14. SEGMENTS

We have four operating segments, each of which are reportable segments: Global, Foodservice, Retail, and Other. Our chief operating decision maker receives periodic management reporting under this structure that generally focuses on the nature and scope of the customers’ business, which enables operating decisions, performance assessment, and resource allocation decisions at the segment level. The reportable segments are each managed by a general manager and supported by a cross functional team assigned to support the segment. We measure our segments’ product contribution margin, which is defined as net sales, less cost of sales and advertising and promotion expenses and excludes general corporate expenses, interest, and taxes. See “Part I, Item 1. Business” of this Form 10-K for more information on our segments.


	For the Fiscal Years Ended May
(in millions)	2017		2016		2015
Net sales:
Global	$	1,624.8	$	1,549.4	$	1,512.9
Foodservice		1,030.0		946.0		929.0
Retail		384.9		372.1		355.6
Other		128.3		126.3		127.5
Total net sales		3,168.0		2,993.8		2,925.0
Product contribution margin (a):
Global		343.0		296.5		253.7
Foodservice		333.1		254.7		246.0
Retail		78.3		69.6		47.6
Other		9.5		21.0		20.6
Total product contribution margin		763.9		641.8		567.9
Equity method investment earnings (b)		53.3		71.7		42.7
Total product contribution margin plus equity method investment earnings		817.2		713.5		610.6
Other selling, general and administrative expenses (a) (c)		245.6		268.5		186.5
Interest expense, net		61.2		5.9		6.1
Income tax expense		170.2		144.5		140.4
Net income		340.2		294.6		277.6
Less: Income attributable to noncontrolling interests		13.3		9.3		9.3
Net income attributable to Lamb Weston Holdings, Inc.	$	326.9	$	285.3	$	268.3

(a)

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

(b)

Fiscal 2016 includes a $17.7 million non-cash gain related to the settlement of a pension plan of our Lamb-Weston/Meijer joint venture.

(c)

Fiscal 2017 includes $26.5 million of pre-tax expenses related to the Separation, primarily related to professional fees, and a $3.1 million non-cash pre-tax gain on assets received during the period.

Fiscal 2016 includes the following pre-tax charges: $5.3 million of expenses related to the Separation, and $59.5 million of non-cash charges reflecting Lamb Weston’s portion of the actuarial losses in excess of 10% of Conagra’s pension liability for Conagra sponsored plans.

Fiscal 2015 includes a $5.1 million non-cash gain on the sale of land received in connection with the bankruptcy of an onion products supplier.

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 11% of consolidated “Net sales” in each of fiscal years 2017, 2016, and 2015. Accounts receivable from one customer accounted for 10% and 11% of our consolidated accounts receivable at May 28, 2017 and May 29, 2016, respectively. Accounts receivable from an additional customer accounted for 11% of our consolidated accounts receivable at May 29, 2016.

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 $81.6 million, $70.4 million, and $74.7 million, various byproduct sales of $35.4 million, $46.4 million, and $38.6 million, and dairy product sales of $11.3 million, $9.5 million, and $14.2 million in fiscal 2017, 2016, and 2015, respectively. Product contribution margin is defined as net sales, less cost of goods sold and advertising and promotions expenses.

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 2017, 2016, and 2015. Foreign net sales, including sales by domestic segments to customers located outside of the United States and Canada, were approximately $663.5 million, $615.9 million, and $577.0 million, in fiscal 2017, 2016, and 2015, respectively. Lamb Weston’s long-lived assets of our China operations accounted for less than 3% of our total assets.

Labor

At May 28, 2017, we had approximately 6,500 employees, excluding our joint ventures. Approximately 400 of these employees work outside of the United States. Approximately 27% of our hourly 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. Approximately 8% expire in fiscal 2018. As these agreements expire, we believe they will be renegotiated on terms satisfactory to us.