Table of Contents

Part I. FINANCIAL INFORMATION (Unaudited)
	Item 1	Financial Statements
		~~Unaudited~~ Consolidated Statements of Earnings for the Thirteen and Twenty-Six Weeks ended November ~~25, 2018~~24, 2019 and November ~~26, 2017~~25, 2018	3
		~~Unaudited~~ Consolidated Statements of Comprehensive Income (Loss) for the Thirteen and Twenty-Six Weeks ended November ~~25, 2018~~24, 2019 and November ~~26, 2017~~25, 2018	4
		~~Unaudited~~ Consolidated Balance Sheets as of November ~~25, 2018~~24, 2019 and May ~~27, 2018~~26, 2019	5
		~~Unaudited~~ Consolidated Statements of Stockholders’ Equity for the Thirteen and Twenty-Six Weeks Ended November 24, 2019 and November 25, 2018	6
		Consolidated Statements of Cash Flows for the Twenty-Six Weeks ended November ~~25, 2018~~24, 2019 and November ~~26, 2017~~	6
		~~Condensed Notes to Consolidated Financial Statements~~25, 2018	7
		Condensed Notes to Consolidated Financial Statements	8
	Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	2522
	Item 3	Quantitative and Qualitative Disclosures About Market Risk	3632
	Item 4	Controls and Procedures	3733

Part II. OTHER INFORMATION			3834
	Item 1	Legal Proceedings	3834
	Item 1A	Risk Factors	3834
	Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	3834
	Item 3	Defaults Upon Senior Securities	3834
	Item 4	Mine Safety Disclosures	3834
	Item 5	Other Information	3834
	Item 6	Exhibits	3935
		Signatures	36

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.

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Lamb Weston Holdings, Inc.

Consolidated Statements of Earnings

(unaudited, dollars in millions, except ~~per-share~~per share amounts)

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

616.4

1,346.7

1,237.6
Gross profit

249.0

208.2

479.6

404.5
Selling, general and administrative expenses

75.0

68.4

153.0

127.1
Income from operations

174.0

139.8

326.6

277.4
Interest expense, net

26.2

27.4

53.0

52.6
Income before income taxes and equity method earnings

147.8

112.4

273.6

224.8
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

5.0

6.4

8.6

11.3
Net income attributable to Lamb Weston Holdings, Inc.
$
119.0

$
76.6

$
226.8

$
160.0
Earnings per share

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


	Thirteen Weeks Ended				Twenty-Six Weeks Ended
	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.

Table of Contents

Lamb Weston Holdings, Inc.

Consolidated Statements of Comprehensive Income (Loss)

(unaudited, dollars in millions)

Thirteen Weeks Ended

Thirteen Weeks Ended

November 25, 2018

November 26, 2017

Tax

Tax

Pre-Tax

(Expense)

After-Tax

Pre-Tax

(Expense)

After-Tax


Amount

Benefit

Amount

Amount

Benefit

Amount

Net income

$
158.0

$
(34.0)

$
124.0

$
124.5

$
(41.5)

$
83.0

Other comprehensive income (loss):



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

0.2

—

0.2

—

—

—

Unrealized currency translation losses

(7.6)

—

(7.6)

(0.4)

—

(0.4)

Comprehensive income (loss)

150.6

(34.0)

116.6

124.1

(41.5)

82.6

Less: Comprehensive income attributable to noncontrolling interests

5.0

—

5.0

6.4

—

6.4

Comprehensive income (loss) attributable to Lamb Weston Holdings, Inc.

$
145.6

$
(34.0)

$
111.6

$
117.7

$
(41.5)

$
76.2


	Thirteen Weeks Ended						Thirteen Weeks Ended
	November 24, 2019						November 25, 2018
			Tax						Tax
	Pre-Tax		(Expense)		After-Tax		Pre-Tax		(Expense)		After-Tax
	Amount		Benefit		Amount		Amount		Benefit		Amount
Net income	$	183.1	$	(42.7)	$	140.4	$	158.0	$	(34.0)	$	124.0
Other comprehensive income (loss):
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

Twenty-Six Weeks Ended

Twenty-Six Weeks Ended

November 25, 2018

November 26, 2017

Tax

Tax

Pre-Tax

(Expense)

After-Tax

Pre-Tax

(Expense)

After-Tax


Amount

Benefit

Amount

Amount

Benefit

Amount

Net income

$
303.7

$
(68.3)

$
235.4

$
256.9

$
(85.6)

$
171.3

Other comprehensive income (loss):











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

0.4

(0.1)

0.3

(0.1)

—

(0.1)

Unrealized currency translation gains (losses)

(11.9)

—

(11.9)

14.8

—

14.8

Comprehensive income (loss)

292.2

(68.4)

223.8

271.6

(85.6)

186.0

Less: Comprehensive income attributable to noncontrolling interests

8.6

—

8.6

11.3

—

11.3

Comprehensive income (loss) attributable to Lamb Weston Holdings, Inc.

$
283.6

$
(68.4)

$
215.2

$
260.3

$
(85.6)

$
174.7


	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
	Amount		Benefit		Amount		Amount		Benefit		Amount
Net income	$	335.5	$	(79.4)	$	256.1	$	303.7	$	(68.3)	$	235.4
Other comprehensive income (loss):
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.

Table of Contents

Lamb Weston Holdings, Inc.

Consolidated Balance Sheets

(unaudited, dollars in millions, except share data)

November 25,

May 27,


2018

2018
ASSETS




Current assets:




Cash and cash equivalents

$
121.6

$
55.6
Receivables, less allowance for doubtful accounts of $0.6 and $0.6

340.1

225.9
Inventories

628.2

549.7
Prepaid expenses and other current assets

44.7

99.2
Total current assets

1,134.6

930.4
Property, plant and equipment, net

1,521.4

1,420.8
Goodwill

132.6

135.1
Intangible assets, net

34.4

35.4
Equity method investments

218.2

219.8
Other assets

11.3

11.1
Total assets

$
3,052.5

$
2,752.6

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:




  Short-term borrowings

$
13.1

$
9.6
Current portion of long-term debt and financing obligations

39.5

38.7
Accounts payable

376.2

254.4
Accrued liabilities

268.0

216.0
Total current liabilities

696.8

518.7
Long-term liabilities:

Long-term debt, excluding current portion

2,321.8

2,336.7
Deferred income taxes

114.8

92.1
Other noncurrent liabilities

86.2

84.3
Total long-term liabilities

2,522.8

2,513.1
Commitments and contingencies

Redeemable noncontrolling interest

—

55.6
Stockholders' equity:




Common stock of $1.00 par value, 600,000,000 shares authorized; 146,616,397 and 146,395,866 shares issued

146.6

146.4
Additional distributed capital

(900.9)

(900.4)
Retained earnings

610.4

426.4
Accumulated other comprehensive loss

(15.9)

(4.3)
Treasury stock, at cost, 124,494 and 63,534 common shares

(7.3)

(2.9)
Total stockholders' deficit

(167.1)

(334.8)
Total liabilities and stockholders’ equity

$
3,052.5

$
2,752.6


	November 24,		May 26,
	2019		2019
ASSETS
Current assets:
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

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
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:
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.

Table of Contents

Lamb Weston Holdings, Inc.

Consolidated Statements of Stockholders’ Equity
(unaudited, dollars in millions, except shares and per share data)


	Thirteen 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 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

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

Table of Contents

financial assets previously measured at amortized cost using the ~~same model as if~~fair 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 term~~adoption 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 ~~did~~is 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

~~Table of Contents~~

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 remove~~removes 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 ~~standards~~pronouncements recently issued that had or are expected to have a material impact on our financial statements.

~~Table of Contents~~

~~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

~~Table of Contents~~

~~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.

~~Table of Contents~~

~~Segment Information~~

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.

~~Table of Contents~~

~~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)

~~(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, ~~which we recorded~~ to increase the redeemable noncontrolling interest to the amount we agreed to pay to acquire the remaining ~~50.01%~~ interest in ~~our joint venture,~~ Lamb Weston ~~BSW, LLC (“Lamb Weston BSW”).~~BSW. While the accretion, net of estimated tax benefits, reduced net income available to Lamb Weston 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, includes 100% of Lamb Weston BSW’s earnings beginning November 2, 2018, the date we entered into the definitive agreement to acquire the remaining interest in Lamb Weston BSW. See Note 9, Investments in Joint Ventures, for more information.

(b)

~~(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 ~~and November 26, 2017,~~, we did not have any stock-based awards that were antidilutive.

~~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

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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, 2018~~24, 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, 2018~~24, 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 in~~during 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

~~(a)~~

~~See Note 2, Revenue from Contracts with Customers, for more information on the impact the adoption of ASC 606 had on inventories.~~


	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

~~Table of Contents~~

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.

Table of Contents

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, 2018~~24, 2019 and November ~~26, 2017,~~25, 2018, respectively. At November ~~25, 2018~~24, 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 interest~~Interest 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 ~~carrying~~lease 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 segment~~sublease 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.

Table of Contents

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)

~~(a)~~

~~Non-amortizing intangible assets are comprised~~As the implicit rate is not readily determinable for most of ~~brands~~our leases, we use an incremental borrowing rate to determine the initial present value of lease payments. We use a collateralized rate and ~~trademarks.~~

apply the rate based on the currency of the lease, which is updated quarterly for the measurement of new lease liabilities.

~~(b)~~

Amortizing intangible assets are principally composed of customer relationships, licensing arrangements, and intellectual property. During the thirteen weeks ended November 25, 2018 and November 26, 2017, amortization expense was $0.5 million and $0.6 million, respectively. During both the twenty-six weeks ended November 25, 2018 and November 26, 2017, amortization expense was $1.1 million. Foreign intangible assets are affected by foreign currency translation.

1412

Table of Contents

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.

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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 in~~BSW. 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 expected~~BSW’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. The~~Ochoa, 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 costs~~potato 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 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.

~~Table of Contents~~

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):~~

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

$
—

~~Table of Contents~~

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

$
—

~~(a)~~

Service costs are reflected in “Cost of sales” in the Consolidated Statements of Earnings. Interest costs and expected return on plan assets are reflected in “Selling, general and administrative expenses” in the Consolidated Statements of Earnings.

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 $0.1~~respectively. 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.

Table of ~~contributions to our qualified plan. We are required to make $0.1 million of minimum qualified contributions~~Contents

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)

~~(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 ~~9, Investments in Joint Ventures,~~1, Nature of Operations and Summary of Significant Accounting Policies, for more information.

1715

Table of Contents

~~12.~~11. DEBT AND FINANCING OBLIGATIONS

At November ~~25, 2018~~24, 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)	~~(a)~~On May 27, 2019, we adopted ASC 842 and we eliminated this financing obligation, related to a sale leaseback, as part of the cumulative effect transition adjustment. See Note 1, Nature of Operations and Summary of Significant Accounting Policies, for more information.

(b)

The interest rates on our lease financing obligations range from ~~2.59%~~2.77% to ~~5.00%~~3.68% as of November ~~25, 2018~~24, 2019, and ~~2.39%~~2.72% to ~~5.00%~~4.33% as of May ~~27, 2018.~~

26, 2019.

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 ~~zero~~0 to ~~$29.5~~$97.9 million and the weighted average interest rate for our outstanding borrowings under the Facility was ~~3.6%~~3.83%.

~~For~~New 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

Table of Contents

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 for~~other stock-based awards. During the twenty-six weeks ended November ~~25, 2018~~24, 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.

~~Table of Contents~~

~~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

~~(a)~~

The aggregate intrinsic values represent the total pre-tax intrinsic value (the difference between our closing stock price on the last trading day of our fiscal 2019 second quarter, or November 23, 2018, and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their in-the-money options at the end of the quarter. The amount changes based on the fair market value of our stock.

~~The following table summarizes RSU and Performance Share activity for the twenty-six weeks ended November 25, 2018:~~

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

~~(a)~~

~~Granted represents new grants and dividend equivalents accrued.~~

~~(b)~~

~~Amount represents adjustment for performance results attained on Performance Shares during the twenty-six weeks ended November 25, 2018.~~

~~(c)~~

The aggregate fair value of awards that vested during the twenty-six weeks ended November 25, 2018 was $24.1 million, which represents the market value of our common stock on the date that the RSUs and Performance Shares vested. The number of RSUs and Performance Shares vested includes shares of common stock that we withheld on behalf of employees to satisfy the minimum statutory tax withholding requirements.

~~Table of Contents~~

~~Compensation Expense~~

Our ~~share-based~~stock-based compensation expense is recorded in “Selling, general and administrative expenses.” Compensation expense for ~~share-based~~stock-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)

~~(a)~~

All cash-settled RSUs are marked-to-market and presented within “Accrued liabilities” and “Other noncurrent liabilities” inon our Consolidated Balance Sheets.

(b)

~~(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 payments~~stock-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

Table of Contents

~~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)

~~(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 ~~currencies and~~ commodities. ~~Derivative assets and liabilities included in Level 2 primarily represent commodity swap and option contracts.~~

(b)

~~(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.

~~Certain~~Non-financial assets such as property, plant and ~~liabilities, including long-lived assets,~~equipment, and intangible assets ~~goodwill, asset retirement obligations, pensions, and cost~~are 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.

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~~15.~~14. STOCKHOLDERS’ EQUITY

Share Repurchase Program

OnIn December ~~20,~~ 2018, ~~the~~our Board of Directors authorized a program, with no expiration date, to repurchase shares of our common stock in an amount not to exceed $250.0 million in the aggregate, 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, 2019~~February 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 changes~~Changes 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 in~~taxes, 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 actuarial~~Actuarial 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).

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15. SEGMENTS

~~16. SEGMENTS~~

We have ~~four~~4 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)

~~(a)~~

Product contribution margin ~~is defined as~~represents net sales less cost of sales and advertising and promotion expenses. ~~Other selling, general and administrative expenses include all selling, general and administrative expenses other than~~Product contribution margin includes advertising and promotion ~~expenses.~~

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.

(b)

~~(b)~~

The ~~thirteen~~Other segment primarily includes our vegetable and ~~twenty-six weeks ended November 26, 2017, include $4.0 million~~dairy businesses and ~~$6.2 million, respectively, of pre-tax expenses related to the Separation.~~

unrealized mark-to-market adjustments associated with commodity hedging contracts.

(c)

~~(c)~~

OnIn November 2, 2018, we entered into ~~the BSW Agreement~~an agreement to acquire the remaining 50.01% interest in ~~our~~ Lamb Weston ~~BSW joint venture. The~~BSW. Our Consolidated Statements of Earnings ~~include~~includes 100% of Lamb Weston BSW’s earnings beginning November 2, 2018. ~~See Note 9, Investments in Joint Ventures, for more information.~~

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.

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~~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 commercial~~proceedings and litigation principally arise from alleged casualty, product liability, ~~claims, premises~~employment, 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. As~~when the amount of loss can be reasonably estimated. While any claim, proceeding or litigation has an element of uncertainty, we believe the ~~date~~outcome of ~~this filing, we do not believe that~~ any of ~~the legal actions against us would, either individually~~these 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.

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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, 2018~~26, 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, and~~markets. We, along with our joint ventures, offer a broad product portfolio to a diverse channel and customer base in over 100 countries. French fries represent the majority of our ~~valued-added~~value-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.

~~Table of Contents~~

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.

Table of Contents

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, compared~~2020. Compared with the second quarter of fiscal ~~2018:~~2019:

●

Net sales increased ~~$86.8~~12% to $1,019.2 million ~~or 11%, to $911.4 million. Price/mix increased 6% due to pricing actions and improved mix. Volume increased 5%, led by growth in our Global and Retail segments.~~

●

Income from operations increased 11% to $193.5 million

●

Net income attributable to Lamb Weston increased ~~$42.4~~18% to $140.4 million or 55%, to $119.0 million. Approximately $15 million of the increase related to a lower U.S. corporate tax rate as a result of the U.S. Tax Cuts and Jobs Act (the “Tax Act”) enacted in December 2017. The remainder of the increase was driven by net sales growth, partially offset by higher production costs and selling, general and administrative expenses.

●

Excluding approximately $4.0 million ($2.5 million after taxes) of costs related to the Separation in the second quarter of fiscal 2018, net income attributable to Lamb Weston increased $39.9 million to $119.0 million. Approximately $15 million of the increase related to a lower U.S. corporate tax rate as a result of the Tax Act. The remainder of the increase reflects growth in income from operations.

Diluted earnings per share increased ~~$0.22~~28% to $0.74, and includes a $0.10 benefit from lower income tax expense related to the Tax Act, partially offset by a $0.06 decrease related to the acquisition of the remaining interest of our Lamb Weston BSW joint venture discussed further in “Operating Results” below. The remaining increase in diluted earnings per share was driven by growth in income from operations.

$0.95, while Adjusted Diluted EPS increased ~~$0.26~~19% to ~~$0.80. Approximately $0.10 of the increase was driven by a lower U.S. corporate tax rate as a result of the Tax Act. The remainder of the increase reflects growth in income from operations.~~

$0.95

●

~~Adjusted~~ EBITDA including unconsolidated joint ventures increased ~~$33.9 million, or 18%~~17%, to ~~$222.8~~$260.9 million ~~reflecting growth in income from operations.~~

Gross profit increased $40.8 million, or 20%, to $249.0 million, driven by favorable price/mix, volume growth and supply chain efficiency savings, partially offset by transportation, warehousing, input and manufacturing cost inflation. Gross profit included a $1.7 million loss related to unrealized mark-to-market adjustments and realized settlements associated with commodity hedging contracts in the current quarter, compared with a $0.6 million loss in the prior year.

Equity method investment earnings declined $1.9 million to $10.2 million, and included a $1.1 million unrealized loss related to mark-to-market adjustments associated with currency and commodity hedging contracts compared to a $3.1 million loss in the prior year quarter. Excluding these adjustments, earnings from equity method investments declined $3.9 million due primarily to increased raw potato costs associated with a poor crop in Europe.

~~Net cash provided by operating activities through the first half of fiscal 2019 was $316.8~~ ~~million, compared with $182.2~~ ~~million in the prior year period. During the first half of fiscal 2019, we added $170.4~~ ~~million of capital assets and paid $56.0~~ ~~million in dividends to stockholders.~~

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 ~~expect~~continue to ~~address the increase in demand~~execute 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 during~~key markets such as Australia and South America. In the ~~third quarter~~first 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

~~Table of Contents~~

~~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 ~~network~~network.

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 ~~serve~~the 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 growth~~business in ~~volume demand and high industry manufacturing capacity utilization levels. A number of manufacturers, including Lamb Weston, have announced intentions to add production capacity, largely~~fiscal 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 ease~~may temper the ~~industry’s near-term production constraints. In addition, compared with fiscal 2018, we are experiencing~~supply of frozen potato products until a ~~higher~~new potato crop is harvested beginning in the summer of 2020. We expect the rate of inflation for many of our ~~manufacturing,~~ commodity and ~~other input~~manufacturing 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 to~~as a result of investments ~~to upgrade our information systems, including~~in our enterprise resource planning ~~infrastructure; investments~~infrastructure, 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, we~~We 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,

Table of ~~the~~ ~~Condensed Notes to Consolidated Financial Statements in “Part I, Item 1. Financial Statements” of this report.~~Contents

~~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.

~~Table of Contents~~

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)~~

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 ~~2019~~2020 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 as~~an approximate 3 percentage point benefit from acquisitions, and an approximate 1 percentage point benefit from additional shipping days related to the ~~benefit~~timing 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 in~~initiated during the ~~prior year, as well as~~quarter 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%, primarily~~4 percent, driven by ~~distribution gains~~increased 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 branded~~3 percent, driven by favorable mix and ~~private label portfolios, as well as improved mix.~~pricing actions.

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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 prices~~2019, 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 ~~2019~~2020 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, primarily~~2020, driven by ~~transportation, warehousing, manufacturing and input~~

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~~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 higher~~favorable 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, primarily~~2019, due to higher sales ~~volumes as well as transportation, warehousing, manufacturing and~~volumes; 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 nominally~~2020 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 was~~2019. 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 ~~improved~~lower 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 ~~2019~~2020 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 approximately~~systems capabilities, which included more than $2 million of ~~unfavorable foreign exchange, which was more than~~expense associated with designing and implementing a new enterprise resource planning system. These increases were partially offset by an ~~approximately~~approximate $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, ~~net~~net” was the result of a lower ~~level of~~average 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.

Table of ~~the Form 10-K.~~Contents

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 quarter~~respectively, in our Consolidated Statements of ~~fiscal 2018.~~Earnings. The ~~lower~~effective tax rate invaries from the ~~second quarter~~U.S. statutory tax rate of ~~fiscal 2019 is primarily attributable~~21% principally due to the ~~effects~~impact of ~~the Tax Act, as well as the benefit of foreign-related~~U.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 ~~2019~~2020 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 ~~current~~second 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 $3.9~~increased $6.4 million, largely reflecting ~~higher~~lower 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 Notes~~Europe.

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.~~

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~~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.

~~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)~~

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 ~~2019~~2020 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~~

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~~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 the~~an approximate two-and-a-half

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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 of~~improved mix and pricing actions ~~taken~~initiated in the ~~prior year, as well as improved mix. Volume declined 1% largely due to the loss~~fall of ~~some lower-margin volume, partially offset by growth~~2018 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%, primarily~~6 percent, driven by ~~distribution gains~~increased sales of ~~Grown in Idaho~~ ~~and other branded~~private label products as well as ~~private label~~Grown in Idaho and other branded products. Price/mix increased ~~9%,~~3 percent, driven by ~~higher prices across the branded~~favorable 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 prices~~2019, 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 ~~2019~~2020 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 ~~Richland~~Hermiston production line. ~~Advertising and promotion spending increased~~The increase in ~~the first half~~cost of ~~fiscal 2019 as compared to the first half of fiscal 2018.~~sales was partially offset by lower transportation costs.

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, primarily~~2020, 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 higher~~favorable 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 and~~volumes; 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 $6.9~~declined $1.7 million ~~up $2.7~~to $5.2 million ~~or 64%,~~ in the first half of fiscal ~~2019~~2020 as compared to the first half of fiscal ~~2018, driven by~~2019, 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 decrease~~an 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 ~~gain~~loss related to the contracts in the prior year period. Excluding these adjustments, Other segment product contribution margin ~~increased $4.2~~declined $3.4 million, largely due to ~~improved~~lower 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 ~~2019~~2020 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 $6~~was 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

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~~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

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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, ~~net~~net” was the result of ~~higher~~the 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 half~~respectively, in our Consolidated Statements of ~~fiscal 2018.~~Earnings. The ~~lower~~effective tax rate invaries from the ~~first half~~U.S. statutory tax rate of ~~fiscal 2019 is primarily attributable~~21% 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-measurement~~impact of U.S. ~~deferred~~state taxes, ~~of $39.9 million~~foreign 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 ~~2019~~2020 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 ~~gain~~unrealized 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.

3228

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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:


	Twenty-Six Weeks Ended
	November 25,		November 26,
	2018		2017			Inc (Dec)

							Twenty-Six Weeks Ended
							November 24,		November 25,			Provided by
							2019		2018			(Used for)
Net cash flows provided by (used for):
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		(81.4)		(15.9)		(65.5)		(93.6)		(81.4)		(12.2)
		66.7		10.6		56.1
								11.5		66.7		(55.2)
Effect of exchange rate changes on cash and cash equivalents		(0.7)		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)

Operating Activities

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 ~~2019~~2020 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.~~sales and receivables, and the timing of grower payments.

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 in~~The 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 $81.4~~increased $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 ~~half~~quarter of fiscal ~~2019, financing activities primarily related~~2020, we amended our credit agreement to ~~the payment of $56.0 million in dividends to common stockholders, $20.3~~refinance $300.0 million of ~~debt repayments, primarily scheduled payments under our~~the $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 million~~our 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.


	Thirteen Weeks Ended				Twenty-Six Weeks Ended
	November 24,		November 25,		November 24,		November 25,
	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

Thirteen Weeks Ended

Twenty-Six Weeks Ended

November 25,

November 26,

November 25,

November 26,


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

34.0

41.5

68.3

85.6
Income from operations

174.0

139.8

326.6

277.4
Depreciation and amortization

37.4

34.5

74.8

64.3
Items impacting comparability (a)

Expenses related to the Separation

—

4.0

—

6.2
Adjusted EBITDA (b)

211.4

178.3

401.4

347.9

Unconsolidated Joint Ventures

Equity method investment earnings

10.2

12.1

30.1

32.1
Interest expense, income tax expense, and depreciation and amortization

included in equity method investment earnings

7.0

5.9

14.5

13.6
Add: EBITDA from unconsolidated joint ventures

17.2

18.0

44.6

45.7

Consolidated Joint Ventures

Income attributable to noncontrolling interests

(5.0)

(6.4)

(8.6)

(11.3)
Interest expense, income tax expense, and depreciation and amortization

included in income attributable to noncontrolling interests

(0.8)

(1.0)

(1.7)

(2.0)
Subtract: EBITDA from consolidated joint ventures

(5.8)

(7.4)

(10.3)

(13.3)

Adjusted EBITDA including unconsolidated joint ventures

$
222.8

$
188.9

$
435.7

$
380.3

(a)

~~(a)~~

The thirteen weeks and twenty-six weeks ended November 26, 2017, include $4.0 million and $6.2 million, respectively, of pre-tax expenses related to the Separation. The expenses related primarily to professional fees and other employee-related costs.

~~(b)~~

~~Adjusted~~ EBITDA includes EBITDA from consolidated joint ventures.

for the twenty-six weeks ended November 25, 2018.

(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.

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


	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

Thirteen Weeks Ended

Twenty-Six Weeks Ended

November 25,

November 26,

November 25,

November 26,

2018 (a)

2017 (a)

2018 (a)

2017 (a)
As reported

$
0.74

$
0.52

$
1.47

$
1.08
Items impacting comparability:

—

—

Increase in redemption value of noncontrolling interests (b)

0.06

—

0.06

—
Expenses related to the Separation (c)

—

0.02

—

0.03
Total items impacting comparability

0.06

0.02

0.06

0.03
Adjusted

$
0.80

$
0.54

$
1.53

$
1.11

(a)

~~(a)~~

Diluted weighted average common shares were ~~147.4~~147.1 million and ~~146.9~~147.4 million for the thirteen weeks ended November 24, 2019 and November 25, 2018, respectively, and ~~November 26, 2017, respectively;~~147.1 million and 147.3 ~~million and 146.8~~ million for the twenty-six weeks ended November 24, 2019 and November 25, 2018, ~~and November 26, 2017,~~ respectively.

(b)

~~(b)~~

During the thirteen and twenty-six weeks ended November 25, 2018, net income available to common stockholders and diluted earnings per share included accretion expense, net of estimated tax benefits, of $9.5 million, or $0.06 per share, which we recorded to increase the redeemable noncontrolling interest to the amount we agreed to pay to acquire the remaining 50.01% interest in our Lamb Weston BSW joint venture. 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, includes 100% of Lamb Weston BSW’s earnings beginning November 2, 2018, the date we entered into the BSW Agreement. See Note 9, 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.

~~(c)~~

The thirteen weeks and twenty-six weeks ended November 26, 2017, include $4.0 million ($2.5 million after-tax) and $6.2 million ($3.9 million after-tax), respectively, of pre-tax expenses related to the Separation. The expenses related primarily to professional fees and other employee-related costs. Items impacting comparability are tax-effected at the marginal rate based on the applicable tax jurisdiction.

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 ~~Standards~~Pronouncements

For a ~~listing~~list 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’s~~Our 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

~~Table of Contents~~

of the contracts, real or hypothetical, would be substantially offset by an inverse change in the value of the underlying hedged item.

Table of Contents

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~~$6.0 million annually ($~~5.0~~4.6 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 assurance~~a material weakness in our internal control over financial reporting that ~~information required~~was 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 under~~considered remediated until the ~~Exchange Act~~applicable control operates for a sufficient period of time and management has concluded, through testing, that the control objective is ~~recorded, processed, summarized, and reported within~~achieved. We expect that the ~~time periods specified in SEC rules and forms, and is accumulated and communicated~~remediation 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, with~~Other than the ~~participation of our Chief Executive Officer and Chief Financial Officer, evaluated any change~~remediation 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 determined~~of fiscal 2020 that ~~there was no change in our internal control over financial reporting during the quarter covered by this report that has~~have materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.

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Table of Contents

Part II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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.

ITEM 1A. RISK FACTORS

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 made~~Total 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

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)

~~(a)~~

Represents shares withheld from employees to cover income and payroll taxes on equity awards that vested during the ~~period.~~

period and repurchased shares of our common stock under our publicly announced share repurchase program, which were repurchased at a weighted average price of $76.44.

(b)

~~(b)~~

OnIn December ~~20,~~ 2018, ~~the~~our Board of Directors authorized a $250.0 million share repurchase 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.~~date. Repurchases may be made at our discretion from time to time inon the open market, subject to applicable laws, or through privately negotiated ~~transactions in accordance with applicable securities regulations.~~

transactions.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

3834

Table of Contents

ITEM 6. EXHIBITS

Exhibit Number		Exhibit Description

31.1		Section 302 Certificate of Chief Executive Officer

31.2		Section 302 Certificate of Chief Financial Officer

32.1		Section 906 Certificate of Chief Executive Officer

32.2		Section 906 Certificate of Chief Financial Officer

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.
~~101.1~~
101.SCH		~~The following materials from Lamb Weston Holdings, Inc.’s Quarterly Report on Form 10-Q for the quarter ended November 25, 2018, formatted~~XBRL Taxonomy Extension Schema Document.

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 XBRL (eXtensible Business Reporting Language): (i) the Consolidated Statements of Earnings, (ii) the Consolidated Statements of Comprehensive Income (Loss), (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of Cash Flows, (v) Condensed Notes to Consolidated Financial Statements, and (vi) document and entity information.Exhibits 101.*)

3935

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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 ~~4th~~3rd day of January, ~~2019.~~2020.

4036

Delaware		61-1797411
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

599 S. Rivershore Lane Eagle, Idaho		83616
(Address of principal executive offices)		(Zip Code)


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


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


	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		616.4		1,346.7		1,237.6
Gross profit		249.0		208.2		479.6		404.5
Selling, general and administrative expenses		75.0		68.4		153.0		127.1
Income from operations		174.0		139.8		326.6		277.4
Interest expense, net		26.2		27.4		53.0		52.6
Income before income taxes and equity method earnings		147.8		112.4		273.6		224.8
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		5.0		6.4		8.6		11.3
Net income attributable to Lamb Weston Holdings, Inc.	$	119.0	$	76.6	$	226.8	$	160.0
Earnings per share
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


	Thirteen Weeks Ended						Thirteen Weeks Ended
	November 25, 2018						November 26, 2017
			Tax						Tax
	Pre-Tax		(Expense)		After-Tax		Pre-Tax		(Expense)		After-Tax
	Amount		Benefit		Amount		Amount		Benefit		Amount
Net income	$	158.0	$	(34.0)	$	124.0	$	124.5	$	(41.5)	$	83.0
Other comprehensive income (loss):
Reclassification of post-retirement benefits out of accumulated other comprehensive income		0.2		—		0.2		—		—		—
Unrealized currency translation losses		(7.6)		—		(7.6)		(0.4)		—		(0.4)
Comprehensive income (loss)		150.6		(34.0)		116.6		124.1		(41.5)		82.6
Less: Comprehensive income attributable to noncontrolling interests		5.0		—		5.0		6.4		—		6.4
Comprehensive income (loss) attributable to Lamb Weston Holdings, Inc.	$	145.6	$	(34.0)	$	111.6	$	117.7	$	(41.5)	$	76.2


	November 25,		May 27,
	2018		2018
ASSETS
Current assets:
Cash and cash equivalents	$	121.6	$	55.6
Receivables, less allowance for doubtful accounts of $0.6 and $0.6		340.1		225.9
Inventories		628.2		549.7
Prepaid expenses and other current assets		44.7		99.2
Total current assets		1,134.6		930.4
Property, plant and equipment, net		1,521.4		1,420.8
Goodwill		132.6		135.1
Intangible assets, net		34.4		35.4
Equity method investments		218.2		219.8
Other assets		11.3		11.1
Total assets	$	3,052.5	$	2,752.6

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings	$	13.1	$	9.6
Current portion of long-term debt and financing obligations		39.5		38.7
Accounts payable		376.2		254.4
Accrued liabilities		268.0		216.0
Total current liabilities		696.8		518.7
Long-term liabilities:
Long-term debt, excluding current portion		2,321.8		2,336.7
Deferred income taxes		114.8		92.1
Other noncurrent liabilities		86.2		84.3
Total long-term liabilities		2,522.8		2,513.1
Commitments and contingencies
Redeemable noncontrolling interest		—		55.6
Stockholders' equity:
Common stock of $1.00 par value, 600,000,000 shares authorized; 146,616,397 and 146,395,866 shares issued		146.6		146.4
Additional distributed capital		(900.9)		(900.4)
Retained earnings		610.4		426.4
Accumulated other comprehensive loss		(15.9)		(4.3)
Treasury stock, at cost, 124,494 and 63,534 common shares		(7.3)		(2.9)
Total stockholders' deficit		(167.1)		(334.8)
Total liabilities and stockholders’ equity	$	3,052.5	$	2,752.6


	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


	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


	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


	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	$	—


			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


	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


			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


	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


	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%


					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)