Lamb Weston Holdings Inc

Condensed Notes to Consolidated Financial Statements

(Unaudited)

1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Lamb Weston Holdings, Inc. (“we,” “us,” “our,” the “Company,” or “Lamb Weston”) is a leading global producer, distributor, and marketer of value-added frozen potato products and is headquartered in Eagle, Idaho. Beginning in fiscal 2024, in connection with our recent acquisitions and to align with our expanded global footprint, we began managing our operations intwo reportable segments: North America and International. See Note 12, Segments, for additional information on our reportable segments.

Basis of Presentation

The accompanying unaudited Consolidated Financial Statements present the financial results of Lamb Weston and its consolidated subsidiaries for the thirteen and thirty-nine weeks ended February 25, 2024 and February 26, 2023, and have been prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States of America (“U.S.”).

These consolidated financial statements are unaudited and include all adjustments that we consider necessary for a fair presentation of such financial statements and consist only of normal recurring adjustments. The preparation of financial statements involves the use of estimates and accruals. The actual results that we experience may differ materially from those estimates. Results for interim periods should not be considered indicative of results for our full fiscal year, which ends the last Sunday in May.

These financial statements and related condensed notes should be read together with the consolidated financial statements and notes in our Annual Report on Form 10-K for the fiscal year ended May 28, 2023 (the “Form 10-K”), where we include additional information on our critical accounting estimates, policies, and the methods and assumptions used in our estimates. We filed the Form 10-K with the Securities and Exchange Commission (the “SEC”) on July 25, 2023.

Certain amounts from prior period consolidated financial statements have been reclassified to conform with current period presentation.

Accounting Pronouncements Not Yet Adopted

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. ASU 2023-07 expands public entities’ segment disclosures by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items, and interim disclosures of a reportable segment’s profit or loss and assets. ASU 2023-07 is effective for our Annual Report on Form 10-K for the fiscal year ending May 25, 2025, and subsequent interim periods, with early adoption permitted. We are evaluating the impact of adopting this ASU on our consolidated financial statements and related disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, to enhance transparency and decision usefulness of income tax disclosures, particularly around rate reconciliations and income taxes paid information. ASU 2023-09 is effective for our Annual Report on Form 10-K for the fiscal year ending May 25, 2025, on a prospective basis, with early adoption permitted. We are evaluating the impact of adopting this ASU on our consolidated financial statements and related disclosures.

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

(a)Potential dilutive shares of common stock under 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 February 25, 2024, an insignificant number of stock-based awards were excluded from the computation of diluted earnings per share because they would be antidilutive. As of February 26, 2023,0.6 million shares of stock-based awards were excluded from the computation of diluted earnings per share because they would be antidilutive.

3. INCOME TAXES

Income tax expense for the thirteen and thirty-nine weeks ended February 25, 2024 and February 26, 2023 was as follows:

(a)The effective income tax rate is calculated as the ratio of income tax expense to pre-tax income, inclusive of equity method investment earnings. The effective tax rate varies from the U.S. statutory tax rate of 21% principally due to the impact of U.S. state taxes, foreign taxes and currency, permanent differences, and discrete items.

Income Taxes Paid

Income taxes paid, net of refunds, were $140.4 million and $168.5 million during the thirty-nine weeks ended February 25, 2024 and February 26, 2023, respectively.

4. 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:

5. PROPERTY, PLANT AND EQUIPMENT

The components of property, plant and equipment were as follows:

Depreciation expense was $70.8 million and $48.8 million for the thirteen weeks ended February 25, 2024 and February 26, 2023, respectively; and $203.2 million and $145.8 million for the thirty-nine weeks ended February 25, 2024 and February 26, 2023, respectively. At February 25, 2024 and May 28, 2023, purchases of property, plant and equipment included in accounts payable were $156.9 million and $82.6 million, respectively.

Interest capitalized within construction in progress for the thirteen weeks ended February 25, 2024 and February 26, 2023, was $13.8 million and $5.8 million, respectively; and $37.3 million and $11.9 million for the thirty-nine weeks ended February 25, 2024 and February 26, 2023, respectively.

6. GOODWILL AND OTHER IDENTIFIABLE INTANGIBLE ASSETS

The following table presents changes in goodwill balances, by segment, for the thirty-nine weeks ended February 25, 2024:

(a)As a result of our change in segments, effective May 29, 2023, goodwill was reassigned to the North America and International segments based on relative fair value using a market-based approach. Before and after the reassignment of our goodwill, we completed impairment assessments and concluded there were no indications of impairment in our segments. See Note 12, Segments, for more information related to the change in segments.

Other identifiable intangible assets were as follows:

(a)Non-amortizing intangible assets represent brands and trademarks.

(b)Amortizing intangible assets are principally composed of licensing agreements, brands, and customer relationships. Amortization expense, including developed technology amortization expense, was $7.1 million and $1.4 million for the thirteen weeks ended February 25, 2024 and February 26, 2023, respectively; and $12.4 million and $4.3 million for the thirty-nine weeks ended February 25, 2024 and February 26, 2023, respectively. Foreign intangible assets are affected by foreign currency translation.

7. OTHER ASSETS

The components of other assets were as follows:

8. ACCRUED LIABILITIES

The components of accrued liabilities were as follows:

9. DEBT AND FINANCING OBLIGATIONS

The components of our debt, including financing obligations, were as follows:

(a)Other credit facilities consist of several short-term facilities at one of our subsidiaries used for working capital purposes and have various interest rates.

(b)Theinterest rates applicable to the Term A-1, A-2, and A-3 loans do not include anticipated patronage dividends. We have received and expect to continue receiving patronage dividends under all three term loan facilities.

(c)Excludes debt issuance costs of $1.9 million and $2.5 million as of February 25, 2024 and May 28, 2023, respectively, related to our U.S. revolving credit facility, which are recorded in “Other assets” on our Consolidated Balance Sheets.

As of February 25, 2024, we had $908.8 million of available liquidity under our committed revolving credit facilities in the U.S. and LW EMEA.

For the thirty-nine weeks ended February 25, 2024 and February 26, 2023, we paid $151.3 million and $120.6 million of interest on debt, respectively.

For more information about our debt and financing obligations, interest rates, and debt covenants, see Note 8, Debt and Financing Obligations, of the Notes to Consolidated Financial Statements in “Part II, Item 8. Financial Statements and Supplementary Data” of the Form 10-K.

10. FAIR VALUE MEASUREMENTS

The fair values of cash equivalents, receivables, accounts payable, and short-term debt approximate their carrying amounts due to their short duration.

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:

(a)Derivative assets and liabilities included in Level 2 primarily represent commodity swaps, option contracts, interest rate swaps and currency contracts. The fair values of our Level 2 derivative assets were determined using valuation models that use market observable inputs including both forward and spot prices for commodities and foreign currencies. Derivative assets are presented within “Prepaid expenses and other current assets” on our Consolidated Balance Sheets and derivative liabilities are presented within “Accrued liabilities” on our Consolidated Balance Sheets.

(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. Deferred compensation liabilities are primarily presented within “Other noncurrent liabilities” on our Consolidated Balance Sheets.

As of February 25, 2024, we had $2,170.0 million of fixed-rate and $1,698.8 million of variable-rate debt outstanding. Based on current market rates, the fair value of our fixed-rate debt was estimated to be $1,995.9 million as of February 25, 2024. 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. The fair value of our variable-rate term debt approximates the carrying amount and approximates current market prices.

11. STOCKHOLDERS’ EQUITY

Share Repurchase Program

On October 11, 2023, we announced that our Board of Directors increased our share repurchase authorization to an aggregate amount of $500.0 million. The program has no expiration date. During the thirteen weeks ended February 25, 2024, we didnot repurchase any shares under the program. During the thirty-nine weeks ended February 25, 2024, we repurchased 1,564,351 shares for an aggregate purchase price of $150.0 million, or a weighted-average price of $95.89 per share. As of February 25, 2024, $450.0 million remained authorized for repurchase under the program.

Dividends

During the thirty-nine weeks ended February 25, 2024, we paid $122.0 million of cash dividends to our common stockholders. In addition, on March 1, 2024, we paid $52.0 million of cash dividends to common stockholders of record as of the close of business on February 2, 2024. On March 20, 2024, our Board of Directors declared a cash dividend of $0.36 per share of our common stock. This dividend will be paid on May 31, 2024, to common stockholders of record as of the close of business on May 3, 2024.

Accumulated Other Comprehensive Income (Loss)

Changes in accumulated other comprehensive income (loss), net of taxes, as of February 25, 2024 were as follows:

12. SEGMENTS

Effective May 29, 2023, to align with our expanded global footprint following the completion of our acquisition of the remaining 50% equity interest in Lamb-Weston/Meijer v.o.f., our former European joint venture (“LW EMEA”), management, including our chief executive officer (who is our chief operating decision maker), began managing operations intwo business segments based on management’s change to the way it monitors performance, aligns strategies, and allocates resources. As a result of this change, we now havetwo operating segments, each of which is a reportable segment: North America and International. Our chief operating decision maker receives periodic management reports under this structure, which, as discussed above, informs operating decisions, performance assessment, and resource allocation decisions at the segment level. These reportable segments are each managed by a general manager and supported by a cross functional team assigned to support the segment.

(a)During the thirteen and thirty-nine weeks ended February 25, 2024, we transitioned certain central systems and functions, including order to cash, produce to deliver, source to pay, and inventory management, among others in North America, to a new enterprise resource planning system. After the transition, we experienced reduced visibility into finished goods inventories at our distribution centers, resulting in a higher-than-expected effect on customer order fulfillment rates. By the end of the quarter, we restored the visibility into our finished goods inventories and customer order fulfillment rates to pre-transition levels.

(b)We acquired the remaining interest in LW EMEA in the fourth quarter of fiscal 2023. Accordingly, LW EMEA’s adjusted EBITDA is reported in the International segment for the thirteen and thirty-nine weeks ended February 25, 2024, whereas in the same period in the prior year, our 50% equity interest in LW EMEA was recorded using equity method accounting. As a result, only 50% of LW EMEA’s adjusted EBITDA is reported in the International segment for the thirteen and thirty-nine weeks ended February 26, 2023.

(c)Unallocated corporate costs included costs related to corporate support staff and support services, foreign exchange gains and losses and unrealized mark-to-market derivative gains and losses. Support services include, but are not limited to, our administrative, information technology, human resources, finance, and accounting functions that are not specifically allocated to the segments.

Unallocated corporate costs for the thirteen and thirty-nine weeks ended February 25, 2024 included unallocated corporate costs of LW EMEA, whereas in the same period in the prior year, our portion of LW EMEA’s unallocated corporate costs were recorded in “Equity method investment earnings” in the Consolidated Statements of Earnings in the International segment.

(d)The thirteen weeks ended February 25, 2024 included a $25.0 million charge ($19.0 million after-tax, or $0.13 per share) related to a write-off of excess raw potatoes. The total charge to the reporting segments was as follows: $22.7 million to the North America segment and $2.3 million to the International segment. The thirty-nine weeks ended February 25, 2024 included a $95.9 million charge ($72.9 million after-tax, or $0.50 per share) related to a write-off of excess raw potatoes. The total charge to the reporting segments was as follows: $86.0 million to the North America segment and $9.9 million to the International segment.

(e)Depreciation and amortization included interest expense, income tax expense, and depreciation and amortization from equity method investments of $2.1 million and $9.3 million for the thirteen weeks ended February 25, 2024 and February 26, 2023, respectively; and $6.4 million and $26.9 million for the thirty-nine weeks ended February 25, 2024 and February 26, 2023, respectively.

(f)The thirty-nine weeks ended February 26, 2023 included a $15.1 million (before and after-tax) gain recognized in connection with our acquisition of an additional 40% equity interest in Lamb Weston Alimentos Modernos S.A. (“LWAMSA”) in July 2022. This gain related to remeasuring our previously held 50% equity interest in LWAMSA to fair value, recorded in “Equity method investment earnings” in the Consolidated Statements of Earnings, and is excluded from the financial results of our International segment.

13. 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, lease obligations, purchase commitments for goods and services, and legal proceedings. There have been no material changes to the commitments, contingencies, guarantees and legal proceedings disclosed in Note 14, Commitments, Contingencies, Guarantees, and Legal Proceedings, of the Notes to Consolidated Financial Statements in “Part II, Item 8. Financial Statements and Supplementary Data” of the Form 10-K.