10-Q 1 lw-20220828x10q.htm 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended August 28, 2022

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

Graphic

LAMB WESTON HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Delaware

 

61-1797411

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer
Identification No.)

 

 

 

599 S. Rivershore Lane
Eagle, Idaho

 

83616

(Address of principal executive offices)

 

(Zip Code)

(208) 938-1047

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

    

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $1.00 par value

LW

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes     No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes     No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes     No 

As of September 28, 2022, the Registrant had 143,831,204 shares of common stock, par value $1.00 per share, outstanding.

Table of Contents

Part I. FINANCIAL INFORMATION

Item 1

Financial Statements (Unaudited)

Consolidated Statements of Earnings

3

Consolidated Statements of Comprehensive Income

4

Consolidated Balance Sheets

5

Consolidated Statements of Stockholders’ Equity

6

Consolidated Statements of Cash Flows

7

Condensed Notes to Consolidated Financial Statements (Unaudited)

8

Item 2

Management's Discussion and Analysis of Financial Condition and Results of Operations

20

Item 3

Quantitative and Qualitative Disclosures About Market Risk

28

Item 4

Controls and Procedures

29

Part II. OTHER INFORMATION

30

Item 1

Legal Proceedings

30

Item 1A

Risk Factors

30

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

30

Item 3

Defaults Upon Senior Securities

30

Item 4

Mine Safety Disclosures

30

Item 5

Other Information

30

Item 6

Exhibits

31

Signature

32

2

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (Unaudited)

Lamb Weston Holdings, Inc.

Consolidated Statements of Earnings

(unaudited, in millions, except per share amounts)

Thirteen Weeks Ended

    

August 28,

    

August 29,

2022

2021

Net sales

$

1,125.6

$

984.2

Cost of sales

852.3

832.9

Gross profit

273.3

151.3

Selling, general and administrative expenses

116.3

91.1

Income from operations

157.0

60.2

Interest expense, net

26.0

27.9

Income before income taxes and equity method earnings

 

131.0

 

32.3

Income tax expense

73.7

8.7

Equity method investment earnings

174.6

6.2

Net income

$

231.9

$

29.8

Earnings per share:

Basic

$

1.61

$

0.20

Diluted

$

1.60

$

0.20

Weighted average common shares outstanding:

Basic

144.0

146.3

Diluted

144.6

146.9

See Condensed Notes to Consolidated Financial Statements.

3

Lamb Weston Holdings, Inc.

Consolidated Statements of Comprehensive Income

(unaudited, dollars in millions)

Thirteen Weeks Ended

Thirteen Weeks Ended

August 28, 2022

August 29, 2021

Tax

Tax 

Pre-Tax

(Expense)

After-Tax

Pre-Tax 

(Expense) 

After-Tax 

    

Amount

    

Benefit

    

Amount

    

Amount

    

Benefit

    

Amount

Net income

$

305.6

$

(73.7)

$

231.9

$

38.5

$

(8.7)

$

29.8

Other comprehensive income (loss):

  

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

0.1

 

0.1

Unrealized currency translation gains (losses)

(31.7)

1.0

(30.7)

(23.8)

 

1.5

 

(22.3)

Other

0.2

0.2

Comprehensive income

$

274.1

$

(72.7)

$

201.4

$

14.8

$

(7.2)

$

7.6

See Condensed Notes to Consolidated Financial Statements.

4

Lamb Weston Holdings, Inc.

Consolidated Balance Sheets

(unaudited, dollars in millions, except share data)

August 28,

May 29,

    

2022

    

2022

ASSETS

 

 

  

  

Current assets:

 

 

  

  

Cash and cash equivalents

 

$

485.3

$

525.0

Receivables, less allowance for doubtful accounts of $1.8 and $1.1

 

449.5

 

447.3

Inventories

 

635.5

 

574.4

Prepaid expenses and other current assets

 

59.9

 

112.9

Total current assets

 

1,630.2

 

1,659.6

Property, plant and equipment, net

 

1,690.9

 

1,579.2

Operating lease assets

112.3

119.0

Equity method investments

372.5

257.4

Goodwill

 

352.2

 

318.0

Intangible assets, net

 

32.8

 

33.7

Other assets

 

218.8

 

172.9

Total assets

$

4,409.7

$

4,139.8

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

 

  

 

  

Short-term borrowings

$

9.1

$

Current portion of long-term debt and financing obligations

32.2

32.2

Accounts payable

 

462.7

 

402.6

Accrued liabilities

 

276.3

 

264.3

Total current liabilities

 

780.3

 

699.1

Long-term liabilities:

Long-term debt and financing obligations, excluding current portion

 

2,700.1

 

2,695.8

Deferred income taxes

218.7

172.5

Other noncurrent liabilities

 

200.6

 

211.9

Total long-term liabilities

3,119.4

3,080.2

Commitments and contingencies

Stockholders' equity:

 

  

 

  

Common stock of $1.00 par value, 600,000,000 shares authorized; 148,286,975 and 148,045,584 shares issued

 

148.3

 

148.0

Additional distributed capital

 

(796.9)

 

(813.3)

Retained earnings

 

1,501.8

 

1,305.5

Accumulated other comprehensive loss

 

(46.1)

 

(15.6)

Treasury stock, at cost, 4,456,388 and 3,974,156 common shares

(297.1)

(264.1)

Total stockholders' equity

510.0

360.5

Total liabilities and stockholders’ equity

$

4,409.7

$

4,139.8

See Condensed Notes to Consolidated Financial Statements.

5

Lamb Weston Holdings, Inc.

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

Thirteen Weeks Ended August 28, 2022 and August 29, 2021

    

    

Additional 

    

    

Accumulated 

    

Common Stock,

Common

Treasury

Paid-in

Other 

 Total 

net of Treasury

Stock

Stock

(Distributed)

Retained

Comprehensive 

Stockholders’

Shares

    

Amount

    

Amount

Capital

    

Earnings

    

Income (Loss)

    

 Equity

Balance at May 29, 2022

144,071,428

$

148.0

$

(264.1)

$

(813.3)

$

1,305.5

$

(15.6)

  

$

360.5

Dividends declared, $0.245 per share

(35.2)

(35.2)

Common stock issued

241,391

0.3

0.2

0.5

Stock-settled, stock-based compensation expense

7.6

7.6

Repurchase of common stock and common stock withheld to cover taxes

(482,232)

(33.0)

(33.0)

Other

8.6

(0.4)

8.2

Comprehensive income

 

231.9

(30.5)

201.4

Balance at August 28, 2022

143,830,587

$

148.3

$

(297.1)

$

(796.9)

$

1,501.8

$

(46.1)

$

510.0

Balance at May 30, 2021

146,191,864

$

147.6

$

(104.3)

$

(836.8)

$

1,244.6

$

29.5

$

480.6

Dividends declared, $0.235 per share

(34.4)

(34.4)

Common stock issued

376,001

0.4

1.5

1.9

Stock-settled, stock-based compensation expense

5.2

5.2

Repurchase of common stock and common stock withheld to cover taxes

(506,849)

(33.4)

(33.4)

Other

(0.1)

(0.1)

Comprehensive income

29.8

(22.2)

7.6

Balance at August 29, 2021

146,061,016

$

148.0

$

(137.7)

$

(830.2)

$

1,240.0

$

7.3

$

427.4

See Condensed Notes to Consolidated Financial Statements.

6

Lamb Weston Holdings, Inc.

Consolidated Statements of Cash Flows

(unaudited, dollars in millions)

Thirteen Weeks Ended

    

August 28,

    

August 29,

2022

2021

Cash flows from operating activities

Net income

$

231.9

$

29.8

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization of intangibles and debt issuance costs

49.8

47.3

Stock-settled, stock-based compensation expense

7.6

5.2

Equity method investment (earnings) loss in excess of distributions

(174.6)

3.5

Deferred income taxes

34.5

1.7

Other

(2.8)

1.5

Changes in operating assets and liabilities, net of acquisition:

Receivables

9.9

(35.1)

Inventories

(51.5)

43.4

Income taxes payable/receivable, net

42.3

9.7

Prepaid expenses and other current assets

45.5

33.0

Accounts payable

24.3

10.0

Accrued liabilities

(24.8)

11.8

Net cash provided by operating activities

$

192.1

$

161.8

Cash flows from investing activities

Additions to property, plant and equipment

(101.2)

(78.9)

Acquisition of interest in joint venture, net

(42.3)

Additions to other long-term assets

(20.0)

Other

(3.4)

0.1

Net cash used for investing activities

$

(166.9)

$

(78.8)

Cash flows from financing activities

Proceeds from issuance of debt

13.8

Repayments of debt and financing obligations

(8.0)

(7.9)

Dividends paid

(35.3)

(34.4)

Repurchase of common stock and common stock withheld to cover taxes

(34.4)

(33.4)

Other

0.4

(0.1)

Net cash used for financing activities

$

(63.5)

$

(75.8)

Effect of exchange rate changes on cash and cash equivalents

(1.4)

(1.0)

Net (decrease) increase in cash and cash equivalents

 

(39.7)

 

6.2

Cash and cash equivalents, beginning of period

525.0

783.5

Cash and cash equivalents, end of period

$

485.3

$

789.7

See Condensed Notes to Consolidated Financial Statements.

7

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”), along with our joint ventures, 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 13, Segments, for additional information on our reportable segments.

Basis of Presentation

The accompanying unaudited Consolidated Financial Statements present the financial results of Lamb Weston for the thirteen weeks ended August 28, 2022 and August 29, 2021, 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 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 29, 2022 (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 on July 27, 2022.

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

8

2.    EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per common share for the periods presented:

Thirteen Weeks Ended

    

August 28,

    

August 29,

(in millions, except per share amounts)

2022

2021

Numerator:

 

  

 

  

Net income

$

231.9

$

29.8

Denominator:

 

  

 

  

Basic weighted average common shares outstanding

 

144.0

 

146.3

Add: Dilutive effect of employee incentive plans (a)

 

0.6

 

0.6

Diluted weighted average common shares outstanding

 

144.6

 

146.9

Earnings per share:

Basic

$

1.61

$

0.20

Diluted

$

1.60

$

0.20

(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 August 28, 2022, 0.6 million shares of stock-based awards were excluded from the computation of diluted earnings per share because they would be antidilutive. As of August 29, 2021, an insignificant number 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 was $73.7 million and $8.7 million for the thirteen weeks ended August 28, 2022 and August 29, 2021, respectively. The effective income tax rate (calculated as the ratio of income tax expense to pre-tax income, inclusive of equity method investment earnings) was 24.1% and 22.6% for the thirteen weeks ended August 28, 2022 and August 29, 2021, respectively, in our Consolidated Statements of 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, permanent differences, and discrete items. Excluding the impact of both the gain associated with the acquisition of an additional 40% interest in our Argentina joint venture, Lamb Weston Alimentos Modernos S.A. (“LWAMSA”), and the mark-to-market adjustments associated with changes in natural gas and electricity derivatives at our Lamb-Weston/Meijer v.o.f (“LWM”) joint venture, which are discussed at Note 6, Joint Venture Investments, and Note 13, Segments, respectively, our effective tax rate was 25.0%.

Income Taxes Paid

Income tax refunds, net of taxes paid, were $3.2 million and $2.9 million during the thirteen weeks ended August 28, 2022 and August 29, 2021, respectively.

9

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:

    

August 28,

May 29,

(in millions)

2022

    

2022

Raw materials and packaging

$

89.3

 

$

96.1

Finished goods

 

493.7

 

 

426.5

Supplies and other

 

52.5

 

 

51.8

Inventories

$

635.5

 

$

574.4

5.    PROPERTY, PLANT AND EQUIPMENT

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

    

August 28,

May 29,

(in millions)

2022

    

2022

Land and land improvements

$

118.2

$

114.1

Buildings, machinery, and equipment

 

2,982.7

 

2,919.0

Furniture, fixtures, office equipment, and other

 

98.2

 

92.1

Construction in progress

 

236.5

 

156.1

Property, plant and equipment, at cost

 

3,435.6

 

3,281.3

Less accumulated depreciation

 

(1,744.7)

 

(1,702.1)

Property, plant and equipment, net

$

1,690.9

$

1,579.2

Depreciation expense was $47.3 million and $44.5 million for the thirteen weeks ended August 28, 2022 and August 29, 2021, respectively. At August 28, 2022 and May 29, 2022, purchases of property, plant and equipment included in accounts payable were $64.4 million and $38.3 million, respectively.

Interest capitalized within construction in progress for the thirteen weeks ended August 28, 2022 and August 29, 2021, was $2.0 million and $1.2 million, respectively.

6.    JOINT VENTURE INVESTMENTS

Consolidated Joint Ventures

In July 2022, we acquired an additional 40% interest in LWAMSA, which increased our total ownership from 50% to 90%. We recorded LWAMSA’s assets and liabilities at fair value, which included remeasuring our previously held equity interest at fair value, and we recognized a $15.1 million gain in “Equity method investment earnings” in our Consolidated Statement of Earnings. The fair value was determined utilizing industry EBITDA multiples and control premium comparable information, which are unobservable inputs, or Level 3 in the fair value hierarchy. We recorded the preliminary fair values as of the date of acquisition.

In connection with the purchase of the additional interest in LWAMSA, we ceased equity method accounting and began consolidating LWAMSA’s financial statements. The net sales, income from operations, and total assets acquired were not material to our consolidated net sales, income from operations, and total assets. LWAMSA’s operating results are included in our Global segment.

10

On September 6, 2022, we announced an expansion of french fry processing capacity in Argentina with the planned construction of a new manufacturing facility in Mar del Plata. The new processing facility is expected to produce more than 200 million pounds of frozen french fries and other potato products per year. Construction of the new line is expected to be completed in fiscal 2025. The total investment is expected to be approximately $240 million. This investment will add to the capacity produced at LWAMSA’s existing production facility in Buenos Aires.

Noncontrolling Interest

As of August 28, 2022, total LWAMSA interest not directly attributable to Lamb Weston, or NCI, was $8.2 million and was recorded in “Additional distributed capital” on our Consolidated Balance Sheet. For the thirteen weeks ended August 28, 2022, the net loss attributable to NCI was not significant and was recorded in “Selling, general and administrative expenses” in our Consolidated Statement of Earnings.

Unconsolidated Joint Ventures

Our equity method investments were as follows:

August 28,

May 29,

(in millions)

2022

2022

LWM (a)

$

347.8

$

211.2

Lamb-Weston/RDO Frozen ("Lamb Weston RDO") (b)

  

24.1

19.4

LWAMSA (c)

  

26.1

Other

  

0.6

0.7

$

372.5

$

257.4

(a)We own 50% of LWM, a joint venture with Meijer Frozen Foods B.V., headquartered in the Netherlands that manufactures and sells frozen potato products principally in Europe and the Middle East. The investment balance includes $146.3 million of unrealized gains related to mark-to-market adjustments associated with changes in natural gas and electricity derivatives as commodity markets in Europe have experienced significant volatility during the thirteen weeks ended August 28, 2022. In September 2022, LWM completed the previously announced withdrawal from its joint venture in Russia.

(b)We own 50% of Lamb Weston RDO, a joint venture with RDO Frozen Co., that operates a potato processing facility in the U.S.

(c)In July 2022, we acquired an additional 40% interest in LWAMSA, increasing our total ownership to 90% and began consolidating the joint venture.

We have an agreement to share the costs of our global enterprise resource planning (“ERP”) system and related software and services with LWM. Under the terms of the agreement, LWM will pay us for the majority of its portion of the ERP costs in five equal annual payments, plus interest, beginning in the period the system is deployed at LWM. At August 28, 2022 and May 29, 2022, LWM’s portion of the ERP costs totaled $29.5 million and $23.4 million, respectively. We had $25.3 million and $20.5 million of receivables recorded in “Other assets” on our Consolidated Balance Sheets at August 28, 2022 and May 29, 2022, respectively. We expect the total receivable from LWM to increase as development and implementation of the next phase of our ERP system continues throughout fiscal 2023.

11

7.    GOODWILL AND OTHER IDENTIFIABLE INTANGIBLE ASSETS

The following table presents changes in goodwill balances, by segment, during the thirteen weeks ended August 28, 2022:

(in millions)

    

Global 

    

Foodservice

    

Retail

    

Other

    

Total

Balance at May 29, 2022

$

259.8

$

42.8

$

10.9

$

4.5

$

318.0

Acquisition of interest in joint venture (a)

42.1

42.1

Foreign currency translation adjustment

(7.9)

 

(7.9)

Balance at August 28, 2022

$

294.0

$

42.8

$

10.9

$

4.5

$

352.2

(a)In July 2022, we acquired an additional 40% interest in LWAMSA, which increased our total ownership from 50% to 90%, and we recorded $42.1 million of goodwill, that is not deductible for tax purposes, in our Global segment. See Note 6, Joint Venture Investments, for more information.

Other identifiable intangible assets were as follows:

August 28, 2022

May 29, 2022

    

Weighted 

    

    

    

    

Weighted 

    

    

    

Average 

Gross 

Average 

 Gross 

Useful Life 

Carrying 

Accumulated 

Intangible

Useful Life 

Carrying 

 Accumulated 

Intangible

(dollars in millions)

(in years)

Amount

Amortization

Assets, Net

(in years)

Amount

 Amortization

Assets, Net

Non-amortizing intangible assets (a)

  

n/a

$

18.0

  

$

  

$

18.0

  

n/a

  

$

18.0

  

$

  

$

18.0

Amortizing intangible assets (b)

  

10

  

41.1

  

(26.3)

  

14.8

  

10

  

41.4

  

(25.7)

  

15.7

  

$

59.1

  

$

(26.3)

  

$

32.8

  

  

$

59.4

  

$

(25.7)

  

$

33.7

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

(b)Amortizing intangible assets are principally composed of licensing agreements, brands, and customer relationships. Developed technology, which is excluded from this balance, is recorded as “Other assets” on our Consolidated Balance Sheets. Amortization expense, including developed technology amortization expense, was $1.4 million and $1.5 million for the thirteen weeks ended August 28, 2022 and August 29, 2021, respectively. Foreign intangible assets are affected by foreign currency translation.

8.   ACCRUED LIABILITIES

The components of accrued liabilities were as follows:

    

August 28,

May 29,

(in millions)

2022

    

2022

Compensation and benefits

$

84.6

 

$

81.0

Accrued trade promotions

43.4

41.2

Income taxes payable

36.1

1.7

Dividends payable to shareholders

35.2

35.3

Current portion of operating lease obligations

22.8

22.4

Accrued interest

14.9

42.1

Franchise, property, and sales and use taxes

14.1

 

 

10.4

Other

 

25.2

 

 

30.2

Accrued liabilities

$

276.3

 

$

264.3

12

9.   DEBT AND FINANCING OBLIGATIONS

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

    

August 28,

    

May 29,

(in millions)

2022

2022

Short-term borrowings:

Other credit facilities

$

9.1

$

Long-term debt:

Term A-1 loan facility, due June 2024

255.0

 

258.7

Term A-2 loan facility, due April 2025

292.5

296.6

RMB loan facility, due February 2027 (a)

31.0

19.7

4.875% senior notes, due May 2028

500.0

500.0

4.125% senior notes, due January 2030

970.0

970.0

4.375% senior notes, due January 2032

700.0

700.0

2,748.5

2,745.0

Financing obligations:

Lease financing obligations due on various dates through 2040 (b)

7.0

 

7.0

Total debt and financing obligations

2,764.6

 

2,752.0

Debt issuance costs (c)

(23.2)

(24.0)

Short-term borrowings

(9.1)

Current portion of long-term debt and financing obligations

 

(32.2)

 

 

(32.2)

Long-term debt and financing obligations, excluding current portion

$

2,700.1

 

$

2,695.8

(a)The effective average interest rate on this facility was 4.60% as of August 28, 2022.

(b)The interest rates on our lease financing obligations ranged from 2.08% to 3.32% as of August 28, 2022 and May 29, 2022.

(c)Excludes debt issuance costs of $3.1 million and $3.3 million as of August 28, 2022 and May 29, 2022, respectively, related to our revolving credit facility, which are recorded in “Other assets” on our Consolidated Balance Sheets.

At August 28, 2022, we had no borrowings outstanding under our revolving credit facility and $994.6 million of availability under the facility, which is net of outstanding letters of credit of $5.4 million. For the thirteen weeks ended August 28, 2022, we had no borrowings under the facility.

For the thirteen weeks ended August 28, 2022 and August 29, 2021, we paid $56.8 million and $2.7 million of interest on debt, respectively.

For more information on our debt and financing obligations, interest rates, and debt covenants, see Note 7, 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.

13

10.   STOCK-BASED COMPENSATION

The Compensation and Human Capital Committee (“the Committee”) of our Board of Directors administers our 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”), stock options, dividend equivalents, and other stock-based awards. As of August 28, 2022, 6.2 million shares were available for future grant under the plan.

RSUs

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 on the date of grant. Compensation expense is recognized over the period the employee or non-employee director provides service in exchange for the award.

Performance Shares

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, would be paid in shares of our common stock. Subject to limited exceptions set forth in our stock plan, any shares earned will generally vest over a three-year service period. The value of these Performance Shares is adjusted based upon the market price of our common stock and the anticipated attainment of Company-wide performance goals at the end of each reporting period and amortized as compensation expense over the service period.

We have also granted Performance Shares with vesting contingent upon relative total shareholder return goals, and, under special circumstances, stock price growth goals. Awards actually earned range from 0% to 200%, in the case of awards contingent on total shareholder return goals, or 0% to 300%, in the case of awards contingent on stock price growth goals, of the targeted number of Performance Shares. These Performance Shares are equity-settled awards that vest over a three-year service period, and the number of units that actually vest is determined based on the achievement of the performance criteria set forth in the respective award agreement. The awards are measured based on estimated fair value as of the date of grant using a Monte Carlo simulation, and are amortized over the service period.

The weighted average Monte Carlo assumptions for Performance Shares granted during the thirteen weeks ended August 28, 2022 were:

Assumptions

Dividend yield (%)

0.00 - 1.42

Expected volatility of stock (%)

42.99

Risk-free interest rate (%)

2.89

Expected life (years)

2.82

Weighted average grant date fair value per unit

$

91.43 - $118.97

Stock Options

Under special circumstances, we have granted options to employees for the purchase of stock at exercise prices equal to the fair market value of the underlying stock on the grant date. Options generally become exercisable in three annual installments beginning on the first anniversary of the grant date and have a maximum term of seven years.

14

The weighted average Black-Sholes assumptions for stock options granted during the thirteen weeks ended August 28, 2022 were:

Assumptions

Weighted average fair value

$

25.90

Dividend yield (%)

1.22

Expected volatility of stock (%)

34.06

Risk-free interest rate (%)

2.82

Expected life of stock option (years)

5.75

Weighted average exercise price per share

$

79.66

Stock Based Compensation Grants

During the thirteen weeks ended August 28, 2022, we granted 0.3 million, 0.3 million, and 0.6 million RSUs, Performance Shares, and stock options, respectively, at an average grant date fair value of $79.47, $92.85, and $25.90, respectively.

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:

Thirteen Weeks Ended

August 28,

August 29,

(in millions)

2022

2021

Stock-settled RSUs

$

4.7

$

3.6

Performance Shares

2.4

1.6

Stock options

0.5

Total compensation expense

$

7.6

$

5.2

Income tax benefit (a)

(1.3)

(0.9)

Total compensation expense, net of tax benefit

$

6.3

$

4.3

(a)Income tax benefit represents the marginal tax rate, excluding non-deductible compensation.

Based on estimates at August 28, 2022, total unrecognized compensation expense related to stock-based awards was as follows:

    

    

Remaining

Weighted

Unrecognized

Average 

Compensation

Recognition

(in millions, except data in years)

Expense

Period (in years)

Stock-settled RSUs

$

44.6

  

1.9

Performance Shares

33.9

  

2.5

Stock options

13.8

2.0

Total unrecognized compensation expense

$

92.3

  

15

11.   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:  

As of August 28, 2022

Fair Value

of Assets

(in millions)

    

Level 1

    

Level 2

    

Level 3

    

(Liabilities)

Derivative assets (a)

3.5

3.5

Derivative liabilities (a)

(0.5)

(0.5)

Deferred compensation liabilities (b)

(22.2)

(22.2)

Fair value, net

$

$

(19.2)

$

$

(19.2)

As of May 29, 2022

Fair Value

of Assets

(in millions)

    

Level 1

    

Level 2

    

Level 3

    

(Liabilities)

Derivative assets (a)

7.0

7.0

Deferred compensation liabilities (b)

(21.6)

(21.6)

Fair value, net

$

$

(14.6)

$

$

(14.6)

(a)Derivative assets and liabilities included in Level 2 primarily represent commodity swap and option contracts. The fair values of our Level 2 derivative assets and liabilities were determined using valuation models that use market observable inputs including both forward and spot prices for commodities. Derivative assets are presented within “Prepaid expenses and other current assets” 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.

At August 28, 2022, we had $2,170.0 million of fixed-rate and $587.6 million of variable-rate debt outstanding. Based on current market rates, the fair value of our fixed-rate debt was estimated to be $2,006.2 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. 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.

12.   STOCKHOLDERS’ EQUITY

Share Repurchase Program

Our Board of Directors authorized a program, with no expiration date, to repurchase up to $500.0 million of our common stock. During the thirteen weeks ended August 28, 2022, we repurchased 404,476 shares for $28.4 million, or a weighted average price of $70.11 per share. As of August 28, 2022, $240.6 million remained authorized for repurchase under the program.

16

Dividends

During the thirteen weeks ended August 28, 2022, we paid $35.3 million of dividends to common stockholders. On September 2, 2022, we paid $35.2 million of dividends to stockholders of record as of the close of business on August 5, 2022. On September 28, 2022, our Board of Directors declared a dividend of $0.245 per share of common stock. The dividend will be paid on December 2, 2022, to stockholders of record as of the close of business on November 4, 2022.

Accumulated Other Comprehensive Income (“AOCI”)

Changes in AOCI, net of taxes, as of August 28, 2022 were as follows: