1 |
(a) | Supply-chain-related lease costs are included in “Cost of sales” and the remainder is recorded in “Selling, general, and administrative expenses.” Interest on lease liabilities is included in “Interest expense, net,” in our Consolidated Statements of Earnings. |
11
Operating and finance leases, with terms greater than one year, were as follows (dollars in millions):
| | | | | | | | | |
| | As of November 24, 2019 | |||||||
|
| Operating |
| Finance | | | |||
| | Leases | | Leases | | Total | |||
Assets: | | | | | | | | | |
Operating lease assets |
| $ | 162.9 |
| $ | — | | $ | 162.9 |
Property, plant and equipment, net (a) | | | — | | | 12.6 | | | 12.6 |
Total leased assets | | $ | 162.9 | | $ | 12.6 | | $ | 175.5 |
| | | | | | | | | |
Liabilities: | | | | | | | | | |
Lease liabilities due within one year: | | | | | | | | | |
Accrued liabilities | | $ | 23.5 | | $ | — | | $ | 23.5 |
Current portion of long-term debt and financing obligations | | | — | | | 2.4 | | | 2.4 |
Long-term lease liabilities: | | | | | | | | | |
Other noncurrent liabilities | | | 141.3 | | | — | | | 141.3 |
Long-term debt and financing obligations, excluding current portion | | | — | | | 12.1 | | | 12.1 |
Total lease liabilities | | $ | 164.8 | | $ | 14.5 | | $ | 179.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Global |
| Foodservice |
| Retail |
| Other |
| Total | |||||
Balance at May 27, 2018 |
| $ | 76.9 |
| $ | 42.8 |
| $ | 10.9 |
| $ | 4.5 |
| $ | 135.1 |
Foreign currency translation adjustment |
|
| (2.5) |
|
| — |
|
| — |
|
| — |
|
| (2.5) |
Balance at November 25, 2018 |
| $ | 74.4 |
| $ | 42.8 |
| $ | 10.9 |
| $ | 4.5 |
| $ | 132.6 |
(a) | Finance leases are net of accumulated amortization of $11.3 million. |
Other identifiable intangible assets
The maturities of our lease liabilities for operating and finance leases at November 24, 2019, were as follows (dollars in millions):
| | | | | | | | | |
| | Operating |
| Finance | | | |||
| | Leases | | Leases | | Total | |||
2020 (remainder of year) | | $ | 14.5 | | $ | 1.8 | | $ | 16.3 |
2021 | | | 29.6 | | | 3.1 | | | 32.7 |
2022 | | | 25.7 | | | 2.8 | | | 28.5 |
2023 | | | 18.2 | | | 1.9 | | | 20.1 |
2024 | | | 17.8 | | | 1.1 | | | 18.9 |
2025 | | | 15.9 | | | 0.9 | | | 16.8 |
Thereafter | | | 73.7 | | | 5.8 | | | 79.5 |
Total lease payments | | | 195.4 | | | 17.4 | | | 212.8 |
Less: Interest (a) | | | (30.6) | | | (2.9) | | | (33.5) |
Present value of lease liabilities | | $ | 164.8 | | $ | 14.5 | | $ | 179.3 |
| | | | | | | | | |
Weighted-average remaining lease term (years): | | | 8.4 | | | 9.5 | | | |
Weighted-average discount rate: | | | 3.9% | | | 3.3% | | | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| November 25, 2018 |
| May 27, 2018 | ||||||||||||
|
| Weighted |
|
|
|
|
|
|
| Weighted |
|
|
|
|
|
|
|
| Average |
| Gross |
|
|
|
| Average |
| Gross |
|
|
| ||
|
| Useful Life |
| Carrying |
| Accumulated |
| Useful Life |
| Carrying |
| Accumulated | ||||
|
| (in years) |
| Amount |
| Amortization |
| (in years) |
| Amount |
| Amortization | ||||
Non-amortizing intangible assets (a) |
| n/a |
| $ | 18.0 |
| $ | — |
| n/a |
| $ | 18.0 |
| $ | — |
Amortizing intangible assets (b) |
| 13 |
|
| 34.9 |
|
| 18.5 |
| 14 |
|
| 35.2 |
|
| 17.8 |
|
|
|
| $ | 52.9 |
| $ | 18.5 |
|
|
| $ | 53.2 |
| $ | 17.8 |
(a) |
|
|
|
|
1412
At May 26, 2019, minimum lease payments under non-cancellable leases with lease terms in excess of one year, and accounted for under the previous lease accounting standard, were as follows (dollars in millions):
| | | | | | | | | |
| | Operating |
| Capital | | | |||
| | Leases | | Leases (a) | | Total | |||
2020 | | $ | 18.6 | | $ | 7.5 | | $ | 26.1 |
2021 | | | 16.5 | | | 7.2 | | | 23.7 |
2022 | | | 15.7 | | | 7.2 | | | 22.9 |
2023 | | | 10.5 | | | 6.4 | | | 16.9 |
2024 | | | 8.6 | | | 5.9 | | | 14.5 |
Thereafter | | | 26.6 | | | 73.5 | | | 100.1 |
Total lease payments | | $ | 96.5 | | $ | 107.7 | | $ | 204.2 |
Discount to present value | | | | | | (28.8) | | | (28.8) |
Total lease liability | | | | | $ | 78.9 | | $ | 175.4 |
Current portion of financing obligations | | | | | | (4.3) | | | (4.3) |
Long-term financing obligations, excluding current portion | | | | | $ | 74.6 | | $ | 171.1 |
(a) | Includes unamortized portion of a deferred gain related to a sale leaseback that was eliminated from the Consolidated Balance Sheet as part of the cumulative-effect adjustment at adoption of ASC 842. See Note 1, Nature of Operations and Summary of Significant Accounting Policies, for more information. |
Supplemental cash flow information related to leases was as follows (dollars in millions):
| | | | | | | | | |
| | Twenty-Six Weeks Ended November 24, 2019 | |||||||
| | Operating |
| Finance | | | |||
| | Leases | | Leases | | Total | |||
Cash paid for amounts included in the measurement of lease liabilities: | | | | | | | | | |
Cash used for operating activities | | $ | 11.1 | | $ | — | | $ | 11.1 |
Cash used for financing activities | | | — | | | 1.0 | | | 1.0 |
Noncash investing and financing activities: | | | | | | | | | |
Asset obtained in exchange for new operating lease obligations | | | 20.2 | | | — | | | 20.2 |
Assets obtained in exchange for new finance lease obligations | | | — | | | 1.9 | | | 1.9 |
7. ACQUISITIONS
On July 2, 2019, we acquired 100% of the outstanding shares of a frozen potato processor in Australia for $116.7 million in cash. This added approximately 70 million pounds of production capacity to our manufacturing network. Net sales, income from operations, and total assets from this acquisition are not material to our consolidated net sales, income from operations, and total assets. Beginning in July 2019, operating results of this acquisition are included in our Global segment.
We allocated the purchase price to the assets acquired and liabilities assumed based on estimates of the fair value at the date of the acquisition, of which $106.1 million, after final working capital adjustments, was allocated to goodwill (which is not deductible for tax purposes) and $3.7 million was allocated to intangible assets (to be amortized on a straight-line basis over a weighted average life of 10 years), primarily a brand name, all of which are included in the Global segment. Our purchase price allocation is complete.
13
9.8. INVESTMENTS IN JOINT VENTURES
Other Investments and Variable Interest Entities – Not Consolidated
We hold a 50% ownership interest in Lamb-Weston/Meijer v.o.f. (“Lamb-Weston/Meijer”), a joint venture with Meijer Frozen Foods B.V., which is headquartered in the Netherlands and manufactures and sells frozen potato products principally in Europe. We also hold a 50% interest in Lamb-Weston/RDO Frozen (“Lamb Weston RDO”), a potato processing venture based in the United States. These investments are accounted for using equity method accounting.
On October 15, 2019, we acquired a 50% ownership interest in Lamb Weston Alimentos Modernos S.A. (“LWAMSA”), a joint venture with Sociedad Commercial del Plata, which is headquartered in Argentina, for $27.3 million. We paid $17.1 million in the first half of fiscal 2020, and we expect to pay $5.5 million during the third quarter of fiscal 2020. The remaining $4.7 million, less any amounts for indemnified losses, is payable in October 2024. We recorded the amounts owed in “Accrued liabilities” and “Other noncurrent liabilities,” respectively, on our Consolidated Balance Sheet. LWAMSA manufactures and sells frozen potato products principally in South America. We account for the investment using equity method accounting.
The carrying value of our equity method investments, which includes Lamb-Weston/Meijer, Lamb Weston RDO, and LWAMSA at November 24, 2019 and May 26, 2019, was $257.9 million and $224.6 million, respectively and are included in “Equity method investments” on our Consolidated Balance Sheets. For the thirteen weeks ended November 24, 2019 and November 25, 2018, we had sales to our equity method investments of $9.3 million and $7.6 million and payments to our equity method investments of $2.8 million and $3.2 million, respectively; and for the twenty-six weeks ended November 24, 2019 and November 25, 2018, we had sales to our equity method investments of $16.6 million and $14.1 million and payments to our equity method investments of $6.0 million and $5.9 million, respectively. Total dividends from our equity method investments were $7.8 million and $9.0 million for the thirteen weeks ended November 24, 2019 and November 25, 2018, respectively; and $18.0 million and $25.6 million for the twenty-six weeks ended November 24, 2019 and November 25, 2018, respectively.
Variable Interest Entity - Consolidated
OnIn November 2, 2018, we entered into a Membership Interest Purchase Agreement (the “BSW Agreement”) with Ochoa Ag Unlimited Foods, Inc. (“Ochoa”)an agreement to acquire the remaining 50.01% interest in Lamb Weston BSW, a potato processing joint venture. We agreed to pay Ochoa approximately $65 million in cash attributable to our contractual right to purchase the remaining equity interest inBSW. Our Consolidated Statements of Earnings includes 100% of Lamb Weston BSW from Ochoa plus approximately $13 million in cash attributable to Ochoa’s interest in expectedBSW’s earnings of the joint venture through our fiscal year ending May 26, 2019. We agreed to make the additional $13 million payment to Ochoa to facilitate completing the transaction prior to our 2019 fiscal year end.
beginning November 2, 2018. Prior to entering into the BSW Agreement,agreement, Lamb Weston BSW was considered a variable interest entity, and we determined that we were the primary beneficiary of the entity. Accordingly, we consolidated the financial statements of Lamb Weston BSW and deducted 50.01% of the operating results of the noncontrolling interests to arrive at “Net income attributable to Lamb Weston Holdings, Inc.” on our Consolidated Statements of Earnings. The Consolidated Statements of Earnings include 100% of Lamb Weston BSW’s earnings beginning November 2, 2018, the date we entered into the BSW Agreement.
Prior to entering into the BSW Agreement, the value of the redeemable noncontrolling interest was recorded on our Consolidated Balance Sheet based on the value of Ochoa’s put option. During the thirteen and twenty-six weeks ended November 25, 2018, we recorded $9.5 million of accretion, net of estimated tax benefits, to increase the redeemable noncontrolling interest to the amount we agreed to pay to acquire the remaining 50.01% interest in the joint venture. The BSW Agreement created a contractual obligation to purchase the noncontrolling interest in Lamb Weston BSW and as a result, the purchase price is recorded in “Accrued liabilities” on our Consolidated Balance Sheet. The purchase created $9.2 million of deferred tax assets related to the step-up in tax basis of the acquired assets. Both the accretion of the noncontrolling interest and the related tax benefits were recorded in “Additional distributed capital” on our Consolidated Balance Sheet and they did not impact net income. While the accretion, net of estimated tax benefits, had no impact on net income in the Consolidated Statements of Earnings, it reduced net income available to common stockholders $9.5 million, net of tax, and both basic and diluted earnings per share $0.06.
We paid $50.0 million of the purchase price to Ochoa in December 2018, and per the provisions of the BSW Agreement, we will pay the remaining $28.2 million on or before February 1, 2019.
Lamb Weston and Lamb Weston BSW purchase potatoes from a shareholder of Ochoa. The aggregate amounts of such purchases were $7.1 million and $12.5 million for the thirteen weeks ended November 25, 2018 and November 26, 2017, respectively; and $24.6 million and $29.3 million for the twenty-six weeks ended November 25, 2018 and November 26, 2017, respectively. Additionally, Lamb Weston and Lamb Weston BSW utilize storage facilities and water treatment services from a shareholder of Ochoa. TheOchoa, our former partner of the Lamb Weston BSW joint venture. While we continue to purchase such goods and services, subsequent to November 2, 2018, the shareholder of Ochoa is no longer considered a related party. For the period up to November 2, 2018, the aggregate amounts of such costspotato purchases were $1.3$7.1 million and $1.2$24.6 million for the thirteen weeks ended November 25, 2018 and November 26, 2017; and $2.5 million for both the twenty-six weeks ended November 25, 2018 and November 26, 2017.
Other Investments and Variable Interest Entity - Not Consolidated
We hold a 50% ownership interest in Lamb-Weston/Meijer v.o.f. (“Lamb-Weston/Meijer”), a joint venture with Meijer Frozen Foods B.V., which is headquartered in the Netherlands and manufactures and sells frozen potato products principally in Europe. We account for this investment using equity method accounting.
We also hold a 50% interest in Lamb-Weston/RDO Frozen (“Lamb Weston RDO”), a potato processing venture based in the United States. We have determined that Lamb Weston RDO is a variable interest entity, but Lamb Weston is not the primary beneficiary. Lamb Weston does not have the power to direct the activities that most significantly impact the economic performance of this joint venture. Accordingly, we do not consolidate the financial statements of this entity and account for this investment using equity method accounting.
15
The carrying value of our equity method investments, which include Lamb-Weston/Meijer and Lamb Weston RDO, at November 25, 2018 and May 27, 2018, was $218.2 million and $219.8 million, respectively. These amounts are included in “Equity method investments” on our Consolidated Balance Sheets. For the thirteen weeks ended November 25, 2018 and November 26, 2017, we had sales to our equity method investments of $7.6 million and $5.9 million and payments to our equity method investments of $3.2 million and $3.0 million, respectively; and for the twenty-six weeks ended November 25, 2018 and November 26, 2017, we had sales to our equity method investments of $14.1 million and $11.0 million, and payments to our equity method investments of $5.9 million and $5.5 million, respectively. Total dividends from our equity method investments were $9.0 million and $9.9 million for the thirteen weeks ended November 25, 2018 and November 26, 2017, respectively; and $25.6 million and $22.8 million for the twenty-six weeks ended November 25, 2018 and November 26, 2017, respectively.
For more information about our investments in joint ventures, see Note 6, Investments in Joint Ventures, of the Notes to Combined and Consolidated Financial statements in “Part II, Item 8. Financial Statements and Supplementary Data” of the Form 10-K.
10. EMPLOYEE BENEFIT PLANS AND OTHER POST-RETIREMENT BENEFITS
In November 2018, we amended the Lamb Weston, Inc. Pension Plan for Plant Hourly Employees for employees who are not covered by a collective bargaining agreement, so that no future benefits accrue after December 31, 2018. We did not recognize a curtailment gain or loss in connection with the amendment. These participants are eligible to participate in defined contribution savings plans with employer matching provisions consistent with other employees without pension benefits. After the pension freeze, only hourly employees covered by collective bargaining agreements continue to accrue pension benefits after December 31, 2018.
We also have a nonqualified defined benefit pension plan that provides unfunded supplemental retirement benefits to certain executives. This plan is closed to new participants and pension benefit accruals are frozen for active participants.
The components of net periodic benefit cost were as follows (dollars in millions):
|
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|
| Thirteen Weeks Ended | ||||||||||
|
| Pension Plans |
| Post-Retirement Plan | ||||||||
|
| November 25, |
| November 26, |
| November 25, |
| November 26, | ||||
|
| 2018 |
| 2017 |
| 2018 |
| 2017 | ||||
Service cost |
| $ | 2.1 |
| $ | 1.9 |
| $ | — |
| $ | — |
Interest cost |
|
| 0.2 |
|
| 0.1 |
|
| 0.1 |
|
| — |
Expected return on plan assets |
|
| (0.3) |
|
| (0.1) |
|
| — |
|
| — |
Net amortization of unrecognized amounts |
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial loss |
|
| — |
|
| — |
|
| 0.2 |
|
| — |
Net periodic benefit cost (a) |
| $ | 2.0 |
| $ | 1.9 |
| $ | 0.3 |
| $ | — |
16
|
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|
|
|
|
|
|
|
| Twenty-Six Weeks Ended | ||||||||||
|
| Pension Plans |
| Post-Retirement Plan | ||||||||
|
| November 25, |
| November 26, |
| November 25, |
| November 26, | ||||
|
| 2018 |
| 2017 |
| 2018 |
| 2017 | ||||
Service cost |
| $ | 4.2 |
| $ | 3.9 |
| $ | — |
| $ | — |
Interest cost |
|
| 0.4 |
|
| 0.2 |
|
| 0.1 |
|
| — |
Expected return on plan assets |
|
| (0.5) |
|
| (0.2) |
|
| — |
|
| — |
Net amortization of unrecognized amounts |
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial loss |
|
| — |
|
| — |
|
| 0.4 |
|
| — |
Net periodic benefit cost (a) |
| $ | 4.1 |
| $ | 3.9 |
| $ | 0.5 |
| $ | — |
|
|
We make pension plan contributions sufficient to fund our actuarially determined requirements, generally equal to the minimum amounts required by the Employee Retirement Income Security Act. We may also elect to make additional voluntary contributions. During the thirteen and twenty-six weeks ended November 25, 2018, we made $0.1respectively. The aggregate amount of storage facilities and water treatment service costs were $1.3 million and $0.3$2.5 million respectively,for the thirteen and twenty-six weeks ended November 25, 2018, respectively.
14
9. GOODWILL AND OTHER IDENTIFIABLE INTANGIBLE ASSETS
The following table presents changes in goodwill balances, by segment, during the remainder of fiscal 2019.twenty-six weeks ended November 24, 2019 (dollars in millions):
| | | | | | | | | | | | | | | |
|
| | |
| | |
| | |
| |
| | | |
|
| Global |
| Foodservice |
| Retail |
| Other |
| Total | |||||
Balance at May 26, 2019 | | $ | 147.7 | | $ | 42.8 | | $ | 10.9 | | $ | 4.5 | | $ | 205.9 |
Acquisition (a) | | | 106.1 | | | — | | | — | | | — | | | 106.1 |
Foreign currency translation adjustment | | | (4.8) | | | — | | | — | | | — | |
| (4.8) |
Balance at November 24, 2019 | | $ | 249.0 | | $ | 42.8 | | $ | 10.9 | | $ | 4.5 | | $ | 307.2 |
(a) | In July 2019, we acquired a frozen potato processor in Australia and recorded $106.1 million of goodwill in our Global Segment. See Note 7, Acquisitions, for more information. |
11.Other identifiable intangible assets were as follows (dollars in millions):
| | | | | | | | | | | | | | | | |
| | November 24, 2019 | | May 26, 2019 | ||||||||||||
|
| Weighted |
| | |
| | |
| Weighted |
| | |
| | |
| | Average | | Gross | | | | | Average | | Gross | | | | ||
| | Useful Life | | Carrying | | Accumulated | | Useful Life | | Carrying | | Accumulated | ||||
| | (in years) | | Amount | | Amortization | | (in years) | | Amount | | Amortization | ||||
Non-amortizing intangible assets (a) |
| n/a |
| $ | 18.0 |
| $ | — |
| n/a |
| $ | 18.0 |
| $ | — |
Amortizing intangible assets (b) |
| 11.8 |
| | 42.6 |
| | 20.8 |
| 14 |
| | 39.1 |
| | 19.5 |
|
| |
| $ | 60.6 |
| $ | 20.8 |
| |
| $ | 57.1 |
| $ | 19.5 |
(a) | Non-amortizing intangible assets represent brands and trademarks. |
(b) | Amortizing intangible assets are principally composed of licensing agreements, brands, and customer relationships. Amortization expense was $0.8 million and $0.5 million for the thirteen weeks ended November 24, 2019 and November 25, 2018, respectively; and $1.3 million and $1.1 million for the twenty-six weeks ended November 24, 2019 and November 25, 2018, respectively. Foreign intangible assets are affected by foreign currency translation. |
10. ACCRUED LIABILITIES
The components of accrued liabilities were as follows (dollars in millions):
| | | | | | |
|
| November 24, | | May 26, | ||
| | 2019 |
| 2019 | ||
Compensation and benefits | | $ | 68.3 |
| $ | 92.4 |
Accrued trade promotions | | | 54.3 | | | 48.6 |
Dividends payable | | | 29.2 | | | 29.2 |
Current portion of operating lease liabilities (a) | | | 23.5 | | | — |
Franchise, property, and sales and use taxes | |
| 8.7 |
|
| 8.6 |
Accrued interest | | | 6.7 | | | 7.6 |
Income taxes payable | | | 2.0 | | | 0.5 |
Other | |
| 24.7 |
|
| 30.3 |
Accrued liabilities | | $ | 217.4 |
| $ | 217.2 |
|
|
|
|
|
|
|
|
| November 25, |
| May 27, | ||
|
| 2018 |
| 2018 | ||
Obligation for acquisition of remaining 50.01% interest of Lamb Weston BSW (a) |
| $ | 78.2 |
| $ | — |
Compensation and benefits |
|
| 70.4 |
|
| 91.7 |
Accrued trade promotions |
|
| 43.9 |
|
| 45.4 |
Dividends payable |
|
| 28.0 |
|
| 28.0 |
Accrued interest |
|
| 10.4 |
|
| 10.8 |
Franchise, property, and sales and use taxes |
|
| 9.6 |
|
| 9.6 |
Income taxes payable |
|
| 3.7 |
|
| 3.1 |
Other |
|
| 23.8 |
|
| 27.4 |
Accrued liabilities |
| $ | 268.0 |
| $ | 216.0 |
(a) |
| Effective May 27, 2019, we adopted ASC 842, using the modified retrospective transition method and as a result we did not recast our prior period financial statements. See Note |
1715
12.11. DEBT AND FINANCING OBLIGATIONS
At November 25, 201824, 2019 and May 27, 2018,26, 2019, our debt, including financing obligations was as follows (dollars in millions):
| | | | | | |
|
| November 24, |
| May 26, | ||
| | 2019 | | 2019 | ||
Short-term borrowings: | | | | | | |
Revolving credit facility | | $ | — | | $ | 7.2 |
Other credit facilities | | | 9.9 | | | 1.2 |
| | | 9.9 | | | 8.4 |
Long-term debt: | | | | | | |
Term loan facility, due 2021 | | | 285.9 |
| | 599.1 |
Term loan facility, due 2024 | | | 296.3 | | | — |
4.625% senior notes, due 2024 | |
| 833.0 |
|
| 833.0 |
4.875% senior notes, due 2026 | | | 833.0 | | | 833.0 |
| | | 2,248.2 | | | 2,265.1 |
Financing obligations: | | | | | | |
4.35% lease financing obligation due May 2030 (a) | |
| — |
|
| 65.3 |
Lease financing obligations due on various dates through 2040 (b) | |
| 14.5 |
|
| 13.6 |
| | | 14.5 | | | 78.9 |
| | | | | | |
Total debt and financing obligations | |
| 2,272.6 |
|
| 2,352.4 |
Debt issuance costs | | | (22.9) | | | (25.8) |
Short-term borrowings | | | (9.9) | | | (8.4) |
Current portion of long-term debt and financing obligations | |
| (36.1) |
|
| (38.0) |
Long-term debt and financing obligations, excluding current portion | | $ | 2,203.7 |
| $ | 2,280.2 |
|
|
|
|
|
|
|
|
| November 25, |
| May 27, | ||
|
| 2018 |
| 2018 | ||
Short-term borrowings: |
|
|
|
|
|
|
Revolving credit facility |
| $ | — |
| $ | — |
Other credit facilities |
|
| 13.1 |
|
| 9.6 |
|
|
| 13.1 |
|
| 9.6 |
Long-term debt: |
|
|
|
|
|
|
Term loan facility, due 2021 |
|
| 616.0 |
|
| 632.8 |
4.625% senior notes, due 2024 |
|
| 833.0 |
|
| 833.0 |
4.875% senior notes, due 2026 |
|
| 833.0 |
|
| 833.0 |
Lamb Weston BSW installment notes |
|
| 27.2 |
|
| 28.0 |
|
|
| 2,309.2 |
|
| 2,326.8 |
Financing obligations: |
|
|
|
|
|
|
4.35% lease financing obligation due May 2030 |
|
| 66.1 |
|
| 66.8 |
Lease financing obligations due on various dates through 2040 (a) |
|
| 14.2 |
|
| 12.2 |
|
|
| 80.3 |
|
| 79.0 |
|
|
|
|
|
|
|
Total debt and financing obligations |
|
| 2,402.6 |
|
| 2,415.4 |
Debt issuance costs |
|
| (28.2) |
|
| (30.4) |
Short-term borrowings |
|
| (13.1) |
|
| (9.6) |
Current portion of long-term debt and financing obligations |
|
| (39.5) |
|
| (38.7) |
Long-term debt, excluding current portion |
| $ | 2,321.8 |
| $ | 2,336.7 |
(a) |
|
(b) | The interest rates on our lease financing obligations range from |
Credit Facilities
At November 25, 2018,24, 2019, we had no0 borrowings outstanding under our Revolving Credit Facility (the “Facility”) and $496.6 million of availability under the Facility, which is net of outstanding letters of credit of $3.4 million. For the twenty-six weeks ended November 25, 2018,24, 2019, borrowings under the Facility ranged from zero0 to $29.5$97.9 million and the weighted average interest rate for our outstanding borrowings under the Facility was 3.6%3.83%.
ForNew Term Loan Facility
On June 28, 2019, we amended our credit agreement to refinance $300.0 million of the thirteen$599.1 million term loan facility outstanding at May 26, 2019 and entered into a new credit agreement providing for a $300.0 million term loan facility (“New Term Loan Agreement”), for a lower overall interest rate, including anticipated patronage dividends. The New Term Loan Agreement bears interest, before anticipated patronage dividends, at LIBOR or the Base Rate (each as defined in the New Term Loan Agreement) plus an applicable margin ranging from 1.625% to 2.375% for LIBOR-based loans and from 0.625% to 1.375% for Base Rate-based loans, depending upon our total net leverage ratio. The borrowings under the New Term Loan Agreement mature June 28, 2024, and the covenants, events of default, and guarantees are consistent with the Facility. The New Term Loan Agreement also provides for the ability, under certain circumstances, to add incremental facilities in an aggregate amount of up to $100.0 million. In connection with the refinancing, we capitalized $1.0 million of debt issuance costs. During the twenty-six weeks ended November 24, 2019, we recorded $1.7
16
million of expenses, in “Interest expense, net” for the write-off of debt issuance costs related to the portion of the Term loan facility due in 2021, that was paid in full.
For the twenty-six weeks ended November 24, 2019 and November 25, 2018, and November 26, 2017, we paid $46.0$52.6 million and $45.5$53.3 million of interest on debt, respectively;respectively.
12. STOCK-BASED COMPENSATION
The Compensation Committee (“the Committee”) of our Board of Directors administers our stock compensation plan. The Committee, in its discretion, authorizes grants of restricted stock, restricted stock units (“RSUs”), performance awards payable upon the attainment of specified performance goals (“Performance Shares”), dividend equivalents, and $53.3million and $51.6 million forother stock-based awards. During the twenty-six weeks ended November 25, 201824, 2019, we granted 0.2 million and 0.1 million RSUs and Performance Shares, respectively, at an average grant date fair value of $68.03. As of November 26, 2017, respectively.
For more information on our debt and financing obligations, interest rates, and debt covenants, see Note 9, Debt and Financing Obligations, of the Notes to Combined and Consolidated Financial Statements in "Part II, Item 8. Financial Statements and Supplementary Data" of the Form 10-K.
13. STOCK-BASED COMPENSATION
On October 29, 2016, our Board of Directors adopted the Lamb Weston Holdings, Inc. 2016 Stock Plan (“Stock Plan”). Under the Stock Plan, we may grant eligible employees and non-employee directors awards of stock options, cash, and stock-settled restricted stock units (“RSUs”), restricted stock awards, other awards based on our common stock, and performance-based long-term incentive awards (“Performance Shares”). At November 25, 2018, we had 10.0 million shares authorized under the Stock Plan, and 7.824, 2019, 7.6 million shares were available for future grant.grant under the plan.
18
The following table summarizes stock option activity for the twenty-six weeks ended November 25, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted- |
| Weighted- |
|
|
| ||
|
|
|
|
| Average |
| Average |
| Aggregate | |||
|
|
|
|
| Exercise |
| Remaining |
| Intrinsic | |||
|
|
|
|
| Price |
| Contractual |
| Value (a) | |||
|
| Shares |
| (per share) |
| Term (Years) |
| (in millions) | ||||
Outstanding at May 27, 2018 |
|
| 651,606 |
| $ | 29.08 |
|
|
|
|
|
|
Granted |
|
| — |
|
| — |
|
|
|
|
|
|
Exercised |
|
| (40,406) |
|
| 26.62 |
|
|
|
|
|
|
Forfeited/cancelled |
|
| (408) |
|
| 30.67 |
|
|
|
|
|
|
Outstanding at November 25, 2018 |
|
| 610,792 |
| $ | 29.24 |
|
| 6.8 |
| $ | 31.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at November 25, 2018 |
|
| 487,116 |
| $ | 27.41 |
|
| 6.5 |
| $ | 26.2 |
|
|
The following table summarizes RSU and Performance Share activity for the twenty-six weeks ended November 25, 2018:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Stock-Settled |
| Cash-Settled |
| Performance Shares | ||||||||||||
|
|
|
|
| Weighted- |
|
|
|
| Weighted- |
|
|
|
| Weighted- | |||
|
|
|
|
| Average |
|
|
|
| Average |
|
|
|
| Average | |||
|
|
|
|
| Grant- |
|
|
|
| Grant- |
|
|
|
| Grant- | |||
|
|
|
|
| Date Fair |
|
|
|
| Date Fair |
|
|
|
| Date Fair | |||
|
| Shares |
| Value |
| Shares |
| Value |
| Shares |
| Value | ||||||
Outstanding at May 27, 2018 |
|
| 581,875 |
| $ | 36.84 |
|
| 285,652 |
| $ | 28.54 |
|
| 160,270 |
| $ | 39.82 |
Granted (a) |
|
| 201,080 |
|
| 70.03 |
|
| — |
|
| — |
|
| 86,706 |
|
| 69.75 |
Performance condition adjustment (b) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 97,803 |
|
| 40.35 |
Vested (c) |
|
| (138,293) |
|
| 29.80 |
|
| (155,700) |
|
| 28.59 |
|
| (41,832) |
|
| 26.84 |
Forfeited/expired/cancelled |
|
| (5,496) |
|
| 52.36 |
|
| (4,323) |
|
| 30.46 |
|
| — |
|
| — |
Outstanding at November 25, 2018 |
|
| 639,166 |
| $ | 48.67 |
|
| 125,629 |
| $ | 28.42 |
|
| 302,947 |
| $ | 50.35 |
|
|
|
|
|
|
19
Compensation Expense
Our share-basedstock-based compensation expense is recorded in “Selling, general and administrative expenses.” Compensation expense for share-basedstock-based awards recognized in the Consolidated Statements of Earnings, net of forfeitures, was as follows (dollars in millions):
| | | | | | | | | | | | | |
| | Thirteen Weeks Ended | | | Twenty-Six Weeks Ended | ||||||||
| | November 24, | | November 25, | | | November 24, | | November 25, | ||||
| | 2019 | | 2018 | | | 2019 | | 2018 | ||||
Stock-settled RSUs | | $ | 3.5 | | $ | 2.7 | | | $ | 6.3 | | $ | 4.9 |
Performance Shares | | | 3.7 | | | 2.2 | | | | 6.2 | | | 4.1 |
Stock options | | | — | | | 0.1 | | | | 0.1 | | | 0.2 |
Stock-settled compensation expense | | | 7.2 | | | 5.0 | | | | 12.6 | | | 9.2 |
Cash-settled RSUs (a) | | | — | | | 1.6 | | | | 1.0 | | | 3.7 |
Total compensation expense | | | 7.2 | | | 6.6 | | | | 13.6 | | | 12.9 |
Income tax benefit (b) | | | (1.6) | | | (1.5) | | | | (3.1) | | | (3.0) |
Total compensation expense, net of tax benefit | | $ | 5.6 | | $ | 5.1 | | | $ | 10.5 | | $ | 9.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Thirteen Weeks Ended |
| Twenty-Six Weeks Ended | ||||||||
|
| November 25, |
| November 26, |
| November 25, |
| November 26, | ||||
|
| 2018 |
| 2017 |
| 2018 |
| 2017 | ||||
Stock options |
| $ | 0.1 |
| $ | 0.4 |
| $ | 0.2 |
| $ | 1.0 |
Stock-settled RSUs |
|
| 2.7 |
|
| 2.5 |
|
| 4.9 |
|
| 4.4 |
Performance Shares |
|
| 2.2 |
|
| 0.9 |
|
| 4.1 |
|
| 1.1 |
Stock-settled compensation expense |
|
| 5.0 |
|
| 3.8 |
|
| 9.2 |
|
| 6.5 |
Cash-settled RSUs (a) |
|
| 1.6 |
|
| 2.8 |
|
| 3.7 |
|
| 3.7 |
Total compensation expense |
|
| 6.6 |
|
| 6.6 |
|
| 12.9 |
|
| 10.2 |
Income tax benefit (b) |
|
| (1.5) |
|
| (2.4) |
|
| (3.0) |
|
| (3.8) |
Total compensation expense, net of tax benefit |
| $ | 5.1 |
| $ | 4.2 |
| $ | 9.9 |
| $ | 6.4 |
(a) |
| All cash-settled RSUs are marked-to-market and presented within “Accrued liabilities” and “Other noncurrent liabilities” |
(b) |
| Income tax benefit represents the marginal tax rate. |
Based on estimates at November 25, 2018,24, 2019, total unrecognized compensation expense related to share-based paymentsstock-based awards was as follows (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
| Remaining | |
|
|
|
|
| Weighted | |
|
| Unrecognized |
| Average | ||
|
| Compensation |
| Recognition | ||
|
| Expense |
| Period (in years) | ||
Stock options |
| $ | 0.2 |
|
| 0.9 |
Stock-settled RSUs |
|
| 20.2 |
|
| 2.2 |
Cash-settled RSUs |
|
| 2.1 |
|
| 0.6 |
Performance shares |
|
| 15.9 |
|
| 2.1 |
Total unrecognized compensation expense |
| $ | 38.4 |
|
| 2.1 |
| | | | | | |
|
| | |
| Remaining | |
| | | | | Weighted | |
| | Unrecognized | | Average | ||
| | Compensation | | Recognition | ||
| | Expense | | Period (in years) | ||
Stock-settled RSUs | | $ | 22.7 |
| | 2.1 |
Performance Shares | | | 16.4 |
| | 1.9 |
Total unrecognized stock-based expense | | $ | 39.1 |
| | 2.0 |
2017
14.13. FAIR VALUE MEASUREMENTS
For information about our fair value policies, methods and assumptions used in estimating the fair value of our financial assets and liabilities, see Note 1, Nature of Operations and Summary of Significant Accounting Policies and Note 11,12, Fair Value Measurements, of the Notes to Combined and Consolidated Financial Statements in "Part II, Item 8. Financial Statements and Supplementary Data" of the Form 10-K.
The following table presents our financial assets and liabilities measured at fair value on a recurring basis based upon the level within the fair value hierarchy in which the fair value measurements fall as of November 25, 2018 and May 27, 2018 (dollars in millions):
| | | | | | | | | | | | |
| | As of November 24, 2019 | ||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||
Assets: |
| |
|
| |
|
| |
|
| |
|
Deferred compensation assets | | $ | 0.5 | | $ | — | | $ | — | | $ | 0.5 |
Derivative assets (a) | | | — | | | 2.4 | | | — | | | 2.4 |
Total assets | | $ | 0.5 | | $ | 2.4 | | $ | — | | $ | 2.9 |
Liabilities: | |
|
| |
|
| |
|
| |
|
|
Deferred compensation liabilities (b) | | $ | — |
| $ | 19.3 |
| $ | — |
| $ | 19.3 |
Total liabilities | | $ | — | | $ | 19.3 | | $ | — | | $ | 19.3 |
| | | | | | | | | | | | |
| | As of May 26, 2019 | ||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||
Assets: |
| |
|
| |
|
| |
|
| |
|
Deferred compensation assets | | $ | 0.5 | | $ | — | | $ | — | | $ | 0.5 |
Derivative assets (a) | | | — | | | 0.4 | | | — | | | 0.4 |
Total assets | | $ | 0.5 | | $ | 0.4 | | $ | — | | $ | 0.9 |
Liabilities: | |
|
| |
|
| |
|
| |
|
|
Derivative liabilities (a) | | $ | — | | $ | 3.8 | | $ | — | | $ | 3.8 |
Deferred compensation liabilities (b) | |
| — |
|
| 15.1 |
|
| — |
|
| 15.1 |
Total liabilities | | $ | — | | $ | 18.9 | | $ | — | | $ | 18.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| As of November 25, 2018 | ||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation assets |
| $ | 0.5 |
| $ | — |
| $ | — |
| $ | 0.5 |
Derivative assets (a) |
|
| — |
|
| 0.5 |
|
| — |
|
| 0.5 |
Total assets |
| $ | 0.5 |
| $ | 0.5 |
| $ | — |
| $ | 1.0 |
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities (a) |
| $ | — |
| $ | 4.1 |
| $ | — |
| $ | 4.1 |
Deferred compensation liabilities (b) |
|
| — |
|
| 14.5 |
|
| — |
|
| 14.5 |
Total liabilities |
| $ | — |
| $ | 18.6 |
| $ | — |
| $ | 18.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| As of May 27, 2018 | ||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation assets |
| $ | 0.5 |
| $ | — |
| $ | — |
| $ | 0.5 |
Derivative assets (a) |
|
| — |
|
| 0.8 |
|
| — |
|
| 0.8 |
Total assets |
| $ | 0.5 |
| $ | 0.8 |
| $ | — |
| $ | 1.3 |
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities (a) |
| $ | — |
| $ | 1.4 |
| $ | — |
| $ | 1.4 |
Deferred compensation liabilities (b) |
|
| — |
|
| 12.4 |
|
| — |
|
| 12.4 |
Total liabilities |
| $ | — |
| $ | 13.8 |
| $ | — |
| $ | 13.8 |
(a) |
| Derivative assets and liabilities included in Level 2 primarily represent commodity swap and option contracts. The fair values of our Level 2 derivative assets and liabilities were determined using valuation models that use market observable inputs including interest rate curves and both forward and spot prices for |
(b) |
| The fair values of our Level 2 deferred compensation liabilities were valued using third-party valuations, which are based on the net asset values of mutual funds in our retirement plans. While the underlying assets are actively traded on an exchange, the funds are not. |
CertainNon-financial assets such as property, plant and liabilities, including long-lived assets,equipment, and intangible assets goodwill, asset retirement obligations, pensions, and costare recorded at fair value only if an impairment is recognized. Cost and equity investments are measured at fair value on a non-recurring basis.
At November 25, 2018,24, 2019, we had $1,687.0$1,666.0 million of fixed-rate and $635.3$592.1 million of variable-rate debt outstanding. Based on current market rates, the fair value of our fixed-rate debt at November 25, 2018,24, 2019, was estimated to be $1,638.2$1,761.6 million. Any differences between the book value and fair value are due to the difference between the period-end market interest rate and the stated rate of our fixed-rate debt. We estimated the fair value of our fixed-rate debt using quoted market prices (Level 2 inputs) within the fair value hierarchy. The fair value of our variable-rate term debt approximates the carrying amount as our cost of borrowing is variable and approximates current market pricing.prices.
2118
15.14. STOCKHOLDERS’ EQUITY
Share Repurchase Program
OnIn December 20, 2018, theour Board of Directors authorized a program, with no expiration date, to repurchase shares of our common stock in an amount not to exceed $250.0 million in the aggregate, on an opportunistic basis. During the thirteen weeks ended November 24, 2019, we repurchased 112,698 shares for $8.6 million, or a weighted-average price of $76.44 per share; and during the twenty-six weeks ended November 24, 2019, we purchased 185,200 shares for $13.4 million, or a weighted-average price of $72.61 per share. As of November 24, 2019, $204.7 million remained authorized for repurchase under the program.
Dividends
During the twenty-six weeks ended November 24, 2019, we paid $58.5 million of dividends to common stockholders. On November 29, 2019, we paid$29.2 million of dividends to stockholders of record as of the close of business on November 1, 2019. On December 20, 2018,19, 2019, our Board of Directors increased our quarterly dividend approximately 5% and declared a dividend of $0.20$0.23 per share of common stock. The dividend will be paid on March 1, 2019February 28, 2020, to stockholders of record as of the close of business on February 1, 2019.January 31, 2020.
During the twenty-six weeks ended November 25, 2018, we paid $56.0 million of dividends to stockholders.
Accumulated Other Comprehensive Income (Loss) (“AOCI”)
Comprehensive income includes net income, currency translation adjustments, and changesChanges in prior service cost and net actuarial gains (losses) from pension and post-retirement plans. We generally deem our foreign investments to be indefinite in nature and we do not provide for taxes on currency translation adjustments arising from converting the investment denominated in a foreign currency to the U.S. dollar. If we determine that a foreign investment, as well as undistributed earnings, are no longer indefinite in nature, estimated taxes are provided for the related deferred tax liability (asset), if any, resulting from currency translation adjustments.
The following table details the accumulated balances for each component of other comprehensive income (loss),AOCI, net of tax (except for currency translation adjustments) (dollars intaxes, as of November 24, 2019 were as follows (in millions). Amounts in parenthesis indicate losses.
|
|
|
|
|
|
|
|
|
| |||||||||
|
| Foreign |
|
|
|
| Accumulated | |||||||||||
|
| Currency |
| Pension and |
| Other | ||||||||||||
|
| Translation |
| Post-Retirement |
| Comprehensive | ||||||||||||
|
| Gains (Losses) |
| Benefits |
| Loss | ||||||||||||
Balance as of May 27, 2018 |
| $ | (1.2) |
| $ | (3.1) |
| $ | (4.3) | |||||||||
| | | | | | | | | | |||||||||
| | Foreign | | | | | Accumulated | |||||||||||
| | Currency | | Pension and | | Other | ||||||||||||
| | Translation | | Post-Retirement | | Comprehensive | ||||||||||||
|
| Gains (Losses) |
| Benefits |
| Loss | ||||||||||||
Balance as of May 26, 2019 | | $ | (20.3) |
| $ | (5.0) |
| $ | (25.3) | |||||||||
Other comprehensive income before reclassifications, net of tax |
|
| (11.9) |
|
| — |
|
| (11.9) | | | (8.5) | | | — | | | (8.5) |
Amounts reclassified out of AOCI, net of tax |
|
| — |
|
| 0.3 |
|
| 0.3 | | | — | | | 0.3 | | | 0.3 |
Net current-period other comprehensive income (loss) |
|
| (11.9) |
|
| 0.3 |
|
| (11.6) | |
| (8.5) |
|
| 0.3 | |
| (8.2) |
Balance as of November 25, 2018 |
| $ | (13.1) |
| $ | (2.8) |
| $ | (15.9) | |||||||||
Balance as of November 24, 2019 | | $ | (28.8) |
| $ | (4.7) |
| $ | (33.5) |
The net amount of actuarialActuarial losses on pension and post-retirement benefits, net of tax, included in AOCI to be amortized over the next 12 months is a net loss of $0.7 million ($0.5 million after-tax).
2219
15. SEGMENTS
16. SEGMENTS
We have four4 operating segments, each of which is a reportable segment: Global, Foodservice, Retail, and Other. Our chief operating decision maker receives periodic management reports under this structure that generally focus on the nature and scope of our customers’ businesses, which enables operating decisions, performance assessment, and resource allocation decisions at the segment level. The reportable segments are each managed by a general manager and supported by a cross functional team assigned to support the segment. We measure our segments’ product contribution margin, which is defined as net sales, less cost of sales and advertising and promotion expenses and excludes general corporate expenses, interest, and taxes. See Note 13, Segments, of the Notes to Combined and Consolidated Financial Statements in "Part II, Item 8. Financial Statements and Supplementary Data" of the Form 10-K for more information. Additionally, see Note 2, Revenue from Contracts with Customers, for more information on the impact the adoption of ASC 606 had on segment net sales.
| | | | | | | | | | | �� | |
| | Thirteen Weeks Ended | | Twenty-Six Weeks Ended | ||||||||
|
| November 24, |
| November 25, |
| November 24, |
| November 25, | ||||
(in millions) | | 2019 | | 2018 | | 2019 | | 2018 | ||||
Net sales | |
|
| |
|
| |
|
| |
|
|
Global | | $ | 539.6 | | $ | 470.0 | | $ | 1,057.2 | | $ | 936.8 |
Foodservice | |
| 304.9 | |
| 279.7 | |
| 610.3 | |
| 577.5 |
Retail | |
| 132.1 | |
| 123.9 | |
| 261.4 | |
| 240.1 |
Other | | | 42.6 | | | 37.8 | | | 79.3 | | | 71.9 |
Total net sales | | | 1,019.2 | | | 911.4 | | | 2,008.2 | | | 1,826.3 |
Product contribution margin (a) | | |
| | |
| | |
| | |
|
Global | | | 128.9 | | | 112.4 | | | 231.6 | | | 206.9 |
Foodservice | | | 111.3 | | | 97.4 | | | 213.8 | | | 199.4 |
Retail | | | 28.5 | | | 25.9 | | | 57.4 | | | 48.6 |
Other (b) | | | 10.4 | | | 7.2 | | | 20.1 | | | 12.2 |
| | | 279.1 | | | 242.9 | | | 522.9 | | | 467.1 |
Advertising and promotion expenses (a) | | | 6.0 | | | 6.1 | | | 10.8 | | | 12.5 |
Gross profit | | | 285.1 | | | 249.0 | | | 533.7 | | | 479.6 |
Selling, general and administrative expenses | | | 91.6 | | | 75.0 | | | 170.2 | | | 153.0 |
Income from operations | | | 193.5 | | | 174.0 | | | 363.5 | | | 326.6 |
Interest expense, net | | | 25.4 | | | 26.2 | | | 53.6 | | | 53.0 |
Income tax expense | | | 42.7 | | | 34.0 | | | 79.4 | | | 68.3 |
Equity method investment earnings | | | 15.0 | | | 10.2 | | | 25.6 | | | 30.1 |
Net income | | | 140.4 | | | 124.0 | | | 256.1 | | | 235.4 |
Less: Income attributable to noncontrolling interests (c) | |
| — | |
| 5.0 | |
| — | |
| 8.6 |
Net income attributable to Lamb Weston Holdings, Inc. | | $ | 140.4 | | $ | 119.0 | | $ | 256.1 | | $ | 226.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Thirteen Weeks Ended |
| Twenty-Six Weeks Ended | ||||||||
|
| November 25, |
| November 26, |
| November 25, |
| November 26, | ||||
(in millions) |
| 2018 |
| 2017 |
| 2018 |
| 2017 | ||||
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
Global |
| $ | 470.0 |
| $ | 416.9 |
| $ | 936.8 |
| $ | 830.8 |
Foodservice |
|
| 279.7 |
|
| 272.8 |
|
| 577.5 |
|
| 552.2 |
Retail |
|
| 123.9 |
|
| 102.0 |
|
| 240.1 |
|
| 194.0 |
Other |
|
| 37.8 |
|
| 32.9 |
|
| 71.9 |
|
| 65.1 |
Total net sales |
|
| 911.4 |
|
| 824.6 |
|
| 1,826.3 |
|
| 1,642.1 |
Product contribution margin (a): |
|
|
|
|
|
|
|
|
|
|
|
|
Global |
|
| 112.4 |
|
| 87.6 |
|
| 206.9 |
|
| 162.0 |
Foodservice |
|
| 97.4 |
|
| 91.9 |
|
| 199.4 |
|
| 182.7 |
Retail |
|
| 25.9 |
|
| 19.3 |
|
| 48.6 |
|
| 35.8 |
Other |
|
| 7.2 |
|
| 3.9 |
|
| 12.2 |
|
| 15.1 |
Total product contribution margin |
|
| 242.9 |
|
| 202.7 |
|
| 467.1 |
|
| 395.6 |
Other selling, general and administrative expenses (a) (b) |
|
| 68.9 |
| �� | 62.9 |
|
| 140.5 |
|
| 118.2 |
Income from operations |
|
| 174.0 |
|
| 139.8 |
|
| 326.6 |
|
| 277.4 |
Interest expense, net |
|
| 26.2 |
|
| 27.4 |
|
| 53.0 |
|
| 52.6 |
Income tax expense |
|
| 34.0 |
|
| 41.5 |
|
| 68.3 |
|
| 85.6 |
Equity method investment earnings |
|
| 10.2 |
|
| 12.1 |
|
| 30.1 |
|
| 32.1 |
Net income |
|
| 124.0 |
|
| 83.0 |
|
| 235.4 |
|
| 171.3 |
Less: Income attributable to noncontrolling interests (c) |
|
| 5.0 |
|
| 6.4 |
|
| 8.6 |
|
| 11.3 |
Net income attributable to Lamb Weston Holdings, Inc. |
| $ | 119.0 |
| $ | 76.6 |
| $ | 226.8 |
| $ | 160.0 |
(a) |
| Product contribution margin |
(b) |
| The |
(c) |
|
|
Lamb Weston’s largest customer, McDonald’s Corporation, accounted for approximately10% and 11% of consolidated “Net sales” for the thirteen weeks ended November 25, 2018 and November 26, 2017, respectively; and 10% and 11% for the twenty-six weeks ended November 25, 2018 and November 26, 2017, respectively. Accounts receivable from another customer accounted for 12%in all periods presented in Consolidated Statements of our consolidated accounts receivable as of May 27, 2018.Earnings. No customer accounted for more than 10% of our consolidated accounts receivable as of November 25, 2018.24, 2019 or May 26, 2019.
2320
17.16. COMMITMENTS, CONTINGENCIES, GUARANTEES AND LEGAL PROCEEDINGS
We have financial commitments and obligations that arise in the ordinary course of our business. These include long-term debt, (discussed in Note 12, Debt and Financing Obligations), lease obligations, purchase commitments for goods and services, and legal proceedings. There have been no material changes to the guarantees and indemnifications disclosed in Note 14,16, Commitments, Contingencies, Guarantees, and Legal Proceedings, of the Notes to Combined and Consolidated Financial Statements in “Part II, Item 8. Financial Statements and Supplementary Data” of the Form 10-K.
We are a party to legal actions arising in the ordinary course of our business. These claims, legal actions include commercialproceedings and litigation principally arise from alleged casualty, product liability, claims, premisesemployment, and other disputes. In determining loss contingencies, we consider the likelihood of loss as well as the ability to reasonably estimate the amount of such loss or liability. An estimated loss is recognized when it is considered probable that a liability claims,has been incurred and employment-related claims, among others. Aswhen the amount of loss can be reasonably estimated. While any claim, proceeding or litigation has an element of uncertainty, we believe the dateoutcome of this filing, we do not believe that any of the legal actions against us would, either individuallythese that are pending or in the aggregate,threatened will not have a material adverse effect on our financial condition, results of operations, or cash flows. Costs of legal services associated with the foregoing matters are recognized in earnings as services are provided.
18. SUBSEQUENT EVENT
On December 21, 2018, we acquired 100% of the outstanding shares of a frozen potato processor in Australia for approximately $125 million Australian dollars (approximately U.S. $90 million), plus or minus final working capital adjustments. This added approximately 50 million pounds of production capacity to our manufacturing network. Net sales and total assets of the acquired company are not material to our overall net sales and total assets. Operating results of the acquired company subsequent to December 21, 2018 will be included in our Global segment’s fiscal 2019 operating results.
2421
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
This report, including Management's Discussion and Analysis of Financial Condition and Results of Operations, which we refer to as “MD&A,” contains forward-looking statements within the meaning of the federal securities laws. Words such as “will,” “continue,” “may,” “expect,” “anticipate,” “would,” “could,“should,” “believe,” “estimate,” “grow,” “drive,” “invest,” “support,” “improve,” “increase,” “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, capital investments, dividends, share repurchases, and business outlook and prospects.prospects, and remediation of the material weakness in internal control. 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. These risks and uncertainties include, among other things: 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; 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; disruption of our access to export mechanisms; risks associated with possible acquisitions, including our ability to complete acquisitions or integrate acquired businesses; our debt levels; the availability and prices of raw materials; 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; the ultimate outcome of litigation or any product recalls; levels of pension, labor and people-related expenses; our ability to pay regular quarterly cash dividends and the amounts and timing of any future dividends; our ability to remediate the material weakness in internal control; and other risks described in our reports filed from time to time with the U.S. Securities and Exchange Commission (“SEC”). We caution readers not to place undue reliance on any forward-looking statements included in this report, which speak only as of the date of this report. We undertake no responsibility for updating these statements, except as required by law.
This Item 2 is intended to supplement, and should be read in conjunction with, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the fiscal year ended May 27, 201826, 2019 (the “Form 10-K”), which we filed with the SEC on July 26, 2018. 25, 2019.
Overview
Lamb Weston Holdings, Inc. (“we,” “us,” “our,” “the Company,” or “Lamb Weston”), along with our joint venture partners,ventures, is a leading global producer, distributor, and marketer of value-added frozen potato products. We along with our joint venture partners, are the number one supplier of value-added frozen potato products in North America—the largest market for frozen potato products in the world.America. We, along with our joint venture partners,ventures, are also a leading supplier of value-added frozen potato products internationally, with a strong and growing presence in high-growth emerging markets, andmarkets. We, along with our joint ventures, offer a broad product portfolio to a diverse channel and customer base in over 100 countries. French fries represent the majority of our valued-addedvalue-added frozen potato product portfolio.
On November 9, 2016, Lamb Weston separated from Conagra Brands, Inc. (formerly, ConAgra Foods, Inc., “Conagra”) and became an independent publicly traded company through the pro rata distribution by Conagra of 100% of the outstanding common stock of Lamb Weston to Conagra stockholders (the “Separation”). Unless otherwise expressly stated or the context otherwise requires, references to “we,” “our,” “us,” “the Company” and “Lamb Weston” refer to Lamb Weston Holdings, Inc. and its consolidated subsidiaries.
25
Management’s discussion and analysis of our results of operations and financial condition is provided as a supplement to the consolidated financial statements and related condensed notes included elsewhere herein to help provide an understanding of our financial condition, changes in financial condition and results of our operations. Our MD&A is based on financial data derived from the financial statements prepared in accordance with the United States (“U.S.”) generally accepted accounting principles (“GAAP”) and certain other financial data (Adjusted EBITDA, Adjusted(EBITDA, EBITDA including unconsolidated joint ventures and Adjusted Diluted EPS) that is prepared using non-GAAP measures. Refer to “Reconciliations of Non-GAAP Financial Measures to Reported Amounts” below for the definitions of Adjusted EBITDA, Adjusted EBITDA including unconsolidated joint ventures and Adjusted Diluted EPS, and a reconciliation of these non-GAAP financial measures to net income or diluted earnings per share.
22
Executive Summary
WeLamb Weston delivered strong sales, volume, and earnings growth results in the second quarter of fiscal 2019 and executed well across the organization. Specifically, in the second quarter of fiscal 2019, compared2020. Compared with the second quarter of fiscal 2018:2019:
| Net sales increased |
| Income from operations increased 11% to $193.5 million |
● | Net income attributable to Lamb Weston increased |
|
|
| Diluted earnings per share increased |
| $0.95, while Adjusted Diluted EPS increased |
|
|
|
|
|
|
|
|
In addition, in the first half of fiscal 2020, our net cash provided by operating activities increased 9% to $345.3 million. We returned $71.9 million of cash to shareholders through dividends and share repurchases, and we recently announced a 15% increase in the quarterly dividend to $0.23 per share.
Demand
These results were driven by solid operating execution by our commercial organizations coupled with strategic actions we have taken over the last few years to invest in our business to capitalize on the continued demand growth for frozen potato products continues to grow around the world. We expectcontinue to address the increase in demandexecute on that strategy by investing cash back into the business to improve manufacturing operations and systems, support customer growth, and increase our presence in additional capacity. We began operating a new processing line in Boardman, Oregon duringkey markets such as Australia and South America. In the third quarterfirst half of fiscal 2017 as well as a new line in Richland, Washington during the second quarter of fiscal 2018. In December 2017, we announced our plan to construct a new line in Hermiston, Oregon with a total production capacity of approximately 300 million pounds, and we anticipate it will be operational in the fourth quarter of fiscal 2019. In November
26
2018, we entered into an agreement to purchase the remaining interest in our Lamb Weston BSW joint venture. In December,2020, we acquired a frozen potato processor in Australia and a 50% ownership interest in Lamb Weston Alimentos Modernos S.A., a joint venture with Sociedad Commercial del Plata in Argentina, which together added approximately 50200 million pounds of production capacity to our manufacturing networknetwork.
Comparing performance with the second quarter of fiscal 2019, volume and price/mix increased in each of our core business segments. Our volume growth was primarily driven by growth in our Global and Foodservice segments, and includes benefits from acquisitions and additional shipping days in the quarter related to servethe timing of the Thanksgiving holiday. Volume growth, favorable price/mix, lower transportation costs, and commodity mark-to-market gains more than offset input cost inflation; factory inefficiencies; and higher depreciation expense primarily associated with our customers. Lamb-Weston/Meijer v.o.f. (“Lamb-Weston/Meijer”),new french fry production line in Hermiston, Oregon, which started operating towards the end of the fourth quarter of fiscal 2019. Earnings growth also benefited from acquiring the remaining 50.01% equity interest in our joint venture, in Europe, recently expanded capacity at its facility at Bergen op Zoom, the Netherlands,Lamb Weston BSW, LLC (the “BSW Acquisition”), and in June 2017, acquired the potato processing business of Oerlemans Foods, which included a potato processing facility located in Broekhuizenvorst, the Netherlands. Lamb-Weston/Meijer is also party to a joint venture that constructed a new production facility in Lipetsk, a special economic zone in south Moscow, the Russian Federation, which began operations in the third quarter ofhigher equity method investment earnings.
In fiscal 2018.
Outlook
For the remainder of fiscal 2019,2020, we expect the overall operating environment will be generally favorable with continued solid demand growth globally. New industry capacity in North America and Europe may ease near-term capacity constraints and should allow processors to operate their production facilities at more normalized levels. However, while we expect to have adequate raw potatoes to support our key international markets to be generally favorable given the continued growthbusiness in volume demand and high industry manufacturing capacity utilization levels. A number of manufacturers, including Lamb Weston, have announced intentions to add production capacity, largelyfiscal 2020, overall raw potato supply in Europe, North America and China,Europe is tight due to relatively poor weather conditions late in the growing season and during the crop harvest, which will likely easemay temper the industry’s near-term production constraints. In addition, compared with fiscal 2018, we are experiencingsupply of frozen potato products until a highernew potato crop is harvested beginning in the summer of 2020. We expect the rate of inflation for many of our manufacturing, commodity and other inputmanufacturing costs as well as for transportation and warehousing.will be similar to the first half of fiscal 2020. We also expect higher selling, general and administrative costs due toas a result of investments to upgrade our information systems, includingin our enterprise resource planning infrastructure; investmentsinfrastructure, as well as for continued improvements in our information systems, sales, marketing, innovation, operations, and other functional capabilities;capabilities, designed to drive operating efficiencies and incremental labor and benefits and infrastructure costs associated with being a stand-alone company, including increased share-based compensation costs. While we also expect continued growth in volume demand in Europe, we anticipate that the operating environment there for the remainder of fiscal 2019 will be challenging due to a poor potato crop, due to weather conditions, in that region. In addition, we believe that significant changes, and increased uncertainty, to the current tariff and other trade barrier structures affecting exports from the United States and Europe to our key international markets could pose additional challenges to the global operating environment.support future growth.
Operating Results
We have four reportable segments: Global, Foodservice, Retail, and Other. For each period presented, weWe report product contribution margin by segment. Product contribution margin is the primary measure reported to our chief operating decision maker for purposes of allocating resources to our segments and assessing their performance. Product contribution margin represents net sales less cost of sales and advertising and promotion expenses. Product contribution margin includes advertising and promotion expenses because the amounts are directly associated with segment performance; it excludes general corporate expenses and interest expense because management believes these amounts are not directly associated with segment performance for the period. We define product contribution margin as net sales less cost of sales and advertising and promotion expenses.performance. For additional information on our reportable segments and product contribution margin, see Note 16, Segments, 15,
23
On May 28, 2018, we adopted Accounting Standards Update 2014-09, Revenue from Contracts with Customers (“new revenue standard”), using the modified retrospective method. We recognized a $13.7 million cumulative effect of initially applying the new revenue standard as an adjustment to opening retained earnings. The new revenue standard did not have a significant impact on our results of operations. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. See Note 2, Revenue from Contracts with Customers,Segments, of the Condensed Notes to Consolidated Financial Statements in “Part I, Item 1. Financial Statements” of this Form 10-Q, for more information.report.
27
Thirteen Weeks Ended November 24, 2019 compared to Thirteen Weeks Ended November 25, 2018 compared to Thirteen Weeks Ended November 26, 2017(dollars in millions)
Net Sales and Product Contribution Margin
| | | | | | | | |
| | Thirteen Weeks Ended | ||||||
|
| November 24, |
| November 25, |
| % | ||
| | 2019 | | 2018 | | Inc/(Dec) | ||
Segment sales | | | | | | | | |
Global | | $ | 539.6 | | $ | 470.0 |
| 15% |
Foodservice | |
| 304.9 |
| | 279.7 |
| 9% |
Retail | |
| 132.1 | |
| 123.9 |
| 7% |
Other | |
| 42.6 | |
| 37.8 |
| 13% |
| | $ | 1,019.2 | | $ | 911.4 |
| 12% |
| | | | | | | | |
Segment product contribution margin | | | | | | | | |
Global | | $ | 128.9 | | $ | 112.4 |
| 15% |
Foodservice | | | 111.3 |
| | 97.4 |
| 14% |
Retail | |
| 28.5 | |
| 25.9 |
| 10% |
Other | |
| 10.4 | |
| 7.2 |
| 44% |
| | | 279.1 | | | 242.9 |
| 15% |
Advertising and promotion expenses | | | 6.0 | | | 6.1 | | (2%) |
Gross profit | | $ | 285.1 | | $ | 249.0 | | 14% |
(dollars in millions)
|
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| Thirteen Weeks Ended | ||||||||||||||
|
| Net Sales |
| Product Contribution Margin | ||||||||||||
|
| November 25, |
| November 26, |
| % |
| November 25, |
| November 26, |
| % | ||||
|
| 2018 |
| 2017 |
| Inc/(Dec) |
| 2018 |
| 2017 |
| Inc/(Dec) | ||||
Global |
| $ | 470.0 |
| $ | 416.9 |
| 13% |
| $ | 112.4 |
| $ | 87.6 |
| 28% |
Foodservice |
|
| 279.7 |
|
| 272.8 |
| 3% |
|
| 97.4 |
|
| 91.9 |
| 6% |
Retail |
|
| 123.9 |
|
| 102.0 |
| 21% |
|
| 25.9 |
|
| 19.3 |
| 34% |
Other |
|
| 37.8 |
|
| 32.9 |
| 15% |
|
| 7.2 |
|
| 3.9 |
| 85% |
Total |
| $ | 911.4 |
| $ | 824.6 |
| 11% |
| $ | 242.9 |
| $ | 202.7 |
| 20% |
Net Sales
Lamb Weston’s net sales for the second quarter of fiscal 20192020 were $911.4$1,019.2 million, an increase of $86.8$107.8 million, or 11%12%, compared to the second quarter of fiscal 2018.2019. Volume increased 10%, primarily driven by growth in our Global and Foodservice segments, and includes an approximate 1.5 percentage point benefit from acquisitions, as well as an approximate 1 percentage point benefit from additional shipping days related to the timing of the Thanksgiving holiday. Price/mix increased 6%2% due to pricing actions and favorable mix. Volume increased 5%, driven by growth in our Global and Retail segments.
Global segment net sales increased $53.1$69.6 million, or 13%15%, to $470.0$539.6 million, compared with $416.9$470 million in the second quarter of fiscal 2018. Price/mix increased 7%, reflecting the carryover impact of pricing actions taken in the prior year, as well as improved mix.2019. Volume increased 6%14%, driven by solid growth in sales, including the benefit of limited time product offerings, to strategic customers in the U.S. and key international markets, as well asan approximate 3 percentage point benefit from acquisitions, and an approximate 1 percentage point benefit from additional shipping days related to the benefittiming of limited time product offerings.the Thanksgiving holiday. Price/mix increased 1%, largely reflecting pricing adjustments associated with multi-year contracts.
Foodservice segment net sales increased $6.9$25.2 million, or 3%9%, to $279.7$304.9 million, compared with $272.8$279.7 million in the second quarter of fiscal 2018.2019. Volume increased 5 percent, led by growth in distributor private label and Lamb Weston branded products. Approximately half of the volume increase reflected the benefit of additional shipping days related to the timing of the Thanksgiving holiday. Price/mix increased 5%,4 percent, primarily reflecting the carryover impact of pricing actions taken ininitiated during the prior year, as well asquarter and improved mix. Volume declined 2%, largely due to the loss of some lower-margin volume, partially offset by growth of sales of higher-margin products.
Retail segment net sales increased $21.9$8.2 million, or 21%7%, to $123.9$132.1 million, compared with $102.0$123.9 million in the second quarter of fiscal 2018.2019. Volume increased 16%, primarily4 percent, driven by distribution gainsincreased sales of Grown in Idaho and other branded products as well as private label products. Approximately 2 percentage points of the volume increase reflected the benefit of additional shipping days related to the timing of the Thanksgiving holiday. Price/mix increased 5%, due to higher prices across the branded3 percent, driven by favorable mix and private label portfolios, as well as improved mix.pricing actions.
24
Net sales in our Other segment increased $4.9$4.8 million, or 15%13%, to $37.8$42.6 million, compared with $32.9$37.8 million in the second quarter of fiscal 2018. The increase primarily reflects higher prices2019, largely due to increased volumes in our vegetable business.business, partially offset by lower price/mix.
Product Contribution Margin
Lamb Weston’s product contribution margin for the second quarter of fiscal 20192020 was $242.9$279.1 million, an increase of $40.2$36.2 million, or 20%15%, compared to the second quarter of fiscal 2018.2019.
Global segment product contribution margin increased $24.8$16.5 million, or 28%15%, to $112.4$128.9 million in the second quarter of fiscal 2019,2020, driven by volume growth and favorable price/mix and volume growth.mix. Global segment cost of sales was $356.4$409.5 million, up 9%15% compared to the second quarter of fiscal 2018,2019, reflecting higher sales volumes; input cost inflation; higher manufacturing costs due to factory inefficiencies, which were primarily driven by higher maintenance and related costs; and higher depreciation expense primarily associated with the new Hermiston production line. The increase in cost of sales volumes, as well as transportation, warehousing, manufacturing and input cost inflation,was partially offset by supply chain efficiency savings. Advertising and promotion spending increased in the second quarter of fiscal 2019 as compared to the second quarter of fiscal 2018.lower transportation costs.
Foodservice segment product contribution margin increased $5.5$13.9 million, or 6%14%, to $97.4$111.3 million in the second quarter of fiscal 2019, largely as a result of favorable price and improved mix. Cost of sales was $180.6 million, up 1% compared to the second quarter of fiscal 2018, primarily2020, driven by transportation, warehousing, manufacturing and input
28
cost inflation, partially offset by supply chain efficiency savings. Advertising and promotion spending increased in the second quarter of fiscal 2019 as compared to the second quarter of fiscal 2018.
Retail segment product contribution margin increased $6.6 million, or 34%, to $25.9 million, mainly due to higherfavorable price/mix and volume growth. Cost of sales was $95.1$192.2 million, up 19%6% compared to the second quarter of fiscal 2018, primarily2019, due to higher sales volumes as well as transportation, warehousing, manufacturing andvolumes; input cost inflation,inflation; higher manufacturing costs due to factory inefficiencies; and higher depreciation expense primarily associated with the new Hermiston production line. The increase in cost of sales was partially offset by supply chain efficiency savings.lower transportation costs. Advertising and promotion spending decreased $0.5 million in the second quarter of fiscal 2019 declined nominally2020 as compared to the second quarter of fiscal 2018.2019.
Retail segment product contribution margin increased $2.6 million, or 10%, to $28.5 million, largely due to favorable price/mix and volume growth. Cost of sales was $100.4 million, up 6% compared to the second quarter of fiscal 2019, primarily due to higher sales volumes; input cost inflation; higher manufacturing costs due to factory inefficiencies; and higher depreciation expense primarily associated with the new Hermiston production line. The increase in cost of sales was partially offset by lower transportation costs. Advertising and promotion spending increased $0.4 million to $3.3 million in the second quarter of fiscal 2020 as compared to the second quarter of fiscal 2019, reflecting the timing of marketing investments in support of Grown in Idaho, Alexia and other branded products.
Other segment product contribution margin was $7.2$10.4 million, an increase of $3.3$3.2 million as compared with $3.9$7.2 million of income in the second quarter of fiscal 2018. The increase was2019. These amounts include a $4.2 million gain related to unrealized mark-to-market adjustments and realized settlements associated with commodity hedging contracts in the second quarter of fiscal 2020, and a $0.4 million gain related to the contracts in the prior year period. Excluding these adjustments, Other segment product contribution margin declined $0.6 million, largely due to improvedlower price/mix in our vegetable business.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $6.6$16.6 million, or 10%22%, to $75.0$91.6 million in the second quarter of fiscal 20192020 compared with the same period in 2018. The second quarter of fiscal 2018 included $4.0 million of expenses ($2.5 million after taxes) for costs related to the Separation. Excluding this cost, selling, general and administrative expenses increased $10.6 million, or 16%.2019. The increase was largely driven by higher expenses related to information technology services and infrastructure,an approximate $6 million increase in incentive compensation expense accruals primarily based on our operating performance, as well as investments in our sales, marketing, operating and operating capabilities. The increase includes approximatelysystems capabilities, which included more than $2 million of unfavorable foreign exchange, which was more thanexpense associated with designing and implementing a new enterprise resource planning system. These increases were partially offset by an approximatelyapproximate $2 million reduction in foreign exchange losses. The prior year period also included an approximate $4 million benefit from an insurance settlement.settlement benefit.
Interest Expense, Net
Interest expense, net was $26.2$25.4 million for the second quarter of fiscal 2019,2020, a decrease of $1.2$0.8 million compared with the same period in fiscal 2018.2019. The decrease in interest“Interest expense, netnet” was the result of a lower level ofaverage total debt versus the prior year quarter.and lower interest rates, including anticipated patronage dividends, on the term loan facility we refinanced during the first quarter of fiscal 2020. For more information on this refinance see Note 9, Debt“Liquidity and Financing Obligations Capital Resources” in the Notes to Combined and Consolidated Financial Statements in “Part II, Item 8. Financial Statements and Supplementary Data”this MD&A.
25
Income Tax Expense
Income Taxes
Income tax expense for the second quarter of fiscal 2020 and 2019 and 2018 was $34.0$42.7 million and $41.5$34.0 million, respectively. The effective income tax rate (calculated as the ratio of income tax expense to pre-tax income, inclusive of equity method investment earnings) was approximately 23.3% and 21.5% for the second quarter of fiscal 2020 and 2019, and 33.3% for the second quarterrespectively, in our Consolidated Statements of fiscal 2018.Earnings. The lowereffective tax rate invaries from the second quarterU.S. statutory tax rate of fiscal 2019 is primarily attributable21% principally due to the effectsimpact of the Tax Act, as well as the benefit of foreign-relatedU.S. state taxes, foreign taxes, permanent differences, and discrete items. Notably, the Tax Act reduced the U.S. corporate tax rate from 35% to 21%, limits the tax deductibility of interest, includes substantial changes to the taxation of foreign earnings, provides for immediate deductions for certain new investments instead of deductions for depreciation expense over time, and modifies or repeals many business deductions and credits.
Equity Method Investment Earnings
We conduct meaningful business through unconsolidated joint ventures in Europe, and the U.S., and South America and include our share of the earnings based on our economic ownership interest in them. Our share of earnings from our equity method investments was $10.2$15.0 million and $12.1$10.2 million for the second quarter of fiscal 20192020 and 2018,2019, respectively. These amounts included a $1.1$2.7 million unrealized loss related to mark-to-market adjustments associated with currency and commodity hedging contracts in the currentsecond quarter of fiscal 2020, and a $3.1$1.1 million unrealized loss related to the contracts in the prior year period.second quarter of fiscal 2019. Excluding these adjustments, earnings from equity method investments declined $3.9increased $6.4 million, largely reflecting higherlower raw potato prices associated with a poor crop in Europe, partially offset by higher price/mix and volume growth in both Europe and the U.S. For more information about our joint ventures, see Note 6, Investments in Joint Ventures, of the NotesEurope.
Twenty-Six Weeks Ended November 24, 2019 compared to Combined and Consolidated Financial Statements in “Part II, Item 8. Financial Statements and Supplementary Data” of the Form 10-K.
29
Acquisition of Remaining 50.01% Interest in Lamb Weston BSW
On November 2, 2018, we entered into a Membership Interest Purchase Agreement (the “BSW Agreement”) with Ochoa Ag Unlimited Foods, Inc. (“Ochoa”) to acquire the remaining 50.01% interest in Lamb Weston BSW, LLC (“Lamb Weston BSW”), a potato processing joint venture. We agreed to pay Ochoa approximately $65 million in cash attributable to our contractual right to purchase the remaining equity interest in Lamb Weston BSW from Ochoa plus approximately $13 million in cash attributable to Ochoa’s interest in expected earnings of the joint venture through our fiscal year ending May 26, 2019. We agreed to make the additional $13 million payment to Ochoa to facilitate completing the transaction prior to our 2019 fiscal year end.
Prior to entering into the BSW Agreement, Lamb Weston BSW was considered a variable interest entity, and we determined that we were the primary beneficiary of the entity. Accordingly, we consolidated the financial statements of Lamb Weston BSW and deducted 50.01% of the operating results of the noncontrolling interests to arrive at “Net income attributable to Lamb Weston Holdings, Inc.” on our Consolidated Statements of Earnings. The Consolidated Statements of Earnings include 100% of Lamb Weston BSW’s earnings beginning November 2, 2018, the date we entered into the BSW Agreement.
Prior to entering into the BSW Agreement, the value of the redeemable noncontrolling interest was recorded on our Consolidated Balance Sheet based on the value of Ochoa’s put option. During the thirteen and twenty-six weeks ended November 25, 2018, we recorded $9.5 million of accretion, net of estimated tax benefits, to increase the redeemable noncontrolling interest to the amount we agreed to pay to acquire the remaining 50.01% interest in the joint venture. The BSW Agreement created a contractual obligation to purchase the noncontrolling interest in Lamb Weston BSW and as a result, the purchase price is recorded in “Accrued liabilities” on our Consolidated Balance Sheet. The purchase created $9.2 million of deferred tax assets related to the step-up in tax basis of the acquired assets. Both the accretion of the noncontrolling interest and the related tax benefits were recorded in “Additional distributed capital” on our Consolidated Balance Sheet and they did not impact net income. While the accretion, net of estimated tax benefits, had no impact on net income in the Consolidated Statements of Earnings, it reduced net income available to common stockholders $9.5 million, net of tax, and both basic and diluted earnings per share $0.06.
We paid $50.0 million of the purchase price to Ochoa in December 2018, and per the provisions of the BSW Agreement, we will pay the remaining $28.2 million on or before February 1, 2019.
Twenty-Six Weeks Ended November 25, 2018 compared to Twenty-Six Weeks Ended November 26, 2017(dollars in millions)
Net Sales and Product Contribution Margin
| | | | | | | | |
| | Twenty-Six Weeks Ended | ||||||
|
| November 24, |
| November 25, |
| % | ||
|
| 2019 | | 2018 |
| Inc/(Dec) | ||
Segment sales | | | | | | | | |
Global | | $ | 1,057.2 | | $ | 936.8 |
| 13% |
Foodservice | |
| 610.3 |
| | 577.5 |
| 6% |
Retail | |
| 261.4 | |
| 240.1 |
| 9% |
Other | |
| 79.3 | |
| 71.9 |
| 10% |
| | $ | 2,008.2 | | $ | 1,826.3 |
| 10% |
| | | | | | | | |
Segment product contribution margin | | | | | | | | |
Global | | $ | 231.6 | | $ | 206.9 |
| 12% |
Foodservice | | | 213.8 |
| | 199.4 |
| 7% |
Retail | |
| 57.4 | |
| 48.6 |
| 18% |
Other | |
| 20.1 | |
| 12.2 |
| 65% |
| | | 522.9 | | | 467.1 |
| 12% |
Advertising and promotion expenses | | | 10.8 | | | 12.5 | | (14%) |
Gross profit | | $ | 533.7 | | $ | 479.6 | | 11% |
(dollars in millions)
|
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| Twenty-Six Weeks Ended | ||||||||||||||
|
| Net Sales |
| Product Contribution Margin | ||||||||||||
|
| November 25, |
| November 26, |
| % |
| November 25, |
| November 26, |
| % | ||||
|
| 2018 |
| 2017 |
| Inc/(Dec) |
| 2018 |
| 2017 |
| Inc/(Dec) | ||||
Global |
| $ | 936.8 |
| $ | 830.8 |
| 13% |
| $ | 206.9 |
| $ | 162.0 |
| 28% |
Foodservice |
|
| 577.5 |
|
| 552.2 |
| 5% |
|
| 199.4 |
|
| 182.7 |
| 9% |
Retail |
|
| 240.1 |
|
| 194.0 |
| 24% |
|
| 48.6 |
|
| 35.8 |
| 36% |
Other |
|
| 71.9 |
|
| 65.1 |
| 10% |
|
| 12.2 |
|
| 15.1 |
| (19%) |
Total |
| $ | 1,826.3 |
| $ | 1,642.1 |
| 11% |
| $ | 467.1 |
| $ | 395.6 |
| 18% |
Net Sales
Lamb Weston’s net sales for the first half of fiscal 20192020 were $1,826.3$2,008.2 million, an increase of $184.2$181.9 million, or 11%10%, compared to the first half of fiscal 2018.2019. Volume increased 8%, primarily driven by growth in our Global segment, and includes an approximate one-and-a-half percentage point benefit from acquisitions. Price/mix increased 2% due to pricing actions and favorable mix.
Global segment net sales increased $106.0$120.4 million, or 13%, to $936.8$1,057.2 million, compared with $830.8$936.8 million in the first half of fiscal 2018. Price/mix increased 8%, reflecting the carryover impact of pricing actions taken in the prior
30
year, as well as improved mix.2019. Volume increased 5%12%, driven by solid growth in sales, including the benefit of limited time product offerings, to strategic customers in the U.S. and key international markets, as well as thean approximate two-and-a-half
26
percentage point benefit of limited time product offerings.from acquisitions. Price/mix increased 1%, largely reflecting pricing adjustments associated with multi-year contracts.
Foodservice segment net sales increased $25.3$32.8 million, or 5%6%, to $577.5$610.3 million, compared with $552.2$577.5 million in the first half of fiscal 2018.2019. Volume increased 3 percent, led by growth in distributor private label and Lamb Weston branded products. Price/mix increased 6%,3 percent, primarily reflecting the carryover impact ofimproved mix and pricing actions takeninitiated in the prior year, as well as improved mix. Volume declined 1% largely due to the lossfall of some lower-margin volume, partially offset by growth2018 and fall of higher-margin products.2019.
Retail segment net sales increased $46.1$21.3 million, or 24%9%, to $240.1$261.4 million, compared with $194.0$240.1 million in the first half of fiscal 2018.2019. Volume increased 15%, primarily6 percent, driven by distribution gainsincreased sales of Grown in Idaho and other brandedprivate label products as well as private labelGrown in Idaho and other branded products. Price/mix increased 9%,3 percent, driven by higher prices across the brandedfavorable mix and private label portfolio, as well as improved mix.pricing actions.
Net sales in our Other segment increased $6.8$7.4 million, or 10%, to $71.9$79.3 million, compared with $65.1$71.9 million in the first half of fiscal 2018. The increase primarily reflects higher prices2019, largely due to increased volumes in our vegetable business.business, partially offset by lower price/mix.
Product Contribution Margin
Lamb Weston’s product contribution margin for the first half of fiscal 20192020 was $467.1$522.9 million, an increase of $71.5$55.8 million, or 18%12%, compared to the first half of fiscal 2018.2019.
Global segment product contribution margin increased $44.9$24.7 million, or 28%12%, to $206.9$231.6 million in the first half of fiscal 2019,2020, driven by volume growth and favorable price/mix and volume growth.mix. Global segment cost of sales was $727.6$823.2 million, up 9%13% compared to the first half of fiscal 2018,2019, due to higher sales volumes; transportation, warehousing, manufacturing and input cost inflation; higher manufacturing costs due to factory inefficiencies, which were primarily driven by higher maintenance and related costs; and higher depreciation expense primarily associated with the new RichlandHermiston production line. Advertising and promotion spending increasedThe increase in the first halfcost of fiscal 2019 as compared to the first half of fiscal 2018.
Foodservice segment product contribution margin increased $16.7$14.4 million, or 9%7%, to $199.4$213.8 million in the first half of fiscal 2019, largely as a result of favorable price/mix. Cost of sales was $375.0 million, up 2% compared to the first half of fiscal 2018, primarily2020, driven by transportation, warehousing, manufacturing and input cost inflation as well as higher depreciation expense associated with the new Richland production line. Advertising and promotion spending increased in the first half of fiscal 2019 as compared to the first half of fiscal 2018.
Retail segment product contribution margin increased $12.8 million, or 36%, to $48.6 million, mainly due to higherfavorable price/mix and volume growth. Cost of sales was $184.6$393.4 million, up 20%5% compared to the first half of fiscal 2018,2019, due to higher sales volumes; input cost inflation; higher manufacturing costs due to factory inefficiencies; and higher depreciation expense primarily associated with the new Hermiston production line. The increase in cost of sales was partially offset by lower transportation costs.
Retail segment product contribution margin increased $8.8 million, or 18%, to $57.4 million, largely due to higher price/mix, volume growth and lower advertising and promotional expenses. Cost of sales was $198.8 million, up 8% compared to the first half of fiscal 2019, primarily due to higher sales volumes as well as transportation, warehousing, manufacturing andvolumes; input cost inflation.inflation; higher manufacturing costs due to factory inefficiencies; and higher depreciation expense primarily associated with the new Hermiston production line. The increase in cost of sales was partially offset by lower transportation costs. Advertising and promotion spending was $6.9declined $1.7 million up $2.7to $5.2 million or 64%, in the first half of fiscal 20192020 as compared to the first half of fiscal 2018, driven by2019, reflecting the timing of marketing investments in support of Grown in Idaho, Alexia and other branded products.
Other segment product contribution margin was $12.2$20.1 million, a decreasean increase of $2.9$7.9 million as compared with $15.1$12.2 million of income in the first half of fiscal 2018.2019. These amounts include a $4.0 loss$7.3 million gain related to unrealized mark-to-market adjustments and realized settlements associated with commodity hedging contracts in the first half of fiscal 2019,2020, and a $3.1$4.0 million gainloss related to the contracts in the prior year period. Excluding these adjustments, Other segment product contribution margin increased $4.2declined $3.4 million, largely due to improvedlower price/mix in our vegetable business.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $25.9$17.2 million, or 20%11%, to $153.0$170.2 million in the first half of fiscal 20192020 compared with the same period in 2018. The first half of fiscal 2018 included $6.2 million of expenses ($3.9 million after taxes) for costs related to the Separation. Excluding this cost, selling, general and administrative expenses increased $32.1 million, or 27%.2019. The increase includes approximately $9 million of unfavorable foreign exchange, an approximately $6was largely driven by a $7 million increase in incentive compensation expense accruals primarily reflecting an increase in stock price and absolute shares outstanding, and an approximately $4 million increase in advertising and promotional support, partially offset by an approximately $4 million benefit from an insurance settlement. The remainder of the increase was largely
31
driven by higher expenses related to information technology services and infrastructure,based on our operating performance, as well as investments in our sales, marketing, operating and operating capabilities.systems capabilities, including approximately $4 million of expense associated with designing
27
and implementing a new enterprise resource planning system. These increases were partially offset by an approximate $6 million reduction in foreign exchange losses and a $1.7 million decline in advertising and promotional expenses. The prior year period also included an approximate $4 million insurance settlement benefit.
Interest Expense, Net
Interest expense, net was $53.0$53.6 million for the first half of fiscal 2019,2020, an increase of $0.4$0.6 million compared with the same period in fiscal 2018.2019. The increase in interest“Interest expense, netnet” was the result of higherthe write-off of $1.7 million of debt issuance costs in connection with the refinance of our term loan facility, partially offset by lower average total debt versus the prior year and lower interest rates.rates, including anticipated patronage dividends, on the term loan facility we refinanced during the first quarter of fiscal 2020. For more information on this refinance see Note 9, Debt“Liquidity and Financing Obligations Capital Resources” in the Notes to Combined and Consolidated Financial Statements in “Part II, Item 8. Financial Statements and Supplementary Data” of the Form 10-K.this MD&A.
Income Tax Expense
Income Taxes
Income tax expense for the first half of fiscal 2020 and 2019 and 2018 was $68.3$79.4 million and $85.6$68.3 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 approximately 23.7% and 22.5% for the first half of fiscal 2020 and 2019, and 33.3% for the first halfrespectively, in our Consolidated Statements of fiscal 2018.Earnings. The lowereffective tax rate invaries from the first halfU.S. statutory tax rate of fiscal 2019 is primarily attributable21% principally due to the effects of the Tax Act, and also includes the benefit of foreign-related discrete items. Notably, the Tax Act reduces the U.S. corporate tax rate from 35% to 21%, limits the tax deductibility of interest, includes substantial changes to the taxation of foreign earnings, provides for immediate deductions for certain new investments instead of deductions for depreciation expense over time, and modifies or repeals many business deductions and credits.
In connection with our initial analysis of the Tax Act, we recorded a net tax benefit of $28.4 million in fiscal 2018. The net tax benefit consisted of a net tax benefit for the re-measurementimpact of U.S. deferredstate taxes, of $39.9 millionforeign taxes, permanent differences, and an expense for the transition tax of $11.5 million. The estimates reported in fiscal 2018 were not adjusted in the twenty-six-week period ended November 25, 2018. We have now completed our accounting estimates for all the enactment-date income tax effects of the Tax Act in accordance with the SAB 118 measurement period.discrete items.
Equity Method Investment Earnings
We conduct business through unconsolidated joint ventures in Europe, the U.S., and South America and include our share of the earnings based on our economic ownership interest in them. Our share of earnings from our equity method investments was $30.1$25.6 million and $32.1$30.1 million for the first half of fiscal 20192020 and 2018,2019, respectively. These amounts included a $0.4$1.6 million unrealized loss related to mark-to-market adjustments associated with currency and commodity hedging contracts in the first half of fiscal 2019,2020, and a $0.7$0.4 million gainunrealized loss related to the contracts in the first half of fiscal 2018.2019. Excluding these adjustments, earnings from equity method investments decreased $0.9$3.3 million, largely reflecting higher raw potato prices and manufacturing costs associated with alast year’s poor crop in Europe, partially offset by favorable price/mix and volume growth in both Europe and the U.S. For more information about our joint ventures, see Note 6, Investments in Joint Ventures, of the Notes to Combined and Consolidated Financial Statements in “Part II, Item 8. Financial Statements and Supplementary Data” of the Form 10-K.growth.
Liquidity and Capital Resources
Sources and Uses of Cash
Our primary sources of liquidity are net cash provided by operating activities and borrowings under our revolving credit facility. At November 25, 2018,24, 2019, we had $121.6$23.8 million of cash and cash equivalents and $55.6 million at May 27, 2018. Additionally, we had $496.6 million of available borrowing capacity on our revolving credit facility. Currently, our primary uses of cash are for operations, capital expenditures, dividends on our common stock, acquisitions, debt service, and debt service.stock repurchases. We believe that net cash generated from operating activities, cash on hand, available borrowings under our revolving credit facility, and available capital through access to capital markets will be adequate to meet our liquidity and capital requirements, including payments for the announced acquisitions and any dividends declared, for at least the next twelve months.
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Cash Flows
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:
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| Twenty-Six Weeks Ended | ||||||||||||||||
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| November 25, |
| November 26, |
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| 2018 |
| 2017 |
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| | November 24, | | November 25, | | | Provided by | |||||||||||
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| 2019 |
| 2018 |
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Net cash flows provided by (used for): |
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Operating activities |
| $ | 316.8 |
| $ | 182.2 |
| $ | 134.6 | | $ | 345.3 | | $ | 316.8 |
| $ | 28.5 |
Investing activities |
|
| (168.7) |
|
| (155.7) |
|
| (13.0) | |
| (240.2) | |
| (168.7) |
|
| (71.5) |
Financing activities |
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| (81.4) |
|
| (15.9) |
|
| (65.5) | |
| (93.6) | |
| (81.4) |
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| (12.2) |
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| 66.7 |
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| 10.6 |
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| 56.1 | |||||||||
| |
| 11.5 | |
| 66.7 |
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| (55.2) | |||||||||
Effect of exchange rate changes on cash and cash equivalents |
|
| (0.7) |
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| 3.4 |
|
| (4.1) | |
| 0.1 |
|
| (0.7) |
|
| 0.8 |
Net increase in cash and cash equivalents |
| $ | 66.0 |
| $ | 14.0 |
| $ | 52.0 | | $ | 11.6 | | $ | 66.0 |
| $ | (54.4) |
In the first half of fiscal 2019,2020, cash provided by operating activities increased $134.6$28.5 million to $316.8$345.3 million, compared with $182.2$316.8 million in the same period a year ago. Compared with the first half of fiscal 2018,2019, earnings from operations, adjusted for non-cash income and expense and other items, increased $95.4$20.6 million due primarily to favorable sales volumes and price/mix. Changes in operating assets and liabilities provided $39.2$7.9 million more cash induring the first half of fiscal 20192020 compared with fiscal 2018.the same period in the prior year. The increase in cash provided by changes in operating assets and liabilities was driven primarily by the timing of harvest for raw product and an increase in the sale of finished goods inventories, the timing of tax payments, and the timing of payments for accounts payable, grower activity, contracted services, and collection timing of receivables.payable. These cash inflows were partially offset by higher raw product inventories.
Investing Activities
Investing activities used $168.7$240.2 million of cash in the first half of fiscal 2019,2020, compared with $155.7$168.7 million in the same period in the prior year. These activities primarily represent plant capacity expansions at our Hermiston, Oregon facility inThe first half of fiscal 2019, and at our Richland, Washington facility in fiscal 2018. Cash used for capital expenditures is expected to be approximately $360 million, excluding acquisitions, for fiscal 2019. In December 2018, we acquired2020 includes the acquisition of a frozen potato processor in Australia for $116.7 million. We also acquired a 50% ownership interest in Lamb Weston Alimentos Modernos S.A., a manufacturer of frozen potato products in South America, for $27.3 million. We paid $17.1 million in the first half of fiscal 2020 and we expect to pay $5.5 million during the third quarter of fiscal 2020. The remaining $4.7 million, less any amounts for indemnified losses, is payable in October 2024. Cash used for capital, including information technology expenditures, was $107.4 million in the first half of fiscal 2020 and is expected to be approximately $125$300 million, Australian dollars (approximately U.S. $90 million), plus or minus final working capital adjustments. The acquisition added approximately 50 million pounds of production capacity to our manufacturing network to serve our customers.excluding acquisitions, for fiscal 2020.
Financing Activities
During the first half of fiscal 2019,2020, cash used for financing activities totaled $81.4increased $12.2 million to $93.6 million, compared with cash used for financing activities of $15.9$81.4 million during the same period a year ago. The increase primarily related to a $13.4 million increase in cash used to repurchase 185,200 shares of our common stock at an average price of $72.61 per share under our share repurchase program. We will continue to repurchase shares, on an opportunistic basis, in open market repurchase transactions. As of November 24, 2019, $204.7 million remained authorized for repurchase under the program.
During the first halfquarter of fiscal 2019, financing activities primarily related2020, we amended our credit agreement to the payment of $56.0 million in dividends to common stockholders, $20.3refinance $300.0 million of debt repayments, primarily scheduled payments under ourthe $599.1 million term loan facility outstanding at May 26, 2019 and distributions to Lamb Weston BSW of $6.1 million. During the first half of fiscal 2019, we withheld 60,956 shares from vesting equity awards to cover employee tax liabilities of $4.3 million. These payments were offset by $4.3entered into a new credit agreement providing for a $300.0 million of short-term borrowings. During the first half of fiscal 2018, financing activities primarily related to the payment of $54.8 million of dividends to common stockholders, $19.3 million of debt repayments, primarily scheduled payments under our term loan facility 43,548 shares withheld from vesting equity awards to cover employee tax liabilities(“New Term Loan Agreement”) for a lower overall interest rate, including anticipated patronage dividends. The New Term Loan Agreement extends the maturity of $1.9 million, and $6.7$300.0 million of distributions to Lamb Weston BSW. These payments were offset by $66.1 millionour borrowings until June 28, 2024, and the covenants, events of short-term borrowings.default, and guarantees are consistent with our existing credit agreement.
On November 2, 2018, we entered into the BSW Agreement with Ochoa to acquire the remaining 50.01% interest in Lamb Weston BSW. We agreed to pay Ochoa approximately $65 million in cash attributable to our contractual right to purchase the remaining equity interest in Lamb Weston BSW from Ochoa plus approximately $13 million in cash attributable to Ochoa’s interest in expected earnings of the joint venture through our fiscal year ending May 26, 2019. We paid $50.0 million of the purchase price in December 2018, and per the provisions of the BSW Agreement, we will pay the remaining $28.2 million on or before February 1, 2019.
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For more information about our debt, interest rates, maturity dates, and covenants, see Note 9, Debt and Financing Obligations of the Notes to Combined and Consolidated Financial Statements in “Part II, Item 8. Financial Statements and Supplementary Data” of the Form 10-K. For more information related to the Lamb Weston BSW joint venture see “Acquisition of Remaining 50.01% Interest in Lamb Weston BSW” in this MD&A. At November 25, 2018,24, 2019, we were in compliance with the financial covenant ratios and other covenants contained in our credit agreement.
Obligations and Commitments
Except for the $78.2 million commitment to acquire the remaining 50.01% interest in Lamb Weston BSW, and the approximately $125 million Australian dollars (approximately U.S. $90 million), plus or minus final working capital adjustments, to acquire a potato processor in Australia, thereThere 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.
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Reconciliations of Non-GAAP Financial Measures to Reported Amounts
To supplement the financial information included in this report, we have presented Adjusted EBITDA, Adjusted EBITDA including unconsolidated joint ventures and Adjusted Diluted EPS, each of which is considered a non-GAAP financial measure.
Lamb Weston’s management uses Adjusted EBITDA, Adjusted EBITDA including unconsolidated joint ventures and Adjusted Diluted EPS to evaluate the Company’s performance excluding the impact of certain non-cash charges and other special items in order to have comparable financial results to analyze changes in our underlying business between reporting periods. The Company includes these non-GAAP financial measures because management believes they are useful to investors in that they provide for greater transparency with respect to supplemental information used by management in its financial and operational decision making. We believe that the presentation of these non-GAAP financial measures, when used in conjunction with GAAP financial measures, is a useful financial analysis tool that can assist investors in assessing the Company’s operating performance and underlying prospects. These non-GAAP financial measures should be viewed in addition to, and not as alternatives for, financial measures prepared in accordance with GAAP. These non-GAAP financial measures may differ from similarly titled non-GAAP financial measures presented by other companies, and other companies may not define these non-GAAP financial measures the same way. These measures are not a substitute for their comparable GAAP financial measures, such as net income (loss) or diluted earnings per share, and there are limitations to using non-GAAP financial measures.
The following table reconciles net income to Adjusted EBITDA and Adjusted EBITDA including unconsolidated joint ventures. ventures.
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| | Thirteen Weeks Ended | | Twenty-Six Weeks Ended | ||||||||
| | November 24, |
| November 25, |
| November 24, |
| November 25, | ||||
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| 2019 | | 2018 |
| 2019 | | 2018 | ||||
Net income attributable to Lamb Weston Holdings, Inc. | | $ | 140.4 | | $ | 119.0 | | $ | 256.1 | | $ | 226.8 |
Income attributable to noncontrolling interests | | | — | | | 5.0 | | | — | | | 8.6 |
Equity method investment earnings | | | (15.0) | | | (10.2) | | | (25.6) | | | (30.1) |
Interest expense, net | | | 25.4 | | | 26.2 | | | 53.6 | | | 53.0 |
Income tax expense | | | 42.7 | | | 34.0 | | | 79.4 | | | 68.3 |
Income from operations | | | 193.5 | | | 174.0 | | | 363.5 | | | 326.6 |
Depreciation and amortization | | | 44.7 | | | 37.4 | | | 87.8 | | | 74.8 |
EBITDA (a) | | | 238.2 | | | 211.4 | | | 451.3 | | | 401.4 |
| | | | | | | | | | | | |
Unconsolidated Joint Ventures | | | | | | | | | | | | |
Equity method investment earnings | | | 15.0 | | | 10.2 | | | 25.6 | | | 30.1 |
Interest expense, income tax expense, and depreciation and | | | | | | | | | | | | |
amortization included in equity method investment earnings | | | 7.7 | | | 7.0 | | | 16.9 | | | 14.5 |
Add: EBITDA from unconsolidated joint ventures | | | 22.7 | | | 17.2 | | | 42.5 | | | 44.6 |
| | | | | | | | | | | | |
Consolidated Joint Ventures (b) | | | | | | | | | | | | |
Income attributable to noncontrolling interests | | | — | | | (5.0) | | | — | | | (8.6) |
Interest expense, income tax expense, and depreciation and | | | | | | | | | | | | |
amortization included in equity method investment earnings | | | — | | | (0.8) | | | — | | | (1.7) |
Subtract: EBITDA from consolidated joint ventures | | | — | | | (5.8) | | | — | | | (10.3) |
| | | | | | | | | | | | |
EBITDA including unconsolidated joint ventures | | $ | 260.9 | | $ | 222.8 | | $ | 493.8 | | $ | 435.7 |
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| Thirteen Weeks Ended |
| Twenty-Six Weeks Ended | ||||||||
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| November 25, |
| November 26, |
| November 25, |
| November 26, | ||||
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| 2018 |
| 2017 |
| 2018 |
| 2017 | ||||
Net income attributable to Lamb Weston Holdings, Inc. |
| $ | 119.0 |
| $ | 76.6 |
| $ | 226.8 |
| $ | 160.0 |
Income attributable to noncontrolling interests |
|
| 5.0 |
|
| 6.4 |
|
| 8.6 |
|
| 11.3 |
Equity method investment earnings |
|
| (10.2) |
|
| (12.1) |
|
| (30.1) |
|
| (32.1) |
Interest expense, net |
|
| 26.2 |
|
| 27.4 |
|
| 53.0 |
|
| 52.6 |
Income tax expense |
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| 34.0 |
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| 41.5 |
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| 68.3 |
|
| 85.6 |
Income from operations |
|
| 174.0 |
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| 139.8 |
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| 326.6 |
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| 277.4 |
Depreciation and amortization |
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| 37.4 |
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| 34.5 |
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| 74.8 |
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| 64.3 |
Items impacting comparability (a) |
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Expenses related to the Separation |
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| — |
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| 4.0 |
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| — |
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| 6.2 |
Adjusted EBITDA (b) |
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| 211.4 |
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| 178.3 |
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| 401.4 |
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| 347.9 |
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Unconsolidated Joint Ventures |
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Equity method investment earnings |
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| 10.2 |
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| 12.1 |
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| 30.1 |
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| 32.1 |
Interest expense, income tax expense, and depreciation and amortization |
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included in equity method investment earnings |
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| 7.0 |
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| 5.9 |
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| 14.5 |
|
| 13.6 |
Add: EBITDA from unconsolidated joint ventures |
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| 17.2 |
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| 18.0 |
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| 44.6 |
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| 45.7 |
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Consolidated Joint Ventures |
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Income attributable to noncontrolling interests |
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| (5.0) |
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| (6.4) |
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| (8.6) |
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| (11.3) |
Interest expense, income tax expense, and depreciation and amortization |
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included in income attributable to noncontrolling interests |
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| (0.8) |
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| (1.0) |
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| (1.7) |
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| (2.0) |
Subtract: EBITDA from consolidated joint ventures |
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| (5.8) |
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| (7.4) |
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| (10.3) |
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| (13.3) |
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Adjusted EBITDA including unconsolidated joint ventures |
| $ | 222.8 |
| $ | 188.9 |
| $ | 435.7 |
| $ | 380.3 |
(a) |
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(b) | In November 2018, we entered into an agreement to acquire the remaining 50.01% interest in Lamb Weston BSW. Our Consolidated Statements of Earnings includes 100% of Lamb Weston BSW’s earnings beginning November 2, 2018. |
3531
The following table reconciles diluted earnings per share to Adjusted Diluted EPS:
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| | Thirteen Weeks Ended | | Twenty-Six Weeks Ended | ||||||||
| | November 24, | | November 25, | | November 24, | | November 25, | ||||
| | 2019 (a) | | 2018 (a) | | 2019 (a) | | 2018 (a) | ||||
As reported | | $ | 0.95 | | $ | 0.74 | | $ | 1.74 | | $ | 1.47 |
Items impacting comparability: | | | | | | | | | | | | |
Increase in redemption value of noncontrolling interests (b) | | | — | | | 0.06 | | | — | | | 0.06 |
Total items impacting comparability | | | — | | | 0.06 | | | — | | | 0.06 |
Adjusted | | $ | 0.95 | | $ | 0.80 | | $ | 1.74 | | $ | 1.53 |
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| Thirteen Weeks Ended |
| Twenty-Six Weeks Ended | ||||||||
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| November 25, |
| November 26, |
| November 25, |
| November 26, | ||||
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| 2018 (a) |
| 2017 (a) |
| 2018 (a) |
| 2017 (a) | ||||
As reported |
| $ | 0.74 |
| $ | 0.52 |
| $ | 1.47 |
| $ | 1.08 |
Items impacting comparability: |
|
| — |
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| — |
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|
Increase in redemption value of noncontrolling interests (b) |
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| 0.06 |
|
| — |
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| 0.06 |
|
| — |
Expenses related to the Separation (c) |
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| — |
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| 0.02 |
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| — |
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| 0.03 |
Total items impacting comparability |
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| 0.06 |
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| 0.02 |
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| 0.06 |
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| 0.03 |
Adjusted |
| $ | 0.80 |
| $ | 0.54 |
| $ | 1.53 |
| $ | 1.11 |
(a) |
| Diluted weighted average common shares were |
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While the accretion, net of estimated tax benefits, reduced net income available to common stockholders and earnings per share, it did not impact net income in the Consolidated Statements of Earnings. The thirteen and twenty-six weeks ended November 25, 2018, include 100% of Lamb Weston BSW’s earnings beginning November 2, 2018, the date we entered into the agreement to acquire the remaining interest in Lamb Weston BSW. See Note 8, Investments in Joint Ventures, of the Condensed Notes to Consolidated Financial Statements in “Part I, Item 1. Financial Statements” in this Form 10-Q for more information.
Off-Balance Sheet Arrangements
There have been no material changes to the off-balance sheet arrangements disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the Form 10-K.
Critical Accounting Policies and Estimates
A discussion of our critical accounting policies and estimates can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in the Form 10-K. There were no material changes to these critical accounting estimates during the second quarter of fiscal 2019. 2020.
New and Recently Adopted Accounting StandardsPronouncements
For a listinglist of our new and recently adopted accounting standards,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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Lamb Weston’sOur operations are exposed to market risks from adverse changes in commodity prices affecting the cost of raw materials and energy, foreign currency exchange rates, and interest rates. In the normal course of business, we periodically enter into derivatives to minimize these risks, but not for trading purposes.
Based on our open commodity contract hedge positions as of November 25, 2018,24, 2019, a hypothetical 10 percent decline in market prices applied to the fair value of the instruments would result in a charge to “Cost of sales” of approximately $9.0 $3.7million ($6.9 2.8million net of income tax benefits). It should be noted that any change in the fair value
36
of the contracts, real or hypothetical, would be substantially offset by an inverse change in the value of the underlying hedged item.
32
At November 25, 2018,24, 2019, we had $1,687.0$1,666.0 million of fixed-rate and $635.3$592.1 million of variable-rate debt outstanding. We have interest rate risk associated with our variable-rate debt. A one percent increase in interest rates related to variable-rate debt would have resulted in an increase in interest expense and a corresponding decrease in income before taxes of approximately $6.4$6.0 million annually ($5.04.6 million net of income tax benefit).
See Note 12,11, Debt and Financing Obligations, of the Condensed Notes to Consolidated Financial Statements in “Part I, Item 1. Financial Statements” of this report. Additionally, for more information on our debt and financing obligations, interest rates, and debt covenants, see Note 9, Debt and Financing Obligations, of the Notes to Combined and Consolidated Financial Statements in "Part II, Item 8. Financial Statements and Supplementary Data" of the Form 10-K.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of November 25, 2018.24, 2019. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer, concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were not effective due to provide reasonable assurancea material weakness in our internal control over financial reporting that information requiredwas disclosed in the Form 10-K.
Notwithstanding the identified material weakness, management has concluded that the consolidated financial statements included in this Form 10-Q fairly present in all material respects our financial condition, results of operations and cash flows as of and for the periods presented in accordance with U.S. generally accepted accounting principles.
Remediation
Management has taken steps to remediate the material weakness in our internal control over financial reporting as previously described in the Form 10-K. The weakness will not be disclosed by us in reports we file or submit underconsidered remediated until the Exchange Actapplicable control operates for a sufficient period of time and management has concluded, through testing, that the control objective is recorded, processed, summarized, and reported withinachieved. We expect that the time periods specified in SEC rules and forms, and is accumulated and communicatedremediation of this material weakness will be completed prior to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.the end of fiscal 2020.
Changes in Internal Control over Financial Reporting
Our management, withOther than the participation of our Chief Executive Officer and Chief Financial Officer, evaluated any changeremediation efforts discussed above, there have been no changes in our internal control over financial reporting that occurred during the second quarter covered by this report and determinedof fiscal 2020 that there was no change in our internal control over financial reporting during the quarter covered by this report that hashave materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.
3733
Part II — OTHER INFORMATION
See Note 17,16, Commitments, Contingencies, Guarantees and Legal Proceedings, of the Condensed Notes to Consolidated Financial Statements in “Part I, Item 1. Financial Statements” of this report for information regarding our legal proceedings.
We are subject to various risks and uncertainties in the course of our business. The discussion of these risks and uncertainties may be found under “Part I, Item 1A. Risk Factors” in the Form 10-K. There have been no material changes to the risk factors.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table presents information related to our repurchases of common stock madeTotal shares purchased during the thirteen weeks ended November 25, 2018:24, 2019 were as follows:
| | | | | | | | | | | | |
| | | | | | | | | | | Approximate Dollar | |
| | | | | | | | Total Number of | | Value of Maximum | ||
| | Total Number | | Average | | Shares (or Units) | | Number of Shares that | ||||
| | of Shares (or | | Price Paid | | Purchased as Part of | | May Yet be Purchased | ||||
| | Units) | | Per Share | | Publicly Announced | | Under Plans or Programs | ||||
Period |
| Purchased (a) |
| (or Unit) |
| Plans or Programs (b) |
| (in millions) (b) | ||||
August 26, 2019 through September 22, 2019 | | | — | | $ | — | | | — | | $ | 213.3 |
September 23, 2019 through October 20, 2019 | | | 76,572 | | $ | 76.28 | | | 53,400 | | $ | 209.2 |
October 21, 2019 through November 24, 2019 | | | 59,733 | | $ | 76.40 | | | 59,298 | | $ | 204.7 |
Total | | | 136,305 | | | | | | | | | |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total Number of |
| Approximate Dollar |
| ||
|
| Total Number |
| Average |
| Shares |
| Value of Maximum |
| ||||
|
| of Shares (or |
| Price Paid |
| Purchased as Part of |
| Number of Shares that |
| ||||
|
| units) |
| Per Share |
| Publicly Announced |
| May Yet be Purchased |
| ||||
Period |
| Purchased (a) |
| (or unit) |
| Plans or Programs |
| Under Plans or Programs |
| ||||
August 27, 2018 through September 23, 2018 |
|
| 4,895 |
| $ | 67.90 |
|
| — |
|
| — |
|
September 24, 2018 through October 21, 2018 |
|
| 1,491 |
|
| 72.91 |
|
| — |
|
| — |
|
October 22, 2018 through November 25, 2018 |
|
| 527 |
|
| 79.57 |
|
| — |
|
| — |
|
Total |
|
| 6,913 |
| $ | 69.87 |
|
| — |
|
| — | (b) |
(a) |
| Represents shares withheld from employees to cover income and payroll taxes on equity awards that vested during the |
(b) |
|
|
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
None.
3834
Exhibit Number |
| Exhibit Description |
31.1 |
| |
| | |
31.2 |
| |
| | |
32.1 |
| |
| | |
32.2 |
| |
| | |
101.INS |
| XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
| | |
101.SCH |
|
|
| | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
| | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
| | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
| | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | |
| | |
104 | Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in | |
| | |
3935
SIGNATURES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| LAMB WESTON HOLDINGS, INC. | |
| | |
| By: | /s/ ROBERT M. MCNUTT |
| | ROBERT M. MCNUTT |
| | Senior Vice President and Chief Financial Officer |
| | |
| | |
| | |
| | |
Dated this | | |
4036