Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
☒☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended May 31, 2020
OR
☐☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from to
Commission File Number: 1-37830
LAMB WESTON HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
599 S. Rivershore Lane
Eagle, Idaho
(Address of principal executive offices)
61-1797411
(I.R.S. Employer
Identification No.)
83616
(Zip Code)
(208) 938-1047
(Registrant’s telephone number, including area code)
Securities registered pursuant to section 12(b) of the Act:
Title of each class
Common Stock, $1.00 par value
Trading
Symbol(s)
LW
Name of each exchange on which registered
New York Stock Exchange
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large
accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
☒
Non-accelerated filer
☐
Smaller reporting company
Emerging growth company
☐
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant
to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the
Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the voting common stock of Lamb Weston Holdings, Inc. held by non-affiliates as of November 22, 2019 (the last trading day of the registrant's most recently completed second fiscal
quarter) was approximately $12.1 billion based upon the closing sale price of the common stock as reported on the New York Stock Exchange on such date. As of July 20, 2020, the registrant had 146,059,508 shares
of common stock, par value $1.00 per share, outstanding.
Documents Incorporated by Reference
Portions of the registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission in connection with its 2020 Annual Meeting of Stockholders are incorporated by reference into Part III
of this report.
Table of Contents
Part I
Table of Contents
Business
Item 1
Item 1A Risk Factors
Item 1B Unresolved Staff Comments
Item 2
Item 3
Item 4
Properties
Legal Proceedings
Mine Safety Disclosures
Part II
Item 5
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 6
Item 7
Item 7A Quantitative and Qualitative Disclosures About Market Risk
Item 8
Item 9
Item 9A Controls and Procedures
Item 9B Other Information
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Part III
Item 10 Directors, Executive Officers and Corporate Governance
Item 11
Item 12
Item 13
Item 14
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Part IV
Item 15
Item 16
Signatures
Exhibits and Financial Statement Schedules
Form 10-K Summary
2
3
10
21
21
21
22
22
24
25
41
42
85
86
87
87
87
88
88
88
89
93
94
Table of Contents
Forward-Looking Statements
This Annual Report on Form 10-K contains forward-looking statements within the meaning of the federal securities
laws. Words such as “will,” “continue,” “may,” “expect,” “anticipate,” “would,” “could,” “believe,” “estimate,” “grow,” “drive,”
“support,” “evaluate,” “enhance,” “adjust,” “maintain,” “improve,” “invest,” “outlook,” and variations of such words and similar
expressions are intended to identify forward-looking statements. Examples of forward-looking statements include, but are not
limited to, statements regarding our plans, execution, capital investments, operational costs, cash flows, liquidity, dividends,
share repurchases, ERP implementation and business outlook and prospects, as well as the impact of the COVID-19 pandemic on
the industry and consumer demand. 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: impacts on our business due to health pandemics or other contagious outbreaks, such
as the current COVID-19 pandemic, including impacts on demand for our products, increased costs, disruption of supply or other
constraints in the availability of key commodities and other necessary services; 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; and other risks described in our reports filed from time to time with the SEC, including those described under
the heading “Item 1A. Risk Factors” in this report. 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.
ITEM 1. BUSINESS
PART I
Lamb Weston Holdings, Inc. (“we,” “us,” “our,” “the Company,” or “Lamb Weston”), along with its joint venture
partners, is a leading global producer, distributor, and marketer of value-added frozen potato products and is headquartered in
Eagle, Idaho. We, along with our joint venture partners, are the number one supplier of value-added frozen potato products in
North America. We, along with our joint venture partners, are also a leading supplier of value-added frozen potato products
internationally, with a strong and growing presence in high-growth emerging markets. We, along with our joint venture partners,
offer a broad product portfolio to a diverse channel and customer base in over 100 countries. French fries represent the majority
of our value-added frozen potato product portfolio.
We were organized as a Delaware corporation in July 2016, as a wholly owned subsidiary of Conagra Brands, Inc.
(formerly, ConAgra Foods, Inc., “Conagra”). On November 9, 2016, we separated from Conagra and became an independent
publicly traded company through the pro rata distribution by Conagra of 100% of our outstanding common stock to Conagra
stockholders (“Separation”). Our common stock trades under the ticker symbol “LW” on the New York Stock Exchange
(“NYSE”).
Our consolidated financial statements include the accounts of Lamb Weston Holdings, Inc. and its wholly owned
subsidiaries.
Considerations related to the novel coronavirus (“COVID-19”)
In December 2019, an outbreak of illness caused by a novel coronavirus called COVID-19 was identified in Wuhan,
China. On January 31, 2020, the United States declared a public health emergency related to the novel coronavirus and on March
11, 2020, the World Health Organization declared that the spread of COVID-19 qualified as a global
3
Table of Contents
pandemic. In an attempt to minimize the transmission of COVID-19, significant social and economic restrictions have been
imposed in the United States and internationally. These restrictions have had negative implications for portions of our business
and the U.S. and global economy. In the preparation of these financial statements and related disclosures we have assessed the
impact that COVID-19 has had on our estimates, assumptions, and forecasts, and made additional disclosures, as necessary. As
the COVID-19 situation is unprecedented and ever evolving, future events and effects related to the illness cannot be determined
with precision and actual results could significantly differ from estimates or forecasts.
See Item 1A. Risk Factors and Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations, for further discussion of COVID-19 considerations.
Segments
We have four reportable segments: Global, Foodservice, Retail, and Other. For segment financial information see
Note 14, Segments, of the Notes to Consolidated Financial Statements in “Part II, Item 8. Financial Statements and
Supplementary Data” of this Form 10-K.
Global
Our Global segment includes frozen potato products sold in North America and international markets to the top 100
North American based restaurant chains and international customers comprised of global and regional restaurant chains,
foodservice distributors, and retailers. We have included non-U.S. and non-Canadian retail and foodservice customers in the
Global segment due to efficiencies associated with coordinating sales to all customer types within specific markets, as well as due
to these customers’ smaller scale and dependence on local economic conditions. The Global segment’s product portfolio includes
frozen potatoes, sweet potatoes, and appetizers sold under the Lamb Weston brand, as well as many customer labels.
Foodservice
Our Foodservice segment includes frozen potato products sold throughout the United States and Canada to commercial
distributors, restaurant chains outside the top 100 North American based restaurant chains, and non-commercial channels. The
Foodservice segment’s primary products are frozen potatoes, sweet potatoes, commercial ingredients, and appetizers sold under
the Lamb Weston brand, as well as many customer labels.
Retail
Our Retail segment includes consumer facing frozen potato products sold primarily to grocery, mass merchants, club,
and specialty retailers. The Retail segment’s primary products are frozen potatoes and sweet potato items sold under our owned
or licensed brands, including Grown in Idaho and Alexia, other licensed equities comprised of brand names of major North
American restaurant chains, and the retailers’ own brands.
Other
The Other reporting segment primarily includes our vegetable and dairy businesses and mark-to-market gains and losses
associated with commodity hedging contracts before the commodities are used in our business segments.
Joint Venture Relationships
We conduct some of our business through three unconsolidated joint ventures and include our share of the earnings of
these affiliates as equity method investment earnings in our consolidated financial statements based on our
4
Table of Contents
economic ownership interest in each of these joint ventures. These joint ventures produce and market value-added frozen potato
products for our customers:
● We hold a fifty percent ownership interest in Lamb-Weston/Meijer v.o.f. (“Lamb-Weston/Meijer”), a joint venture
with Meijer Frozen Foods B.V. Headquartered in the Netherlands, this joint venture manufactures and sells frozen
potato products principally in Europe.
● We hold a fifty percent ownership interest in Lamb-Weston/RDO Frozen (“Lamb-Weston/RDO”), a joint venture
with RDO Frozen Co. This joint venture operates a potato processing facility in Minnesota. We also provide all
sales and marketing services to Lamb-Weston/RDO and receive a fee for these services based on a percentage of
the net sales of the venture.
● We hold a fifty percent ownership interest in Lamb Weston Alimentos Modernos S.A. (“LWAMSA”), a joint
venture with Sociedad Commercial del Plata. Headquartered in Argentina, this joint venture manufactures and sells
frozen potato products principally in South America.
For more information, see Note 6, Investments in Joint Ventures, of the Notes to Consolidated Financial Statements in
“Part II, Item 8. Financial Statements and Supplementary Data” of this Form 10-K.
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, a potato
processing joint venture (“Lamb Weston BSW”). Prior to entering into the BSW Agreement, we were the primary beneficiary of
Lamb Weston BSW, a variable interest entity, and 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. Our Consolidated Statements of Earnings include 100% of Lamb
Weston BSW’s earnings beginning November 2, 2018. For more information, see Note 6, Investments in Joint Ventures, of the
Notes to Consolidated Financial Statements in “Part II, Item 8. Financial Statements and Supplementary Data” of this Form 10-K.
Sales, Distribution and Customers
We benefit from strong relationships with a diverse set of customers. We sell our products through a combined network
of internal sales personnel and independent brokers, agents, and distributors to chain restaurants, wholesale, grocery, mass
merchants, club retailers, specialty retailers, and foodservice distributors and institutions, including businesses, educational
institutions, independent restaurants, regional chain restaurants, and convenience stores. We have long-tenured relationships with
leading quick service and fast casual restaurants, global foodservice distributors, large grocery retailers, and mass merchants.
Our largest customer, McDonald’s Corporation, accounted for approximately 10% of our consolidated net sales in both
fiscal 2020 and 2019, and 11% of our consolidated net sales in fiscal 2018. No other customer accounted for more than 10% of
our fiscal 2020, 2019, or 2018 consolidated net sales. No customer accounted for more than 10% of our consolidated accounts
receivable as of May 31, 2020 or May 26, 2019.
Research and Development
We leverage our research and development resources for both growth and efficiency initiatives. We seek to drive growth
through innovation by creating new products, enhancing the quality of existing products, and participating in joint menu planning
exercises with our customers. We also emphasize sustainability in our research and development activities and continue to drive
processing innovations aimed at reducing waste and water usage and improving food safety. Research and development expenses
were $15.4 million in both 2020 and 2019, and $13.5 million in fiscal 2018.
5
Table of Contents
Trademarks, Licenses and Patents
Our trademarks are material to our business and are protected by registration or other means in the United States and
most other geographic markets where the related food items are sold. Depending on the country, trademarks generally remain
valid for as long as they are in use and their registrations are maintained. Trademark registrations generally are for renewable,
fixed terms. Our significant trademarks include: Lamb Weston, Lamb’s Supreme, Lamb Weston Seeing Possibilities in Potatoes
(and design), Lamb’s Seasoned, LW Private Reserve, Stealth Fries, and Sweet Things. We also sell certain products, such as
Grown in Idaho and Alexia, which we license from third parties.
We own numerous patents worldwide. We consider our portfolio of patents, patent applications, patent licenses,
proprietary trade secrets, technology, know-how processes, and related intellectual property rights to be material to our
operations. Patents, issued or applied for, cover inventions, including packaging, manufacturing processes, equipment,
formulations, and designs. Our issued patents extend for varying periods according to the date of the patent application filing or
grant and the legal term of patents in the various countries where patent protection is obtained. The actual protection afforded by
a patent, which can vary from country to country, depends upon the type of patent, the scope of its coverage as determined by the
patent office or courts in the country, and the availability of legal remedies in the country. While we consider our patent portfolio
to be material to our business, the loss of one patent or a group of related patents would not have a material adverse effect on our
business.
Raw Materials and Packaging
Our primary raw materials are potatoes, edible oils, and packaging. We source a significant amount of our raw potatoes
under both strategic, long-term grower relationships and shorter-term annual contracts. In the United States, most of the potato
crop used in our products is grown in Washington, Idaho, and Oregon. For Lamb-Weston/Meijer, European growing regions for
the necessary potatoes are concentrated in the Netherlands, Austria, Belgium, Germany, France, and the United Kingdom. We
also have growing regions in China, Australia, and Argentina. We believe that the grower networks to which we have access
provide a sufficient source of raw potato inputs year-to-year. We source edible oils through strategic relationships with key
suppliers, and we source energy and packaging materials through multiple suppliers under a variety of agreement types.
The prices paid for these raw materials, as well as other raw materials used in making our products, generally reflect
factors such as weather, commodity market fluctuations, currency fluctuations, tariffs, and the effects of governmental
agricultural programs. Although the prices of raw materials can be expected to fluctuate as a result of these factors, we believe
such raw materials to be in adequate supply.
From time to time, we have faced increased costs for our significant raw materials, packaging and energy inputs. We
seek to mitigate higher input costs through long-term relationships, contract strategies, and hedging activities where an active
market for an input exists, as well as through our pricing and productivity initiatives.
Manufacturing
We operate 18 manufacturing facilities for our products. See "Item 2. Properties" for more information about our
manufacturing facilities. Our joint ventures operate a total of nine manufacturing facilities.
In addition to our own manufacturing facilities, we source a portion of our products under “co-packing” agreements, a
common industry practice in which manufacturing is outsourced to other companies. We regularly evaluate our co-packing
arrangements to ensure the most cost-effective manufacturing of our products and to utilize company-owned manufacturing
facilities most effectively.
International Operations
At May 31, 2020, we had operations in eighteen countries, with manufacturing and processing facilities in four
countries. Foreign net sales, including sales by domestic segments to customers located outside of the United States, were
approximately $752.9 million, $742.7 million, and $665.8 million in fiscal 2020, 2019, and 2018, respectively. Our long-
6
Table of Contents
lived assets located outside of the United States are not significant. See Note 14, Segments, of the Notes to Consolidated
Financial Statements in “Part II, Item 8. Financial Statements and Supplementary Data” of this Form 10-K for additional
information on our U.S. and non-U.S. operations. Also see “Item 2. Properties,” for more information on our manufacturing and
other facilities. For a discussion of risks related to our operations outside the United States, see “Item 1A. Risk Factors” of this
Form 10-K.
Backlog
We manufacture primarily to fill customer orders from finished goods inventories. While at any given time there may be
some backlog of orders due to the seasonal nature of our manufacturing activities and associated inventory, such backlog is not
material in respect to annual net sales, and the changes of backlog orders from time to time are not significant.
Competition
The value-added frozen potato products industry in North America, Europe and other international markets is highly
competitive. Competitors include large North American and European frozen potato product companies that compete globally, as
well as local and regional companies. Significant competitors include Agristo NV, Aviko B.V., Cavendish Farms Corporation,
Clarebout Potatoes NV, Farm Frites International B.V., J.R. Simplot Company, The Kraft Heinz Company, McCain Foods
Limited, and Mydibel S.A. Some of our competitors are larger and have substantially more financial, sales and marketing, and
other resources. We compete with producers of similar products on the basis of, among other things, customer service, value,
product innovation, product quality, brand recognition and loyalty, price, and the ability to identify and satisfy customer
preferences. The markets in which we operate are expected to remain highly competitive for the foreseeable future. See also
“Item 1A. Risk Factors – Increased competition may result in reduced sales or profits” of this Form 10-K.
Seasonality
Our product contribution margin percentage, inventory levels, net sales and cash flows are affected by seasonality. In
general, our product contribution margin percentage tends to be highest in our fiscal third quarter, reflecting the benefit of
freshly-harvested potatoes. We typically harvest potatoes in the Pacific Northwest of the United States in July through October,
which is primarily in our fiscal second quarter. Freshly-harvested potatoes process more efficiently in our production lines and
are not subject to storage or secondary transport costs. We typically hold about 60 days of finished goods inventory on a first-in-
first-out basis, so the relatively favorable costs primarily incurred from our fiscal second quarter harvest flow through our income
statement in our fiscal third quarter. Inventory levels also tend to be higher in our fiscal third quarter, requiring more working
capital at that time. In general, net sales and cash flows tend to be higher in our fiscal fourth quarter, reflecting customer and
consumer buying patterns.
Due to severe impacts of the government mandated shutdowns in response to the COVID-19 pandemic, seasonal
variations in the demand for our products in fourth quarter of fiscal 2020 differed from prior years. The fiscal fourth quarter
operating results are not necessarily indicative of operating results for the entire year.
Employees
As of June 30, 2020, we had approximately 7,700 employees. Approximately 800 of these employees work outside of
the United States. Approximately 23% of our employees are parties to collective bargaining agreements on terms that we believe
are typical for the industry in which we operate. Most of the union workers at our facilities are represented under contracts that
expire at various times throughout the next several years. Collective bargaining agreements that represent approximately 19% of
our hourly employees, who are parties to collective bargaining agreements, expire in fiscal 2021. As these agreements expire, we
believe they will be renegotiated on terms satisfactory to us.
7
Table of Contents
Information About Our Executive Officers
The following are our executive officers as of July 20, 2020:
Name
Thomas P. Werner
Robert M. McNutt
Micheline C. Carter
Sharon L. Miller
Gerardo Scheufler
Michael J. Smith
Eryk J. Spytek
Title
Director, President and Chief Executive Officer
Senior Vice President and Chief Financial Officer
Senior Vice President and Chief Human Resources Officer
Senior Vice President and General Manager, Global Business Unit
Senior Vice President and Chief Supply Chain Officer
Senior Vice President and General Manager of Foodservice, Retail, Marketing
and Innovation
Senior Vice President, General Counsel and Corporate Secretary
Age
54
60
54
54
52
43
52
Thomas P. Werner has served as our President and Chief Executive Officer and a member of our Board of Directors
since November 2016. Prior to that, he served as President, Commercial Foods, for Conagra, a food company, since May 2015. In
that role, he led the company’s Lamb Weston and Foodservice businesses, as well as its previously divested Spicetec Flavors &
Seasonings and J.M. Swank operations. Mr. Werner also served as interim President of Conagra’s Private Brands from June 2015
through its divestiture in February 2016. Before his appointment as President, Commercial Foods, Mr. Werner served as Senior
Vice President of Finance for Conagra’s Private Brands and Commercial Foods operating segments from June 2013 to April
2015, and Senior Vice President of Finance for Lamb Weston from May 2011 until June 2013.
Robert M. McNutt has served as our Senior Vice President and Chief Financial Officer since January 2017. Prior to
joining Lamb Weston, Mr. McNutt served as Chief Financial Officer of Expera Specialty Solutions, LLC, a specialty paper
company, from September 2013 to December 2016. Mr. McNutt served as Senior Vice President and Chief Financial Officer for
Greif, Inc., an industrial packaging company, from January 2011 to July 2013, and as Senior Vice President and Chief Financial
Officer for Boise Inc., a packaging and paper products manufacturer, from February 2008 to January 2011.
Micheline C. Carter has served as our Senior Vice President and Chief Human Resources Officer since November 2016.
Ms. Carter joined Lamb Weston in September 2016. From July 2012 until September 2016, she served in a variety of roles with
The Kraft Heinz Company, a food and beverage company, including as Head of U.S. People and Performance and Global
Corporate Functions from November 2015 to September 2016, Vice President of Human Resources, Global Corporate Functions
from August 2015 until October 2015, Vice President of Human Resources, Cheese & Dairy from January 2015 until July 2015,
and Senior Director Human Resources & Global Exports from July 2012 until January 2015. Before joining The Kraft Heinz
Company, Ms. Carter served from February 2011 until July 2012 as Senior Director Human Resources, Solar Energy & Solar
Materials with MEMC Electronic Materials, Inc. (now known as SunEdison, Inc.), a supplier of silicon wafers to semiconductor
and photovoltaic cell companies. Before that, Ms. Carter served in a variety of roles with J. C. Penney Company, Inc., an apparel
and home furnishings retailer, Yum! Brands, Inc., an operator of quick service restaurants, and Texas Instruments Incorporated, a
semiconductor design and manufacturing company.
Sharon L. Miller has served as our Senior Vice President and General Manager, Global Business Unit since September
2016. Before that, she served as Conagra’s Vice President and General Manager, Lamb Weston Global Business Unit since 2015.
Since joining Conagra in 1999, Ms. Miller has held various leadership positions, including Vice President of Sales for Lamb
Weston's European joint venture, Lamb-Weston/Meijer. Prior to that, Ms. Miller was a key sales and business leader within
Lamb Weston in both the United States and Canada. She also has held various sales positions with North American food
manufacturers and foodservice distributors.
8
Table of Contents
Gerardo Scheufler has served as our Senior Vice President and Chief Supply Chain Officer since August 2019. Prior to
joining Lamb Weston, Mr. Scheufler served as the Vice President of Global Operations at Mondelez International, Inc., a food
and beverage company, from July 2014 until August 2019. During his tenure at Mondelez International, Mr. Scheufler oversaw a
major global restructuring program to optimize the global supply chain footprint, including the manufacturing, customer service,
quality, logistics, health, safety and environment, and innovation functions. Prior to that, Mr. Scheufler spent more than 20 years
at The Procter & Gamble Company, a consumer goods corporation, in a variety of roles of increasing responsibility after starting
his career in plant operations in 1990.
Michael J. Smith has served as our Senior Vice President and General Manager of Foodservice, Retail, Marketing and
Innovation since April 2018. Prior to that, he served as Senior Vice President, Growth and Strategy beginning in September 2016.
Mr. Smith also served as Vice President and General Manager of Lamb Weston Retail from May 2011 to September 2016, Vice
President and General Manager of Conagra’s Private Brands from March 2014 to February 2016, and Vice President of Global
Marketing of Lamb Weston from July 2012 to March 2014. Prior to joining Conagra in 2007, Mr. Smith held various brand
management roles at Dean Foods Company, a food and beverage company, and its WhiteWave division from May 2003 until
December 2007.
Eryk J. Spytek has served as our Senior Vice President, General Counsel and Corporate Secretary since October 2016.
From June 2015 until October 2016, Mr. Spytek was Of Counsel at Winston & Strawn LLP, a law firm. Before returning to
Winston & Strawn LLP, he served from December 2009 until April 2015 in a variety of roles with Mead Johnson Nutrition
Company, a manufacturer of infant formula, including as Vice President, Deputy General Counsel and Assistant Secretary from
April 2013 to April 2015 and as Vice President, Associate General Counsel and Assistant Secretary from December 2009 to
April 2013. Before that, Mr. Spytek served as Senior Vice President, General Counsel and Secretary at SIRVA, Inc., a moving
and relocation services provider, from February 2006 to February 2009. Before joining SIRVA, Inc., Mr. Spytek was a partner at
Winston & Strawn LLP.
Ethics and Governance
We have adopted a code of conduct that applies to all of our employees, as well as a code of ethics for senior corporate
financial officers that applies to our Chief Executive Officer, Chief Financial Officer, and Controller. These codes are available
on our website at www.lambweston.com through the “Investors—Corporate Governance” link. We will disclose any waiver we
grant to our Chief Executive Officer, Chief Financial Officer, or Controller under our codes, or certain amendments to the codes,
on our website at www.lambweston.com.
In addition, we adopted Corporate Governance Principles and charters for the Audit and Finance Committee,
Nominating and Corporate Governance Committee, and Compensation Committee. All of these materials are available on our
website at www.lambweston.com and will be provided free of charge to any stockholder requesting a copy by writing to:
Corporate Secretary, Lamb Weston Holdings, Inc., 599 S. Rivershore Lane, Eagle, Idaho 83616.
The information on our website is not, and shall not be deemed to be, a part of this Form 10-K or incorporated into any
other filings we make with the SEC.
Food Safety and Labeling
We are subject to extensive regulation, including, among other things, the Food, Drug and Cosmetic Act, as amended by
the Food Safety Modernization Act, the Public Health Security and Bioterrorism Preparedness and Response Act of 2002, and the
rules and regulations promulgated thereunder by the U.S. Food and Drug Administration (“FDA”). This comprehensive and
evolving regulatory program governs, among other things, the manufacturing, composition and ingredients, labeling, packaging,
and safety of food, including compliance with current Good Manufacturing Practices. In addition, the Nutrition Label Reform
Act of 2016 and regulations promulgated thereunder by the FDA, prescribes the format and content in which specific nutrition
information is required to appear on the labels of food products. We are also subject to regulation by certain other governmental
agencies, including the U.S. Department of Agriculture.
Our operations and products are also subject to state and local regulation, including the registration and licensing of
plants, enforcement by state health agencies of various state standards, and the registration and inspection of facilities.
9
Table of Contents
Compliance with federal, state, and local regulation is costly and time-consuming. Enforcement actions for violations of federal,
state, and local regulations may include seizure and condemnation of products, cease and desist orders, injunctions, voluntary
recalls or market withdrawals of products, and monetary penalties. We believe that our practices are sufficient to maintain
compliance with applicable government regulations.
Environmental, Health and Safety Regulations
We are subject to a number of federal, state, and local laws and other regulations relating to the protection of the
environment and the safety and health of personnel and the public. These requirements apply to a broad range of our activities,
including: the discharge of pollutants into the air, land and water; the identification, generation, storage, handling, transportation,
disposal, recordkeeping, labeling, spill prevention and reporting of, and emergency response in connection with, hazardous
materials; noise emissions from our facilities; and safety and health standards, practices, and procedures that apply to the
workplace and the operation of our facilities.
In order to comply with these requirements, we may need to spend substantial amounts of money and other resources
from time to time to (i) construct or acquire new equipment, (ii) acquire or amend permits to authorize facility operations, (iii)
modify, upgrade, or replace existing and proposed equipment, and (iv) clean up or decommission our facilities or other locations
in accordance with regulatory requirements. Our capital and operating budgets include costs and expenses associated with
complying with these laws and other requirements.
Available Information
We make available, free of charge on our website at www.lambweston.com, our annual reports on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a)
or 15(d) of the Securities Exchange Act of 1934, as soon as reasonably practicable after we electronically file them with, or
furnish them to, the SEC. The SEC also maintains an internet site that contains reports, proxy and information statements, and
other information regarding issuers that file electronically with the SEC; the address of that site is https://www.sec.gov. We use
our website, through the “Investors” link, as a channel for routine distribution of important information, including news releases,
analyst presentations, and financial information. Additionally, in June 2020, we released our first environmental, social, and
governance report
website at
https://esg.lambweston.com. The information on our website, including our environmental, social, and governance report, is not,
and shall not be deemed to be, a part of this Form 10-K or incorporated into any other filings we make with the SEC unless
expressly noted.
can be found on our
sustainability programs.
describes our
The report
that
ITEM 1A. RISK FACTORS
Our business is subject to various risks and uncertainties. Any of the risks and uncertainties described below could
materially and adversely affect our business, financial condition, and results of operations and should be considered in evaluating
us. While we believe we have identified and discussed below the material risks affecting our business, there may be additional
risks and uncertainties that we do not presently know or that we do not currently believe to be material that may adversely affect
our business, financial condition, or results of operations in the future.
Government actions to control the spread of COVID-19 have adversely impacted, and are likely to continue to adversely
impact, our business, financial condition and results of operations.
The efforts by national, state and local governments worldwide to control the spread of COVID-19 have resulted in
widespread measures aimed at containing the disease such as quarantines, travel bans, shutdowns, and shelter-in-place or stay-at-
home orders, which have significantly restricted the movement of people and goods. These restrictions and measures, and our
efforts to act in the best interests of our employees, customers, suppliers, vendors, and joint venture and other business partners,
have affected and are continuing to affect our business and operations by, among other things, causing the closure of many sit
down restaurants; reducing demand at quick service restaurants; causing us to modify a number of our normal business practices
including the ongoing evaluation of our manufacturing employees’ COVID-19 symptom status; evaluating the need for facility
closures or temporary shutdowns to protect employee health; disrupting production timing; disrupting our supply chain;
disrupting the transport of goods from our supply chain to us and from us
10
Table of Contents
to our customers; requiring modifications to our business processes; requiring the modification of business continuity plans;
requiring the implementation of social distancing measures that require changes to existing manufacturing practices; disrupting
business travel; disrupting our ability to staff our on-site manufacturing and research and development facilities; delaying capital
expansion projects and other capital expenditures; and necessitating teleworking by a large proportion of our workforce. These
impacts have caused, and are expected to continue to cause, changes in the mix of products sold, decreases in revenue, and
increases in costs resulting in decreased profitability and cash flows from operations, which have caused, and are expected to
cause, an adverse effect on our business, financial condition and results of operations that may be material.
In addition, we cannot predict the impact that the COVID-19 pandemic will have on our customers, suppliers, vendors
and joint venture and other business partners, and each of their financial conditions. Any material adverse effect on these parties
could adversely impact us. In this regard, the potential duration and impacts of the COVID-19 pandemic on the global economy
and on our business, financial condition and results of operations are difficult to predict and cannot be estimated with any degree
of certainty, but the pandemic has resulted in significant disruption of global financial markets, increases in levels of
unemployment and economic uncertainty, which has adversely impacted our business and may continue to do so. These
developments may lead to significant negative impacts on customer spending, demand for our products, the ability of our
customers to pay, our financial condition and the financial condition of our suppliers, and may also negatively impact our access
to external sources of financing to fund our operations or make capital expenditures.
The impact of COVID-19 may also exacerbate other risks discussed in this Form 10-K, any of which could have a
material adverse effect on our business, financial condition and results of operations. This situation is changing rapidly and
additional impacts may arise that we currently are not aware of.
Our business, financial condition and results of operations may be adversely affected by increased costs, disruption of supply
or interruptions or other constraints in the availability of key commodities and other necessary services.
A significant portion of our cost of goods comes from commodities such as raw potatoes, edible oil, and energy. These
commodities are subject to price volatility and fluctuations in availability caused by many factors, including changes in global
supply and demand, weather conditions (including any potential effects of climate change), fire, natural disasters (such as a
hurricane, tornado, earthquake, wildfire or flooding), disease or pests, agricultural uncertainty, health epidemics or pandemics or
other contagious outbreaks, such as the current COVID-19 pandemic, governmental incentives and controls (including
import/export restrictions, such as new or increased tariffs, sanctions, quotas or trade barriers), limited or sole sources of supply,
political uncertainties, acts of terrorism, governmental instability or currency exchange rates. In addition, we also incur expenses
in connection with the transportation and delivery of our products. Commodity price increases, or a sustained interruption or
other constraints in the supply or availability of key commodities, including necessary services such as transportation and
warehousing, may increase our operating costs and could adversely affect our business, financial condition and results of
operations. We may not be able to increase our product prices and achieve cost savings that fully offset these increased costs; and
increasing prices may result in reduced sales volume and decreased profitability. There is currently no active derivatives market
for potatoes in the United States. Although we have experience in hedging against commodity price increases, these practices and
experience reduce, but do not eliminate, the risk of negative profit impacts from commodity price increases. As a result, the risk
management procedures that we use may not always work as we intend.
In addition, our future success and earnings growth depend in part on our ability to maintain the appropriate cost
structure and operate efficiently in the highly competitive value-added frozen potato product category. We continue to implement
profit-enhancing initiatives that improve the efficiency of our supply chain and general and administrative functions. These
initiatives are focused on cost-saving opportunities in procurement, manufacturing, logistics, and customer service, as well as
general and administrative functions. However, gaining additional efficiencies may become more difficult over time. In addition,
we may have significant supply chain disruptions due to a number of factors outside of our control, including public health crises
such as the current COVID-19 pandemic. These factors may lead to our inability to access or deliver products that meet requisite
quality and safety standards in a timely and efficient manner, which could lead to increased warehouse and other storage costs.
Our failure to reduce costs through productivity gains or the elimination of redundant costs, or the occurrence of a significant
supply chain disruption or the inability to access or
11
Table of Contents
deliver products, could adversely affect our profitability and weaken our competitive position or otherwise harm our business.
Increased competition may result in reduced sales or profits.
Our business, value-added frozen potato products, is highly competitive. Our principal competitors have substantial
financial, sales and marketing, and other resources. A strong competitive response from one or more of our competitors to our
marketplace efforts could result in us reducing pricing, increasing promotional activity or losing market share. Competitive
pressures also may restrict our ability to increase prices, including in response to commodity and other input cost increases or
additional improvements in product quality. Our profits could decrease if a reduction in prices or increased costs are not
counterbalanced with increased sales volume.
Increased industry capacity may result in reduced sales or profits.
In recent years, market demand for value-added frozen potato products has exceeded industry capacity to produce these
products. As additional industry capacity comes online, or market demand otherwise decreases, including as a result of the
current COVID-19 pandemic, we may face competitive pressures that would restrict our ability to increase or maintain prices.
Our profits would decrease as a result of a reduction in prices or sales volume.
Our business, financial condition, and results of operations could be adversely affected by the political and economic
conditions of the countries in which we conduct business and other factors related to our international operations, including
foreign currency risks and trade barriers.
We conduct a substantial and growing amount of business with customers located outside the United States, including
through our joint ventures. During each of fiscal 2020, 2019 and 2018, net sales outside the United States, primarily in Australia,
Canada, China, Japan, Korea, Mexico, and Taiwan, accounted for approximately 20% of our net sales. These amounts do not
include any impact of unconsolidated net sales associated with our joint ventures, which are also subject to risks associated with
international operations.
Many factors relating to our international sales and operations, many of which factors are outside of our control, could
have a material adverse impact on our business, financial condition, and results of operations, including:
●
●
●
●
●
●
pandemics and other public health crises, such as the flu and in particular the current COVID-19 pandemic, which
may decrease revenues, disrupt our supply chain or otherwise increase our storage, production or distribution costs
and adversely affect our workforce, local suppliers, customers and consumers of our products;
foreign exchange rates, foreign currency exchange and transfer restrictions, which may unpredictably and adversely
impact our combined operating results, asset and liability balances, and cash flow in our consolidated financial
statements, even if their value has not changed in their original currency;
our consolidated financial statements are presented in U.S. dollars, and we must translate the assets, liabilities,
revenue and expenses into U.S. dollars for external reporting purposes;
changes in trade, monetary and fiscal policies of the United States and foreign governments, including modification
or termination of existing trade agreements (e.g., the North American Free Trade Agreement) or treaties, creation of
new trade agreements or treaties (e.g. the United States - Mexico - Canada Agreement), trade regulations, and
increased or new tariffs, quotas, import or export licensing requirements, and other trade barriers imposed by
governments. In particular, changes in U.S. trade programs and trade relations with other countries, including the
imposition of trade protection measures by foreign countries in favor of their local producers of competing
products, such as governmental subsidies, tax benefits, and other measures giving local producers a competitive
advantage over Lamb Weston, may adversely affect our business and results of operations in those countries;
negative economic developments in economies around the world and the instability of governments, including the
threat of wars, terrorist attacks, epidemics or civil unrest;
earthquakes, tsunamis, droughts, floods or other major disasters that may limit the supply of raw materials that are
purchased abroad for use in our international operations or domestically;
12
Table of Contents
●
●
●
●
●
●
●
●
●
increased costs, disruptions in shipping or reduced availability of freight transportation and warehousing;
differing employment practices and labor standards in the international markets in which we operate;
differing levels of protection of intellectual property across the international markets in which we operate;
difficulties and costs associated with complying with U.S. laws and regulations applicable to entities with overseas
operations, including the Foreign Corrupt Practices Act;
the threat that our operations or property could be subject to nationalization and expropriation;
varying regulatory, tax, judicial and administrative practices in the international markets in which we operate;
difficulties associated with operating under a wide variety of complex foreign laws, treaties and regulations;
potentially burdensome taxation; and
uncertainty regarding the London Interbank Offered Rate (“LIBOR”) as certain of our interest rates on debt
obligations and investments are based on LIBOR, and a portion of our indebtedness bears interest at variable
interest rates, primarily based on LIBOR. LIBOR is the subject of recent national, international and other regulatory
guidance and proposals for reform, which may cause LIBOR to disappear entirely after 2021 or to perform
differently than in the past. While we expect that reasonable alternatives to LIBOR will be implemented prior to the
2021 target date, we cannot predict the consequences and timing of these developments, and they could include an
increase in our interest expense and/or a reduction in our interest income.
Any of these factors could have an adverse effect on our business, financial condition, and results of operations.
Disruption of our access to export mechanisms could have an adverse impact on our business, financial condition, and results
of operations.
To serve our customers globally, we rely in part on our international joint venture partnerships, but also on exports from
the United States. During fiscal 2020, 2019, and 2018, export sales from the United States accounted for approximately 16%,
16%, and 17%, respectively, of our total net sales. Circumstances beyond our control, such as a labor dispute at a port or
workforce disruption due to the current COVID-19 pandemic, could prevent us from exporting our products in sufficient
quantities to meet customer opportunities. We have access to production outside of the United States through our facilities in
Australia, Canada and China and joint ventures in Argentina and Europe, but we may be unsuccessful in mitigating any future
disruption to export mechanisms. If this occurs, we may be unable to adequately supply all of our customer opportunities, which
could adversely affect our business, financial condition, and results of operations.
Our substantial debt may limit cash flow available to invest in the ongoing needs of our business and could prevent us from
fulfilling our debt obligations.
We have incurred substantial indebtedness. As of May 31, 2020, we had $3,041.4 million of long-term debt, including
current portion, recorded on our Consolidated Balance Sheet. Our level of debt could have important consequences. For example,
it could:
● make it more difficult for us to make payments on our debt;
●
require us to dedicate a substantial portion of our cash flow from operations to the payment of debt service,
reducing the availability of our cash flow to fund working capital, capital expenditures, acquisitions, and other
general corporate purposes;
increase our vulnerability to adverse economic or industry conditions;
limit our ability to obtain additional financing in the future to enable us to react to changes in our business; or
place us at a competitive disadvantage compared to businesses in our industry that have less debt.
●
●
●
13
Table of Contents
The agreements governing our debt contain various covenants that impose restrictions on us that may affect our ability to
operate our business.
The credit agreements governing our term loans and revolving credit facility and the indentures governing our senior
notes contain covenants that, among other things, limit our ability to:
borrow money or guarantee debt;
●
create liens;
●
●
pay dividends on or redeem or repurchase stock;
● make specified types of investments and acquisitions;
●
●
●
enter into agreements that limit the ability of our subsidiaries to pay dividends or other payments to us;
enter into transactions with affiliates; and
sell assets or merge with other companies.
These restrictions on our ability to operate our business could harm our business by, among other things, limiting our
ability to take advantage of financing, merger and acquisition and other corporate opportunities.
Various risks, uncertainties and events beyond our control could affect our ability to comply with these covenants.
Failure to comply with any of the covenants in our existing or future financing agreements could result in a default under those
agreements and under other agreements containing cross-default provisions. A default would permit lenders to accelerate the
maturity of the debt under these agreements and to foreclose upon any collateral securing the debt. Under these circumstances,
we might not have sufficient funds or other resources to satisfy all of our obligations. Also, the limitations imposed by these
financing agreements on our ability to incur additional debt and to take other actions might significantly impair our ability to
obtain other financing.
In addition, the restrictive covenants in our credit agreements require us to maintain specified financial ratios and satisfy
other financial condition tests. We cannot provide assurance that we will continue to be in compliance with these ratios and tests.
Our ability to continue to meet those financial ratios and tests will depend on our ongoing financial and operating performance,
which, in turn, will be subject to economic conditions and to financial, market, and competitive factors, many of which are
beyond our control. A breach of any of these covenants could result in a default under one or more of our debt instruments,
including as a result of cross default provisions and, in the case of our revolving credit facility, permit the lenders thereunder to
cease making loans to us. Upon the occurrence of an event of default under our credit facilities, the lenders could elect to declare
all amounts outstanding thereunder to be immediately due and payable and terminate all commitments to extend further credit.
Such action by the lenders could cause cross-defaults under our senior notes indentures.
Additionally, any failure to meet required payments on our debt, or failure to comply with any covenants in the
instruments governing our debt, could result in a downgrade to our credit ratings. A downgrade in our credit ratings could limit
our access to capital and increase our borrowing costs. Further, under the terms of the tax matters agreement we entered into with
Conagra at the spinoff, we may not retire, repurchase, or significantly modify our senior notes due 2024 and 2026 during the five-
year period following the spinoff.
Our business relies on a potato crop that has a concentrated growing region.
Ideal growing conditions for the potatoes necessary for our value-added products (e.g., french fries) are concentrated in
a few geographic regions globally. In the United States, most of the potato crop used in value-added products is grown in
Washington, Idaho, and Oregon. European growing regions for the necessary potatoes are concentrated in Austria, Belgium,
Germany, France, the Netherlands, and the United Kingdom. Recent agronomic developments have opened new growing regions,
but the capital-intensive nature of our industry’s production processes has kept production highly concentrated in the historical
growing regions. Unfavorable crop conditions in any one region, such as the drought in Europe during our fiscal year 2019, could
lead to significant demand on the other regions for production. Our inability to mitigate any such conditions by leveraging our
production capabilities in other regions could negatively impact our ability to meet customer opportunities and could decrease our
profitability.
14
Table of Contents
Our business is affected by potato crop performance.
Our primary input is potatoes and every year, we must procure potatoes that meet the quality standards for processing
into value-added products. Environmental and climate conditions, such as soil quality, moisture, and temperature, affect the
quality of the potato crop on a year-to-year basis. As a result, we source potatoes from specific regions of the United States and
specific countries abroad, including Australia, Austria, Belgium, Canada, China, France, Germany, the Netherlands, and the
United Kingdom, where we believe the optimal potato growing conditions exist. However, severe weather conditions during the
planting and growing season in these regions can significantly affect potato crop performance, such as the drought in Europe
during our fiscal year 2019. Potatoes are also susceptible to pest diseases and insects that can cause crop failure, decreased yields,
and negatively affect the physical appearance of the potatoes. We have deep experience in agronomy and actively work to
monitor the potato crop. However, if a weather or pest-related event occurs in a particular crop year, and our agronomic programs
are insufficient to mitigate the impacts thereof, we may have insufficient potatoes to meet our customer opportunities, and our
competitiveness and profitability could decrease. Alternatively, overly favorable growing conditions can lead to high per acre
yields and over-supply. An increased supply of potatoes could lead to overproduction of finished goods and associated increased
storage costs or destruction of unused potatoes at a loss.
Changes in our relationships with our growers could adversely affect us.
We expend considerable resources to develop and maintain relationships with many potato growers. In some instances,
we have entered into long-term agreements with growers; however, a portion of our potato needs are typically sourced on an
annual basis. To the extent we are unable to maintain positive relationships with our long-term growers, contracted growers
deliver less supply than we expect, or we are unable to secure sufficient potatoes from uncontracted growers in a given year, we
may not have sufficient potato supply to satisfy our business opportunities. To obtain sufficient potato supply, we may be
required to purchase potatoes at prices substantially higher than expected, or forgo sales to some market segments, which would
reduce our profitability. If we forgo sales to such market segments, we may lose customers and may not be able to replace them
later.
Changes in our relationships with significant customers could adversely affect us.
We maintain a diverse customer base across our four reporting segments. Customers include global, national and
regional quick serve and fast casual restaurants as well as small, independently operated restaurants, multinational, broadline
foodservice distributors, as well as regional foodservice distributors, and major food retailers. Some of these customers
independently represent a meaningful portion of our sales. In addition, we depend on foodservice distributors to help us create
end-customer demand, provide technical support and other value-added services to customers, fill customer orders, and stock our
products. A material change in our relationship with one or more of these distributors or their failure to perform as expected
could reduce our revenue. The foodservice distributors also sell products that compete with our products, and we sometimes need
to provide financial and other incentives to focus them on the sale of our products. While we contract annually or biannually with
many of our foodservice customers, the loss of a significant customer or a material reduction in sales to a significant customer
could materially impact the business.
Our largest customer, McDonald’s Corporation, accounted for approximately 10% of our consolidated net sales in both
fiscal 2020 and 2019, and 11% of our consolidated net sales in fiscal 2018. There can be no assurance that our customers will
continue to purchase our products in the same quantities or on the same terms as in the past. The loss of a significant customer or
a material reduction in sales to a significant customer could materially and adversely affect our business, financial condition, and
results of operations. In addition, the financial condition of our significant customers, including restaurants, distributors and
retailers, are affected by events that are largely beyond our control. Deterioration in the financial condition of significant
customers could materially and adversely affect our business, financial condition, and results of operations.
The sophistication and buying power of some of our customers could have a negative impact on profits.
Some of our customers are large and sophisticated, with buying power and negotiating strength. These customers may
be more capable of resisting price increases and more likely to demand lower pricing, increased promotional
15
Table of Contents
programs, or specialty tailored products. In addition, some of these customers (e.g., larger distributors and supermarkets) have the
scale to develop supply chains that permit them to operate with reduced inventories or to develop and market their own brands.
Shelf space at food retailers is not guaranteed, and large retail customers may choose to stock their own retailer and other
economy brands that compete with some of our products. We continue to implement initiatives to counteract these pressures,
including efficiency programs and investments in innovation and quality. However, if we are unable to counteract the negotiating
strength of these customers, our profitability could decline.
We must identify changing consumer preferences and consumption trends and develop and offer food products to our
customers that help meet those preferences and trends.
Consumer preferences evolve over time and our success depends on our ability to identify the tastes and dietary habits
of consumers and offer products that appeal to those preferences. We need to continue to respond to these changing consumer
preferences and support our customers in their efforts to evolve to meet those preferences. For example, as consumers focus on
freshly prepared foods, some restaurants may choose to limit the frying capabilities of their kitchens. As a result, we must evolve
our product offering to provide alternatives that work in such a preparation environment. In addition, our products contain
carbohydrates, sodium, genetically modified ingredients, added sugars, saturated fats, and preservatives, the diet and health
effects of which remain the subject of public scrutiny. We must continue to reformulate our products, introduce new products and
create product extensions without a loss of the taste, texture, and appearance that consumers demand in value-added potato
products. All of these efforts require significant research and development and marketing investments. If our products fail to meet
consumer preferences or customer requirements, or we fail to introduce new and improved products on a timely basis, then the
return on those investments will be less than anticipated, which could materially and adversely affect our business, financial
condition, and results of operations.
A portion of our business is, and several of our growth strategies are, conducted through joint ventures that do not operate
solely for our benefit.
We have built our company, in part, through the creation of joint ventures, some of which we do not control. In these
relationships, we share ownership and management of a company that operates for the benefit of all owners, rather than our
exclusive benefit. Through our extensive experience in operating a portion of our business through joint ventures, we understand
that joint ventures often require additional resources and procedures for information sharing and decision-making. If our joint
venture partners take actions that have negative impacts on the joint venture, or disagree with the strategies we have developed to
grow these businesses, we may have limited ability to influence and mitigate those actions or decisions and our ability to achieve
our growth strategies may be negatively impacted.
If we are unable to complete potential acquisitions that strategically fit our business objectives, integrate acquired businesses,
or execute on large capital projects, our financial results could be materially and adversely affected.
From time to time, we evaluate acquisition candidates that may strategically fit our business objectives. Our acquisition
activities may present financial, managerial, and operational risks. Those risks include: (i) diversion of management attention
from existing businesses, (ii) difficulties integrating personnel and financial and other systems, (iii) difficulties implementing
effective control environment processes, (iv) adverse effects on existing business relationships with suppliers and customers, (v)
inaccurate estimates of fair value made in the accounting for acquisitions and amortization of acquired intangible assets, which
would reduce future reported earnings, (vi) potential loss of customers or key employees of acquired businesses, and (vii)
indemnities and potential disputes with the sellers. If we are unable to complete acquisitions or successfully integrate and develop
acquired businesses or execute on large capital projects, such as new production lines, our financial results could be materially
and adversely affected.
New regulations imposed by the FDA or EFSA around acrylamide formation in potato products could adversely affect us.
The regulation of food products, both within the United States and internationally, continues to be a focus for
governmental scrutiny. The presence and/or formation of acrylamide in potato products cooked at high temperatures has become
a global regulatory issue as both the FDA and the European Food Safety Authority (‘‘EFSA’’) have issued guidance to the food
processing industry to work to reduce conditions that favor the formation of this naturally occurring
16
Table of Contents
compound. Acrylamide formation is the result of heat processing reactions that give ‘‘browned foods’’ their desirable flavor.
Acrylamide formation occurs in many food types in the human diet, including but not limited to breads, toast, cookies, coffee,
crackers, potatoes, and olives. The regulatory approach to acrylamide has generally been to encourage the industry to achieve as
low as reasonably achievable content levels through process control (temperature) and material testing (low sugar and low
asparagine). However, limits for acrylamide content have been established for some food types in the State of California, and
point of sale consumer warnings are required if products exceed those limits. In addition, the EFSA has recently promulgated
regulations establishing specific mitigation measures, sampling and analysis procedures and benchmark levels for acrylamide in
certain food products. If the global regulatory approach to acrylamide becomes more stringent and additional legal limits are
established, our manufacturing costs could increase. In addition, if consumer perception regarding the safety of our products is
negatively impacted due to regulation, sales of our products could decrease.
If we fail to comply with the many laws and regulations applicable to our business, we may face lawsuits or incur significant
fines and penalties.
Our facilities and products are subject to many laws and regulations administered by the U.S. Department of
Agriculture, the FDA, the Occupational Safety and Health Administration, and other federal, state, local, and foreign
governmental agencies relating to the processing, packaging, storage, distribution, advertising, labeling, quality, and safety of
food products, and the health and safety of our employees. Our failure to comply with applicable laws and regulations could
subject us to lawsuits, administrative penalties, and civil remedies, including fines, injunctions, and recalls of our products.
Our operations are also subject to extensive and increasingly stringent regulations administered by the Environmental
Protection Agency, and comparable state agencies, which pertain to the protection of the environment, including, but not limited
to, discharge of materials into the environment and the handling and disposition of wastes. Failure to comply with these
regulations can have serious consequences, including civil and administrative penalties and negative publicity. Changes in
applicable laws or regulations or evolving interpretations thereof, including increased government regulations to limit carbon
dioxide and other greenhouse gas emissions as a result of concern over climate change, may result in increased compliance costs,
capital expenditures, and other financial obligations for us, which could affect our profitability or impede the production or
distribution of our products, which could adversely affect our business, financial condition, and results of operations.
Litigation could expose us to significant costs and adversely affect our business, financial condition, and results of operations.
We are, or may become, party to various lawsuits and claims arising in the ordinary course of business, which may
include lawsuits or claims relating to commercial liability, product recalls, product liability, product claims, employment matters,
environmental matters, or other aspects of our business. Litigation is inherently unpredictable, and although we may believe we
have meaningful defenses in these matters, we may incur judgments or enter into settlements of claims that could have a material
adverse effect on our business, financial condition, and results of operations. The costs of responding to or defending litigation
may be significant and may divert the attention of management away from our strategic objectives. There may also be adverse
publicity associated with litigation that may decrease customer confidence in our business, regardless of whether the allegations
are valid or whether we are ultimately found liable. As a result, litigation may have a material adverse effect on our business,
financial condition, and results of operations.
We may be subject to product liability claims and product recalls, which could negatively impact our relationships with
customers and harm our business.
We sell food products for human consumption, which involves risks such as product contamination or spoilage, product
tampering, other adulteration of food products, mislabeling, and misbranding. We may voluntarily recall or withdraw products
from the market in certain circumstances, which would cause us to incur associated costs; those costs could be meaningful. We
may also be subject to litigation, requests for indemnification from our customers, or liability if the consumption or inadequate
preparation of any of our products causes injury, illness, or death. A significant product liability judgment or a widespread
product recall may negatively impact our sales and profitability for a period of time
17
Table of Contents
depending on the costs of the recall, the destruction of product inventory, product availability, competitive reaction, customer
reaction, and consumer attitudes. Even if a product liability claim is unsuccessful or is not fully pursued, the negative publicity
surrounding any assertion that our products caused illness or injury could adversely affect our reputation with existing and
potential customers and our corporate and brand image.
Additionally, as a manufacturer and marketer of food products, we are subject to extensive regulation by the FDA and
other national, state and local government agencies. The Food, Drug & Cosmetic Act and the Food Safety Modernization Act and
their respective regulations govern, among other things, the manufacturing, composition and ingredients, packaging and safety of
food products. Some aspects of these laws use a strict liability standard for imposing sanctions on corporate behavior, meaning
that no intent is required to be established. If we fail to comply with applicable laws and regulations, we may be subject to civil
remedies, including fines, injunctions, recalls, or seizures, as well as criminal sanctions, any of which could have a material
adverse effect on our business, financial condition, and results of operations.
Damage to our reputation as a trusted partner to customers and good corporate citizen could have a material adverse effect on
our business, financial condition, and results of operations.
Our customers rely on us and our co-manufacturers to manufacture safe, high quality food products. Product
contamination or tampering, the failure to maintain high standards for product quality, safety, and integrity, or allegations of
product quality issues, mislabeling or contamination, even if untrue, may damage the reputation of our customers, and ultimately
our reputation as a trusted industry partner. Damage to either could reduce demand for our products or cause production and
delivery disruptions.
Our reputation could also be adversely impacted by any of the following, or by adverse publicity (whether or not valid)
relating thereto: the failure to maintain high ethical, social, and environmental standards for our operations and activities; our
research and development efforts; our environmental impact, including use of agricultural materials, packaging, energy use, and
waste management; our failure to comply with local laws and regulations; our failure to maintain an effective system of internal
controls; or our failure to provide accurate and timely financial information. Damage to our reputation or loss of customer
confidence in our products for any of these or other reasons could result in decreased demand for our products and could have a
material adverse effect on our business, financial condition, and results of operations, as well as require additional resources to
rebuild our reputation.
Our results could be adversely impacted as a result of increased pension, labor and people-related expenses.
Inflationary pressures and any shortages in the labor market could increase labor costs, which could have a material
adverse effect on our business, financial condition or results of operations. Our labor costs include the cost of providing employee
benefits in the United States and foreign jurisdictions, including pension, health and welfare, and severance benefits. Changes in
interest rates, mortality rates, health care costs, early retirement rates, investment returns, and the market value of plan assets can
affect the funded status of our defined benefit plans and cause volatility in the future funding requirements of the plans. A
significant increase in our obligations or future funding requirements could have a negative impact on our results of operations
and cash flows from operations. Additionally, the annual costs of benefits vary with increased costs of health care and the
outcome of collectively-bargained wage and benefit agreements.
We are significantly dependent on information technology, and we may be unable to protect our information systems against
service interruption, misappropriation of data, or breaches of security.
We rely on information technology networks and systems, including the Internet, to process, transmit, and store
electronic and financial information, to manage and support a variety of business processes and activities, and to comply with
regulatory, legal, and tax requirements. Despite careful security and controls design, implementation, updating and independent
third-party verification, our information technology systems, some of which are dependent on services provided by third parties,
may be vulnerable to damage, invasions, disruptions, or shutdowns due to any number of causes such as catastrophic events,
natural disasters, infectious disease outbreaks and other public health crises, fires, power outages, systems failures,
telecommunications failures, security breaches, computer viruses, hackers, employee error or malfeasance, and other causes.
Increased cybersecurity threats pose a potential risk to the security and viability of our
18
Table of Contents
information technology systems, as well as the confidentiality, integrity, and availability of the data stored on those systems. If
we do not allocate and effectively manage the resources necessary to build and sustain the proper technology infrastructure and to
maintain and protect the related automated and manual control processes, we could be subject to billing and collection errors,
business disruptions, or damage resulting from security breaches. If any of our significant information technology systems suffer
severe damage, disruption, or shutdown and our business continuity plans do not effectively resolve the issues in a timely
manner, our product sales, financial condition, and results of operations may be materially and adversely affected, and we could
experience delays in reporting our financial results. Any interruption of our information technology systems could have
operational, reputational, legal, and financial impacts that may have a material adverse effect on our business, financial condition
and results of operations.
In addition, if we are unable to prevent security breaches or unauthorized disclosure of non-public information, we may
suffer financial and reputational damage, litigation or remediation costs, fines, or penalties because of the unauthorized disclosure
of confidential information belonging to us or to our partners, customers or suppliers.
Misuse, leakage, or falsification of information could result in violations of data privacy laws and regulations,
potentially significant fines and penalties, damage to our reputation and credibility, loss of strategic opportunities, and loss of
ability to commercialize products developed through research and development efforts and, therefore, could have a negative
impact on net sales. In addition, we may face business interruptions, litigation, and financial and reputational damage because of
lost or misappropriated confidential information belonging to us, our current or former employees, or to our suppliers or
customers, and may become subject to legal action and increased regulatory oversight. We could also be required to spend
significant financial and other resources to remedy the damage caused by a security breach or to repair or replace networks and
information systems.
We intend to replace our information technology infrastructure, and plan to implement a new enterprise resource planning
system. Problems with the transition, design, or implementation of this upgrade could interfere with our business and
operations and adversely affect our financial condition.
We are currently in the process of replacing our information technology infrastructure with a new enterprise resource
planning (‘‘ERP’’) system, which will be implemented in phases beginning in fiscal 2021. We may experience difficulties as we
transition to new upgraded systems and processes. These difficulties may include loss of data; difficulty in processing customer
orders, shipping products, or providing services and support to our customers; difficulty in billing and tracking our orders;
difficulty in completing financial reporting and filing reports with the SEC in a timely manner; or challenges in otherwise running
our business. We may also experience decreases in productivity as our personnel implement and become familiar with new
systems and processes. Any disruptions, delays, or deficiencies in the transition, design, and implementation of a new ERP
system, particularly any disruptions, delays, or deficiencies that impact our operations, could have a material adverse effect on
our business, financial condition, and results of operations. Even if we do not encounter adverse effects, the transition, design,
and implementation of a new ERP system, may be much more costly than we anticipated.
There are inherent limitations on the effectiveness of our controls.
We do not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all
errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute,
assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that resource
constraints exist, and the benefits of controls must be considered relative to their costs. Further, because of the inherent
limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or
fraud will not occur or that all control issues and instances of fraud, if any, have been detected. The design of any system of
controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any
design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of the
effectiveness of controls to future periods are subject to risks. Over time, controls may become inadequate due to changes in
conditions or deterioration in the degree of compliance with policies or procedures. If our controls become inadequate, we could
fail to meet our financial reporting obligations, our reputation may be adversely affected, our business, financial condition, and
results of operations could be adversely affected, and the market price of our stock could decline.
19
Table of Contents
If we are unable to attract and retain key personnel, our business could be materially and adversely affected.
Our success depends on our ability to attract and retain personnel with professional and technical expertise, such as
agricultural and food manufacturing experience, as well as finance, marketing, and other senior management professionals. The
market for these employees is competitive, and we could experience difficulty from time to time in hiring and retaining the
personnel necessary to support our business. If we do not succeed in retaining our current employees and attracting new high-
quality employees, our business could be materially and adversely affected.
Climate change, or legal, regulatory, or market measures to address climate change, may negatively affect our business and
operations.
There is growing concern that carbon dioxide and other greenhouse gases in the atmosphere may have an adverse
impact on global temperatures, weather patterns, the frequency and severity of extreme weather, and natural disasters. In the
event that climate change has a negative effect on agricultural productivity, we may be subject to decreased availability or less
favorable pricing for certain commodities that are necessary for our products, such as potatoes and edible oils. In addition, water
is an important part of potato processing. We may be subjected to decreased availability or less favorable pricing for water, which
could impact our manufacturing and distribution operations.
The increasing concern over climate change also may result in more regional, federal, and/or global legal and regulatory
requirements to reduce or mitigate the effects of greenhouse gases, as well as more stringent regulation of water rights. In the
event that such regulation is enacted and is more aggressive than the sustainability measures that we are currently undertaking to
monitor our emissions, improve our energy efficiency, and reduce and reuse water, we may experience significant increases in
our costs of operation and delivery. As a result, climate change could negatively affect our business and operations.
Deterioration of general economic conditions could harm our business and results of operations.
Our business, financial condition and results of operations may be adversely affected by changes in national or global
economic conditions, including interest rates, access to capital markets, consumer spending rates, energy availability and costs
(including fuel surcharges), and the effects of governmental initiatives to manage economic conditions.
Volatility in financial markets and deterioration of national and global economic conditions, including as a result of the
current COVID-19 pandemic, could impact our business and operations in a variety of ways, including as follows:
●
●
●
●
●
decreased demand in the restaurant business, particularly quick service and other casual dining, which may
adversely affect our business;
volatility in commodity and other input costs could substantially impact our results of operations;
volatility in the financial markets or interest rates could substantially impact our pension costs and required pension
contributions;
it may become more costly or difficult to obtain debt or equity financing to fund operations or investment
opportunities, or to refinance our debt in the future, in each case on terms and within a time period acceptable to us;
and
it may become more costly to access funds internationally.
Impairment in the carrying value of goodwill or other intangibles could result in the incurrence of impairment charges and
negatively impact our net worth.
As of May 31, 2020, we had goodwill of $303.8 million and other intangibles of $38.3 million. The net carrying value
of goodwill represents the fair value of acquired businesses in excess of identifiable assets and liabilities as of the acquisition date
(or subsequent impairment date, if applicable). The net carrying value of other intangibles represents the fair value of brands,
trademarks, licensing agreements, customer relationships, and other acquired intangibles as of the acquisition date (or subsequent
impairment date, if applicable), net of accumulated amortization. Goodwill and other acquired intangibles expected to contribute
indefinitely to our cash flows are not amortized, but must be evaluated by
20
Table of Contents
management at least annually for impairment. Amortized intangible assets are evaluated for impairment whenever events or
changes in circumstance indicate that the carrying amounts of these assets may not be recoverable. Impairments to goodwill and
other intangible assets may be caused by factors outside our control, such as increasing competitive pricing pressures, lower than
expected revenue and profit growth rates, changes in industry earnings before interest, taxes, depreciation and amortization
(“EBITDA”) multiples, changes in discount rates based on changes in cost of capital (interest rates, etc.), or the bankruptcy of a
significant customer, and could result in the incurrence of impairment charges and negatively impact our net worth.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
We are headquartered in Eagle, Idaho. The following table sets forth our principal manufacturing and processing
facilities as of May 31, 2020:
Location
Domestic:
American Falls, ID
Boardman, OR
Connell, WA
Delhi, LA
Hermiston, OR
Pasco, WA
Paterson, WA
Quincy, WA
Richland, WA
Twin Falls, ID
Warden, WA
International:
Hallam, Australia
Shangdu, China
Taber, Canada
Type of Facility and Number
Owned/ Leased
Plant/Cold Storage
Plant (2), Plant/Cold Storage
Plant, Cold Storage
Plant, Cold Storage, Farm
Plant
Plant (2)
Plant, Farm (4)
Plant
Plant
Plant
Plant
Plant/Cold Storage (2)
Plant, Farm
Plant/Cold Storage
Owned (1)
Owned (3)
Owned (1), Leased (1)
Owned (1), Leased (2)
Owned (1)
Owned (2)
Owned (2), Leased (3)
Owned (1)
Owned (1)
Owned (1)
Owned (1)
Leased (2)
Owned (1), Leased (1)
Owned (1)
We use our farms as a source of raw materials, to better understand the costs of growing potatoes, and to deploy
agronomic research. Our facilities vary in age and condition, and each of them has an active maintenance program to ensure a
safe operating environment and to keep the facilities in good condition. We believe all our buildings are in satisfactory operating
condition to conduct our business as intended. We also own and lease general office/support facilities in the regions we operate,
including Australia, Canada, China, Mexico, Japan, Singapore, and the United States.
Our manufacturing assets are shared across all reporting segments. Therefore, we do not identify or allocate assets by
operating segment. For more information, see Note 14, Segments, of the Notes to Consolidated Financial Statements in “Part II,
Item 8. Financial Statements and Supplementary Data” of this Form 10-K.
In addition to the facilities noted above, our joint ventures own or lease processing facilities in Argentina, Austria, the
Netherlands, Russia, the United Kingdom, and the United States.
ITEM 3. LEGAL PROCEEDINGS
For information regarding our legal proceedings, see Note 15, Commitments, Contingencies, Guarantees, and Legal
Proceedings, of the Notes to Consolidated Financial Statements in “Part II, Item 8. Financial Statements and Supplementary
Data” of this Form 10-K.
21
Table of Contents
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is listed on the NYSE under the ticker symbol “LW.” At July 20, 2020, there were 12,340 holders of
record of our common stock. The majority of holders of Lamb Weston common stock are “street name” or beneficial holders,
whose shares of record are held by banks, brokers, and other financial institutions.
Purchases of Equity Securities by the Issuer
The following table presents information related to repurchases of our common stock during the periods presented
below (dollars in millions, except per share data):
Period
February 24, 2020 through March 22, 2020
March 23, 2020 through April 19, 2020
April 20, 2020 through May 31, 2020
Total
Total Number of
Shares (or Units)
Purchased as Part of
Publicly Announced
Plans or Programs (b)
Approximate Dollar
Value of Maximum
Number of Shares that
May Yet be Purchased
Under Plans or Programs
(in millions) (b)
—
—
—
$
$
$
195.3
195.3
195.3
Average
Price Paid
Per Share
(or Unit)
68.90
—
—
Total Number
of Shares (or
Units)
Purchased (a)
178
$
— $
— $
178
(a) Represents shares withheld from employees to cover income and payroll taxes on equity awards that vested during the period.
(b) No shares were purchased during the periods presented under our share repurchase program, which was approved by the Board of
Directors in December 2018. Under this program, which does not have an expiration date, we are authorized to repurchase shares of our
common stock, in an amount not to exceed $250.0 million in the aggregate, on an opportunistic basis. Repurchases may be made from
time to time through open market or privately negotiated transactions, subject to applicable laws.
22
Table of Contents
Performance Graph
The following graph and table compare the cumulative total return on our common stock with the cumulative total
return of the Standard & Poor’s (“S&P”) 500 Index, the S&P 400 Packaged Food Index, which we consider to be our peer group,
and the S&P 500 Packaged Food Index. This graph and table cover the period from November 10, 2016 (the first day our
common stock began trading on NYSE) through May 29, 2020 (the last trading day of our fiscal year). The graph and table
assume that $100 was invested in our common stock, the S&P 500 Index, the S&P 400 Packaged Food Index, and the S&P 500
Packaged Food Index on November 10, 2016, and that all dividends were reinvested. The cumulative total return shown below
are based on the last trading day in Lamb Weston’s fiscal year.
Lamb Weston
S&P 500 Index
S&P 400 Packaged Foods Index
S&P 500 Packaged Foods Index
November 10,
2016
May 26,
2017
May 25,
2018
May 24,
2019
May 29,
2020
$
$
$
$
100
100
100
100
$
$
$
$
152
113
111
109
$
$
$
$
221
129
110
92
$
$
$
$
212
137
138
102
$
$
$
$
208
151
131
109
The above performance graph and other information furnished under this Part II, Item 5 of this Form 10-K shall not be
deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C, or to the provisions of
Section 18, of the Securities Exchange Act of 1934, as amended.
23
Table of Contents
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected historical financial data of Lamb Weston (dollars in millions, except per share
data). The information contained in the table should be read in conjunction with the disclosures in "Part II, Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations" and "Part II, Item 8. Financial Statements and
Supplementary Data" of this Form 10-K.
For the Fiscal Years Ended May
Statement of Earnings Data:
Net sales (b)
Income from operations (a) (b)
Income before income taxes and equity method
earnings (a) (b)
Equity method investment earnings (b)
Income tax expense (c)
Net income attributable to Lamb Weston Holdings,
Inc. (a) (b)
Earnings per share (a) (b) (c) (d)
Basic
Diluted
Dividends declared per common share
Balance Sheet Data:
Total assets
Long-term debt, excluding current portion
Cash Flow Data:
Cash flows provided by operating activities
Non-GAAP Financial Information: (e)
EBITDA including unconsolidated joint ventures
Adjusted EBITDA including unconsolidated joint
ventures
2020
2019
2018
2017
2016
$ 3,792.4
556.9
$ 3,756.5
668.4
$ 3,423.7
580.1
$ 3,168.0
518.3
$
2,993.8
373.3
448.9
29.3
112.3
561.3
59.5
133.6
471.3
83.6
121.2
457.1
53.3
170.2
365.9
478.6
416.8
326.9
2.50
2.49
0.8600
3.19
3.18
0.7825
2.83
2.82
0.7575
2.22
2.22
0.3750
367.4
71.7
144.5
285.3
1.92
1.92
N/A
4,662.3
2,992.6
3,048.1
2,280.2
2,752.6
2,336.7
2,485.6
2,365.0
2,158.3
104.6
574.0
680.9
797.2
904.3
799.8
904.3
481.2
811.7
820.4
446.9
683.7
707.1
382.3
546.2
593.4
(a)
Includes comparability items that are not considered part of our ongoing operations. For more information on these costs, see “Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Form 10-K.
(b) On March 11, 2020, the World Health Organization declared the spread of COVID-19 a global pandemic. In an attempt to minimize
transmission of COVID-19, significant social and economic restrictions, including restrictions on dine-in purchases and the imposition
of stay-at-home orders, were imposed in the United States and in our international markets. These restrictions had a negative impact on
our fiscal 2020 results. Fiscal 2020 included lower sales and approximately $58 million of costs, net of estimated employee retention
credits provided by the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) and other labor incentives, related to the
impact of these government-imposed orders, which primarily related to lower factory utilization and production inefficiencies,
manufacturing and operational disruptions directly attributable to the pandemic, expensing of excess crop year 2019 raw potato
purchase contracts that could not be used due to the pandemic’s near-term effect on demand for frozen potato products as well as
incremental warehousing and transportation costs, and incremental costs to enhance employee safety measures, including purchases of
safety and health screening equipment, retaining sales employees, and expensing certain capitalized manufacturing facility expansion
costs. In addition, our equity method investment earnings incurred approximately $16 million of costs related to the COVID-19
pandemic, net of labor incentives.
(c)
In fiscal 2019, the U.S. Tax Cuts and Jobs Act of 2017 (the “Tax Act”) decreased income tax expense and increased net income $27.2
million, or $0.19 per share, including a $24.8 million, or $0.17 per share, tax benefit related to a lower U.S. corporate tax rate and a
$2.4 million, or $0.02 per share, benefit from the true-up of the transition tax on previously untaxed foreign earnings. Since our fiscal
year end is the last Sunday in May, in fiscal 2018, we phased in the impact of the lower U.S. corporate income tax rate, resulting in a
U.S. corporate tax rate of 29.3%, compared with 21% in fiscal 2019.
In fiscal 2018, the Tax Act decreased income tax expense and increased net income by $64.7 million, or $0.44, including a $36.3
million, or $0.25 per share, tax benefit related to a lower U.S. corporate tax rate and a provisional $28.4 million, or $0.19 per share,
benefit from the re-measurement of our net U.S. deferred tax liabilities using the new U.S. statutory tax rate, partially offset by a
transition tax on previously untaxed foreign earnings.
24
Table of Contents
(d) Earnings per share prior to the Separation in fiscal 2017 was calculated based on 146 million shares of Lamb Weston common stock
that were distributed to Conagra stockholders on November 9, 2016.
(e) EBITDA and Adjusted EBITDA including unconsolidated joint ventures are non-GAAP financial measures. See the discussion of non-
GAAP financial measures and the reconciliations under “Item 7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations – Reconciliations of Non-GAAP Financial Measures to Reported Amounts” of this Form 10-K.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis is intended to provide a summary of significant factors relevant to our financial
performance and condition. The discussion and analysis should be read together with our consolidated financial statements and
related notes in “Part II, Item 8. Financial Statements and Supplementary Data” of this Form 10-K. Results for the fiscal year
ended May 31, 2020 are not necessarily indicative of results that may be attained in the future.
The following generally discusses fiscal 2020 and 2019 items and fiscal year comparisons between fiscal 2020 and
2019. Discussions of fiscal 2018 items and fiscal year comparisons between fiscal 2019 and 2018 that are not included in this
Form 10-K can be found in “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations” of our Annual Report on Form 10-K for the fiscal year ended May 26, 2019, which we filed with the Securities and
Exchange Commission on July 25, 2019.
The fiscal years for the Consolidated Financial Statements presented consist of a 53-week period for fiscal 2020 and a
52-week period for fiscal 2019.
Overview
Lamb Weston, along with its joint venture partners, 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. We, along with our joint venture partners, are also a leading supplier of value-added frozen
potato products internationally, with a strong and growing presence in high-growth emerging markets. We, along with our joint
venture partners, offer a broad product portfolio to a diverse channel and customer base in over 100 countries. French fries
represent the majority of our value-added frozen potato product portfolio.
On November 9, 2016, we separated from Conagra and became an independent publicly traded company through the
pro rata distribution by Conagra of 100% of our outstanding common stock to Conagra stockholders. In connection with the
Separation, Conagra transferred substantially all of the assets and liabilities and operations of the Lamb Weston business to us.
Management’s discussion and analysis of our results of operations and financial condition, which we refer to in this
filing as “MD&A,” is provided as a supplement to the consolidated financial statements and related notes included elsewhere in
this Form 10-K 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 U.S.
generally accepted accounting principles (“GAAP”) and certain other financial data (Adjusted EBITDA, Adjusted EBITDA
including unconsolidated joint ventures and Adjusted Diluted EPS) that is prepared using non-GAAP financial measures. See
“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.
Executive Summary
On March 11, 2020 (during our fiscal fourth quarter), the World Health Organization declared that the spread of
COVID-19 qualified as a global pandemic. Local, state, and national governments emphasized the importance of food supply and
asked that food manufacturers and retailers remain open to meet the needs of their communities. Throughout
25
Table of Contents
this pandemic, our primary focus and attention has remained directed towards the health and well-being of our employees, and
we have taken numerous steps to keep our employees safe, including implementing enhanced sanitation protocols and
preventative screenings at all our manufacturing facilities, providing masks and requiring social distancing for employees across
all our facilities, providing benefits that help support our employees and their families, and implementing remote work
arrangements for functional support areas to comply with shelter-in-place orders and federal and local government
recommendations. If an employee at one of our manufacturing facilities tests positive for COVID-19, we have developed plans to
temporarily close the facility at which the employee works in order to sanitize and disinfect the facility before allowing
employees to return to the facility and restart operations.
Lamb Weston delivered solid sales and earnings growth through the first three quarters of fiscal 2020. However, efforts
by governments worldwide to control the spread of COVID-19 have resulted in significant social and economic restrictions,
which included quarantines, travel bans, shutdowns, closures of many sit down restaurants, and shelter-in-place or stay-at-home
orders. These restrictions have had, and continue to have, a negative effect on portions of our business and the U.S. and global
economy. As a result, our sales in the fiscal fourth quarter declined, offsetting most of the growth that we generated earlier in our
fiscal year.
Following the government-imposed restrictions on restaurants and other foodservice operations and stay-at-home
orders, we saw significant changes in french fry consumption and purchasing patterns. As a result, we experienced favorable
revenue and earnings impacts within our Retail segment, which has historically contributed approximately 13% of total Lamb
Weston sales, but these favorable impacts were more than offset by the unfavorable impacts within our food-away-from-home
businesses in our Global and Foodservice segments. Specifically, through the end of fiscal 2020, we observed the following:
●
●
In the United States, prior to the pandemic-related government-imposed restrictions, approximately 65% of all french
fries were purchased at quick service restaurants (“QSRs”), with another approximately 20% purchased at full-service
restaurants. The remaining approximately 15% of french fries were purchased at retail locations. Of the french fries
purchased at QSRs, approximately two-thirds are purchased by consumers through drive-thru, carry-out or delivery
options, with the remaining one-third consumed while dining in at restaurants. The availability of a drive-thru option has
enabled QSRs to better weather the impact of government-imposed shelter-in-place restrictions than restaurants without
that option. After pandemic-related restrictions were adopted, our weekly shipments to QSRs, in aggregate, fell to
approximately 50% of pre-COVID levels in late-March through mid-April, then gradually recovered to approximately
85% of weekly pre-COVID levels by the end of May as consumer demand returned and customers restocked inventories
as states began easing restrictions. While many full-service restaurants and other foodservice operations, which together
represent approximately 80% of our Foodservice segment’s sales, have taken steps to increase take-out and delivery
sales, consumer traffic at these operations, in aggregate, was significantly more affected. Our weekly shipments to these
operations fell to approximately 20% of pre-COVID levels in late-March through mid-April, then gradually recovered to
approximately 70% of weekly pre-COVID levels by the end of May. In contrast, retail demand for frozen french fries, in
aggregate, has significantly increased as food-at-home consumption rose. Our weekly shipments to retail customers
increased approximately 50% in late-March through mid-April, and gradually slowed to increasing approximately 30%
by the end of May. During our fiscal fourth quarter for fiscal 2020, we increased production of our retail products in
order to meet this higher demand. While we have realized improvements in shipments in each of our primary sales
channels since year end, we believe these improvements may become less pronounced, cease or reverse as the spread of
COVID-19 continues and states reinstate or otherwise postpone on-premises dining.
In Europe, which is served by our Lamb-Weston/Meijer joint venture, a high percentage of our sales are to QSRs.
Unlike the U.S., most consumption in Europe is dine-in or carry-out as drive-thru options are more limited. As a result,
the effect of government-imposed restrictions on french fry demand in Europe was similar to what we observed for full-
service restaurants and other foodservice operations in the U.S. Lamb-Weston/Meijer’s weekly shipments in April were
approximately 35% of pre-COVID levels, and recovered to approximately 60% by the end of May. This negatively
impacted Lamb-Weston/Meijer’s results, and ultimately, our equity method investment earnings, in our fiscal fourth
quarter.
26
Table of Contents
●
●
In China, after the government placed severe social and movement restrictions that significantly reduced restaurant
traffic, our monthly shipments declined approximately 50% in February, and recovered to approximately 70% of pre-
COVID levels by the end of March. By the end of May, our monthly shipments recovered to approximately 80% of pre-
COVID levels.
In Australia, Mexico and other key markets in Asia, such as Japan, South Korea, Taiwan, and Singapore, french fry
demand trends were mixed, with our shipments largely 70%-80% of pre-COVID levels through late April. Our
shipments began to soften at the end of May in certain markets due to inventory destocking.
For the full fiscal year, our earnings declined, largely due to lower sales and higher costs related to the pandemic.
Our fiscal 2020 financial results include the benefit of an additional week (“53rd week”) of sales, earnings and cash flow
versus fiscal 2019. Compared with fiscal 2019:
Income from operations declined 17% to $556.9 million
● Net sales increased 1% to $3,792.4 million
●
● Net income attributable to Lamb Weston declined 24% to $365.9 million
● Diluted earnings per share declined 22% to $2.49, while Adjusted Diluted EPS declined 22% to $2.50
●
Income from operations and Adjusted EBITDA including unconsolidated joint ventures included approximately $74
million of net costs related to the pandemic’s impact on our operations, as described below
● Adjusted EBITDA including unconsolidated joint ventures declined 12% to $799.8 million
● Net cash provided by operating activities declined 16% to $574.0 million
Comparing performance with fiscal 2019, the increase in net sales was driven by improved price/mix, largely due to
pricing actions in our Foodservice and Retail segments. Volume was flat, as declines in our Foodservice segment, which was
disproportionately affected by the government-imposed restrictions on restaurants and other foodservice operations, offset growth
in our Retail and Global segments. Volume in both our Global and Foodservice segments was also negatively affected by
customers destocking inventories as they adjusted to the abrupt change in the operating environment during our fiscal fourth
quarter. Income from operations declined, largely due to costs related to the pandemic’s impact on our operations, and higher
manufacturing costs due to input cost inflation, inefficiencies, higher depreciation expense and unfavorable mix. The effect of
higher SG&A expenses was modest relative to the decline in gross profit.
In fiscal 2020, we and our unconsolidated joint ventures incurred approximately $74 million of costs, net of employee
retention credits provided by the CARES Act and other labor incentives, related to the pandemic’s impact on operations as
follows:
● Approximately $25 million of factory utilization-related production costs and inefficiencies, such as labor retention
costs; costs to shut down, sanitize, and restart manufacturing facilities after a production employee was infected by the
virus; costs arising from modifying production schedules and reducing run-times; and costs to shift certain
manufacturing lines from producing foodservice-oriented products to retail-oriented products;
● Approximately $22 million of non-factory utilization-related costs, primarily consisting of expensing crop year 2019
contracts for raw potatoes that could not be used due to the pandemic’s near-term effect on demand for frozen potato
products, as well as incremental warehousing, transportation and supply chain costs due to lower product throughput;
● Approximately $11 million of incremental selling, general and administrative (“SG&A”) and other expenses, largely
comprised of costs to adopt and maintain enhanced employee safety and sanitation protocols, including purchases of
safety and health screening equipment, costs to retain certain sales employees, net of CARES Act retention credits and
other labor incentives, and expensing certain capitalized costs for manufacturing facility expansion projects that were
stopped; and
● Approximately $16 million of production, raw potato contract, supply chain and SG&A costs (including $4 million of
costs, net of labor incentives, that were factory utilization-related and $12 million that were non-factory utilization-
related) at our unconsolidated joint ventures.
27
Table of Contents
We expect that we will continue to incur some of these costs until the COVID-19 pandemic no longer has an impact on
our operations.
During the fourth quarter, in response to the significant decrease in demand as the COVID-19 virus spread throughout
the world, we reduced production at our factories to align with demand, instituted a company-wide hiring freeze, and delayed
non-essential expenditures. We took actions to enhance our liquidity, including working capital management; significantly
reducing our capital program; raising over $1 billion of liquidity, including borrowing $495.0 million from our previously
undrawn revolving credit facility, entering into a new $325.0 million term loan facility, issuing $500.0 million of senior notes,
and suspending future share repurchases. In addition, at May 31, 2020, we qualified for and recorded a $9.5 million receivable for
employee retention credits under the CARES Act and other labor incentives. The CARES Act also allows us to defer payment of
the employer portion of social security taxes through the end of 2020, with 50% of the deferred amount due December 31, 2021,
and the remaining 50% due December 31, 2022. Considering the current environment, with a significant number of employees
working remotely, we deferred work on the second phase of our new enterprise resource planning (“ERP”) system. As a result of
these actions, our cash and cash equivalents balance at May 31, 2020, was $1,364.0 million. See Liquidity and Capital Resources
in this MD&A below for more information.
Outlook
As discussed above, following the government-imposed restrictions on restaurants and other foodservice operations,
which largely began during the fourth quarter of fiscal 2020, the demand for frozen potato products decreased in North America,
Europe, and most of our key international markets. The outlook for the spread of COVID-19, as well as governments’ efforts to
contain the virus, remains unpredictable, as does its potential impact on the global economy, restaurant traffic, customer and
consumer demand, our supply chain, and availability of key commodities and other necessary services. Because of uncertainty
around government actions and consumer behaviors related to the virus, we expect the impact of the COVID-19 pandemic on
consumer demand and our sales volume may be pronounced in fiscal 2021, especially for full-service restaurants and other
operations that have traditionally relied on on-premise dining traffic, and other non-commercial foodservice operations, such as
hotels, schools and universities, and sporting venues. While governments began easing restrictions on restaurants, and we
realized improvements in our shipments in each of our primary sales channels through the first seven weeks of the first quarter of
fiscal 2021, we believe these improvements may become less pronounced, cease or reverse as the spread of COVID-19 continues
and government authorities reinstate or otherwise postpone on-premises dining restrictions.
We have taken actions, and will continue to evaluate various options, to lower our cost structure and maximize the
efficiency of our manufacturing and commercial operations. As we disclosed in our Form 8-K filed with the SEC on May 7,
2020, we reduced contracting of raw potatoes by approximately 20%-25% for the 2020 crop year, compared with our 2019 crop
year purchases. We believe that there will likely be adequate non-contracted processing potatoes available for purchase in the
event that frozen potato demand exceeds our initial forecast. We will continue to evaluate various options to adjust our
operations, including temporarily closing facilities and/or modifying production schedules to rebalance utilization rates across
our manufacturing network.
We expect that we will continue to incur costs as a result of the COVID-19 pandemic’s impact on our manufacturing,
supply chain, commercial and functional support operations. For example, these may include: costs to adopt and maintain
enhanced employee safety and sanitation protocols, such as purchasing personal protection and health screening equipment and
services; costs to shut down, sanitize, and restart production facilities after a production employee has been infected by the virus;
production inefficiencies and labor retention costs arising from modifying production schedules, reducing run-times, and lower
overall factory utilization; incremental warehousing and transportation costs; and costs to retain sales and functional support
employees.
In fiscal 2021, we expect the rate of inflation for many of our commodity and manufacturing costs in the near term will
be similar to what we experienced in fiscal 2020. While we have implemented a hiring and salary freeze for our U.S. salaried
positions in the near term, we expect overall SG&A may be higher as a result of the completion of the first phase of our ERP
project, as well as for continued investments in operations and other functional capabilities, which are designed to drive operating
efficiencies and support growth over the long term.
28
Table of Contents
Results of Operations
We have four reportable segments: Global, Foodservice, Retail, and Other. For each period presented, we report net
sales and product contribution margin by segment. Net sales and product contribution margin are the primary measures reported
to our chief operating decision maker for purposes of allocating resources to our segments and assessing their performance. We
define product contribution margin as net sales less cost of sales and advertising and promotion expenses. Product contribution
margin excludes general corporate expenses and interest expense because management believes these amounts are not directly
associated with segment performance for the period. For additional information on our reportable segments, see Note 14,
Segments, of the Notes to Consolidated Financial Statements in “Part II, Item 8. Financial Statements and Supplementary Data”
in this Form 10-K.
Fiscal Year Ended May 31, 2020 Compared to Fiscal Year Ended May 26, 2019
Net Sales and Product Contribution Margin (dollars in millions)
Segment sales
Global
Foodservice
Retail
Other
Segment product contribution margin
Global
Foodservice
Retail
Other
Advertising and promotion expenses
Gross profit
Net Sales
May 31,
2020
Year Ended
May 26,
2019
%
Inc/(Dec)
$
$
$
$
1,973.6
1,069.1
595.5
154.2
3,792.4
374.5
356.0
117.6
24.1
872.2
23.0
895.2
$
$
$
$
1,961.5
1,156.1
498.3
140.6
3,756.5
446.3
402.4
98.8
23.6
971.1
32.4
1,003.5
1%
(8%)
20%
10%
1%
(16%)
(12%)
19%
2%
(10%)
(29%)
(11%)
Lamb Weston’s net sales for fiscal 2020 increased $35.9 million, or 1%, to $3,792.4 million, compared with $3,756.5
million in fiscal 2019. Excluding the benefit of the 53rd week, net sales declined 1%. Price/mix increased 1% due to pricing
actions and favorable mix, largely due to pricing actions in our Foodservice and Retail segments. Volume was flat, or down 3%
excluding the benefit of the 53rd week, as strong growth through the first three fiscal quarters was offset by the sharp and abrupt
decline in demand for frozen potato products outside the home during the fiscal fourth quarter as a result of government-imposed
restrictions on restaurants and other foodservice operations to slow the spread of the COVID-19 virus, as well as customers
destocking inventories as they adjusted to abrupt change in the business environment.
Global net sales increased $12.1 million, or 1%, to $1,973.6 million, compared with $1,961.5 million in fiscal 2019.
Excluding the benefit of the 53rd week, net sales declined 1%. Volume increased 1%, or down 1% excluding the benefit of the
53rd week, driven by growth in sales to strategic customers in the U.S. and key international markets during the first three
quarters of the fiscal year. Volume growth was partially offset by the sharp decline in demand for frozen potato products outside
the home during the fourth quarter, primarily attributable to government-imposed restrictions on restaurant and other foodservice-
related operations. Price/mix was flat as positive pricing actions were offset by unfavorable customer mix.
29
Table of Contents
Foodservice net sales decreased $87.0 million, or 8%, to $1,069.1 million, compared with $1,156.1 million in fiscal
2019. Excluding the benefit of the 53rd week, net sales declined 8%. Price/mix increased 2%, primarily reflecting pricing actions
initiated in the fall of 2019. Volume decreased 10%, or 10% excluding the benefit of the 53rd week. Volume growth of distributor
private label and Lamb Weston branded products was solid during the first three quarters of the fiscal year, but fell as demand for
frozen potato products outside the home, especially at full-service restaurants and non-commercial operations (e.g., hotels,
schools and universities, sporting venues) dropped sharply during the fourth quarter following government-imposed restrictions
on restaurant and other foodservice operations, as well as customers destocking inventories as they adjusted to the abrupt change
in the business environment.
Retail net sales increased $97.2 million, or 20%, to $595.5 million, compared with $498.3 million in fiscal 2019.
Excluding the benefit of the 53rd week, net sales increased 16%. Volume increased 13%, or 10% excluding the benefit of the 53rd
week, due to increased in-home consumption of frozen potato products following government-imposed stay-at-home orders
during the fiscal fourth quarter. Demand was strong across our premium and mainstream branded offerings, as well as for our
private label products. Price/mix increased 7%, largely driven by favorable mix from increased sales of branded products, and
pricing actions.
Net sales in our Other segment increased $13.6 million, or 10%, to $154.2 million, compared with $140.6 million in
fiscal 2019. The increase primarily reflects higher volume in our vegetable business.
Product Contribution Margin
Lamb Weston’s product contribution margin for fiscal 2020 decreased $98.9 million, or 10%, to $872.2 million,
compared with $971.1 million in fiscal 2019. The decline primarily related to lower sales due to the pandemic and approximately
$47 million of pandemic-related costs, net of CARES Act retention credits and other labor incentives, resulting from lower
factory utilization and production inefficiencies, manufacturing and operational disruptions directly attributable to the pandemic,
expensing of excess crop year 2019 raw potato purchase contracts, and other supply chain costs discussed above. The remainder
of the decline was driven by higher manufacturing costs due to input cost inflation, inefficiencies, higher depreciation expense
primarily associated with our new french fry production line in Hermiston, Oregon, and unfavorable mix.
Global product contribution margin decreased $71.8 million, or 16%, to $374.5 million in fiscal 2020. The decline
primarily related to lower sales due to the pandemic and approximately $29 million of pandemic-related costs, net of CARES Act
retention credits and other labor incentives. The remainder of the decline was largely driven by an increase in cost of sales,
which rose 6% to $1,592.8 million, reflecting unfavorable mix, inefficiencies and input cost inflation, as well as higher
depreciation expense primarily associated with the addition of the new production line in Hermiston, Oregon. Advertising and
promotion spending was modestly lower in 2020, as compared to fiscal 2019.
Foodservice product contribution margin decreased $46.4 million, or 12%, to $356.0 million in fiscal 2020. Lower sales
due to the pandemic and approximately $8 million of pandemic-related costs, net of CARES Act retention credits and other labor
incentives. Cost of sales declined 5% to $705.9 million due to lower sales volumes, partially offset by inefficiencies and input
cost inflation, as well as higher depreciation expense primarily associated with the addition of the new production line in
Hermiston, Oregon. Advertising and promotion spending was modestly lower in fiscal 2020, as compared with fiscal 2019.
Retail product contribution margin increased $18.8 million, or 19%, to $117.6 million in fiscal 2020 due to higher sales
volumes as consumers modified their purchasing habits in response to the imposition of stay-at-home orders, favorable product
mix and an $8.3 million decline in advertising and promotional expenses as we stopped all non-essential expenditures in response
to the pandemic. The increase was partially offset by approximately $10 million of pandemic-related costs, net of CARES Act
retention credits and other labor incentives. Cost of sales was $468.6 million, or 23% higher in fiscal 2020 as compared to fiscal
2019, largely due to higher sales volume and input cost inflation.
Other product contribution margin increased $0.5 million to $24.1 million in fiscal 2020, as compared to $23.6 million
in fiscal 2019. These amounts include a $0.2 million loss related to unrealized mark-to-market adjustments and realized
settlements associated with commodity hedging contracts in fiscal 2020, and a $3.3 million loss related to the
30
Table of Contents
contracts in fiscal 2019. Excluding these adjustments, Other segment product contribution margin decreased $2.6 million, largely
due to unfavorable price/mix in our vegetable business.
Selling, General and Administrative Expenses
SG&A expenses were $338.3 million, up $3.2 million, or 1%, in fiscal 2020 compared with fiscal 2019. The increase in
SG&A was largely driven by approximately $11 million of net pandemic-related SG&A and other expenses described above,
higher expenses related to our information technology services and infrastructure (including approximately $8 million of non-
recurring expenses, excluding expenses payable to us by Lamb-Weston/Meijer under the cost sharing agreement, that primarily
relates to consulting expenses associated with developing and implementing a new ERP system), and investments in our sales,
marketing and operating capabilities. The increase was partially offset by lower incentive compensation accruals, a $9.5 million
reduction in advertising and promotional expenses, lower travel and meeting expenses, and suspending contributions to our
charitable foundation. For more information related to the agreement with Lamb-Weston/Meijer to share the costs of a single,
global ERP platform, and related software and services, see Note 6, Investments in Joint Ventures, of the Notes to the
Consolidated Financial Statements in “Part II, Item 8. Financial Statements and Supplementary Data” of this Form 10-K.
Interest Expense, Net
Interest expense, net was $108.0 million in fiscal 2020, an increase of $0.9 million compared with fiscal 2019. The
increase in interest expense, net was the result of higher average total debt versus the prior year. For more information, see
Note 9, Debt and Financing Obligations, of the Notes to Consolidated Financial Statements in “Part II, Item 8. Financial
Statements and Supplementary Data” in this Form 10-K.
Income Taxes
Our effective tax rate was 23.5% for fiscal 2020, compared to 21.5% in fiscal 2019. Fiscal 2019 includes a $2.4 million
decrease in income tax expense related to the true-up of the transition tax on previously untaxed foreign earnings under the Tax
Act. Excluding this comparability item, our effective tax rate for fiscal 2019 was 21.9%. The difference between our effective tax
rates in fiscal 2020 and 2019 is primarily due to permanent differences and discrete items. The effective tax rate varies from the
U.S. statutory tax rate of 21% principally due to the impact of U.S. state taxes, foreign taxes, permanent differences, and discrete
items.
For further information on the Tax Act and its impact, see Note 3, Income Taxes, of the Notes to Consolidated Financial
Statements in “Part II, Item 8. Financial Statements and Supplementary Data” in this Form 10-K.
Equity Method Investment Earnings
We conduct meaningful business through unconsolidated joint ventures and include our share of the earnings based on
our economic ownership interest in them. Lamb Weston’s share of earnings from its equity method investments was $29.3
million and $59.5 million for fiscal 2020 and 2019, respectively. Earnings in fiscal 2020 included a $2.6 million loss related to
the withdrawal from a multiemployer pension plan by Lamb Weston RDO. Equity method investment earnings also included a
$6.3 million unrealized loss related to mark-to-market adjustments associated with currency and commodity hedging contracts in
fiscal 2020 and a $2.6 million loss related to these items in fiscal 2019. Excluding the Lamb Weston RDO pension-related
comparability item and the mark-to-market adjustments, earnings from equity method investments declined $23.9 million
compared to the prior year period. Pandemic-related costs accounted for approximately $16 million of the decline, with the
remainder largely driven by lower sales as a result of government-imposed restrictions on restaurant and other foodservice
operations.
31
Table of Contents
Impact of New Lease Standard
The adoption of the new lease standard resulted in the recognition of approximately $155 million of operating lease
assets and short-term and long-term operating lease obligations recorded on our consolidated balance sheet related to operating
leases. The adoption also resulted in a $26.6 million ($20.5 million, net of tax) cumulative-effect adjustment to the opening
balance of retained earnings for the elimination of $38.7 million of land and $65.3 million of finance lease obligations related to a
sale leaseback. See Note 4, Leases, of the Notes to Consolidated Financial Statements in “Part II, Item 8. Financial Statements
and Supplementary Data” in this Form 10-K.
Acquisitions
On July 2, 2019 and December 21, 2018, we acquired 100% of the outstanding shares of two different frozen potato
processors in Australia for $116.7 million and $88.6 million, respectively, net of cash acquired. These acquisitions added
approximately 70 million and 50 million pounds of production capacity, respectively, to our manufacturing network and
expanded our geographic reach. Net sales, income from operations, and total assets from either of these acquisitions are not
material to our consolidated net sales, income from operations, and total assets. The operating results for the acquisitions are
included in our Global segment.
We allocated the purchase price of the July 2019 and December 2018 acquisitions to the assets acquired and liabilities
assumed based on estimates of the fair value at the dates of the acquisitions, of which $106.1 million and $75.1 million, after
final working capital adjustments, was allocated to goodwill (which is not deductible for tax purposes).
Liquidity and Capital Resources
The recent COVID-19 pandemic has disrupted our business and operating results. As a result of the uncertainties caused
by the COVID-19 pandemic, we have taken, and are continuing to take, actions to enhance liquidity including: working capital
management and limiting discretionary expenses across the Company; implementing a hiring and salary freeze for our U.S.
salaried positions; significantly reducing our capital program; raising over $1 billion of liquidity, including borrowing $495.0
million from our previously undrawn revolving credit facility, entering into a new $325.0 million term loan facility, and issuing
$500.0 million of senior notes; and suspending future share repurchases. In addition, at May 31, 2020, we qualified for and
recorded a $9.5 million receivable for employee retention credits under the CARES Act and other labor incentives. The CARES
Act also allows us to defer payment of the employer portion of social security taxes through the end of 2020, with 50% of the
deferred amount due December 31, 2021, and the remaining 50% due December 31, 2022. This is expected to provide us with
approximately $14 million of additional liquidity during fiscal 2021. Considering the current environment, with a significant
number of employees working remotely, we have also deferred the second phase of our new ERP system. As a result of our
actions, our cash and cash equivalents balance at May 31, 2020, was $1,364.0 million.
We believe our cash on hand, cash flows from operations and our current credit facilities will be sufficient to satisfy our
future working capital requirements, interest payments, capital expenditures, dividends on our common stock, and other financing
requirements for the foreseeable future. We continue to evaluate and take action, as necessary, to preserve adequate liquidity and
ensure that our business can continue to operate during these uncertain times. If we are unable to generate sufficient cash flows
from operations, or are otherwise unable to comply with the terms of our credit facilities, we may be required to seek additional
financing alternatives, which may require waivers under our credit agreement governing our senior secured debt and indentures
governing our senior notes, in order to generate additional cash. There can be no assurance that we would be able to obtain
additional financing or any such waivers on terms acceptable to us or at all. For additional information on our debt, see Note 9,
Debt, of the Notes to Consolidated Financial Statements in “Part II. Item 8. Financial Statements and Supplementary Data” in this
Form 10-K.”
32
Table of Contents
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 (dollars in millions):
For the Fiscal Years Ended May
2019
2018
2020
Net cash flows provided by (used for):
Operating activities
Investing activities
Financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Operating Activities
Fiscal 2020 Compared with Fiscal 2019
$
$
574.0
(346.0)
1,125.0
1,353.0
(1.2)
$ 1,351.8
$
680.9 $
(423.0)
(299.6)
(41.7)
(1.7)
(43.4) $
481.2
(306.8)
(178.9)
(4.5)
3.0
(1.5)
The major components of cash provided by operations are earnings from operations adjusted for non-cash income and
expense items and changes in working capital. Cash generated from operating activities decreased $106.9 million to $574.0
million in fiscal 2020, compared with $680.9 million in fiscal 2019. Earnings from continuing operations, adjusted for non-cash
income and expenses, decreased $84.2 million, primarily due to lower sales during the pandemic and approximately $74 million
of pandemic-related costs, net of CARES Act retention credits and other labor incentives. See Results of Operations in this
MD&A for more information. Changes in operating assets and liabilities used $17.3 million more cash in fiscal 2020, compared
with fiscal 2019. The increase in cash used for changes in operating assets and liabilities was driven primarily by the timing of
payments for accounts payable, and lower expected payments for incentive compensation and trade programs. These cash
outflows were partially offset by lower receivables due to fewer sales at the end of fiscal 2020, compared with the end of fiscal
2019, the timing of payments for income taxes, and lower finished goods inventory due to declines in demand during the fiscal
fourth quarter as a result of the pandemic-related government-imposed restrictions.
Investing Activities
Fiscal 2020 Compared with Fiscal 2019
Investing activities used $346.0 million of cash in fiscal 2020, compared with $423.0 million in fiscal 2019. Fiscal 2020
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 $22.6 million in fiscal year 2020 and will pay the remaining $4.7 million, less any amounts for indemnified losses, in
October 2024. In response to the COVID-19 pandemic, we reduced capital expenditures, including information technology, from
a planned level of $300.0 million to $208.4 million.
In order to preserve liquidity throughout the COVID-19 pandemic, we deferred substantially all of our previously
planned fiscal 2021 strategic capital expenditures. We expect capital investments in fiscal 2021 to be approximately $140 million,
excluding acquisitions. These expenditures could increase or decrease as a result of a number of factors, including our financial
results, future economic conditions, including the impact of COVID-19, and our regulatory compliance requirements. At May 31,
2020, we had commitments for capital expenditures of $36.5 million.
Investing activities used $423.0 million of cash in fiscal 2019. These expenditures included the plant capacity
expansions in Hermiston, Oregon in fiscal 2019. Additionally, in December 2018, we acquired 100% of the outstanding shares of
a frozen potato processor in Australia for $88.6 million, net of cash acquired.
33
Table of Contents
Financing Activities
Fiscal 2020 Compared with Fiscal 2019
During fiscal 2020, cash provided by financing activities totaled $1,125.0 million, compared with cash used for
financing activities of $299.6 million in fiscal 2019. In light of the current uncertainty in the global economy resulting from the
COVID-19 pandemic, in the fourth quarter of fiscal 2020, we raised over $1 billion of liquidity including borrowing $495.0
million on our revolving credit facility, entering into a new $325.0 million term loan facility, and issuing $500.0 million of senior
notes due in 2028. In addition, in June 2019, we entered into a new $300.0 million term loan facility due in June 2024 and used
the proceeds to repay $300.0 million of the term loan facility that was due in 2021. Repayments in fiscal 2020 also included
$36.3 million of quarterly installments due under our debt and financing obligations. In July, we paid the balance on our
revolving credit facility and have $495.1 million of available borrowing under the credit facility, net of $4.9 million of
outstanding letters of credit.
During fiscal 2020, we returned $144.2 million of capital to our shareholders, including $121.3 million in dividends on
our common stock and $22.9 million related to 287,239 shares we repurchased for a weighted-average price of $79.56 per share.
Financing activities also included $5.9 million for the repurchase of 80,673 shares of our common stock for restricted stock tax
withholdings. Economic conditions, changes in cash flows, tax laws and other laws, and the market price of our common stock
can limit or alter the amount and frequency of our stock repurchases. Given the uncertainty of demand with the COVID-19
pandemic, we temporarily suspended share repurchases to provide us with additional liquidity. As of May 31, 2020, $195.3
million remained authorized for repurchase under the program.
During fiscal 2019, financing activities primarily related to the payment of $113.3 million in dividends on our common
stock, $78.2 million to acquire the noncontrolling interest in Lamb Weston BSW, and $66.7 million of debt payments, primarily
scheduled payments under our term loan facility and the repayment of the Lamb Weston BSW installment notes. Financing
activities during 2019 also included the repurchase of 522,260 shares of our common stock, including restricted stock tax
withholdings. Repurchases of common stock and payments of restricted stock withholding taxes totaled $36.4 million, including
$31.8 million related to shares repurchased at an average price of $69.40 per share under our share repurchase program.
For more information about our debt, including among other items, interest rates, maturity dates, and covenants, see
Note 9, Debt and Financing Obligations, of the Notes to the Consolidated Financial Statements in “Part II, Item 8. Financial
Statements and Supplementary Data” of this Form 10-K. At May 31, 2020, we were in compliance with the financial covenant
ratios and other covenants contained in our credit agreement.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements as of May 31, 2020 that are reasonably likely to have a current or
future material effect on our financial condition, results of operations, liquidity, capital expenditures, or capital resources.
Investments in Joint Ventures
We conduct some of our business through three unconsolidated joint ventures and account for these investments using
equity method accounting. For more information about our investments in joint ventures, see Note 6, Investments in Joint
Ventures, of the Notes to the Consolidated Financial Statements in “Part II, Item 8. Financial Statements and Supplementary
Data” of this Form 10-K.
Obligations and Commitments
As part of our ongoing operations, we enter into arrangements that obligate us to make future payments under contracts
such as lease agreements, debt agreements, potato supply agreements, and unconditional purchase obligations (i.e., obligations to
transfer funds in the future for fixed or minimum quantities of goods or services at fixed or minimum
34
Table of Contents
prices). The unconditional purchase obligation arrangements are entered into in the normal course of business in order to ensure
adequate levels of sourced product are available.
A summary of our contractual obligations as of May 31, 2020 are as follows. The expected timing of payments of the
obligations in the table are estimated based on current information. Timing of payments and actual amounts paid may be
different, depending on the time of receipt of goods or services, or changes to agreed-upon amounts for some obligations.
Payments Due by Period (a)
Contractual Obligations
Short-term borrowings (b)
Long-term debt, including current portion, excluding financing
obligations (c)
Interest on long-term debt (d)
Purchase obligations (e)
Capital commitments (f)
Other long-term liabilities reflected on our Consolidated Balance
Sheet (g):
Operating leases (h)
Financing obligations, including current portion (i)
Compensation and benefits (j)
Other
Total
Total
498.7
$
Less than
1 Year
$ 498.7
1-3 Years
$
— $
3-5 Years
After 5
Years
— $
—
3,056.3
685.4
827.6
36.5
45.9
120.9
74.5
36.5
320.3
232.7
117.0
—
1,357.1
201.2
106.1
—
1,333.0
130.6
530.0
—
201.4
15.8
39.0
19.6
78.2
5.7
20.0
5.1
$ 5,380.3 $ 815.6 $ 740.1 $ 1,722.0 $ 2,102.6
32.7
3.2
2.1
1.1
39.6
2.0
6.1
9.9
50.9
4.9
10.8
3.5
(a) The table assumes amounts included in the “Less than 1 Year” column represent obligations for our fiscal year 2021. The remaining
columns correspond to our fiscal years as follows: “1-3 Years” represents fiscal 2022 and 2023, “3-5 Years” represents fiscal 2024 and
2025, and “After 5 Years” represents fiscal 2026 and thereafter.
(b) The $495.0 million borrowed under our revolving credit facility was fully repaid in July 2020.
(c) The table is based on our long-term debt maturities at May 31, 2020, and includes the current portion of long-term debt. Amounts are
reported gross. Balances have not been reduced by the $28.2 million of unamortized debt issuance costs at May 31, 2020.
(d) Amounts represent estimated future interest payments as of May 31, 2020, assuming our long-term debt and financing obligations are
held to maturity and using interest rates in effect at May 31, 2020.
(e) Amounts exclude purchase commitments under potato supply agreements due to uncertainty of pricing and quantity. Potato supply
agreements have maximum contracted pricing with deductions for certain quality attributes, and quantities purchased are determined by
the yields produced on contracted acres. Total purchases under all our potato supply agreements were $646.5 million, $592.3 million,
and $595.8 million in fiscal 2020, 2019, and 2018, respectively.
(f) Capital commitments represent commitments for the construction or purchase of property, plant and equipment. They were not
recorded as liabilities on our Consolidated Balance Sheet as of May 31, 2020, as we had not yet received the related goods nor taken
title to the property.
(g) Deferred income taxes of $152.5 million, uncertain tax positions of $30.5 million, and long-term workers compensation of $8.2 million
are excluded from this table, because the timing of their future cash outflows are uncertain. This amount also excludes $9.9 million of a
deferred gain as the amount is non-cash.
(h) We enter into operating leases in the normal course of business. We lease some of our warehouses and operating facilities, as well as
other property and equipment, under operating leases. This amount includes estimated interest costs of $28.4 million.
(i) This table is based on our financing obligation maturities at May 31, 2020, and assumes our financing obligations are held to maturity,
includes the current portion of financing obligations, and includes $2.5 million of interest payments associated with financing
obligations. Amounts are reported gross.
35
Table of Contents
(j) Amounts consist of our pension, post-retirement benefit obligations, deferred compensation liabilities, and deferred payments for the
employer portion of social security taxes under the CARES Act. Actuarially determined liabilities related to pension benefits are
recorded based on estimates and assumptions. Key factors used in developing estimates of these liabilities include assumptions related
to discount rates, expected rate of compensation increases, retirement and mortality rates, and other factors. Changes in estimates and
assumptions related to the measurement of funded status will impact the amounts reported. In the table above, we allocated our pension
obligations by year based on the future required minimum pension contributions, as determined by our actuaries. See Note 10,
Employee Benefit Plans and Other Post-Retirement Benefits, of the Notes to the Consolidated Financial Statements in “Part II, Item 8.
Financial Statements and Supplementary Data” of this Form 10-K.
For the majority of restricted stock units (“RSUs”) granted, the number of shares of common stock issued on the date the RSUs vest is net of
the minimum statutory withholding requirements that we pay in cash to the appropriate taxing authorities on behalf of our employees. The
obligation to pay the relevant taxing authority is excluded from the table above, as the amount is contingent upon continued employment. In
addition, the amount of the obligation is unknown, as it is based in part on the market price of our common stock when the awards vest.
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.
Our 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. We include
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.
36
Table of Contents
The following table reconciles net income to Adjusted EBITDA and Adjusted EBITDA including unconsolidated joint
ventures.
$
Net income attributable to Lamb Weston Holdings, Inc.
Income attributable to noncontrolling interests
Equity method investment earnings
Interest expense, net
Income tax expense
Income from operations
Depreciation and amortization
Items impacting comparability (b)
Expenses related to the Separation
Non-cash gain on assets
Expense related to actuarial losses in excess of 10% of related
pension liability
Expenses related to SCAE Plan
Adjusted EBITDA (b) (c)
Unconsolidated Joint Ventures
Equity method investment earnings
Interest expense, income tax expense, and depreciation and
amortization included in equity method investment earnings
Items impacting comparability
Loss on withdrawal from multiemployer pension plan (d)
Gain related to pension plan settlement (e)
Add: Adjusted EBITDA from unconsolidated joint ventures
Consolidated Joint Ventures
Income attributable to noncontrolling interests
Interest expense, income tax expense, and depreciation and
amortization included in equity method investment earnings
Subtract: EBITDA from consolidated joint ventures
$
2020 (a)
365.9
—
(29.3)
108.0
112.3
556.9
177.8
—
—
—
—
734.7
29.3
33.2
2.6
—
65.1
—
—
—
For the Fiscal Years Ended May
2018
2017
2019
$
478.6
8.6
(59.5)
107.1
133.6
668.4
157.7
—
—
—
—
826.1
59.5
29.0
—
—
88.5
$
416.8
16.9
(83.6)
108.8
121.2
580.1
138.7
8.7
—
—
—
727.5
83.6
30.3
—
—
113.9
$
326.9
13.3
(53.3)
61.2
170.2
518.3
106.6
26.5
(3.1)
—
—
648.3
53.3
22.5
—
—
75.8
2016
285.3
9.3
(71.7)
5.9
144.5
373.3
95.9
5.3
—
59.5
0.1
534.1
71.7
18.2
—
(17.7)
72.2
(8.6)
(16.9)
(13.3)
(9.3)
(1.7)
(10.3)
(4.1)
(21.0)
(3.7)
(17.0)
(3.6)
(12.9)
Adjusted EBITDA including unconsolidated joint ventures
$
799.8
$
904.3
$
820.4
$
707.1
$
593.4
(a) See Results of Operations in this MD&A for a discussion of the impact of government efforts to control the spread of COVID-19,
including restrictions on restaurants and other foodservice operations and stay-at-home orders, on our financial results.
(b) Fiscal 2018, 2017 and 2016 include $8.7 million, $26.5 million and $5.3 million, respectively, of expenses related to the Separation. In
fiscal 2018, the expenses related primarily to professional fees and other employee-related costs. In fiscal 2017 and 2016, the expenses
related primarily to professional fees.
Fiscal 2017 includes a $3.1 million non-cash gain on assets.
Fiscal 2016 includes $59.5 million of charges reflecting Lamb Weston’s portion of actuarial losses in excess of 10% of Conagra’s
pension liability for Conagra sponsored plans.
Fiscal 2016 includes $0.1 million related to costs incurred in connection with Conagra’s initiative to improve selling, general and
administrative effectiveness and efficiencies, which is referred to as the Supply Chain and Administrative Efficiency Plan (“SCAE
Plan”).
(c) Adjusted EBITDA includes EBITDA from consolidated joint ventures.
(d) Fiscal 2020 includes a $2.6 million loss related to the withdrawal from a multiemployer pension plan by Lamb Weston RDO.
(e) Fiscal 2016 includes a $17.7 million non-cash gain related to the settlement of a pension plan at our Lamb-Weston/Meijer joint venture.
37
Table of Contents
The following table reconciles diluted earnings per share to Adjusted Diluted EPS:
For the Fiscal Years Ended May
2019 (a)
2018 (a)
2020 (a)
As reported
Items impacting comparability:
Loss on withdrawal from multiemployer pension plan (b)
Increase in redemption value of noncontrolling interests, net
of tax benefits (c)
Expenses related to the Separation (d)
Tax reform (e)
Total items impacting comparability
Adjusted
$
2.49
$
3.18
$
2.82
0.01
—
—
—
0.01
2.50
$
—
—
0.06
—
(0.02)
0.04
3.22
$
—
0.03
(0.19)
(0.16)
2.66
$
(a) Diluted weighted average common shares were 147.1 million, 147.3 million, and 147.0 million for fiscal 2020, 2019, and 2018,
respectively.
(b) Fiscal 2020 included a $2.6 million loss related to the withdrawal from a multiemployer pension plan by Lamb Weston RDO.
(c) Fiscal 2019 included accretion, net of tax benefits, of $9.4 million, or $0.06 per share, which we recorded to increase the redeemable
noncontrolling interest to the amount we paid to acquire the remaining 50.01% interest in Lamb Weston BSW. While the accretion, net
of 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. Net income includes 100% of Lamb Weston BSW’s earnings beginning November
2, 2018. For more information about our investments in joint ventures, see Note 6, Investments in Joint Ventures, of the Notes to the
Consolidated Financial Statements in “Part II, Item 8. Financial Statements and Supplementary Data” of this Form 10-K.
(d) Fiscal 2018 included $8.7 million of pre-tax expenses ($5.7 million after tax) related to the Separation. The expenses related primarily
to professional fees and other employee-related costs.
(e)
In fiscal 2019, we recorded a $2.4 million, or $0.02 per share, benefit from the true-up of the transition tax on previously untaxed
foreign earnings under the Tax Act. We completed our analysis of the one-time impacts of the Tax Act in fiscal 2019.
In connection with our initial analysis of the impact of the Tax Act in fiscal 2018, we decreased income tax expense and increased net
income $28.4 million, or $0.19 per share for one-time items, including a $39.9 million net provisional tax benefit from the estimated
impact of remeasuring our net U.S. deferred tax liabilities with a new lower U.S. federal statutory rate, partially offset by an $11.5
million transition tax on our previously untaxed foreign earnings.
Critical Accounting Estimates
Management’s discussion and analysis of financial condition and results of operations are based upon the Company’s
consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial
statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and
expenses, and related disclosures of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including
those related to our trade promotions, income taxes, and acquisitions, among others. We base our estimates on historical
experiences combined with management’s understanding of current facts and circumstances, the results of which form the basis
for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions or conditions.
Critical accounting estimates are those that are most important to the portrayal of our financial condition and operating
results. These estimates require management’s most difficult, subjective, or complex judgments. We review the development,
selection, and disclosure of our critical accounting estimates with the Audit and Finance Committee of our Board of Directors.
We believe that of our significant accounting policies, the following involve a higher degree of judgment and/or complexity.
38
Table of Contents
Sales Incentives and Trade Promotion Allowances
We promote our products with advertising, consumer incentives, and trade promotions. Sales promotions include, but
are not limited to, discounts, coupons, rebates, and volume-based incentives. The estimates for sales incentives are based
principally on historical sales and redemption rates, influenced by judgments about current market conditions such as competitive
activity in specific product categories.
Trade promotion programs include introductory marketing funds such as slotting fees, cooperative marketing programs,
temporary price reductions, and other activities conducted by our customers to promote our products. The costs of these programs
are recognized as a reduction to revenue with a corresponding accrued liability. The estimate of trade promotions is inherently
difficult due to information limitations as the products move beyond distributors and through the supply chain to operators.
Estimates made by management in accounting for these costs are based primarily on our historical experience with marketing
programs, with consideration given to current circumstances and industry trends and include the following: quantity of customer
sales, timing of promotional activities, current and past trade-promotion spending patterns, the interpretation of historical
spending trends by customer and category, and forecasted costs for activities within the promotional programs.
The determination of sales incentive and trade promotion costs requires judgment and may change in the future as a
result of changes in customer promotion participation, particularly for new programs related to the introduction of new products.
Final determination of the total cost of promotion is dependent upon customers providing information about proof of performance
and other information related to the promotional event. Because of the complexity of some of these trade promotions, the ultimate
resolution may result in payments that are different from our estimates. As additional information becomes known, we may
change our estimates. At May 31, 2020 and May 26, 2019, we had $42.5 million and $48.6 million, respectively, of sales
incentives and trade promotions payable recorded in “Accrued liabilities” on our Consolidated Balance Sheets.
Income Taxes
We compute the provision for income taxes using the asset and liability method, under which deferred tax assets and
liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and
tax bases of assets and liabilities, and for operating losses and tax credit carryforwards. We measure deferred tax assets and
liabilities using the currently enacted tax rates that apply to taxable income in effect for the years in which those tax assets are
expected to be realized or settled.
Inherent in determining the annual tax rate are judgments regarding business plans, planning opportunities, and
expectations about future outcomes. Management judgments are required for the following items:
● Management reviews deferred tax assets for realizability. Valuation allowances are established when management
believes that it is more likely than not that some portion of the deferred tax assets will not be realized. Changes in
valuation allowances from period to period are included in the tax provision.
● We establish accruals for unrecognized tax benefits when, despite the belief that our tax return positions are fully
supported, we believe that an uncertain tax position does not meet the recognition threshold of Accounting Standards
Codification (“ASC”) 740, Income Taxes. These contingency accruals are adjusted in light of changing facts and
circumstances, such as the progress of tax audits, the expiration of the statute of limitations for the relevant taxing
authority to examine a tax return, case law and emerging legislation. While it is difficult to predict the final outcome or
timing of resolution for any particular matter, we believe that the accruals for unrecognized tax benefits at May 31,
2020, reflect the likely outcome of known tax contingencies as of such date in accordance with accounting for
uncertainty in income taxes under ASC 740.
● We recognize the tax impact of including certain foreign earnings in U.S. taxable income as a period cost. We have not
recognized deferred income taxes for local country income and withholding taxes that could be incurred on distributions
of certain non-U.S. earnings or for outside basis differences in our subsidiaries, because we plan to indefinitely reinvest
such earnings and basis differences. Remittances of non-U.S. earnings are based on
39
Table of Contents
estimates and judgments of projected cash flow needs, as well as the working capital and investment requirements of
our non-U.S. and U.S. operations. Material changes in our estimates of cash, working capital, and investment needs in
various jurisdictions could require repatriation of indefinitely reinvested non-U.S. earnings, which could be subject to
applicable non-U.S. income and withholding taxes.
While we believe the judgements and estimates discussed above and made by management are appropriate and
reasonable under the circumstances, actual resolution of these matters may differ from recorded estimated amounts. Further
information on income taxes is provided in Note 3, Income Taxes, of the Notes to Consolidated Financial Statements in “Part II,
Item 8. Financial Statements and Supplementary Data” of this Form 10-K.
Acquisitions
From time to time, we may enter into business combinations. We allocate the total purchase price of a business
combination to the assets acquired and the liabilities assumed based on their estimated fair values at the acquisition date, with the
excess purchase price recorded as goodwill. The acquisition method of accounting requires us to make significant estimates and
assumptions regarding the fair values of the elements of a business combination as of the date of acquisition, including the fair
values (fair value is determined using the income approach, cost approach and or market approach) of inventory, property, plant
and equipment, identifiable intangible assets, deferred tax asset valuation allowances, and liabilities related to uncertain tax
positions, among others. This method also requires us to refine these estimates over a measurement period not to exceed one year
to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would
have affected the measurement of the amounts recognized as of that date. If we are required to retroactively adjust provisional
amounts that we have recorded for the fair values of assets and liabilities in connection with acquisitions, these adjustments could
have a material impact on our financial condition and results of operations. Additionally, we expense any acquisition-related
costs as incurred in connection with each business combination.
Significant estimates and assumptions in estimating the fair value of brands and other identifiable intangible assets
include future cash flows that we expect to generate from the acquired assets. If the subsequent actual results and updated
projections of the underlying business activity change compared with the assumptions and projections used to develop these
values, we could record impairment charges. In addition, we have estimated the economic lives of certain acquired assets and
these lives are used to calculate depreciation and amortization expense. If our estimates of the economic lives change,
depreciation or amortization expenses could increase or decrease.
New and Recently Adopted Accounting Standards
For a listing of our new and recently adopted accounting standards, see Note 1, Nature of Operations and Summary of
Significant Accounting Policies, of the Notes to Consolidated Financial Statements in “Part II, Item 8. Financial Statements and
Supplementary Data” of this Form 10-K.
40
Table of Contents
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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. The COVID-19 pandemic has resulted in significant
volatility and uncertainty in the markets in which we operate. At the time of this filing, we are unable to predict or determine the
impacts that the COVID-19 pandemic may have on our exposure to market risk from commodity prices, foreign currency
exchange rates and interest rates, among other factors. For additional discussion, refer to “Forward-Looking Statements,”
“Liquidity and Capital Resources” within “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations” as well as “Item 1A. Risk Factors” of this Form 10-K.
Based on our open commodity contract hedge positions as of May 31, 2020, 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 $9.6 million ($7.4
million net of income tax benefit). It should be noted that any change in the fair value of the contracts, real or hypothetical, would
be substantially offset by an inverse change in the value of the underlying hedged item.
At May 31, 2020, we had $2,166.0 million of fixed-rate and $1,389.0 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 $14.1
million annually ($10.8 million net of income tax benefit).
For more information about our market risks, see Note 9, Debt and Financing Obligations, of the Notes to Consolidated
Financial Statements in “Part II, Item 8. Financial Statements and Supplementary Data” of this Form 10-K.
41
Table of Contents
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reports of Independent Registered Public Accounting Firm
Consolidated Statements of Earnings for the fiscal years ended May 31, 2020, May 26, 2019 and May 27, 2018
Consolidated Statements of Comprehensive Income (Loss) for the fiscal years ended May 31, 2020, May 26, 2019,
and May 27, 2018
Consolidated Balance Sheets as of May 31, 2020 and May 26, 2019
Consolidated Statements of Stockholders’ Equity for the fiscal years ended May 31, 2020, May 26, 2019, and May
27, 2018
Consolidated Statements of Cash Flows for the fiscal years ended May 31, 2020, May 26, 2019, and May 27, 2018
Notes to Consolidated Financial Statements
43
46
47
48
49
50
51
42
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Lamb Weston Holdings, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Lamb Weston Holdings, Inc. and subsidiaries (the Company) as of
May 31, 2020 and May 26, 2019, the related consolidated statements of earnings, comprehensive income (loss), stockholders’ equity, and
cash flows for each of the fiscal years in the three-year period ended May 31, 2020, and the related notes and consolidated financial
statement schedule (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly,
in all material respects, the financial position of the Company as of May 31, 2020 and May 26, 2019, and the results of its operations and its
cash flows for each of the fiscal years in the three-year period ended May 31, 2020, in conformity with U.S. generally accepted accounting
principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the
Company’s internal control over financial reporting as of May 31, 2020, based on criteria established in Internal Control – Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated July 28, 2020
expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for leases for the fiscal
year ended May 31, 2020 due to the adoption of Accounting Standards Update No. 2016-02, Leases (Topic 842), effective May 27, 2019.
As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for revenue for the
fiscal year ended May 26, 2019 due to the adoption of Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers
(Topic 606), effective May 28, 2018.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to
be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or
fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements,
whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial
statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that
were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to
the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of
critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by
communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to
which they relate.
Evaluation of certain sales incentives and trade promotion allowances
As discussed in Note 1 to the consolidated financial statements, the Company offers sales incentives and trade promotion allowances
through various programs. The Company records accruals based on sales incentive agreements and expectations
43
Table of Contents
regarding customer participation and performance levels. Customer participation and performance levels are primarily based on
historical sales and redemption rates, current customer sales, and industry trends.
We identified the evaluation of certain accruals for sales incentive and trade promotion allowances as a critical audit matter. Subjective
and complex auditor judgment is required in evaluating these accruals as a result of the timing difference between when the product is
delivered and when the incentive will be claimed by the end consumer, coupled with customer participation expectations. This
specifically related to the impact of historical sales, payments, and redemption rates on the Company’s accrual.
The primary procedures that we performed to address this critical audit matter included the following. We tested certain internal
controls over the Company’s sales incentive and trade promotion allowance process, including the accrual methodology, and evaluation
of the use of historic data. To evaluate the Company’s accrual for certain sales incentives and trade promotions allowances we (1)
assessed the Company’s ability to accurately estimate its sales incentive accrual by comparing previously established accruals to actual
settlements, (2) evaluated conditions in the current operating environment which may affect the use of historical sales, payments, and
redemption rates as inputs to the projected accrual, (3) evaluated a sample of customer and end consumer incentive payments, which
are the basis for certain portions of the Company’s accrual for sales incentives and trade promotions, based on volumes sold and the
terms of the sales incentives to validate the accuracy of the payment made and the lag time between product invoice and incentive
redemption, and (4) evaluated certain customer and end consumer incentive accruals based on volumes sold, historic payments, and the
terms of the sales incentives to test the basis of the specific customer’s projected accrual.
Incremental audit procedures over IT financial reporting processes
As of May 26, 2019 the Company identified a material weakness in internal control over financial reporting related to ineffective
information technology general controls (ITGCs) in the areas of user access over one of the Company’s information technology (IT)
systems that support the Company’s financial reporting processes. Automated and manual business process controls that were
dependent on the affected ITGCs were also deemed ineffective because they could have been adversely impacted. During a portion of
the 53-week period ended May 31, 2020, the ITGCs were ineffective and the information or system generated reports produced by the
affected financial reporting systems could not be relied upon without further testing.
We identified the design and evaluation of the sufficiency of the incremental audit procedures over the financial information reliant on
the impacted IT systems as a critical audit matter. Significant auditor judgment was required to design incremental audit procedures and
assess the sufficiency of the procedures performed and evidence obtained due to ineffective controls and the complexity of the
Company’s IT environment.
The primary procedures we performed to address this critical audit matter included the following. We used our judgment to determine
the nature and extent of incremental audit procedures to be performed over the information produced by the impacted IT systems. We
modified the types of procedures that were performed, which included testing the underlying records of selected transaction data
obtained from the impacted IT systems to support the use of the information in the conduct of the audit. In addition, we evaluated the
overall sufficiency of audit evidence obtained related to the information produced by the impacted IT systems.
/s/ KPMG LLP
We have served as the Company’s auditor since 2016.
Seattle, Washington
July 28, 2020
44
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Lamb Weston Holdings, Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited Lamb Weston Holdings, Inc. and subsidiaries’ (the Company) internal control over financial reporting as of May 31, 2020,
based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of
the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial
reporting as of May 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the
consolidated balance sheets of the Company as of May 31, 2020 and May 26, 2019, the related consolidated statements of earnings,
comprehensive income (loss), stockholders’ equity, and cash flows for each of the fiscal years in the three-year period ended May 31, 2020,
and the related notes and consolidated financial statement schedule (collectively, the consolidated financial statements), and our report dated
July 28, 2020 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control Over
Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our
audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our
audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing
the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that
our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of
any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ KPMG LLP
Seattle, Washington
July 28, 2020
45
Table of Contents
Lamb Weston Holdings, Inc.
Consolidated Statements of Earnings
(dollars in millions, except per-share amounts)
Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Income from operations
Interest expense, net
Income before income taxes and equity method earnings
Income tax expense
Equity method investment earnings
Net income
Less: Income attributable to noncontrolling interests
Net income attributable to Lamb Weston Holdings, Inc.
Earnings per share
Basic
Diluted
See Notes to Consolidated Financial Statements.
46
For the Fiscal Years Ended May
2019
$ 3,756.5
2,753.0
1,003.5
335.1
668.4
107.1
561.3
133.6
59.5
487.2
8.6
478.6
2018
$ 3,423.7
2,544.2
879.5
299.4
580.1
108.8
471.3
121.2
83.6
433.7
16.9
416.8
2020
$ 3,792.4
2,897.2
895.2
338.3
556.9
108.0
448.9
112.3
29.3
365.9
—
365.9
$
$
$
$
$
2.50
2.49
$
$
3.19
3.18
$
$
2.83
2.82
Table of Contents
Lamb Weston Holdings, Inc.
Consolidated Statements of Comprehensive Income (Loss)
(dollars in millions)
Net income
Other comprehensive income (loss):
Reclassification of post-retirement
benefits out of accumulated other
comprehensive income (loss)
Unrealized pension and post-
retirement benefit obligations
Unrealized currency translation
gains (losses)
Comprehensive income (loss)
Less: Comprehensive income
attributable to noncontrolling interests
Comprehensive income (loss)
attributable to Lamb Weston
Holdings, Inc.
2020
Tax
(Expense)
Pre-Tax
Amount Benefit
$ 478.2
After-Tax
Amount
$ (112.3) $ 365.9
Pre-Tax
Amount
$ 620.8
For the Fiscal Years Ended May
2019
Tax
(Expense)
After-Tax
Benefit
Amount
$ (133.6) $ 487.2
2018
Tax
(Expense)
Benefit
After-Tax
Amount
433.7
$ (121.2) $
Pre-Tax
Amount
$ 554.9
0.8
0.4
(0.3)
(0.1)
0.5
0.3
0.7
(0.1)
0.6
0.3
(0.1)
0.2
(3.3)
0.8
(2.5)
(6.0)
1.7
(4.3)
(17.4)
462.0
1.4
(111.3)
(16.0)
350.7
(19.1)
599.1
—
(19.1)
466.2
9.1
558.3
—
(119.6)
9.1
438.7
(132.9)
—
—
—
8.6
—
8.6
16.9
—
16.9
$ 462.0
$ (111.3) $ 350.7
$ 590.5
$ (132.9) $ 457.6
$ 541.4
$ (119.6) $
421.8
See Notes to Consolidated Financial Statements.
47
Table of Contents
Lamb Weston Holdings, Inc.
Consolidated Balance Sheets
(dollars in millions, except share data)
ASSETS
Current assets:
Cash and cash equivalents
Receivables, less allowance for doubtful accounts of $1.3 and $1.3
Inventories
Prepaid expenses and other current assets
$
Total current assets
Property, plant and equipment, net
Operating lease assets
Equity method investments
Goodwill
Intangible assets, net
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings
Current portion of long-term debt and financing obligations
Accounts payable
Accrued liabilities
Total current liabilities
Long-term liabilities:
Long-term debt and financing obligations, excluding current portion
Deferred income taxes
Other noncurrent liabilities
Total long-term liabilities
Commitments and contingencies
Stockholders' equity:
Common stock of $1.00 par value, 600,000,000 shares authorized; 146,993,751 and
146,654,827 shares issued
Additional distributed capital
Retained earnings
Accumulated other comprehensive loss
Treasury stock, at cost, 954,858 and 585,794 common shares
Total stockholders' equity (deficit)
Total liabilities and stockholders’ equity
See Notes to Consolidated Financial Statements.
48
$
$
$
May 31,
2020
May 26,
2019
1,364.0
342.1
486.7
109.8
2,302.6
1,535.0
167.0
250.2
303.8
38.3
65.4
4,662.3
498.7
48.8
244.4
233.0
1,024.9
2,992.6
152.5
252.3
3,397.4
147.0
(862.9)
1,064.6
(40.5)
(68.2)
240.0
4,662.3
$
$
$
$
12.2
340.1
498.3
110.9
961.5
1,597.8
—
224.6
205.9
37.6
20.7
3,048.1
8.4
38.0
289.2
217.2
552.8
2,280.2
125.7
94.0
2,499.9
146.7
(890.3)
803.6
(25.3)
(39.3)
(4.6)
3,048.1
Table of Contents
Lamb Weston Holdings, Inc.
Consolidated Statements of Stockholders’ Equity
(dollars in millions except share data)
Balance at May 28, 2017
Increase in redemption value of noncontrolling
interests in excess of earnings allocated
Dividends declared, $0.7575 per share
Common stock issued
Stock-settled, stock-based compensation
expense
Common stock withheld to cover taxes
Other
Comprehensive income
Balance at May 27, 2018
Adoption of ASC 606 revenue from contracts
with customers
Increase in redemption value of noncontrolling
interests in excess of earnings allocated
Dividends declared, $0.7825 per share
Common stock issued
Stock-settled, stock-based compensation
expense
Repurchase of common stock and common
stock withheld to cover taxes
Other
Comprehensive income (loss)
Balance at May 26, 2019
Adoption of ASC 842 leases
Dividends declared, $0.8600 per share
Common stock issued
Stock-settled, stock-based compensation
expense
Repurchase of common stock and common
stock withheld to cover taxes
Other
Comprehensive income (loss)
Balance at May 31, 2020
Common Stock,
net of Treasury
Shares
146,080,901
Common
Stock
$ 146.1
Treasury
Stock
(0.2)
$
Paid-in
(Distributed)
Capital
$
(904.8)
Retained
Earnings
121.0
$
Additional
Accumulated
Other
Comprehensive
Loss
Total
Equity
$
(9.3)
$
(647.2)
—
— — —
—
—
308,822
0.3
—
—
(57,391)
— —
—
(2.7)
— — —
—
146,332,332
—
$ 146.4
—
(2.9)
$
$
—
—
—
258,961
—
—
—
—
0.3
—
—
—
—
—
—
(522,260)
—
—
146,069,033
—
—
338,924
—
—
—
$ 146.7
—
—
0.3
(36.4)
—
—
$ (39.3)
—
—
—
$
(2.7)
—
1.8
—
(110.8)
—
13.5
—
(8.2)
—
(900.4)
$
—
—
(0.6)
416.8
426.4
$
—
13.7
(10.8)
—
1.7
18.8
—
0.4
—
(890.3)
—
—
4.0
—
(114.6)
—
—
—
(0.5)
478.6
803.6
20.5
(125.6)
—
$
$
—
—
—
22.8
—
—
—
—
—
—
—
5.0
(4.3)
—
—
—
—
—
—
—
(21.0)
(25.3)
—
—
—
—
$
$
(369,064)
—
—
146,038,893
—
—
—
$ 147.0
(28.9)
—
—
$ (68.2)
$
—
0.6
—
(862.9)
—
0.2
365.9
$ 1,064.6 $
—
—
(15.2)
(40.5) $
See Notes to Consolidated Financial Statements.
49
(2.7)
(110.8)
2.1
13.5
(2.7)
(8.8)
421.8
(334.8)
13.7
(10.8)
(114.6)
2.0
18.8
(36.4)
(0.1)
457.6
(4.6)
20.5
(125.6)
4.3
22.8
(28.9)
0.8
350.7
240.0
Table of Contents
Lamb Weston Holdings, Inc.
Consolidated Statements of Cash Flows
(dollars in millions)
For the Fiscal Years Ended May
2019
2018
2020
Cash flows from operating activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of intangibles and debt issuance costs
Stock-settled, stock-based compensation expense
Earnings of joint ventures in excess of distributions
Deferred income taxes
Other
Changes in operating assets and liabilities, net of acquisitions:
Receivables
Inventories
Income taxes payable/receivable, net
Prepaid expenses and other current assets
Accounts payable
Accrued liabilities
Net cash provided by operating activities
Cash flows from investing activities
Acquisition of business, net of cash acquired
Additions to property, plant and equipment
Additions to other long-term assets
Investment in equity method joint venture
Other
Net cash used for investing activities
Cash flows from financing activities
Proceeds from issuance of debt
Proceeds (payments) from short-term borrowings, net
Repayments of debt and financing obligations
Dividends paid
Repurchase of common stock and common stock withheld to cover taxes
Acquisition of noncontrolling interest
Cash distributions paid to noncontrolling interest
Other
Net cash provided by (used for) financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of the period
Cash and cash equivalents, end of period
$
365.9
$
487.2
$
433.7
184.0
22.8
(0.4)
20.0
15.6
1.1
15.3
2.7
(2.0)
(34.9)
(16.1)
574.0
$
(116.7)
(167.7)
(40.7)
(22.6)
1.7
(346.0) $
$
$
1,122.9
490.5
(336.3)
(121.3)
(28.9)
—
—
(1.9)
$ 1,125.0
(1.2)
1,351.8
12.2
$ 1,364.0
$
$
162.4
18.8
(13.8)
37.5
13.2
(25.1)
(15.8)
(16.4)
(1.9)
32.9
1.9
680.9
$
(88.6)
(334.2)
(2.7)
—
2.5
(423.0) $
—
(1.0)
(66.7)
(113.3)
(36.4)
(78.2)
(6.1)
2.1
(299.6) $
(1.7)
(43.4)
55.6
12.2
$
143.3
13.5
(35.1)
(3.6)
(8.0)
(40.4)
(23.6)
13.7
(15.5)
(8.3)
11.5
481.2
—
(306.8)
—
—
—
(306.8)
—
(14.4)
(39.2)
(110.2)
(2.7)
—
(14.6)
2.2
(178.9)
3.0
(1.5)
57.1
55.6
See Notes to Consolidated Financial Statements.
50
Table of Contents
Notes to Consolidated Financial Statements
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Lamb Weston Holdings, Inc. (“we,” “us,” “our,” the “Company,” or “Lamb Weston”), along with its joint venture
partners, is a leading global producer, distributor, and marketer of value-added frozen potato products and is headquartered in
Eagle, Idaho. We have four reportable segments: Global, Foodservice, Retail, and Other. See Note 14, Segments, for additional
information on our reportable segments.
On November 9, 2016, Lamb Weston separated from Conagra Brands, Inc. (formerly, ConAgra Foods, Inc., “Conagra”)
and became an independent publicly traded company through the pro rata distribution by Conagra of 100% of the outstanding
common stock of Lamb Weston to Conagra stockholders (“Separation”).
Basis of Presentation
These Consolidated Financial Statements present the financial results of Lamb Weston for the fiscal years ended May
31, 2020, May 26, 2019, and May 27, 2018 (“fiscal 2020, 2019, and 2018”), and have been prepared in accordance with generally
accepted accounting principles (“GAAP”) in the United States of America. The fiscal year of Lamb Weston ends the last Sunday
in May. The fiscal years for the Consolidated Financial Statements presented consist of a 53-week period for fiscal 2020 and 52-
week periods for fiscal 2019 and 2018.
The financial statements include all adjustments (consisting only of normal recurring adjustments) that we consider
necessary for a fair presentation of such financial statements. The preparation of financial statements involves the use of
estimates and accruals. Actual results may vary from those estimates.
Our consolidated financial statements include the accounts of Lamb Weston and all of its majority-owned subsidiaries.
In addition, the accounts of all variable interest entities for which we are the primary beneficiary are included in our consolidated
financial statements from the date such determination was made. Intercompany investments, accounts, and transactions have been
eliminated.
The equity method of accounting is applied for investments when the Company has significant influence over the
investee’s operations, or when the investee is structured with separate capital accounts and our investment is considered more
than minor. Our equity method investments are described in Note 6, Investments in Joint Ventures.
Certain amounts in the prior period consolidated financial statements have been reclassified to conform with the current
period presentation.
Use of Estimates
The preparation of the consolidated financial statements in conformity with GAAP requires us to make certain estimates
and assumptions that affect the amounts reported in our consolidated financial statements and the accompanying notes. On an
ongoing basis, we evaluate our estimates, including but not limited to those related to provisions for income taxes, estimates of
sales incentives and trade promotion allowances, and the valuation of goodwill and intangible assets. We base our estimates on
historical experience and on various other assumptions that we believe to be reasonable under the circumstances. We adjust such
estimates and assumptions when facts and circumstances dictate. As future events and their effects cannot be determined with
precision, actual results could differ significantly from these estimates. Changes in these estimates will be reflected in the
consolidated financial statements in future periods.
Revenue from Contracts with Customers
Effective May 28, 2018, we adopted Accounting Standards Update (“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. Fiscal years 2020 and 2019 are accounted for in accordance with this guidance. Fiscal 2018 was
accounted for in accordance with ASC 605, Revenue Recognition.
51
Table of Contents
Generally, we recognize revenue on a point-in-time basis when the customer takes title to the product and assumes the
risks and rewards for the product. However, for customized products, which are products manufactured to customers’ unique
specifications, we recognize revenue over time, utilizing an output method based on products produced. This is because once a
customized product is manufactured pursuant to a purchase order, we have an enforceable right to payment for that product. Our
Global segment sells the majority of our customized products, for which revenue is recognized when a purchase order is received
to the extent the product has been manufactured, as opposed to sales of non-customized products, for which revenue is generally
recognized upon shipment. As a result, the timing of the receipt of a purchase order may create quarterly fluctuations in this
segment.
The nature of our contracts vary based on the business, customer type, and region; however, in all instances it is our
customary business practice to receive a valid order from the customer, in which each party’s rights and related payment terms
are clearly identifiable. Our payment terms are consistent with industry standards and generally include early pay discounts.
Amounts billed and due from customers are short-term in nature and are classified as receivables, since payments are
unconditional and only the passage of time is required before payments are due. We generally do not offer financing to our
customers. We also do not provide a general right of return. However, customers may seek to return defective or non-conforming
products. Following a customer return, we may offer remedies, including cash refunds, credit towards future purchases, or
product replacement. As a result, customers’ right of return and related refund or product liabilities are estimated and recorded as
reductions in revenue.
We have elected to present all sales taxes on a net basis, account for shipping and handling activities as fulfillment
activities, recognize the incremental costs of obtaining a contract as expense when incurred if the amortization period of the asset
we would recognize is one year or less, and not record interest income or interest expense when the difference in timing of
control or transfer and customer payment is one year or less.
Sales Incentives and Trade Promotion Allowances
We promote our products with advertising, consumer incentives, and trade promotions. Sales promotions include, but
are not limited to, discounts, coupons, rebates, and volume-based incentives. The estimates for sales incentives are based
principally on historical sales and coupon utilization and redemption rates, influenced by judgments about current market
conditions such as competitive activity in specific product categories.
Trade promotion programs include introductory marketing funds such as slotting fees, cooperative marketing programs,
temporary price reductions, and other activities conducted by our customers to promote our products. The costs of these programs
are recognized as a reduction to revenue with a corresponding accrued liability. The estimate of trade promotions is inherently
difficult due to information limitations as the products move beyond distributors and through the supply chain to operators.
Estimates made by management in accounting for these costs are based primarily on our historical experience with marketing
programs, with consideration given to current circumstances and industry trends and include the following: quantity of customer
sales, timing of promotional activities, current and past trade-promotion spending patterns, the interpretation of historical
spending trends by customer and category, and forecasted costs for activities within the promotional programs.
The determination of sales incentive and trade promotion costs requires judgment and may change in the future as a
result of changes in customer promotion participation, particularly for new programs related to the introduction of new products.
Final determination of the total cost of promotion is dependent upon customers providing information about proof of performance
and other information related to the promotional event. Because of the complexity of some of these trade promotions, the ultimate
resolution may result in payments that are materially different from our estimates. As additional information becomes known, we
may change our estimates. At May 31, 2020 and May 26, 2019, we had $42.5 million and $48.6 million, respectively, of sales
incentives and trade promotions payable recorded in “Accrued liabilities” on our Consolidated Balance Sheets.
52
Table of Contents
Advertising and Promotion
Advertising and promotion expenses totaled $23.0 million, $32.4 million, and $31.6 million in fiscal 2020, 2019, and
2018, respectively, and are included in “Selling, general and administrative expenses” in the Consolidated Statements of
Earnings.
Research and Development
Research and development costs are expensed as incurred and totaled $15.4 million in both 2020 and 2019, and $13.5
million in fiscal 2018, and are included in “Selling, general and administrative expenses” in the Consolidated Statements of
Earnings.
Stock-Based Compensation
Compensation expense resulting from all stock-based compensation transactions are measured and recorded in the
consolidated financial statements based on the grant date fair value of the equity or liability instruments issued. Compensation
expense is recognized over the period the employee provides service in exchange for the award. See Note 11, Stock-Based
Compensation, for additional information.
Cash and Cash Equivalents
Cash and all highly liquid investments with an original maturity of three months or less at the date of acquisition, including short-
term time deposits, are classified as cash and cash equivalents and stated at cost, which approximates market value. Book
overdraft balances, if any, are classified in “Accounts payable” in our Consolidated Balance Sheets and are reported as a
component of operating cash flows for accounts payable in our Consolidated Statements of Cash Flows as they do not represent
bank overdrafts. Cash and cash equivalents totaled $1,364.0 million and $12.2 million at May 31, 2020 and May 26, 2019,
respectively. In light of the current uncertainty in the global economy resulting from the COVID-19 pandemic, in the fourth
quarter of fiscal 2020, we raised over $1 billion of liquidity, which we invested in money market funds that are backed by
government Treasury securities and can be redeemed without notice. See Note 9, Debt and Financing Obligations, for more
information.
Trade Accounts Receivable and Allowance for Doubtful Accounts
Trade accounts receivable are stated at the amount we expect to collect based on our past experience, as well as reliance
on the Perishable Agricultural Commodities Act, which was enacted to help promote fair trade in the fruit and vegetable industry
by establishing a code of fair business practices. The collectability of our accounts receivable is based upon a combination of
factors. In circumstances where a specific customer is unable to meet its financial obligations (e.g., bankruptcy filings, substantial
downgrading of credit sources), a specific reserve for bad debts is recorded against amounts due to the Company to reduce the net
recorded receivable to the amount that we reasonably believe will be collected. For all other customers, reserves for bad debts are
recognized based on historical collection experience. If collection experience deteriorates, the estimate of the recoverability of
amounts due could be reduced. We periodically review our allowance for doubtful accounts and adjustments to the valuation
allowance are recorded as income or expense. Trade accounts receivable balances that remain outstanding after we have used
reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable. At
both May 31, 2020 and May 26, 2019, the allowance for doubtful accounts was $1.3 million.
53
Table of Contents
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):
Raw materials and packaging
Finished goods
Supplies and other
Inventories
Leased Assets
May 31,
2020
May 26,
2019
$
$
106.2 $
339.2
41.3
486.7 $
93.1
371.4
33.8
498.3
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 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. As the implicit rate is not readily determinable for most of our leases, we use
an incremental borrowing rate to determine the initial present value of lease payments over the lease terms on a collateralized
basis over a similar term, which is based on market and company specific information. This is updated quarterly for measurement
of new lease liabilities. Leases having a lease term of twelve months or less are not recorded on the balance sheet and the related
lease expense is recognized on a straight-line basis over the term of the lease. In addition, we applied the practical expedient to
account for the lease and non-lease components as a single lease component for all of our leases. See Note 4, Leases, for more
information.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Cost includes expenditures for major improvements and
replacements and the amount of interest cost associated with significant capital additions. The amount of interest capitalized from
construction in progress was $2.6 million, $7.6 million, and $4.2 million in fiscal 2020, 2019, and 2018, respectively. Repairs and
maintenance costs are expensed as incurred. The components of property, plant and equipment were as follows (dollars in
millions):
Land and land improvements
Buildings, machinery, and equipment
Furniture, fixtures, office equipment, and other
Construction in progress
Property, plant and equipment, at cost
Less accumulated depreciation
Property, plant and equipment, net
54
May 31,
2020
107.2
2,670.1
107.1
58.3
2,942.7
(1,407.7)
1,535.0
$
$
May 26,
2019
142.2
2,542.3
105.2
84.8
2,874.5
(1,276.7)
1,597.8
$
$
Table of Contents
Depreciation is computed on the straight-line method over the estimated useful lives of the respective classes of assets
as follows:
Land improvements
Buildings
Machinery and equipment
Furniture, fixtures, office equipment, and other
1-40 years
10-40 years
5-20 years
3-15 years
We recorded $175.3 million, $155.5 million, and $136.3 million of depreciation expense in fiscal 2020, 2019, and 2018,
respectively. At May 31, 2020 and May 26, 2019, purchases of property, plant and equipment included in accounts payable were
$9.9 million and $27.1 million, respectively.
Long-Lived Asset Impairment
We review long-lived assets for impairment upon the occurrence of events or changes in circumstances which indicate
that the carrying amount of the assets may not be fully recoverable, measured by comparing their net book value to the
undiscounted projected future cash flows generated by their use. Impaired assets are recorded at their estimated fair value.
Goodwill and Other Identifiable Intangible Assets
We perform an annual impairment assessment of goodwill at the reporting unit level in the fourth quarter of each year,
or more frequently if indicators of potential impairment exist. The analysis may include both qualitative and quantitative factors
to assess the likelihood of an impairment. The reporting unit’s carrying value used in an impairment test represents the
assignment of various assets and liabilities, excluding certain corporate assets and liabilities, such as cash and debt.
Qualitative factors include industry and market considerations, overall financial performance, and other relevant events
and factors affecting the reporting unit. Additionally, as part of this assessment, we may perform a quantitative analysis to
support the qualitative factors above by applying sensitivities to assumptions and inputs used in measuring a reporting unit’s fair
value.
Our quantitative impairment test considers both an income approach and a market approach to estimate a reporting
unit’s fair value. Significant estimates include market segment growth rates, our assumed market segment share, estimated costs,
and discount rates based on a reporting unit's weighted average cost of capital. We test the reasonableness of the inputs and
outcomes of our discounted cash flow analysis against available market data.
In the current year, we performed a quantitative goodwill impairment test and determined that the fair values for the
total company and each of our Global, Foodservice, Retail, and Other reporting units were substantially in excess of the carrying
value, and therefore, no goodwill impairment existed.
We amortize acquisition-related intangible assets with finite lives over their estimated useful life. We perform a review
of significant finite-lived identified intangible assets to determine whether facts and circumstances indicate that the carrying
amount may not be recoverable. These reviews can be affected by various factors, including external factors such as industry and
economic trends, and internal factors such as changes in our business strategy and our forecasts for our products lines.
See Note 7, Goodwill and Other Identifiable Intangible Assets, for additional information.
55
Table of Contents
Fair Values of Financial Instruments
When determining fair value, we consider the principal or most advantageous market in which we would transact, as
well as assumptions that market participants would use when pricing the asset or liability. Unless otherwise specified, we believe
the carrying value of financial instruments approximates their fair value.
The three levels of inputs that may be used to measure fair value are:
Level 1—Quoted market prices in active markets for identical assets or liabilities. We evaluate security-specific market
data when determining whether a market is active.
Level 2—Observable market-based inputs other than those included in Level 1, such as quoted prices for similar assets
and liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets. All significant
inputs used in our valuations, such as discounted cash flows, are observable or can be derived principally from or
corroborated with observable market data for substantially the full term of the assets or liabilities.
Level 3—Unobservable inputs for the asset or liability reflecting our own assumptions and best estimate of what inputs
market participants would use in pricing the asset or liability.
See Note 12, Fair Value Measurements, for additional information.
Foreign Currency
Most of our foreign subsidiaries use the local currency of their respective countries as their functional currency. Assets
and liabilities are translated at exchange rates prevailing at the balance sheet dates. Revenues and expenses are translated into
U.S. dollars using daily exchange rates. Gains and losses resulting from the translation of Consolidated Balance Sheets are
recorded as a component of accumulated other comprehensive income (loss).
Foreign currency transactions resulted in losses of $0.1 million and $3.3 million in fiscal 2020 and 2019, and a gain of
$4.7 million in fiscal 2018. These amounts were recorded in “Selling, general and administrative expenses” in the Consolidated
Statements of Earnings.
Derivative Financial Instruments
We use derivatives and other financial instruments to hedge a portion of our commodity risks. We do not hold or issue
derivatives and other financial instruments for trading purposes. Derivative instruments are reported in our Consolidated Balance
Sheets at their fair values, unless the derivative instruments qualify for the normal purchase normal sale exception (“NPNS”)
under GAAP and such exception has been elected. If the NPNS exception is elected, the fair values of such contracts are not
recognized. We do not designate commodity derivatives to achieve hedge accounting treatment. Derivative financial instruments
did not have a material impact on our Consolidated Statements of Earnings in any of the periods presented.
Income Taxes
We recognize current tax liabilities and assets based on an estimate of taxes payable or refundable in the current year for
each of the jurisdictions in which we transact business. As part of the determination of our current tax liability, management
exercises considerable judgment in evaluating positions taken in the tax returns. We recognize the effect of income tax positions
only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest
amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in
which the change in judgment occurs.
We also recognize deferred tax assets and liabilities for the estimated future tax effects attributable to temporary
differences (e.g., the difference in book basis versus tax basis of fixed assets resulting from differing depreciation
56
Table of Contents
methods). If appropriate, we recognize valuation allowances to reduce deferred tax assets to amounts that are more likely than not
to be ultimately realized, based on our assessment of estimated future taxable income, including the consideration of available tax
planning strategies.
See Note 3, Income Taxes, for more information.
New and Recently Issued Accounting Pronouncements
Recently Adopted Accounting Pronouncements
Leases
In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, Leases (Topic 842)
(“ASC 842”). We adopted the provisions of the guidance effective May 27, 2019 (the beginning of our fiscal year), using the
modified retrospective transition method and prior periods were not recast. The adoption of the standard resulted in a $26.6
million ($20.5 million, net of tax) cumulative-effect adjustment to the opening balance of retained earnings for the elimination of
$38.7 million of land and $65.3 million of finance lease obligations related to a sale leaseback. The adoption also resulted in the
recognition of approximately $155 million of operating lease assets and short-term and long-term operating lease obligations
recorded on our consolidated balance sheet related to operating leases. We elected to adopt certain of the optional practical
expedients including electing to not reassess lease classification, initial direct costs of existing leases, or whether existing
contracts contain a lease. In addition, we elected to account for each contract’s lease and non-lease components as a single lease
component. The standard did not have a material impact on our results of operations or cash flows.
See Note 4, Leases, for more information.
Accounting Pronouncements Not Yet Adopted
Receivables – Credit Losses
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of
Credit Losses on Financial Instruments. This update amends the impairment or incurred model by requiring the use of forward-
looking information to assess the allowance for doubtful accounts. This guidance is effective in fiscal 2021 (beginning June 1,
2020), including interim periods, with early adoption permitted. In May 2019, the FASB issued ASU 2019-05, Financial
Instruments – Credit Losses (Topic 326): Targeted Transition Relief. This update provides targeted transition relief allowing for
an irrevocable one-time election upon adoption of the new credit losses standard to measure financial assets previously measured
at amortized cost using the fair value option. This guidance is effective concurrent with the adoption of ASU 2016-13. The
adoption of this standard did not have a significant impact on our consolidated financial statements or notes to consolidated
financial statements.
Defined Benefit Plans
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 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. 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 consolidated financial statements or notes to consolidated financial statements.
Reference Rate Reform
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) Facilitation of the Effects of
Reference Rate Reform on Financial Reporting. This update provides optional guidance for a limited period of time to
57
Table of Contents
ease potential accounting impacts associated with transitioning away from reference rates that are expected to be discontinued,
such as interbank offered rates and the London Interbank Offered Rate (“LIBOR”). This guidance includes practical expedients
for contract modifications due to reference rate reform. Generally, contract modifications related to reference rate reform may be
considered an event that does not require remeasurement or reassessment of a previous accounting determination at the
modification date. This guidance is effective immediately; however, it is only available through December 31, 2022. We are
currently evaluating the potential impact of this standard on our financial statements.
There were no other accounting pronouncements recently issued that had or are expected to have a material impact on
our financial statements.
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, except per share amounts):
For the Fiscal Years Ended May
2019
2018
2020
Numerator:
Net income attributable to Lamb Weston Holdings, Inc.
Less: Increase in redemption value of noncontrolling interests in excess of earnings
allocated, net of tax benefits (a)
Net income available to Lamb Weston common stockholders
Denominator:
Basic weighted average common shares outstanding
Add: Dilutive effect of employee incentive plans (b)
Diluted weighted average common shares outstanding
Earnings per share (a)
Basic
Diluted
$
$
$
$
365.9
$
478.6
—
$
365.9
10.8
467.8
$
$
146.2
0.9
147.1
146.5
0.8
147.3
416.8
2.7
414.1
146.3
0.7
147.0
2.50
2.49
$
$
3.19
3.18
$
$
2.83
2.82
(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 fiscal 2019, net income available to common stockholders and earnings per share included accretion expense, net of
estimated tax benefits, of $9.4 million, or $0.06 per share, to increase the redeemable noncontrolling interest to the amount we agreed
to pay to acquire the remaining interest in Lamb Weston 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.
(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 May 31, 2020 and May 26, 2019, an insignificant number of stock-based awards were excluded from the computation of
diluted earnings per share because they would be antidilutive. As of May 27, 2018, we did not have any stock-based awards that were
antidilutive.
58
Table of Contents
3. INCOME TAXES
Pre-tax income, inclusive of equity method investment earnings, consisted of the following (dollars in millions):
United States
Foreign
Total pre-tax income
For the Fiscal Years Ended May
2019
2018
2020
$
$
462.0
16.2
478.2
$
$
574.5
46.3
620.8
$
$
478.2
76.7
554.9
The provision for income taxes included the following (dollars in millions):
Current
U.S. federal
State and local
Foreign
Total current provision for taxes
Deferred
U.S. federal
State and local
Foreign
Total deferred provision for taxes
Total provision for taxes
For the Fiscal Years Ended May
2019
2020
2018
$
$
$
75.7 $
13.2
3.4
92.3
66.8 $
17.7
11.6
96.1
18.6
4.4
(3.0)
20.0
112.3
$
$
42.2
(0.1)
(4.6)
37.5
133.6
$
$
94.3
14.7
15.8
124.8
(4.4)
0.1
0.7
(3.6)
121.2
59
Table of Contents
Income taxes computed by applying the U.S. statutory tax rates to income from operations, including equity method
earnings, and before income taxes are reconciled to the provision for income taxes set forth in the Consolidated Statements of
Earnings as follows (dollars in millions):
For the Fiscal Years Ended May
2019
2018
2020
Provision computed at U.S. statutory rate (a)
Increase (reduction) in rate resulting from:
State and local taxes, net of federal benefit
Tax credits and domestic manufacturers deduction
Effect of taxes on foreign operations
Deferred impact of rate change (b)
Transition tax liability (b)
Other
Total provision for taxes
Effective income tax rate (c)
$
100.4 $
130.4 $
162.6
15.3
(0.6)
(4.4)
—
—
1.6
112.3
$
14.8
(0.6)
(4.7)
—
(2.4)
(3.9)
133.6
$
12.6
(8.1)
(7.0)
(45.4)
11.5
(5.0)
121.2
23.5%
21.5%
21.8%
$
(a) The U.S. statutory tax rate was 21% for fiscal years 2020 and 2019. The impact of the lower U.S. statutory income tax rate from the
U.S. Tax Cuts and Jobs Act of 2017 (the “Tax Act”) was phased in during fiscal 2018, resulting in a U.S. statutory tax rate of 29.3%.
(b)
In connection with the impact of the Tax Act in fiscal 2018, we recorded a $45.4 million net tax benefit from the impact of remeasuring
our net U.S. deferred tax liabilities during fiscal 2018, including $5.5 million of deferred tax benefits originating during the year, with
the new lower statutory tax rate. We also recorded an $11.5 million transition tax on our previously untaxed foreign earnings that is
primarily payable over eight years. In fiscal 2019, we completed our analysis of the one-time impacts of the Tax Act and reduced the
transition tax by $2.4 million.
(c) The effective income tax rate is calculated as the ratio of income tax expense to pre-tax income, inclusive of equity method investment
earnings.
Income Taxes Paid
Income taxes paid, net of refunds, were $82.5 million, $103.0 million, and $106.9 million in fiscal 2020, 2019, and
2018, respectively.
60
Table of Contents
Deferred Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts for income tax purposes. Significant components of our deferred
income tax assets and liabilities were as follows (dollars in millions):
May 31, 2020
May 26, 2019
Assets
Liabilities
Assets
Liabilities
Property, plant and equipment
Goodwill and other intangible assets
Compensation and benefit related liabilities
Net operating loss and credit carryforwards (a)
Accrued expenses and other liabilities
Inventory and inventory reserves
Lease liabilities
Lease assets
Debt issuance costs
Investment in joint ventures
Other
$
— $
54.9
19.7
5.2
15.2
4.5
36.9
—
—
—
7.7
144.1
(54.5)
89.6
$
188.8
—
—
—
—
—
—
35.4
3.4
3.6
8.6
239.8
—
239.8
$
— $
64.1
17.8
15.3
14.2
11.5
—
—
—
—
12.1
135.0
(64.6)
70.4
$
$
178.1
—
—
—
—
—
—
—
4.1
3.5
8.6
194.3
—
194.3
Less: Valuation allowance (b)
Net deferred taxes (c)
$
(a) At May 31, 2020, Lamb Weston had approximately $20.3 million of gross ($4.6 million after-tax) foreign net operating loss
carryforwards, of which the majority expire during fiscal 2021.
(b) The valuation allowance is predominantly related to non-amortizable intangibles and the portion of the net operating loss carryforwards
that we are not more likely than not to realize. The net impact on income tax expense related to changes in the valuation allowance,
including net operating loss carryforwards, was zero in fiscal 2020, $1.1 million of benefit in fiscal 2019, and zero in fiscal 2018.
(c) Deferred tax assets of $2.3 million and $1.8 million as of May 31, 2020 and May 26, 2019, respectively, were presented in “Other
assets.” Deferred tax liabilities of $152.5 million and $125.7 million as of May 31, 2020 and May 26, 2019, respectively, were
presented in “Deferred income taxes” as a long-term liability on the Consolidated Balance Sheets. The deferred tax asset and liability
net position is determined by tax jurisdiction.
The FASB allows companies to adopt an accounting policy to either recognize deferred taxes for global intangible low-
taxed income (“GILTI”) or treat such as a tax cost in the year incurred. We have elected to recognize the tax on GILTI as a
period expense in the period the tax is incurred. Under this policy, we have not provided deferred taxes on temporary differences
that upon their reversal will affect the amount of income subject to GILTI in the period.
We have not established deferred income taxes on accumulated undistributed earnings and other basis differences for
operations outside the U.S., as such earnings and basis differences are indefinitely reinvested. Determining the unrecognized
deferred tax liability for these earnings is not practicable. Generally, no U.S. federal income taxes will be imposed on future
distributions of foreign earnings under the current law. However, distributions to the U.S. or other foreign jurisdictions could be
subject to withholding and other local taxes, and these taxes would not be material.
61
Table of Contents
Uncertain Tax Positions
The aggregate changes in the gross amount of unrecognized tax benefits, excluding interest and penalties consisted of
the following (dollars in millions):
For the Fiscal Years Ended May
2019
2018
2020
Beginning balance
Decreases from positions established during prior fiscal years
Increases from positions established during current and prior fiscal years
Expiration of statute of limitations
Ending balance (a)
$
$
21.7 $
—
10.3
(0.7)
31.3
$
13.2 $
(0.8)
10.4
(1.1)
21.7
$
6.9
—
7.9
(1.6)
13.2
(a)
If we were to prevail on the unrecognized tax benefits recorded as of May 31, 2020 and May 26, 2019, it would result in a tax benefit of
$26.7 million and $18.8 million, respectively, and a reduction in the effective tax rate. The ending balances exclude $5.5 million and
$3.9 million of gross interest and penalties in fiscal 2020 and 2019, respectively. We accrue interest and penalties associated with
uncertain tax positions as part of income tax expense.
Lamb Weston conducts business and files tax returns in numerous countries, states, and local jurisdictions. We do not
have any significant open tax audits. As part of the tax matters agreement, Conagra has responsibility for tax audits associated
with pre-Separation periods, including any associated adjustments for consolidated federal and state filings. Major jurisdictions
where we conduct business generally have statutes of limitations ranging from three to five years.
Although the timing of the resolutions and/or closures of audits is highly uncertain, it is reasonably possible that certain
U.S. federal and non-U.S. tax audits may be concluded within the next 12 months, which could increase or decrease the balance
of our gross unrecognized tax benefits. The estimated impact on income tax expense and net income is not expected to be
significant.
4. LEASES
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 20 years.
The components of total lease costs, net, consisted of the following (dollars in millions):
Operating lease costs
Short-term and variable lease costs
Sublease income
Amortization of lease assets
Interest on lease liabilities
Total lease costs, net
Operating
Leases
Year Ended May 31, 2020 (a)
Finance
Leases
Total
$
$
29.7
5.8
(2.7)
—
—
32.8
$
$
— $
—
—
3.2
0.6
3.8
$
29.7
5.8
(2.7)
3.2
0.6
36.6
(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 for finance leases is included in “Interest expense, net,” in our Consolidated Statements of
Earnings.
62
Table of Contents
Operating and finance leases, with initial terms greater than one year, were as follows (dollars in millions):
Assets:
Operating lease assets
Property, plant and equipment, net (a)
Total leased assets
Liabilities:
Lease liabilities due within one year:
Accrued liabilities
Current portion of long-term debt and financing obligations
Long-term lease liabilities:
Other noncurrent liabilities
Long-term debt and financing obligations, excluding current portion
Total lease liabilities
(a) Finance leases are net of accumulated amortization of $12.2 million.
Operating
Leases
As of May 31, 2020
Finance
Leases
Total
$
$
$
$
167.0 $
—
167.0
$
— $
11.3
11.3
$
28.4
—
144.6
—
173.0
$
$
— $
2.8
—
10.5
13.3
$
167.0
11.3
178.3
28.4
2.8
144.6
10.5
186.3
The maturities of our lease liabilities for operating and finance leases at May 31, 2020 for the next five fiscal years and
thereafter are as follows (dollars in millions):
2021
2022
2023
2024
2025
Thereafter
Total lease payments
Less: Interest
Present value of lease liabilities
Weighted-average remaining lease term (years)
Weighted-average discount rate
Operating
Leases
Finance
Leases
Total
$
$
$
$
32.7
29.1
21.8
20.8
18.8
78.2
201.4
(28.4)
173.0
8.3
3.6%
$
$
3.2
2.9
2.0
1.2
0.8
5.7
15.8
(2.5)
13.3
9.3
3.3%
35.9
32.0
23.8
22.0
19.6
83.9
217.2
(30.9)
186.3
63
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):
2020
2021
2022
2023
2024
Thereafter
Total lease payments
Discount to present value
Total lease liability
Current portion of financing obligations
Long-term financing obligations, excluding current portion
Operating
Leases
Capital
Leases (a)
Total
$
$
18.6
16.5
15.7
10.5
8.6
26.6
96.5
$
$
$
$
7.5
7.2
7.2
6.4
5.9
73.5
107.7
(28.8)
78.9
(4.3)
74.6
$
$
$
$
26.1
23.7
22.9
16.9
14.5
100.1
204.2
(28.8)
175.4
(4.3)
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.
Rent expense, prior to the adoption of ASC 842, was $24.3 million and $26.0 million in fiscal 2019 and 2018,
respectively.
Supplemental cash flow information related to leases was as follows (dollars in millions):
Cash paid for amounts included in the measurement of lease liabilities:
Cash used for operating activities
Cash used for financing activities
Noncash investing and financing activities:
Assets obtained in exchange for new operating lease obligations
Assets obtained in exchange for new finance lease obligations
5. ACQUISITIONS
Operating
Leases
Year Ended May 31, 2020
Finance
Leases
Total
$
26.8
—
41.4
—
$
— $
2.6
—
2.2
26.8
2.6
41.4
2.2
On July 2, 2019 and December 21, 2018, we acquired 100% of the outstanding shares of two different frozen potato
processors in Australia for $116.7 million and $88.6 million, respectively, net of cash acquired. These acquisitions added
approximately 70 million and 50 million pounds of production capacity, respectively, to our manufacturing network and
expanded our geographic reach. Net sales, income from operations, and total assets from either of these acquisitions are not
material to our consolidated net sales, income from operations, and total assets. The operating results for the acquisitions are
included in our Global segment.
We allocated the purchase price of the July 2019 and December 2018 acquisitions 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 and $75.1 million,
respectively, after final working capital adjustments, was allocated to goodwill (which is not deductible for tax purposes) and
$3.7 million and $4.4 million, respectively, was allocated to intangible assets (both to be amortized on a straight-line basis over a
weighted average life of 10 years). In both acquisitions, the intangible assets primarily related to brand names. The purchase price
allocations are complete.
64
Table of Contents
6. INVESTMENTS IN JOINT VENTURES
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. Headquartered in the Netherlands, this joint venture manufactures and sells frozen potato products principally
in Europe. We receive a royalty from Lamb-Weston/Meijer based on a per ton rate of the sales volumes of the venture. The fees
received were $1.6 million, $1.8 million, and $1.7 million in fiscal 2020, 2019, and 2018, respectively. These fees are recorded as
a reduction to “Selling, general and administrative expenses” in our Consolidated Statements of Earnings. Our ownership interest
in this venture is included in “Equity method investments” on our Consolidated Balance Sheets. The balance of our investment
was $207.4 million and $205.8 million at May 31, 2020 and May 26, 2019, respectively. We account for this investment using
equity method accounting.
During fiscal 2020, we entered into an agreement with Lamb-Weston/Meijer, effective as of December 31, 2018, to
share the costs of a single, global enterprise resource planning (“ERP”) platform and related software and services. Under the
terms of the agreement, Lamb-Weston/Meijer will pay us for the majority of their portion of the ERP costs in five equal annual
payments, plus interest, beginning in the period the system is deployed at Lamb-Weston/Meijer. As of May 31, 2020, Lamb-
Weston/Meijer’s portion of the ERP costs totaled $13.0 million, of which $3.0 million related to items expensed in “Selling,
general, and administrative expenses” and the remainder was capitalized. We received $1.0 million from Lamb-Weston/Meijer
and we have $12.0 million of receivables recorded on our Consolidated Balance Sheet at May 31, 2020. Of the $12.0 million
receivable, $1.8 million and $10.2 million were recorded in “Account receivable, net” and “Other assets,” respectively. We
expect the total receivable from Lamb-Weston/Meijer to increase as development and implementation of the ERP progresses.
We also hold a 50% interest in Lamb-Weston/RDO Frozen (“Lamb Weston RDO”), a joint venture with RDO Frozen
Co. This joint venture operates a potato processing plant in Minnesota. We provide all sales and marketing services to Lamb
Weston RDO, and we receive a fee for these services based on a percentage of the net sales of the venture. The fees received
were $14.1 million, $14.8 million, and $14.4 million in fiscal 2020, 2019, and 2018, respectively. These fees are recorded as a
reduction to “Selling, general and administrative expenses” in our Consolidated Statements of Earnings. Our ownership interest
in this venture is included in “Equity method investments” on our Consolidated Balance Sheets. The balance of our investment
was $15.4 million and $17.8 million at May 31, 2020 and May 26, 2019, respectively. We account for this investment 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, for $27.3 million. Headquartered in Argentina, this joint venture
manufactures and sells frozen potato products principally in South America. During the fiscal year ended May 31, 2020, we paid
$22.6 million and will pay the remaining $4.7 million, less any amounts for indemnified losses, in October 2024. We account for
the investment using equity method accounting. Included in the initial carrying value of $27.3 million, which represents the fair
value on the transaction date, was a basis difference of $4.8 million due to the difference between the cost of the investment and
our proportionate share of LWAMSA’s net assets. This basis difference is comprised of equity method goodwill and will not be
amortized.
The carrying value of our equity method investments, which includes Lamb-Weston/Meijer, Lamb Weston RDO, and
LWAMSA at May 31, 2020 and May 26, 2019, was $250.2 million and $224.6 million, respectively, and are included in “Equity
method investments” on our Consolidated Balance Sheets. In fiscal 2020, 2019, and 2018, we had sales to our equity method
investments of $27.8 million, $29.9 million, and $29.3 million and payments to our equity method investments of $8.6 million,
$10.9 million, and $10.7 million, respectively. Total dividends from our equity method investments were $29.0 million, $45.7
million, and $48.7 million for fiscal 2020, 2019, and 2018, respectively. As of May 31, 2020 and May 26, 2019, we had
receivables included in “Accounts receivable” on our Consolidated Balance Sheet from our joint ventures of $7.1 million and
$12.7 million, respectively.
65
Table of Contents
Summarized combined financial information for our equity method investments based on 100%of their operations is as
follows (dollars in millions):
Net sales
Gross margin
Earnings before income taxes
$ 1,137.7 $ 1,172.6
212.2
119.0
145.8
58.7
$
2018
1,142.7
249.5
167.2
For the Fiscal Years Ended May
2019
2020
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
Variable Interest Entity - Consolidated
$
May 31,
2020
May 26,
2019
413.8 $
455.1
298.8
79.8
406.2
381.9
282.9
55.9
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, a potato processing
joint venture. We paid Ochoa approximately $65 million in cash attributable to our contractual right to purchase the remaining
equity interest in Lamb Weston BSW, plus $13.2 million attributable to Ochoa’s interest in expected earnings of the joint venture
through our fiscal year ended May 26, 2019.
Prior to entering into the BSW Agreement, Lamb Weston BSW was considered a variable interest entity, and we
determined that we were the primary beneficiary of the entity. Accordingly, we consolidated the financial statements of Lamb
Weston BSW and deducted 50.01% of the operating results of the noncontrolling interests to arrive at “Net income attributable to
Lamb Weston Holdings, Inc.” on our Consolidated Statements of Earnings. The Consolidated Statements of Earnings include
100% of Lamb Weston BSW’s earnings beginning November 2, 2018, the date we entered into the BSW Agreement.
Prior to entering into the BSW Agreement, the value of the redeemable noncontrolling interest was recorded on our
Consolidated Balance Sheet based on the value of Ochoa’s put option. In connection with our purchase of the remaining 50.01%
interest in the joint venture, we recorded $9.4 million of accretion, net of tax benefits, to increase the redeemable noncontrolling
interest to the amount we agreed to pay. The purchase created $9.3 million of deferred tax assets related to the step-up in tax basis
of the acquired assets. We recorded both the accretion of the noncontrolling interest and the related tax benefits in “Additional
distributed capital” on our Consolidated Balance Sheet, both of which did not impact net income. While the accretion, net of tax
benefits, had no impact on net income in the Consolidated Statements of Earnings, it reduced net income available to common
stockholders by $9.4 million, net of tax, and both basic and diluted earnings per share by $0.06, during fiscal 2019.
Lamb Weston and Lamb Weston BSW purchase potatoes and utilize storage facilities and water treatment services from
a shareholder of 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. The aggregate
amounts of potato purchases were $24.6 million in fiscal 2019 (through November 2, 2018) and $58.7 million in fiscal 2018. The
aggregate amounts of costs for storage facilities and water treatment services were $2.5 million in fiscal 2019 (through November
2, 2018) and $5.1 million in fiscal 2018.
66
Table of Contents
7. GOODWILL AND OTHER IDENTIFIABLE INTANGIBLE ASSETS
The following table presents changes in goodwill balances as allocated to each segment for fiscal years 2020 and 2019
(dollars in millions):
Balance at May 27, 2018
Acquisition (a)
Foreign currency translation adjustment
Balance at May 26, 2019
Acquisition (b)
Foreign currency translation adjustment
Balance at May 31, 2020
$
Global Foodservice Retail
$ 10.9
—
—
$ 10.9
—
—
$ 10.9
$ 76.9
75.1
(4.3)
$ 147.7
106.1
(8.2)
$ 245.6
42.8
—
—
42.8
—
—
42.8
$
$
Other Total
$
$
$
4.5
—
—
4.5
—
—
4.5
$ 135.1
75.1
(4.3)
$ 205.9
106.1
(8.2)
$ 303.8
(a)
(b)
In December 2018, we acquired a frozen potato processor in Australia and recorded $75.1 million of goodwill in our Global segment.
See Note 5, Acquisitions, for more information.
In July 2019, we acquired another frozen potato processor in Australia and recorded $106.1 million of goodwill in our Global segment.
See Note 5, Acquisitions, for more information.
Identifiable intangible assets were as follows (dollars in millions):
May 31, 2020
May 26, 2019
Weighted
Average
Gross
Weighted
Average
Gross
Non-amortizing intangible assets (a)
Amortizing intangible assets (b)
(a) Non-amortizing intangible assets represent brands and trademarks.
$ 60.4 $
Useful Life Carrying
Amount
(in years)
n/a
$ 18.0 $
11
42.4
Accumulated
Amortization
Intangible
Assets, Net
— $ 18.0
22.1
20.3
22.1 $ 38.3
Useful Life Carrying
Amount
(in years)
n/a
$ 18.0 $
14
39.1
$ 57.1 $
Accumulated
Amortization
Intangible
Assets, Net
18.0
19.6
37.6
— $
19.5
19.5 $
(b) Amortizing intangible assets are principally composed of licensing agreements, brands, and customer relationships. Amortization
expense was $2.5 million, $2.2 million, and $2.4 million in fiscal 2020, 2019, and 2018, respectively.
Foreign intangible assets are affected by foreign currency translation. Based on current intangibles subject to
amortization, we expect intangible asset amortization expense will be approximately $2.6 million in fiscal 2021 and 2022 and
$2.5 million, $2.0 million, and $1.7 million in fiscal 2023, 2024, and 2025, respectively, and approximately $9.0 million
thereafter.
Impairment Testing
We test goodwill and non-amortizing intangible assets for impairment annually in the fourth quarter or sooner if events
or changes in circumstances indicate that the carrying value of the asset may exceed fair value. Additionally, when we experience
changes to our business or operating environment, we evaluate the remaining useful lives of our finite-lived purchased intangible
assets to determine whether any adjustments to the useful lives are necessary.
As a result of the COVID-19 pandemic’s impact on our operations, we performed a quantitative analysis to test our
goodwill for impairment during the fourth quarter of 2020. Based on the results of the quantitative impairment test, we
determined that the fair values for total company and each of our Global, Foodservice, Retail, and Other reporting units exceeded
the carrying value and therefore, no goodwill impairment existed. Additionally, we completed our tests of our non-amortizing
intangibles in the fourth quarter and there was no indication of intangible asset impairment.
67
Table of Contents
8. ACCRUED LIABILITIES
The components of accrued liabilities were as follows (dollars in millions):
Compensation and benefits
Accrued trade promotions
Dividends payable to shareholders
Current portion of operating lease liabilities (a)
Franchise, property, and sales and use taxes
Accrued interest
Income taxes payable
Other
Accrued liabilities
May 31,
2020
May 26,
2019
$
$
74.5 $
42.5
33.6
28.4
9.4
8.7
1.3
34.6
233.0 $
92.4
48.6
29.2
—
8.6
7.6
0.5
30.3
217.2
(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 1, Nature of Operations and Summary of Significant Accounting Policies, for more
information.
9. DEBT AND FINANCING OBLIGATIONS
At May 31, 2020 and May 26, 2019, our debt, including financing obligations, was as follows (dollars in millions):
May 31,
2020
May 26,
2019
Short-term borrowings:
Revolving credit facility
Other credit facilities
Long-term debt:
Term loan facility, due 2021
Term A-1 loan facility, due 2024
Term A-2 loan facility, due 2025
4.625% senior notes, due 2024
4.875% senior notes, due 2026
4.875% senior notes, due 2028
$
$
495.0
3.7
498.7
276.6
288.7
325.0
833.0
833.0
500.0
3,056.3
—
13.3
13.3
3,568.3
(28.2)
(498.7)
(48.8)
2,992.6 $
7.2
1.2
8.4
599.1
—
—
833.0
833.0
—
2,265.1
65.3
13.6
78.9
2,352.4
(25.8)
(8.4)
(38.0)
2,280.2
Financing obligations:
4.35% lease financing obligation due May 2030 (a)
Lease financing obligations due on various dates through 2040 (b)
Total debt and financing obligations
Debt issuance costs (c)
Short-term borrowings
Current portion of long-term debt and financing obligations
Long-term debt and financing obligations, excluding current portion
$
(a) 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.
68
Table of Contents
(b) The interest rates on our lease financing obligations ranged from 2.31% to 4.10% at May 31, 2020 and 2.72% to 4.33% at May 26,
2019, respectively. For more information on our lease financing obligations, see Note 4, Leases.
(c) We amortize debt issuance costs into interest expense using the effective interest method over the life of the loan facilities. In fiscal
2020, 2019, and 2018, we recorded $6.2 million, $4.7 million, and $4.6 million, respectively, of amortization expense in “Interest
expense” in our Consolidated Statements of Earnings. Fiscal 2020 included a $1.7 million write-off of debt issuance costs in connection
with the $300.0 million payment on the Term loan facility due in 2021.
Revolving Credit Facility and Term Loan Facility (together “Credit Facilities”)
In November 2016, we entered into a five-year $675.0 million amortizing term loan facility and a five-year non-
amortizing $500.0 million revolving credit facility that mature in November 2021.
In March 2020, we drew $495.0 million available under the revolving credit facility and in June and July 2020, we
repaid $100.0 million and $395.0 million, respectively. As of July 2020, $495.1 million was available to us under the revolving
credit facility, net of $4.9 million of outstanding letters of credit. For the periods from May 27, 2019 through May 31, 2020 and
May 28, 2018 through May 26, 2019, the weighted average interest rate for our outstanding borrowings under the revolving
credit facility was 2.35% and 3.94%, respectively. At May 31, 2020, we had $276.6 million outstanding under the term loan
facility.
Borrowings under the Credit Facilities bear interest at a floating rate per annum based upon the Base Rate or the
Eurocurrency rate, in each case, plus an applicable margin which varies based upon our consolidated net leverage ratio. Margins
range from 0.500% to 1.250% for Base Rate loans and from 1.500% to 2.250% for Eurocurrency rate loans. The Base Rate is
defined as the highest of (a) Bank of America’s prime rate, (b) the federal funds rate plus 0.500%, and (c) the Eurocurrency rate
with a term of one month plus 1.0%. In addition to paying interest, we pay an annual commitment fee for undrawn amounts at a
rate of 0.25% to 0.40%, depending on our consolidated net leverage ratio.
Under the terms of the credit agreement, we must maintain ratios as of the last day of each fiscal quarter, of consolidated
net leverage ratio of 4.50 to 1.00 and an interest coverage ratio of 2.75 to 1.00. The credit agreement also contains covenants that,
subject to exceptions, limit our ability and the ability of our subsidiaries to, among other things, incur, assume or guarantee
additional indebtedness, pay distributions on, redeem or repurchase capital stock or redeem or repurchase subordinated debt,
make loans and investments, incur or suffer to exist liens, sell, transfer or otherwise dispose of assets, enter into agreements that
restrict distributions or other payments from restricted subsidiaries to us, engage in transactions with affiliates, designate
subsidiaries as unrestricted or restricted, and consolidate, merge, amalgamate or transfer all or substantially all of our assets.
Upon the occurrence of an event of default, among other things, amounts outstanding under the Credit Facilities may be
accelerated and the commitments may be terminated. Our obligations under the Credit Facilities are unconditionally guaranteed
by certain of our direct and indirect domestic subsidiaries on the terms set forth in the credit agreement. The credit agreement is
secured by security interests and liens on substantially all of our and each of our subsidiary guarantor’s assets, as long as Lamb
Weston remains below investment grade by both Moody’s and Standard & Poor’s.
Term A-1 and A-2 Loan Facilities due 2024 and 2025
On June 28, 2019, we entered into a credit agreement, among Lamb Weston, certain of our subsidiaries as guarantors,
certain lenders, and Northwest Farm Credit Services, PCA, as administrative agent for the lenders, providing for a $300.0 million
term loan facility and, under certain circumstances, the ability to add incremental facilities in an aggregate amount of up to
$100.0 million (collectively, “Term A-1 Loan Facility”). Borrowings on the Term A-1 Loan Facility amortize in equal quarterly
installments for a total of 5% annually, with the balance payable in June 2024. The proceeds of the term loans under the Term A-
1 Loan Facility were used to repay $300.0 million of the term loan facility due in 2021.
69
Table of Contents
Borrowings under the Term A-1 Loan Facility bear interest, before anticipated patronage dividends, at LIBOR or the
Base Rate (as defined in the Term A-1 Loan Facility 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 consolidated net leverage ratio.
During the year ended May 31, 2020, the average interest rate on the Term A-1 Loan Facility was approximately 3.33%. We have
received and expect to continue receiving patronage dividends under the Term A-1 Loan Facility. After giving effect to expected
patronage distributions, the effective average interest rate on the Term A-1 Loan Facility was approximately 2.52%.
On April 20, 2020, we amended the Term A-1 Loan Facility agreement to, among other things, provide for a new
$325.0 million term loan facility (“Term A-2 Loan Facility”). Borrowings under the Term A-2 Loan Facility bear interest, before
anticipated patronage dividends, at LIBOR or the Base Rate (as defined in the Term A-2 Loan Facility agreement) plus an
applicable rate ranging from 2.200% to 2.950% for LIBOR-based loans and from 1.200% to 1.950% for Base Rate-based loans,
depending on our consolidated net leverage ratio. The borrowings mature on April 20, 2025. During the year ended May 31,
2020, the average interest rate on the Term A-2 Loan Facility was approximately 2.85%. We expect to receive patronage
dividends under the Term A-2 Loan Facility. After giving effect to expected patronage distributions, the effective average interest
rate on the Term A-2 Loan Facility was approximately 2.03%.
The Term A-1 and A-2 Loan Facilities are unconditionally guaranteed by the same subsidiaries as the Credit Facilities
discussed above. Borrowings under the Term A-1 and A-2 Loan Facilities may be prepaid without premium or penalty and once
repaid, cannot be reborrowed. Additionally, the covenants, events of default, securities and liens are consistent with the Credit
Facilities.
4.625% Senior Notes due 2024 and 4.875% Senior Notes due 2026
In November 2016, we issued (i) $833.0 million aggregate principal amount of 4.625% senior notes due 2024 (“2024
Notes”) and (ii) $833.0 million aggregate principal amount of 4.875% senior notes due 2026 (“2026 Notes”) pursuant to
indentures, dated as of November 9, 2016, among Lamb Weston, certain of our subsidiaries as guarantors and Wells Fargo Bank,
National Association, as trustee. Our obligations under the 2024 Notes and 2026 Notes are unconditionally guaranteed on a
senior unsecured basis by each of our subsidiaries that guarantee our obligations under the Credit Facilities.
The 2024 Notes and 2026 Notes are senior unsecured obligations and rank equally with all of our current and future
senior indebtedness, rank senior to all our current and future subordinated indebtedness and are subordinated to all of our current
and future secured indebtedness (including all borrowings with respect to the Credit Facilities and Term A-1 and A-2 Loan
Facilities to the extent of the value of the assets securing such indebtedness). Interest on the 2024 Notes and 2026 Notes is due
semiannually. The 2024 Notes mature on November 1, 2024 and the 2026 Notes mature on November 1, 2026, unless either is
redeemed or repurchased. Upon a change of control (as defined in the indentures governing the 2024 Notes and 2026 Notes), we
must offer to repurchase the 2024 Notes and 2026 Notes at 101% of the principal amount of such notes, plus accrued and unpaid
interest.
We may redeem all or a portion of the 2024 Notes at any time on or after November 1, 2021, at declining prices starting
at 102.313%, plus accrued and unpaid interest. We may redeem all or a portion of the 2026 Notes at any time on or after
November 1, 2021, at declining prices starting at 102.438%, plus accrued and unpaid interest. Prior to November 1, 2021, we
may redeem notes of either series, in whole at any time or in part, from time to time, at a price equal to 100% of the principal
amount thereof, plus a make-whole premium, plus accrued and unpaid interest.
The indentures governing the 2024 Notes and 2026 Notes contain covenants that, subject to exceptions, limit our ability
and the ability of our subsidiaries to, among other things, incur, assume or guarantee additional indebtedness, pay distributions
on, redeem or repurchase capital stock or redeem or repurchase subordinated debt, make loans and investments, incur or suffer to
exist liens, sell, transfer or otherwise dispose of assets, enter into agreements that restrict distributions or other payments from
restricted subsidiaries to us, engage in transactions with affiliates, designate subsidiaries as unrestricted or restricted, and
consolidate, merge, amalgamate or transfer all or substantially all of our assets.
70
Table of Contents
4.875% Senior Notes due 2028
In May 2020, we issued $500.0 million aggregate principal amount of 4.875% senior notes due in 2028 (“2028 Notes”)
pursuant to an indenture, dated as of May 12, 2020, among Lamb Weston, certain of our subsidiaries as guarantors and Wells
Fargo Bank, National Association, as trustee. Our obligations under the 2028 Notes are unconditionally guaranteed on a senior
unsecured basis by each of our subsidiaries that guarantee our obligations under the Credit Facilities. The 2028 Notes bear
interest at a rate of 4.875% per year and mature on May 15, 2028, unless earlier redeemed or repurchased. We capitalized
approximately $6.2 million of debt issuance costs associated with this offering.
The 2028 Notes are senior unsecured obligations and rank equally with all of our current and future senior indebtedness
(including the 2024 and 2026 Notes), rank senior to all our current and future subordinated indebtedness and are subordinated to
all of our current and future secured indebtedness (including all borrowings with respect to the Credit Facilities and the Term A-1
and A-2 Loan Facilities to the extent of the value of the assets securing such indebtedness). Interest on the 2028 Notes is due
semiannually. Upon a change of control (as defined in the indenture governing the 2028 Notes), we must offer to repurchase the
2028 Notes at 101% of the principal amount of the notes, plus accrued and unpaid interest.
Prior to November 15, 2027, we may redeem the 2028 Notes, in whole at any time or in part, from time to time, at a
price equal to 100% of the principal amount thereof, plus a make-whole premium, plus accrued and unpaid interest. On and after
November 15, 2027, we may redeem all or any portion of the 2028 Notes, at once or over time, at a price equal to 100% of the
principal amount thereof, plus accrued and unpaid interest.
The covenants and events of default are substantially similar to the 2024 and 2026 Notes discussed above.
Debt Maturities
The aggregate minimum principal maturities of our long-term debt, including current portion, for the next five fiscal
years and thereafter, are as follows (dollars in millions):
2021
2022
2023
2024
2025
Thereafter
Debt (a)
544.6
289.0
31.3
31.3
1,325.8
1,333.0
3,555.0
$
$
(a) Debt includes $495.0 million of borrowings on the Revolving Credit Facility which we fully repaid in July 2020 (discussed above) and
$3.7 million of expected payments on our other credit facilities in 2021. See Note 4, Leases, for maturities of our lease financing
obligations.
During fiscal 2020, 2019, and 2018 we paid $105.7 million, $107.8 million, and $104.0 million, respectively, of interest
on debt.
Other Credit Facilities
We have $30.8 million of other credit facilities, under which $3.7 million and $1.2 million were outstanding at May 31,
2020 and May 26, 2019, respectively. These facilities consist of two overdraft lines. Borrowings under the facilities bear interest
at a percentage of the stated rate of $3.56% and 4.35% at May 31, 2020 and May 26, 2019, respectively, and may be prepaid
without penalty. We guarantee the full amount of our subsidiary’s obligations to the financial institution up to the maximum
amount of the credit facility.
71
Table of Contents
Financing Obligations
During fiscal 2010, we completed the sale of approximately 17,600 acres of farmland to an unrelated buyer and
immediately entered into an agreement with an affiliate of the buyer to lease back the farmland. Lamb Weston’s performance
under the lease was guaranteed by Conagra. Conagra’s guarantee precluded accounting for this transaction as a sale and
leaseback and, accordingly, the $75.0 million of proceeds received were treated as a financing obligation and the land and related
equipment was included on our Consolidated Balance Sheets. At May 26, 2019, the remaining balance of the financing obligation
was $65.3 million and the net carrying value of the related property was $38.7 million. 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.
10. EMPLOYEE BENEFIT PLANS AND OTHER POST-RETIREMENT BENEFITS
Only certain hourly employees covered by collective bargaining agreements continue to accrue pension benefits.
Participants that do not actively participate in a pension plan are eligible to participate in defined contribution savings plans with
employer matching provisions consistent with other employees without pension benefits.
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.
Other Plans
Eligible U.S. employees participate in a contributory defined contribution plan (“the Plan”). The Plan permits
participants to make contributions by salary reduction pursuant to Section 401(k) of the Internal Revenue Code of 1986, as
amended. We generally match 100% of the first 6% of the employee’s contribution election and provide an additional 3%
contribution to eligible participants, regardless of employee participation level. The Plan’s matching contributions have a five-
year graded vesting with 20% vesting each year. We made employer-matching contributions of $28.7 million, $21.3 million, and
$13.9 million in fiscal 2020, 2019, and 2018, respectively.
We sponsor a deferred compensation savings plan, which is an unfunded nonqualified defined contribution plan. The
plan permits eligible employees to continue to make deferrals and receive company matching contributions when their
contributions to the defined contribution plan are stopped due to limitations under U.S. tax law. With the exception of a small
Rabbi Trust, participant deferrals and company matching contributions are not invested in separate trusts, but are paid directly
from our general assets at the time benefits become due and payable. At May 31, 2020 and May 26, 2019, we had $18.0 million
and $15.1 million, respectively, of liabilities attributable to participation in our deferred compensation plan recorded on our
Consolidated Balance Sheets.
72
Table of Contents
Obligations and Funded Status of Defined Benefit Pension and Other Post-retirement Benefits Plans
The funded status of our plans is based on company contributions, benefit payments, the plan asset investment return,
the discount rate used to measure the liability, and expected participant longevity. The following table, which includes only
company-sponsored defined benefit and other post-retirement benefit plans, reconciles the beginning and ending balances of the
projected benefit obligation and the fair value of plan assets. We recognize the unfunded status of these plans on the Consolidated
Balance Sheets, and we recognize changes in funded status in the year changes occur through the Consolidated Statements of
Comprehensive Income (Loss) (dollars in millions):
Change in benefit obligation
Benefit obligation at beginning of year
Service cost
Interest cost
Participant contributions
Benefits paid
Plan settlements
Actuarial (gain) loss
Benefit obligation at fiscal year end
Accumulated benefit obligation portion of above
Change in fair value of plan assets
Fair value of plan assets at beginning of year
Actual return on plan assets
Company contributions
Participant contributions
Benefits paid (a)
Fair value of plan assets at end of year
Underfunded status
Amounts recognized on Consolidated Balance Sheets
Accrued liabilities
Other noncurrent liabilities
Accrued obligation recognized
Amounts recognized in Accumulated Other Comprehensive
Income (Loss) (Pre-tax)
Actuarial loss
Total
For the Fiscal Years Ended May
2020
2019
Pension Plans
Post-
Retirement
Plan
Pension Plans
Post-
Retirement
Plan
$
$
$
$
$
$
$
$
$
$
27.4 $
3.1
1.1
—
(0.3)
(0.4)
6.4
37.3 $
37.3
17.1 $
6.6
3.8
—
(0.3)
27.2 $
7.3
—
0.2
0.2
(0.3)
—
(0.9)
6.5
$
$
$
— $
—
0.1
0.2
(0.3)
— $
18.9 $
6.0
0.8
—
(0.3)
—
2.0
27.4 $
27.4
17.3 $
(0.3)
0.4
—
(0.3)
17.1 $
7.0
—
0.3
0.2
(0.3)
—
0.1
7.3
—
—
0.1
0.2
(0.3)
—
(10.1) $
(6.5)
$
(10.3) $
(7.3)
— $
(10.1)
(10.1) $
(0.2)
(6.3)
(6.5)
4.4 $
4.4 $
1.1
1.1
$
$
$
$
— $
(10.3)
(10.3) $
(0.3)
(7.0)
(7.3)
4.0 $
4.0 $
2.7
2.7
(a)
In fiscal 2020, plan settlements of $0.4 million were paid to certain participants from our Rabbi Trust plan assets. These assets are
excluded from our pension plan assets.
73
Table of Contents
Components of Net Periodic Benefit Cost and Other Comprehensive (Income) Loss
The components of net periodic benefit cost were as follows (dollars in millions):
Service cost
Interest cost
Expected return on plan assets
Net amortization of unrecognized amounts
Prior service benefit
Actuarial loss
Net periodic benefit cost (a)
Changes in plan assets and benefit obligations
recognized in other comprehensive (income) loss
Actuarial (gain) loss
Amortization of prior service benefit
Amortization of actuarial loss (b)
Total recognized in other comprehensive loss (income)
Total recognized in net periodic benefit cost and other
comprehensive loss (income) (pre-tax)
2020
For the Fiscal Years Ended May
2019
Pension
Plans
Post-
Retirement
Plan
Post-
Pension
Plans
Retirement Pension
Plan
Plans
2018
Post-
Retirement
Plan
$
$
$
$
3.1
1.1
(0.9)
—
0.2
3.5
0.6
—
(0.2)
0.4
$
$
$
— $
0.2
—
—
0.6
0.8 $
6.0 $
0.8
(0.9)
—
—
5.9 $
— $
0.3
—
—
0.7
1.0
$
7.8 $
0.4
(0.4)
—
—
7.8 $
(1.0)
—
(0.6)
(1.6) $
3.3
—
—
3.3 $
—
—
(0.7)
(0.7) $
1.7
—
—
1.7 $
—
0.2
—
(0.2)
0.5
0.5
4.3
0.2
(0.5)
4.0
3.9
$
(0.8) $
9.2 $
0.3
$
9.5 $
4.5
(a) Pension service costs are allocated to operations and reflected in “Cost of sales” and expected returns on pension assets and interest
costs are reflected in “Selling, general and administrative expenses” in the Consolidated Statements of Earnings.
The decrease in fiscal 2020 and 2019 net periodic pension cost, compared with fiscal 2018, reflects amendments to the pension plans so
that no future benefits accrue after certain dates. We did not recognize a curtailment gain or loss with any of the amendments.
(b) Accumulated losses in excess of 10% of the greater of the projected benefit obligation or the market-related value of assets will be
recognized on a straight-line basis over the average remaining service period of active employees in our plans (which is between seven
to eleven years for our pension plans and approximately three years for our post-retirement benefit plan), to the extent that losses are
not offset by gains in subsequent years. The estimated net amount of actuarial losses on pension and post-retirement benefits included
in “Accumulated other comprehensive loss” on our Consolidated Balance Sheets to be amortized in fiscal 2021 is a net loss of $0.3
million ($0.2 million after tax).
74
Table of Contents
Assumptions
The actuarial assumptions used in determining the benefit obligations and net periodic pension cost for our defined
benefit and post-retirement plans are as follows:
2020
For the Fiscal Years Ended May
2019
2018
Pension Plans
Post-
Retirement
Plan
Pension Plans
Post-
Retirement
Plan
Pension Plans
Post-
Retirement
Plan
Weighted-average assumptions used to
determine benefit obligations:
Discount rate
3.14%
2.85%
4.01%
3.81%
4.25%
4.18%
Weighted-average assumptions used to
determine net periodic benefit cost:
Discount rate
Expected return on plan assets
4.01%
5.12%
3.81%
N/A
4.25%
5.30%
4.18%
N/A
4.33%
7.50%
3.60%
N/A
Discount Rate Assumption. The discount rate reflects the current rate at which the pension and post-retirement benefit
obligations could be settled on the measurement date: May 31, 2020. The discount rate assumption used to calculate the present
value of pension and post-retirement benefit obligations reflects the rates available on high-quality bonds on May 31, 2020. The
bonds included in the models reflect anticipated investments that would be made to match the expected monthly benefit payments
over time. The plans’ projected cash flows were duration-matched to these models to develop an appropriate discount rate. The
discount rate we will use in fiscal 2021 to calculate the net periodic pension benefit cost and post-retirement benefit cost is 3.14%
and 2.85%, respectively.
Asset Return Assumption: Our investment strategies are governed by our Employee Benefit Investments Council. The
expected return on plan assets reflects the expected long-term rates of return for the categories of investments currently held in
the plan as well as anticipated returns for additional contributions made in the future. The expected long-term rate of return is
adjusted when there are fundamental changes in expected returns on the plan investments. The weighted-average expected return
on plan assets we will use in our calculation of fiscal 2021 net period pension benefit cost is 2.90%.
Health Care Cost Trend Rate Assumptions. We review external data and historical trends for health care costs to
determine our health care cost trend rate assumptions. We assumed health care cost trend rates for our post-retirement benefit
plan as follows:
Health care cost trend rate (Pre65)
Ultimate health care cost trend rate
Year that the rate reaches the ultimate trend rate
2020
6.75%
4.5%
2024
2019
7.31%
4.5%
2024
2018
8.40%
4.5%
2024
A one-percentage point increase in the assumed health care cost trend rate would have an insignificant effect on the
fiscal 2020, 2019 and 2018 postretirement benefit obligation.
Investment Policies and Strategies and Fair Value Measurements of Plan Assets
We utilize professional advisors to oversee pension investments and provide recommendations regarding investment
strategy. Our overall strategy and related apportionments between equity and debt securities may change from time to time based
on market conditions, external economic factors, timing of contributions and the funded status of the plans. The general
investment objective for all of our plan assets is to optimize growth of the pension plan trust assets, while minimizing the risk of
significant losses to enable the plans to satisfy their benefit payment obligations over time. The objectives consider the long-term
nature of the benefit obligations, the liquidity needs of the plans, and the expected risk/return trade-offs of the asset classes in
which the plans may choose to invest. Our current investment policy is to invest 30% in equity securities and 70% in fixed
income securities.
75
Table of Contents
Investment securities, in general, are exposed to various risks, such as interest rate, credit, and overall market volatility
risk, all of which are subject to change. Due to the level of risk associated with some investment securities, it is reasonably
possible that changes in the values of investment securities will occur in the near term, and such changes could materially affect
the reported amounts (dollars in millions):
Equity securities:
U.S. equity securities (a)
International equity securities (a)
Fixed income securities:
Government securities (b)
Total assets
Equity securities:
U.S. equity securities (a)
International equity securities (a)
Fixed income securities:
Government securities (b)
Total assets
Fair Value Measurements at May 31, 2020
Quoted Market
Prices in Active
Markets for
Identical Assets
Level 1
Significant
Observable
Market-Based
Inputs
Level 2
Significant
Unobservable
Inputs
Level 3
$
$
— $
—
19.2
19.2
$
4.1
3.9
—
8.0
$
$
— $
—
—
— $
Fair Value Measurements at May 26, 2019
Quoted Market
Prices in Active
Markets for
Identical Assets
Level 1
Significant
Observable
Market-Based
Inputs
Level 2
Significant
Unobservable
Inputs
Level 3
$
$
— $
—
11.8
11.8
$
2.6
2.7
—
5.3
$
$
— $
—
—
— $
Total
4.1
3.9
19.2
27.2
Total
2.6
2.7
11.8
17.1
(a)
Includes investments in common/collective trust funds that are valued using net asset values (“NAV”) provided by the administrator of
the funds. The NAV is based on the value of the underlying assets owned by the fund, minus its liabilities, and then divided by the
number of units outstanding. While the underlying assets are actively traded on an exchange, the funds are not. There are currently no
redemption restrictions or unfunded commitments on these investments. There are certain funds with thirty-day redeemable notice
requirements.
(b)
Includes investments in exchange-traded funds based on quoted prices in active markets.
Funding and Cash Flows
We make pension plan contributions that are sufficient to fund our actuarially determined costs, generally equal to the
minimum amounts required by the Employee Retirement Income Security Act of 1974, as amended. From time to time, we may
make discretionary contributions based on the funded status of the plans, tax deductibility, income from operations, and other
factors. In fiscal 2020, we made $3.8 million of contributions to our qualified plan, which represented our minimum contribution
requirements as well as discretionary contributions. In July 2020, we contributed $3.4 million to our qualified pension plan,
which was in excess of the minimum required to be contributed in fiscal 2021. We continually reassess the amount and timing of
discretionary contributions, if any.
76
Table of Contents
The following are estimated benefit payments to be paid to current plan participants by fiscal year (dollars in millions).
Qualified pension benefit payments are paid from plan assets, while nonqualified pension benefit payments are paid by the
Company.
2021
2022
2023
2024
2025
2026-2030
$
Pension Plans
Post-Retirement
Plan
$
0.4
0.6
0.8
0.9
1.1
8.5
0.2
0.2
0.3
0.3
0.4
2.1
11. STOCK-BASED COMPENSATION
On October 29, 2016, our Board of Directors adopted the Lamb Weston Holdings, Inc. 2016 Stock Plan, which was
amended in July 2017 (“Stock Plan”). The Compensation Committee (“the Committee”) of our Board of Directors administers
this stock compensation plan. The Committee, in its discretion, authorizes grants of restricted stock units (“RSUs”), performance
awards payable upon the attainment of specified performance goals (“Performance Shares”), dividend equivalents, and other
stock-based awards. At May 31, 2020, we had 10.0 million shares authorized under the Stock Plan, and 7.6 million were
available for future grant.
RSUs and Performance Shares
We grant RSUs to eligible employees and non-employee directors. The employee RSUs generally vest over a three-year
period while the non-employee director RSUs generally vest after one year. We estimate the fair value of the RSUs based upon
the market price of our common stock at the date of grant. Certain RSU grants do not provide for the accrual of dividend
equivalents to the participant during the vesting period. For those grants, the value of the grants is reduced by the net present
value of the foregone dividend equivalent payments.
Performance Shares are granted to certain executives and other key employees with vesting contingent upon meeting
various Company-wide performance goals. Awards actually earned range from 0% to 200% of the targeted number of
Performance Shares for each of the performance periods. Awards, if earned, will be paid in shares of our common stock. Subject
to limited exceptions set forth in the Stock Plan, any shares earned will be distributed at the end of the three-year performance
period. The value of the Performance Shares is adjusted based upon the market price of our common stock at the end of each
reporting period and amortized as compensation expense over the vesting period.
77
Table of Contents
The following table summarizes RSU and Performance Share activity for fiscal 2020:
Stock-Settled
Performance Shares
Cash-Settled
Outstanding at May 26, 2019
Granted (a)
Performance condition adjustment (b)
Vested (c)
Forfeited/expired/cancelled
Outstanding at May 31, 2020
Weighted-
Average
Grant-
Date Fair
Value
$
$
49.17
68.69
—
31.57
61.16
60.28
Weighted-
Average
Grant-
Date Fair
Value
$
$
51.06
67.90
60.66
30.80
66.87
57.96
Shares
314,281
104,250
67,224
(36,532)
(4,766)
444,457
Shares
641,020
232,471
—
(180,895)
(30,391)
662,205
Weighted-
Average
Grant-
Date Fair
Value
$
Shares
120,810
—
—
(120,810)
—
— $
28.33
—
—
28.33
—
—
(a) Granted represents new grants and dividend equivalents accrued.
(b) Amount represents the adjustment to Performance Shares based on performance results attained in excess of target.
(c) The aggregate fair value of awards that vested in fiscal 2020, 2019, and 2018 was $24.9 million, $24.7 million, and $16.6 million,
respectively, 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. RSUs that are expected to vest are net of estimated future forfeitures.
Stock Options
We have historically granted stock options to employees for the purchase of stock at exercise prices equal to the fair
market value of the underlying stock on the date of grant. Stock options generally become exercisable in three annual
installments beginning on the first anniversary of the grant date and have a maximum term of ten years. Stock options were last
issued in fiscal 2018 and we do not expect to issue new stock option awards under our Stock Plan. At May 31, 2020, we had
453,050 stock options outstanding at a weighted average exercise price of $27.79 with a weighted average remaining term of 5.1
years, and an aggregate intrinsic value of $14.6 million. Of these outstanding stock options, 434,218 were exercisable at May 31,
2020.
78
Table of Contents
Compensation Expense
Our stock-based compensation expense is recorded in “Selling, general and administrative expenses.” Compensation
expense for stock-based awards recognized in the Consolidated Statements of Earnings, net of forfeitures, was as follows (dollars
in millions):
For the Fiscal Years Ended May
2019
2018
2020
Stock-settled RSUs
Performance Shares
Stock options
Stock-settled compensation expense
Cash-settled RSUs (a)
Total compensation expense
Income tax benefit (b)
Total compensation expense, net of tax benefit
$
$
12.9
9.8
0.1
22.8
1.0
23.8
(4.6)
19.2
$
$
10.2
8.3
0.3
18.8
3.3
22.1
(4.4)
17.7
$
$
7.9
4.4
1.2
13.5
8.8
22.3
(5.6)
16.7
(a) As of May 31, 2020, there were no outstanding cash-settled RSUs. During fiscal 2020-2018, cash-settled RSUs were marked-to-market
and presented within “Accrued liabilities” and “Other noncurrent liabilities” in our Consolidated Balance Sheets.
(b)
Income tax benefit represents the marginal tax rate, excluding non-deductible compensation.
Based on estimates at May 31, 2020, total unrecognized compensation expense related to stock-based awards was as
follows (dollars in millions):
Stock-settled RSUs
Performance Shares
Total unrecognized stock-based expense
12. FAIR VALUE MEASUREMENTS
Unrecognized
Compensation
Expense
$
$
15.9
7.7
23.6
Remaining
Weighted
Average
Recognition
Period (in years)
1.7
1.5
1.6
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 May 31, 2020 and May 26, 2019 (dollars
in millions):
Assets:
Pension plan assets
Deferred compensation assets
Total assets
Liabilities:
Derivative liabilities (a)
Deferred compensation liabilities (b)
Total liabilities
Level 1
Level 2 Level 3 Total
As of May 31, 2020
$
$
$
$
19.2
0.1
19.3
$
$
8.0
—
8.0
— $
—
— $
4.7
18.0
22.7
$
$
$
$
— $
—
— $
— $
—
— $
27.2
0.1
27.3
4.7
18.0
22.7
79
Table of Contents
Assets:
Pension plan assets
Deferred compensation assets
Derivative assets (a)
Total assets
Liabilities:
Derivative liabilities (a)
Deferred compensation liabilities (b)
Total liabilities
As of May 26, 2019
Level 1
Level 2 Level 3 Total
$
$
$
$
11.8
0.5
—
12.3
$
$
5.3
—
0.4
5.7
$
$
— $ 17.1
0.5
—
—
0.4
— $ 18.0
— $
—
— $
3.8
$
15.1
$
18.9
3.8
— $
—
15.1
— $ 18.9
(a) 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 commodities. Derivative assets and liabilities included in
Level 2 primarily represent commodity swap and option contracts.
(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.
Non-financial assets such as property, plant and equipment, and intangible assets 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 May 31, 2020, we had $2,166.0 million of fixed-rate and $1,389.0 million of variable-rate debt outstanding. Based
on current market rates, the fair value of our fixed-rate debt at May 31, 2020 was estimated to be $2,263.8 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 that is described above. The fair value of our variable-rate term debt approximates the carrying
amount as our cost of borrowing is variable and approximates current market prices.
13. STOCKHOLDERS’ EQUITY
In connection with the Separation, we amended and restated our certificate of incorporation to authorize 600,000,000
shares of common stock and 60,000,000 shares of preferred stock. We had 146,038,893 shares of common stock issued and
outstanding as of May 31, 2020. Each share of common stock entitles the holder to one vote on matters to be voted on by our
stockholders. No preferred stock was issued or outstanding on May 31, 2020.
Share Repurchase Program
In December 2018, our Board of Directors authorized a program, with no expiration date, to repurchase shares of our
common stock in an amount not to exceed $250.0 million in the aggregate, on an opportunistic basis. During fiscal 2020, we
purchased 287,239 shares for $22.9 million, or a weighted-average price of $79.56 per share. As of May 31, 2020, $195.3 million
remained authorized for repurchase under the program.
Dividends
During fiscal 2020, 2019, and 2018, we paid $121.3 million, $113.3 million, and $110.2 million, respectively, of
dividends to common stockholders. On July 23, 2020, our Board of Directors declared a dividend of $0.23 per share of common
stock. The dividend will be paid on September 4, 2020, to stockholders of record as of the close of business on August 7, 2020.
Accumulated Other Comprehensive Income (Loss) (“AOCI”)
Comprehensive income includes net income, currency translation adjustments, and changes in prior service cost and net
actuarial gains (losses) from pension and post-retirement benefit plans. We generally deem our foreign investments
80
Table of Contents
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.
Changes in AOCI, net of taxes, as of May 31, 2020, were as follows (dollars in millions). Amounts in parentheses
indicate losses.
Foreign
Currency
Translation
Gains (Losses)
Pension and
Post-Retirement
Benefits
Accumulated
Other
Comprehensive
Loss
Balance as of May 26, 2019
Other comprehensive income before reclassifications, net of tax
Amounts reclassified out of AOCI, net of tax
Net current-period other comprehensive income (loss)
Balance as of May 31, 2020
$
$
(20.3) $
(16.0)
—
(16.0)
(36.3) $
(5.0) $
0.3
0.5 (a)
0.8
(4.2) $
(25.3)
(15.7)
0.5
(15.2)
(40.5)
(a) These AOCI components are included in the computation of net pension and postretirement benefit costs. See Note 10, Employee
Benefit Plans and Other Post-Retirement Benefits, for additional information.
81
Table of Contents
14. SEGMENTS
We have four 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. See “Part I, Item 1. Business” of this Form 10-K for more information on our
segments.
(in millions)
Net sales
Global
Foodservice
Retail
Other
Total net sales
Product contribution margin (b)
Global
Foodservice
Retail
Other (c)
Advertising and promotion expenses (b)
Gross profit
Selling, general and administrative expenses (d)
Income from operations
Interest expense, net
Income tax expense (e)
Equity method investment earnings (f)
Net income
For the Fiscal Years Ended May
2019
2018
2020 (a)
$ 1,973.6
1,069.1
595.5
154.2
3,792.4
$ 1,961.5
1,156.1
498.3
140.6
3,756.5
$ 1,744.2
1,099.1
449.2
131.2
3,423.7
374.5
356.0
117.6
24.1
872.2
23.0
895.2
338.3
556.9
108.0
112.3
29.3
365.9
446.3
402.4
98.8
23.6
971.1
32.4
1,003.5
335.1
668.4
107.1
133.6
59.5
487.2
8.6
478.6
$
375.7
365.9
87.3
19.0
847.9
31.6
879.5
299.4
580.1
108.8
121.2
83.6
433.7
16.9
416.8
Less: Income attributable to noncontrolling interests (g)
Net income attributable to Lamb Weston Holdings, Inc.
—
$
365.9
$
(a) On March 11, 2020, the World Health Organization declared the spread of COVID-19 a global pandemic. In an attempt to minimize the
transmission of COVID-19, significant social and economic restrictions, including restrictions on dine-in purchases and the imposition
of stay-at-home orders, were imposed in the United States and in our international markets. These restrictions had a negative impact on
our sales, costs, earnings of our joint ventures, and therefore our net income. The increase in our costs, and the costs of our joint
ventures, related to lower factory utilization and production inefficiencies, manufacturing and operational disruptions directly
attributable to the pandemic, expensing of excess crop year 2019 raw potato purchase contracts that could not be used due to the
pandemic’s near-term effect on demand for frozen potato products, as well as incremental warehousing and transportation costs, and
costs to enhance employee safety measures, including purchases of safety and health screening equipment, retaining sales employees,
and expensing certain capitalized manufacturing facility expansion projects that were stopped.
(b) 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.
(c) The Other segment primarily includes our vegetable and dairy businesses and unrealized mark-to-market adjustments associated with
commodity hedging contracts.
(d) Fiscal 2018 includes $8.7 million of pre-tax expenses related to the Separation, primarily related to professional fees and employee-
related costs.
82
Table of Contents
(e)
In fiscal 2019, the Tax Act decreased income tax expense and increased net income by $27.2 million, or $0.19 per share, including a
$24.8 million, or $0.17 per share, tax benefit related to a lower U.S. corporate tax rate and a $2.4 million, or $0.02 per share, benefit
from the true-up of the transition tax on previously untaxed foreign earnings. Since our fiscal year end is the last Sunday in May, in
fiscal 2018, we phased in the impact of the lower tax rate, resulting in a U.S. corporate tax rate of 29.3%, compared with 21% in fiscal
2020 and 2019. We completed our analysis of the one-time impacts of the Tax Act in fiscal 2019.
In connection with our initial analysis of the impact of the Tax Act in fiscal 2018, we decreased income tax expense and increased net
income $64.7 million, or $0.44 per share. This included a $28.4 million, or $0.19 per share net benefit for one-time items, including a
$39.9 million net provisional tax benefit from the estimated impact of remeasuring our net U.S. deferred tax liabilities with a new lower
federal tax rate, partially offset by an $11.5 million transition tax on our previously untaxed foreign earnings. It also included a $36.3
million, or $0.25 per share, tax benefit related to a lower U.S. corporate tax rate. In fiscal 2018, we phased in the impact of the lower
tax rate, resulting in a 29.3% U.S. corporate tax rate in fiscal 2018.
(f) Fiscal 2020 includes a $2.6 million loss related to the withdrawal from a multiemployer pension plan by Lamb Weston RDO.
(g)
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. See Note 6, Investments in
Joint Ventures, for more information.
Assets by Segment
The manufacturing assets of Lamb Weston are shared across all reporting segments. Output from these facilities used by
each reporting segment can change from fiscal year to fiscal year. Therefore, it is impracticable to allocate those assets to the
reporting segments, as well as disclose total assets by segment.
Concentrations
Lamb Weston’s largest customer, McDonald’s Corporation, accounted for approximately 10%of our consolidated net
sales in both fiscal 2020 and 2019, and 11% of our consolidated net sales in fiscal 2018. No customer accounted for 10% of our
consolidated accounts receivable at May 31, 2020 or May 26, 2019.
Other Information
The net sales of each of our Global, Foodservice, and Retail reporting segments are comprised of sales of frozen potato
and frozen sweet potato products. The net sales of our Other reporting segment included vegetable sales of $104.9 million, $88.5
million, and $81.7 million, various byproduct sales of $36.4 million, $40.2 million, and $38.1 million, and dairy product sales of
$12.9 million, $11.9 million, and $11.5 million in fiscal 2020, 2019, and 2018, respectively.
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 with respect to consolidated operations in fiscal 2020, 2019, and 2018.
Foreign net sales, including sales by domestic segments to customers located outside of the United States, were $752.9 million,
$742.7 million, and $665.8 million in fiscal 2020, 2019, and 2018, respectively. Our long-lived assets located outside of the
United States are not significant.
Labor
At May 31, 2020, we had approximately 7,700 employees. Approximately 800 of these employees work outside of the
United States. Approximately 23% of our employees, are parties to collective bargaining agreements on terms that we believe are
typical for the industry in which we operate. Most of the union workers at our facilities are represented under contracts that
expire at various times throughout the next several years. Collective bargaining agreements that represent 19% of our hourly
employees, who are parties to collective bargaining agreements, expire in fiscal 2021. As these agreements expire, we believe
they will be renegotiated on terms satisfactory to us.
83
Table of Contents
15. 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 9, Debt and Financing Obligations), lease obligations, purchase commitments for goods and
services, and legal proceedings (discussed below).
Capital Commitments
We had capital commitments of approximately $36.5 million and $41.5 million as of May 31, 2020 and May 26, 2019,
respectively, in connection with the expansion and replacement of existing facilities and equipment.
Guarantees and Indemnifications
We provide guarantees, indemnifications, and other assurances to third parties in the normal course of our business.
These include tort indemnifications, environmental assurances, and representations and warranties in commercial agreements. At
May 31, 2020, we were not aware of any material liabilities arising from any guarantee, indemnification, or financial assurance
we have provided. If the fair value of such liability becomes material, we will accrue for it at that time.
Lamb Weston is a party to various potato purchase supply agreements with partner growers, under which they deliver
their potato crop from the contracted acres to Lamb Weston during the harvest season, and pursuant to the potato supply
agreements, pricing for this inventory is determined after delivery, taking into account crop size and quality, among other
factors. Total purchases under these agreements were $142.7 million, $152.0 million, and $132.8 million in fiscal 2020, 2019,
and 2018, respectively, under the terms of the potato supply agreements. These purchases are initially recorded in inventory and
charged to cost of sales as related inventories are produced and subsequently sold. Under the terms of these potato supply
agreements, Lamb Weston has guaranteed repayment of short-term bank loans of the potato suppliers, under certain conditions.
At May 31, 2020, Lamb Weston has effectively guaranteed $36.2 million of supplier loans. Lamb Weston has not established a
liability for these guarantees, as Lamb Weston has determined that the likelihood of Lamb Weston’s required performance under
the guarantees is remote. Under certain other potato supply agreements, Lamb Weston makes advances to growers prior to the
delivery of potatoes. The aggregate amounts of these advances were $31.9 million and $36.5 million at May 31, 2020 and May
26, 2019, respectively.
Lamb Weston and Lamb Weston’s partner are jointly and severally liable for all legal liabilities of Lamb-
Weston/Meijer. See Note 6, Investments in Joint Ventures, for further information on Lamb-Weston/Meijer’s liabilities and
capital structure.
After taking into account liabilities recognized for all of the foregoing matters, management believes the ultimate
resolution of such matters would not have a material adverse effect on Lamb Weston’s financial condition, results of operations,
or cash flows. It is reasonably possible that a change to an estimate of the foregoing matters may occur in the future.
Legal Proceedings
We are a party to legal actions arising in the ordinary course of our business. These claims, legal proceedings and
litigation principally arise from alleged casualty, product liability, 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 has been incurred and when the amount of loss can
be reasonably estimated. While any claim, proceeding or litigation has an element of uncertainty, we believe the outcome of any
of these that are pending or threatened will not have a material adverse effect on our financial condition, results of operations, or
cash flows.
84
Table of Contents
16. QUARTERLY FINANCIAL DATA (unaudited; dollars in millions, except per-share amounts)
Net sales
Gross profit
Income before income taxes and equity method earnings
Income tax expense (benefit)
Net income (loss) attributable to Lamb Weston Holdings, Inc.
Earnings per share
Basic
Diluted (c)
Dividends declared
Net sales
Gross profit
Income before income taxes and equity method earnings
Income tax expense
Net income attributable to Lamb Weston Holdings, Inc.
Earnings per share
Basic
Diluted
Dividends declared
2020 (a)
First
Quarter
Second
Quarter
Third
Quarter
$
$
989.0
248.6
141.8
36.7
115.7
$ 1,019.2
285.1
168.1
42.7
140.4
937.3
250.4
137.3
35.7
111.4
Fourth
$
Quarter (b)
846.9
111.1
1.7
(2.8)
(1.6)
0.79
0.79
0.20000
0.96
0.95
0.20000
0.76
0.76
0.23000
(0.01)
(0.01)
0.23000
2019 (a)
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$
$
914.9
230.6
125.8
34.3
107.8
$
911.4
249.0
147.8
34.0
119.0
926.8
273.4
166.8
39.6
141.4
$ 1,003.4
250.5
120.9
25.7
110.4
0.73
0.73
0.19125
0.74
0.74
0.19125
0.96
0.95
0.20000
0.76
0.75
0.20000
(a) The sum of quarterly amounts may not agree to our annual results due to rounding.
The third quarter of fiscal 2020 included a $2.6 million loss related to the withdrawal from a multiemployer pension plan by Lamb
Weston RDO.
The first and second quarters of fiscal 2019 included a $14.0 million and $15.4 million benefit, respectively, related to lower U.S.
corporate tax rates as part of the Tax Act. The third quarter of fiscal 2019 included $6.4 million expense; approximately $7.4 million of
expense related to a higher U.S. corporate tax related to the timing of the Tax Act, offset partially by a $1.0 million benefit for the
estimated true-up of the transition tax under the Tax Act. The fourth quarter of fiscal 2019 included a $4.2 million benefit related to the
Tax Act; approximately $2.8 million relates to a lower U.S. corporate tax rate and $1.4 million relates to the true-up of the transition
tax under the Tax Act.
(b) See footnote (a) to the table in Note 14, Segments, for a discussion of the impact of government efforts to control the spread of
COVID-19, including restrictions on restaurants and other foodservice operations and stay-at-home orders, on our financial results.
(c) The fourth quarter of fiscal 2020 excludes a weighted average of 0.8 million potentially dilutive shares from the diluted earnings (loss)
per share calculation as they would have been antidilutive.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
85
Table of Contents
ITEM 9A. 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 Rules 13a-
15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of May 31, 2020. 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 effective to provide reasonable assurance that information required to
be disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within
the time periods specified in SEC rules and forms, and is accumulated and communicated to management, including our Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures
Management's Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as
defined in Rules 13a-15(f) and 15(d)-15(f) under the Exchange Act. Our internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated
financial statements for external purposes in accordance with U.S. GAAP. Our internal control over financial reporting includes
those policies and procedures that:
●
●
●
●
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of assets;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated
financial statements in accordance with GAAP;
provide reasonable assurance that receipts and expenditures are being made only in accordance with management
and director authorization;
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of assets that could have a material effect on the consolidated financial statements; and
●
provide reasonable assurance as to the detection of fraud.
Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial
Officer and oversight of the Board of Directors, assessed the effectiveness of our internal control over financial reporting as of
May 31, 2020. Management based this assessment on criteria for effective internal control over financial reporting described in
Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Management’s assessment included evaluation of elements such as the design and operating effectiveness of key
financial reporting controls, process documentation, accounting policies, and our overall control environment. Based on this
assessment, management concluded that, as of May 31, 2020, our internal control over financial reporting was effective to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial
statements for external reporting purposes in accordance with GAAP. We reviewed the results of management’s assessment with
the Audit and Finance Committee of our Board of Directors.
Our independent registered public accounting firm, KPMG LLP, audited the combined and consolidated financial
statements prepared by us. KPMG LLP has also issued an attestation report on our internal control over financial reporting. Their
report on the combined and consolidated financial statements and attestation report are included in “Part II, Item 8. Financial
Statements and Supplementary Data” of this Form 10-K.
86
Table of Contents
Inherent Limitations on Effectiveness of Controls
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure
controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control
system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s
objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of
controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control
issues and instances of fraud, if any, have been detected. The design of any system of controls is based in part on certain
assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its
stated goals under all potential future conditions. Projections of any evaluation of the effectiveness of controls to future periods
are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of
compliance with policies or procedures.
Changes in Internal Control over Financial Reporting
As disclosed in Part II. Item 9A. Controls and Procedures in our Form 10-K for the fiscal year ended May 26, 2019,
during the fourth quarter of fiscal 2019 we identified a material weakness in internal control related to information technology
general controls in the area of application support team access to an information technology system (“IT System”) that supports
process controls and information used in our financial reporting processes. During fiscal 2020, management implemented our
previously disclosed remediation plan that included enhancing our communication of internal control responsibilities to ensure
the timely termination of access to the IT System when granted on a temporary basis to authorized members of our application
support team. During the fourth quarter of fiscal 2020, we completed our testing of the operating effectiveness of the
implemented controls and found them to be effective. As a result, we have concluded the material weakness has been remediated
as of May 31, 2020.
Other than the remediation efforts discussed above, there have been no changes in our internal control over financial
reporting that occurred during the fourth quarter of fiscal 2020 that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information required by this Item 10 is included under the headings “Information About Our Executive Officers” and
“Ethics and Governance” in Part 1, Item 1 of this Form 10-K, and will be included under the headings “Item 1. Election of
Directors,” “Corporate Governance – Code of Conduct and Code of Ethics for Senior Corporate Financial Officers,” and “Board
Committees and Membership – Audit and Finance Committee” in our definitive Proxy Statement for our Annual Meeting of
Stockholders scheduled to be held on September 24, 2020 (“2020 Proxy Statement”). This information from the 2020 Proxy
Statement is incorporated by reference into this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this Item 11 will be included under the headings “Board Committees and Membership –
Compensation Committee,” “Non-Employee Director Compensation,” “Compensation Discussion and Analysis,” and “Executive
Compensation Tables” in our 2020 Proxy Statement. This information from the 2020 Proxy Statement is incorporated by
reference into this Form 10-K.
87
Table of Contents
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The following table provides information about shares of our common stock that may be issued upon the exercise of
options, warrants, and rights under existing equity compensation plans as of our most recent fiscal year ended May 31, 2020.
Plan Category
Equity compensation plans approved by
securityholders
Equity compensation plans not approved by
securityholders
Total
A
Column
B
Number of Securities to
be Issued Upon Exercise
of Outstanding Options,
Warrants, and Rights
(a)
Weighted-Average
Exercise Price of
Outstanding
Options, Warrants, and
Rights (b)
C
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation Plans
(Excluding Securities
Reflected in Column A) (c)
1,670,371
$
N/A
1,670,371
$
27.79
N/A
27.79
7,599,479
N/A
7,599,479
(a)
Includes outstanding stock options, RSUs and performance shares (assuming the target performance payout level) granted under the
Lamb Weston Holdings, Inc. 2016 Stock Plan (the “2016 Stock Plan”). This number also includes shares payable with respect to
certain compensation deferred under the Lamb Weston Holdings, Inc. Voluntary Deferred Compensation Plan and the Lamb Weston
Holdings, Inc. Directors’ Deferred Compensation Plan. The number of securities to be issued excludes options that were exercised but
not settled with our stock transfer agent as of May 31, 2020.
(b) Weighted average exercise price of outstanding stock options only.
(c) Represents shares available for issuance under the 2016 Stock Plan.
Information related to the security ownership of certain beneficial owners, directors and management will be included in
our 2020 Proxy Statement under the heading “Information on Stock Ownership” and is incorporated by reference into this Form
10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information required by this Item 13 will be included under the headings “Corporate Governance – Director
Independence” and “Corporate Governance – Related Party Transactions” in our 2020 Proxy Statement. This information from
the 2020 Proxy Statement is incorporated by reference into this Form 10-K.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information required by this Item 14 will be included under the heading “Board Committees and Membership – Audit
and Finance Committee” in our 2020 Proxy Statement. This information from the 2020 Proxy Statement is incorporated by
reference into this Form 10-K.
88
Table of Contents
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
PART IV
a) List of documents filed as part of this report:
1. Financial Statements
All financial statements of the Company as set forth under Item 8 of this Annual Report on Form 10-K.
2. Financial Statement Schedules
The following consolidated financial statement schedule for fiscal 2020, 2019, and 2018 is included in this report.
Schedule II – Lamb Weston - Valuation and Qualifying Accounts (dollars in millions).
Year ended May 31, 2020
Deferred tax asset valuation allowance
Year ended May 26, 2019
Deferred tax asset valuation allowance
Year ended May 27, 2018
Deferred tax asset valuation allowance
Additions
Charged
to Costs,
Expenses
and Equity
Balance
Beginning of
Year
Deductions
from
Reserves
Balance
End of
Year
$
$
$
64.6
$
— $
10.1
$
54.5
62.0
$
3.7
$
1.1
$
64.6
98.4
$
— $
36.4 (a)$
62.0
(a)
Includes $31.2 million reduction resulting from the revaluation of U.S. deferred tax assets to the new 21% federal statutory tax rate as a
result of the Tax Act.
All other schedules are omitted because they are not applicable or not material, not required, or because the required
information is included in the consolidated financial statements or the accompanying notes to financial statements, and therefore,
have been omitted.
b) The following exhibits are filed as part of, or incorporated by reference into, this Form 10-K:
Exhibit No.
Descriptions
2.1
3.1
3.2
Separation and Distribution Agreement, dated as of November 8, 2016, by and between ConAgra Foods, Inc. and
Lamb Weston Holdings, Inc., incorporated herein by reference to Exhibit 2.1 of Lamb Weston Holdings, Inc.’s
Current Report on Form 8-K filed on November 10, 2016 (File No. 001-37830)*
Amended and Restated Certificate of Incorporation of Lamb Weston Holdings, Inc., incorporated herein by
reference to Exhibit 3.1 of Lamb Weston Holdings, Inc.’s Current Report on Form 8-K filed on November 10, 2016
(File No. 001-37830)
Amended and Restated Bylaws of Lamb Weston Holdings, Inc., incorporated herein by reference to Exhibit 3.2 of
Lamb Weston Holdings, Inc.’s Current Report on Form 8-K filed on November 10, 2016 (File No. 001-37830)
89
Table of Contents
4.1
4.2
4.3
4.4
4.5
4.6
10.1
10.2
10.3
10.4
10.5
2024 Notes Indenture, dated as of November 9, 2016, by and among Lamb Weston Holdings, Inc., the Guarantors
(as defined therein) and Wells Fargo Bank, National Association, as trustee (including form of note relating to the
2024 Notes), incorporated herein by reference to Exhibit 4.1 of Lamb Weston Holdings, Inc.’s Current Report on
Form 8-K filed on November 10, 2016 (File No. 001-37830)
First Supplemental Indenture to the 2024 Notes Indenture, dated as of June 28, 2019, by and among Lamb Weston
Holdings, Inc., Lamb Weston BSW, LLC and Wells Fargo Bank, National Association, as trustee, incorporated
herein by reference to Exhibit 4.1 of Lamb Weston Holdings, Inc.’s Quarterly Report on Form 10-Q filed on
October 2, 2019 (File No. 001-37830)
2026 Notes Indenture, dated as of November 9, 2016, by and among Lamb Weston Holdings, Inc., the Guarantors
(as defined therein) and Wells Fargo Bank, National Association, as trustee (including form of note relating to the
2026 Notes), incorporated herein by reference to Exhibit 4.2 of Lamb Weston Holdings, Inc.’s Current Report on
Form 8-K filed on November 10, 2016 (File No. 001-37830)
First Supplemental Indenture to the 2026 Notes Indenture, dated as of June 28, 2019, by and among Lamb Weston
Holdings, Inc., Lamb Weston BSW, LLC and Wells Fargo Bank, National Association, as trustee, incorporated
herein by reference to Exhibit 4.2 of Lamb Weston Holdings, Inc.’s Quarterly Report on Form 10-Q filed on
October 2, 2019 (File No. 001-37830)
2028 Notes Indenture, dated as of May 12, 2020, by and among Lamb Weston Holdings, Inc., the Guarantors (as
defined therein) and Wells Fargo Bank, National Association, as trustee (including form of note relating to the
2028 Notes), incorporated herein by reference to Exhibit 4.1 of Lamb Weston Holdings, Inc.’s Current Report on
Form 8-K filed on May 12, 2020 (File No. 001-37830)
Description of Lamb Weston Holdings, Inc.’s Securities, incorporated herein by reference to Exhibit 4.3 of Lamb
Weston Holdings, Inc.’s Annual Report on Form 10-K filed on July 25, 2019 (File No. 001-37830)
Tax Matters Agreement, dated as of November 8, 2016, by and between ConAgra Foods, Inc. and Lamb Weston
Holdings, Inc., incorporated herein by reference to Exhibit 10.1 of Lamb Weston Holdings, Inc.’s Current Report
on Form 8-K filed on November 10, 2016 (File No. 001-37830)
Employee Matters Agreement, dated as of November 8, 2016, by and between ConAgra Foods, Inc. and Lamb
Weston Holdings, Inc., incorporated herein by reference to Exhibit 10.2 of Lamb Weston Holdings, Inc.’s Current
Report on Form 8-K filed on November 10, 2016 (File No. 001-37830)
Trademark License Agreement, dated as of November 8, 2016, by and between ConAgra Foods, Inc. and Lamb
Weston Holdings, Inc., incorporated herein by reference to Exhibit 10.4 of Lamb Weston Holdings, Inc.’s Current
Report on Form 8-K filed on November 10, 2016 (File No. 001-37830)
Credit Agreement, dated as of November 9, 2016, by and among Lamb Weston Holdings, Inc., the guarantors party
thereto, the lenders named therein, and Bank of America, N.A., as administrative agent, incorporated herein by
reference to Exhibit 10.5 of Lamb Weston Holdings, Inc.’s Current Report on Form 8-K filed on November 10,
2016 (File No. 001-37830)
Amendment No. 2, dated as of December 1, 2017, to Credit Agreement, dated as of November 9, 2016, among
Lamb Weston Holdings, Inc., the guarantors party thereto, the lenders named therein, and Bank of America, N.A.,
as administrative agent, incorporated herein by reference to Exhibit 10.1 of Lamb Weston Holdings, Inc.’s
Quarterly Report on Form 10-Q filed on January 4, 2018 (File No. 001-37830)
90
Table of Contents
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
Amendment No. 3, dated as of June 25, 2019, to Credit Agreement, dated as of November 9, 2016, among Lamb
Weston Holdings, Inc., the guarantors party thereto, the lenders named therein, and Bank of America, N.A., as
administrative agent, incorporated herein by reference to Exhibit 10.2 of Lamb Weston Holdings, Inc.’s Current
Report on Form 8-K filed on July 1, 2019 (File No. 001-37830)
Amendment No. 4, dated as of April 17, 2020, to Credit Agreement, dated as of November 9, 2016, among Lamb
Weston Holdings, Inc., the guarantors party thereto, the lenders named therein, and Bank of America, N.A., as
administrative agent, incorporated herein by reference to Exhibit 10.2 of Lamb Weston Holdings, Inc.’s Current
Report on Form 8-K filed on April 20, 2020 (File No. 001-37830)
Credit Agreement, dated as of June 28, 2019, by and among Lamb Weston Holdings, Inc., the guarantors party
thereto, the lenders named therein, and Northwest Farm Credit Services, PCA, as administrative agent,
incorporated herein by reference to Exhibit 10.1 of Lamb Weston Holdings, Inc.’s Current Report on Form 8-K
filed on July 1, 2019 (File No. 001-37830)
First Amendment to Credit Agreement, dated as of April 20, 2020, by and among Lamb Weston Holdings, Inc., the
guarantors party thereto, the lenders and voting participants party thereto, and Northwest Farm Credit Services,
PCA, as administrative agent, incorporated herein by reference to Exhibit 10.1 of Lamb Weston Holdings, Inc.’s
Current Report on Form 8-K filed on April 20, 2020 (File No. 001-37830)
Amended and Restated Lamb Weston Holdings, Inc. 2016 Stock Plan, incorporated herein by reference to Exhibit
10.2 of Lamb Weston Holdings, Inc.’s Quarterly Report on Form 10-Q filed on January 4, 2018 (File No. 001-
37830)**
Lamb Weston Holdings, Inc. Executive Change of Control Severance Plan, incorporated herein by reference to
Exhibit 10.7 of Lamb Weston Holdings, Inc.’s Annual Report on Form 10-K filed on July 25, 2017 (File No. 001-
37830)**
Form of Lamb Weston Holdings, Inc. Executive Change of Control Severance Plan Participation Agreement,
incorporated herein by reference to Exhibit 10.8 of Lamb Weston Holdings, Inc.’s Annual Report on Form 10-K
filed on July 25, 2017 (File No. 001-37830)**
Lamb Weston Holdings, Inc. Voluntary Deferred Compensation Plan, incorporated herein by reference to Exhibit
4.3 of Lamb Weston Holdings, Inc.’s Registration Statement on Form S-8 filed on June 14, 2017 (Commission File
No. 333-218742)**
Lamb Weston Holdings, Inc. Directors’ Deferred Compensation Plan, incorporated herein by reference to Exhibit
4.4 of Lamb Weston Holdings, Inc.’s Registration Statement on Form S-8 filed on June 14, 2017 (Commission File
No. 333-218742)**
Letter Agreement, dated as of August 25, 2016, between ConAgra Foods, Inc. and Micheline C. Carter,
incorporated by reference to Exhibit 10.11 to Amendment No. 3 to Lamb Weston Holdings, Inc.’s Registration
Statement on Form 10, filed October 5, 2016 (Commission File No. 001-37830)**
Letter Agreement, dated as of September 15, 2016, between ConAgra Foods, Inc. and Eryk J. Spytek, incorporated
by reference to Exhibit 10.12 to Amendment No. 3 to Lamb Weston Holdings, Inc.’s Registration Statement on
Form 10, filed October 5, 2016 (Commission File No. 001-37830)**
Letter Agreement, dated as of November 9, 2016, between Lamb Weston Holdings, Inc. and Robert M. McNutt,
incorporated herein by reference to Exhibit 10.1 of Lamb Weston Holdings, Inc.’s Current Report on Form 8-K
filed on November 17, 2016 (File No. 001-37830)**
91
Table of Contents
10.18
10.19
10.20
10.21
10.22
10.23
10.24
21.1
23.1
31.1
31.2
32.1
32.2
Form of Lamb Weston Holdings, Inc. Nonqualified Stock Option Agreement for Employees (pre-March 2017),
incorporated herein by reference to Exhibit 10.14 of Lamb Weston Holdings, Inc.’s Quarterly Report on Form 10-
Q filed on January 10, 2017 (File No. 001-37830)**
Form of Lamb Weston Holdings, Inc. Restricted Stock Unit Agreement (Cash-settled), incorporated herein by
reference to Exhibit 10.21 of Lamb Weston Holdings, Inc.’s Annual Report on Form 10-K filed on July 25, 2017
(File No. 001-37830)**
Form of Lamb Weston Holdings, Inc. Restricted Stock Unit Agreement (Stock-settled), incorporated herein by
reference to Exhibit 10.22 of Lamb Weston Holdings, Inc.’s Annual Report on Form 10-K filed on July 25, 2017
(File No. 001-37830)**
Form of Lamb Weston Holdings, Inc. Nonqualified Stock Option Agreement for Employees (post-March 2017),
incorporated herein by reference to Exhibit 10.23 of Lamb Weston Holdings, Inc.’s Annual Report on Form 10-K
filed on July 25, 2017 (File No. 001-37830)**
Form of Lamb Weston Holdings, Inc. Restricted Stock Unit Agreement for Non-Employee Directors, incorporated
herein by reference to Exhibit 10.3 of Lamb Weston Holdings, Inc.’s Quarterly Report on Form 10-Q filed on
January 4, 2018 (File No. 001-37830)**
Form of Lamb Weston Holdings, Inc. Performance Share Agreement (pre-July 2019), incorporated herein by
reference to Exhibit 10.4 of Lamb Weston Holdings, Inc.’s Quarterly Report on Form 10-Q filed on January 4,
2018 (File No. 001-37830)**
Form of Lamb Weston Holdings, Inc. Performance Share Agreement (post-July 2019), incorporated herein by
reference to Exhibit 10.1 of Lamb Weston Holdings, Inc.’s Quarterly Report on Form 10-Q filed on October 2,
2019 (File No. 001 37830)**
Subsidiaries of Lamb Weston Holdings, Inc.
Consent of KPMG LLP
Section 302 Certificate of Chief Executive Officer
Section 302 Certificate of Chief Financial Officer
Section 906 Certificate of Chief Executive Officer
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.SCH 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
92
Table of Contents
104
Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information
contained in Exhibits 101.)
* Certain exhibits and schedules have been omitted and the Company agrees to furnish supplementally to the SEC a copy of
any omitted exhibits and schedules upon request.
** Management contract or compensatory plan.
ITEM 16. FORM 10-K SUMMARY
None.
93
Table of Contents
Pursuant to the requirements of Section 13 or 15(d) 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.
SIGNATURES
LAMB WESTON HOLDINGS, INC.
By:
/s/ ROBERT M. MCNUTT
Robert M. McNutt
Senior Vice President and Chief Financial Officer
Date: July 28, 2020
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated:
Signature
/s/ THOMAS P. WERNER
Thomas P. Werner
/s/ ROBERT M. MCNUTT
Robert M. McNutt
President and Chief Executive Officer and Director
(Principal Executive Officer)
Title
Date
July 28, 2020
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
/s/ BERNADETTE M. MADARIETA
Bernadette M. Madarieta
Vice President and Controller (Principal Accounting
Officer)
/s/ PETER J. BENSEN
Peter J. Bensen
/s/ CHARLES A. BLIXT
Charles A. Blixt
/s/ ROBERT J. COVIELLO
Robert J. Coviello
/s/ ANDRÉ J. HAWAUX
André J. Hawaux
/s/ WILLIAM G. JURGENSEN
William G. Jurgensen
/s/ THOMAS P. MAURER
Thomas P. Maurer
/s/ HALA G. MODDELMOG
Hala G. Moddelmog
/s/ ROBERT A. NIBLOCK
Robert A. Niblock
/s/ MARIA RENNA SHARPE
Maria Renna Sharpe
Director
Director
Director
Director
Director
Director
Director
Director
Director
94
July 28, 2020
July 28, 2020
July 28, 2020
July 28, 2020
July 28, 2020
July 28, 2020
July 28, 2020
July 28, 2020
July 28, 2020
July 28, 2020
July 28, 2020
SUBSIDIARIES OF LAMB WESTON HOLDINGS, INC.
Lamb Weston Holdings, Inc. is the parent corporation owning, directly or indirectly, 100% of the voting securities (unless
otherwise noted) of the following subsidiaries:
Exhibit 21.1
Subsidiary
Harvest Choice Australia Pty Ltd.
L Weston Mexico, S.A. de C.V.
L Weston Operaciones, S.A. de C.V.
Lamb Weston (Hong Kong) Limited
Lamb Weston (Mauritius) Limited
Lamb Weston (Shanghai) Commercial Company Limited
Lamb Weston Argentina S.R.L.
Lamb Weston Australia Holdings Pty Ltd
Lamb Weston BSW, LLC
Lamb Weston Canada ULC
Lamb Weston Holland B.V.
Lamb Weston International B.V.
Lamb Weston International Private Limited
Lamb Weston Japan KK
Lamb Weston Korea Ltd.
Lamb Weston Malaysia Sdn. Bhd.
Lamb Weston Netherlands B.V.
Lamb Weston Philippines, Inc.
Lamb Weston Potato (Inner Mongolia) Co., Ltd
Lamb Weston Representação Comercial Ltda.
Lamb Weston Sales, Inc.
Lamb Weston Victoria Pty Ltd
Lamb Weston, Inc.
Lamb Weston/Midwest, Inc.
Marvel Packers Pty Ltd
Ontario Asset Holdings, LLC
South Slope Irrigation Association (majority owned by Lamb Weston, Inc.)
Tai Mei Agriculture Limited
Tuber Holdings Pty Ltd
Tuber Investments Pty Ltd
Jurisdiction of Formation
Australia
Mexico
Mexico
Hong Kong
Mauritius
China
Argentina
Australia
Delaware
Canada
Netherlands
Netherlands
Singapore
Japan
Korea
Malaysia
Netherlands
Philippines
China
Brazil
Delaware
Australia
Delaware
Washington
Australia
Delaware
Washington
Hong Kong
Australia
Australia
The corporations listed above are included in the consolidated financial statements of Lamb Weston Holdings, Inc.
Consent of Independent Registered Public Accounting Firm
Exhibit 23.1
The Board of Directors
Lamb Weston Holdings, Inc.:
We consent to the incorporation by reference in the registration statements (No. 333-218742 and 333-214508) on Form S-8 of
Lamb Weston Holdings, Inc. of our reports dated July 28, 2020, with respect to the consolidated balance sheets of Lamb Weston
Holdings, Inc. as of May 31, 2020 and May 26, 2019, the related consolidated statements of earnings, comprehensive income
(loss), stockholders’ equity, and cash flows for each of the fiscal years in the three-year period ended May 31, 2020, and the
related notes and financial statement schedule (collectively, the consolidated financial statements), and the effectiveness of
internal control over financial reporting as of May 31, 2020, which reports appear in the May 31, 2020 annual report on Form 10-
K of Lamb Weston Holdings, Inc.
Our report on the consolidated financial statements refers to a change in the Company’s method of accounting for leases as of
May 27, 2019 due to the adoption of Accounting Standards Update ASU No. 2016-02, Leases (Topic 842), and also refers to a
change in the Company’s method of accounting for revenues as of May 28, 2018 due to the adoption of Accounting Standards
Update No. 2014-09, Revenue from Contracts with Customers (Topic 606).
/s/ KPMG LLP
Seattle, Washington
July 28, 2020
I, THOMAS P. WERNER, certify that:
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
Exhibit 31.1
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K for the year ended May 31, 2020 of Lamb Weston Holdings,
Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations, and cash flows of the registrant as
of, and for, the periods presented in this report;
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant's internal control over financial reporting that
occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant's internal control over financial reporting.
Date: July 28, 2020
/s/ THOMAS P. WERNER
THOMAS P. WERNER
Chief Executive Officer
I, ROBERT M. MCNUTT, certify that:
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
Exhibit 31.2
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K for the year ended May 31, 2020 of Lamb Weston Holdings,
Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations, and cash flows of the registrant as
of, and for, the periods presented in this report;
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant's internal control over financial reporting that
occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant's internal control over financial reporting.
Date: July 28, 2020
/s/ ROBERT M. MCNUTT
ROBERT M. MCNUTT
Senior Vice President and Chief Financial Officer
CERTIFICATION
Exhibit 32.1
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
I, THOMAS P. WERNER, Chief Executive Officer of Lamb Weston Holdings, Inc., certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge that Lamb Weston
Holdings, Inc.'s Annual Report on Form 10-K for the year ended May 31, 2020 fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and that the information contained in such Annual Report fairly
presents, in all material respects, the financial condition and results of operations of Lamb Weston Holdings, Inc. as of and for the
periods presented.
July 28, 2020
/s/ THOMAS P. WERNER
THOMAS P. WERNER
Chief Executive Officer
A signed original of this written statement required by Section 906 has been provided to Lamb Weston Holdings, Inc. and
will be retained by Lamb Weston Holdings, Inc. and furnished to the Securities and Exchange Commission or its staff upon
request.
CERTIFICATION
Exhibit 32.2
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
I, ROBERT M. MCNUTT, Senior Vice President and Chief Financial Officer of Lamb Weston Holdings, Inc., certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge
that Lamb Weston Holdings, Inc.'s Annual Report on Form 10-K for the year ended May 31, 2020 fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and that the information contained in such Annual
Report fairly presents, in all material respects, the financial condition and results of operations of Lamb Weston Holdings, Inc. as
of and for the periods presented.
July 28, 2020
/s/ ROBERT M. MCNUTT
ROBERT M. MCNUTT
Senior Vice President and Chief Financial Officer
A signed original of this written statement required by Section 906 has been provided to Lamb Weston Holdings, Inc. and
will be retained by Lamb Weston Holdings, Inc. and furnished to the Securities and Exchange Commission or its staff upon
request.