INVESTMENTS IN JOINT VENTURES

12 Months Ended

May 31, 2020

INVESTMENTS IN JOINT VENTURES

INVESTMENTS IN JOINT VENTURES

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.

Summarized combined financial information for our equity method investments based on 100%of their operations is as follows (dollars in millions):

	For the Fiscal Years Ended May
	2020		2019		2018
Net sales	$	1,137.7	$	1,172.6	$	1,142.7
Gross margin		145.8		212.2		249.5
Earnings before income taxes		58.7		119.0		167.2

	May 31,		May 26,
	2020		2019
Current assets	$	413.8	$	406.2
Noncurrent assets		455.1		381.9
Current liabilities		298.8		282.9
Noncurrent liabilities		79.8		55.9

Variable Interest Entity - Consolidated

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.