What changed in this filing

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Item 1A. Risk Factors

2022-07-27 compared with 2021-07-27 · 162 added, 136 removed, 213 unchanged (58% of the section changed)

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Business and Operating Risks

Our business, financial condition, and results of operations may be adversely affected by inflationary pressures, 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, grains, starches, 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, water stress, health epidemics or pandemics or other contagious outbreaks, such as the COVID-19 pandemic, governmental incentives and controls (including import/export restrictions, such as new or increased tariffs, sanctions, quotas or trade barriers including the financial and economic sanctions imposed by the U.S.

and certain foreign governments in response to the war in Ukraine), limited or sole sources of supply, inflation, political uncertainties, acts of terrorism, governmental instability, war, or currency exchange rates.

Despite our ability to source raw materials necessary to meet demand for our products, certain ingredients and packaging, including edible oils, grains, starches, and other commodities, have been and may continue to be adversely impacted by shortages due to the COVID-19 pandemic, global supply chain disruptions and the war in Ukraine.

Although we are unable to predict the impact to our ability to source these materials in the future, we expect these supply pressures to continue in the near future.

Recently, the costs of labor, raw materials, energy, fuel, packaging materials and other inputs necessary for the production and distribution of our products have rapidly increased.

For example, due to reduced availability of trucking capacity and shipping containers, global supply chain issues, labor shortages and inflation, we have experienced increases in transportation and warehousing costs.

Additionally, we expect to face continued industry-wide cost inflation for various inputs, including commodities, ingredients, packaging materials, other raw materials, transportation, warehousing, and labor.

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, could adversely affect our business, financial condition, and results of operations.

Our attempts to offset these cost pressures, such as through increases in the selling prices of some of our products, may not be successful.

Higher product prices may result in reductions in sales volume.

To the extent that price increases are not sufficient to offset these increased costs adequately or in a timely manner, and/or if they result in significant decreases in sales volume, our business, financial condition, or results of operations may be adversely affected.

We may not be able to offset any cost increases through productivity initiatives or through our commodity hedging activity.

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, there is currently no active derivatives market for potatoes in the U.S.

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.

To the extent we are unable to offset present and future cost increases, our business, financial condition, and results of operations could be materially and adversely affected.

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 COVID-19 pandemic, labor shortages, increased fuel costs, and the war in Ukraine, which have disrupted production and increased transportation and warehousing costs.

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 have led and 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 deliver products, could adversely affect our profitability and weaken our competitive position or otherwise harm our business.

Our business, financial condition, and results of operations could be adversely affected by disruptions in the global economy caused by the war in Ukraine.

The global economy has been negatively impacted by increasing tensions related to the war in Ukraine.

Such adverse and uncertain economic conditions have caused, and may continue to cause, supply chain disruptions and increased costs for transportation, energy, and raw materials, including edible oil, grains, and starches.

Furthermore, the U.S.

and certain foreign governments have imposed financial and economic sanctions on certain industry sectors and parties in Russia.

We are monitoring the conflict and the potential impact of financial and economic sanctions on the regional and global economy.

In addition, some of our customers, including our largest customer, McDonald’s Corporation, have exited from Russia.

Further, in May 2022, our LWM joint venture announced its intent to withdraw from its joint venture that operates a production facility in Russia .

As a result, LWM determined that its net investment in the joint venture was impaired and wrote-off its investment in Russia;

our portion of the non-cash impairment charge was $62.7 million.

Increased trade barriers or restrictions on global trade also could adversely affect our business, financial condition, and results of operations.

Though LWM intends to exit the Russian market, the destabilizing effects of the war in Ukraine could have other effects on our business.

Further escalation of geopolitical tensions related to military conflict could result in loss of property, expropriation, cyberattacks, supply disruptions, plant closures and an inability to obtain key supplies and materials, as well as adversely affect our business and our supply chain, our international subsidiaries and joint ventures, business partners or customers in the broader region, including our European growing regions for potatoes.

Prior to the war in Ukraine, Ukraine was one of the largest exporters of sunflower oil, which we use for our products.

Supply chains that were already disrupted by the COVID-19 pandemic have been further impacted by the war in Ukraine, which has caused shortages in some raw materials, including sunflower oil, and higher prices for substitute ingredients, such as other edible oils.

LWM operates processing facilities in Europe, including Austria, the Netherlands and the United Kingdom.

In many instances, these sites depend on the availability of natural gas for use in the production of products, which may originate from Russia.

Destabilizing effects that military conflict may pose for the European continent or the global oil and natural gas markets could adversely impact LWM’s ability to operate these facilities.

In addition, the effects of military conflict could heighten many of our other risks described in this Form 10-K.

Pandemics or other contagious outbreaks and government actions taken in response thereto, may adversely impact, and in the case of the COVID-19 pandemic, have adversely impacted and are likely to continue to adversely impact, our business, financial condition, and results of operations.

The ultimate impact that the COVID-19 pandemic and any future pandemic or other contagious outbreak will have on our business, financial condition, and results of operations is uncertain.

To date, 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.

Some of the impacts our business has experienced, is experiencing and may experience as a result of the COVID-19 pandemic, or any future pandemic or other contagious outbreak, include, but are not limited to, the following:

● decreased sales to our foodservice customers resulting from the closure or reduction in capacity of many full-service restaurants and other commercial operations (e.g., hotels, schools and universities, sporting venues), which significantly reduced consumer traffic;

● reduced demand at quick service restaurants and in particular, in our international markets where most consumption is dine-in or carry-out as drive-thru options are more limited;

● modification of a number of our business practices, including instituting ongoing evaluation of our manufacturing employees’ COVID-19 symptom status, higher costs associated with purchasing personal protection equipment and health screening equipment and services, and enhanced cleaning and sanitation protocols to protect our employees;

● shutdowns of one or more of our manufacturing facilities or production lines due to illness and the continuous evaluation of the need for additional closures or temporary shutdowns to protect employee health;

● disruptions in production timing and manufacturing operations, including adjusting schedules to accommodate higher than normal absenteeism among our hourly employees, shifting production from one facility to another, and hiring a significant number of new employees in our manufacturing facilities, which increased costs and inefficiencies;

● continued commodity cost volatility, including higher edible oil costs, which may not be sufficiently offset by our commodity hedging activities;

● increased transportation and warehousing costs, as well as disruptions in the transport of goods from our supply chain to us and from us to our customers, causing us to rely more heavily on higher cost transportation to maintain customer service levels;

While vaccines are more widely available, the presence of new variants and increasing case figures in many countries create continued uncertainty about the duration

and extent of the impact from the pandemic.

The efforts by governmental and regulatory authorities worldwide to control the spread of COVID-19 and variants of the virus 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.

Although COVID-19-related restrictions have generally been loosened or lifted, these restrictions and measures, and our efforts to act in the best interests of our employees, customers, suppliers, vendors, joint ventures, and other business partners, have affected and are continuing to affect our business and operations.

Some of the impacts our business has experienced, is continuing to experience, and may experience as a result of the COVID-19 pandemic, or any future pandemic or other contagious outbreak, include, but are not limited to, the following:

● reduced demand at quick service restaurants, in particular in our international markets where most consumption is dine-in or carry-out as drive-thru options are more limited;

● shutdowns of one or more of our production facilities or lines, or disruption in our production timing and operations, including but not limited to, as a result of illness, labor shortages, government restrictions, or other workforce disruptions;

● continued commodity cost volatility, including higher edible oil, grain, and starch costs, which may not be sufficiently offset by our commodity hedging activities;

● increased transportation and warehousing costs, as well as disruptions in the transport of goods, including limited availability of shipping containers, from our supply chain to us and from us to our customers, which caused us to rely more heavily on higher cost transportation to maintain customer service levels;

● disruptions to our distribution capabilities or to our distribution channels, including those of our suppliers, logistics service providers, or independent distributors;

● failure of third parties on which we rely, including but not limited to, those that supply our packaging, ingredients, equipment and other necessary operating materials, co-manufacturers and independent contractors, to meet their obligations to us, or significant disruptions in their ability to do so;

● reductions in the availability of one or more of our products as we prioritize the production of other products due to increased demand;

● modifications of our business continuity plans;

● changes to our existing manufacturing practices required by the implementation of social distancing measures and increased costs related to the payment of additional wage expenses, paid time off for employees who are not working for reasons related to COVID-19 and overtime expense to manage production schedules to offset the impact of closures at other plants;

● disruptions in business travel;

● disruptions in our ability to staff our on-site manufacturing and research and development facilities;

● delay of our capital expansion projects and other capital expenditures;

● a change in demand for, or availability of, one or more of our products as a result of restaurants, other foodservice providers, retailers, or distributors, modifying their inventory, fulfillment or shipping practices;

● increased reliance on our information technology system as a result of work-from-home Company policies, causing us to be more vulnerable to cyberattacks or other disruptions as a result of team members accessing our networks and systems from off-site;

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 continue to cause, an adverse effect on our business, financial condition, and results of operations that may be material.

Although government restrictions have been reduced or lifted, the negative impact on consumer traffic may continue to some degree because restaurants and other foodservice venues may be required to operate at reduced capacities and consumers may fear gathering in public places.

In addition, resurgences of COVID-19 infections after restrictions are lifted could cause governments to impose new or stricter closures, limits on capacity or social distancing requirements.

● continued business disruptions and uncertainties related to the COVID-19 pandemic for a sustained period of time could result in additional delays or modifications to our strategic plans, capital expansion projects and other initiatives and hinder our ability to achieve anticipated cost savings and productivity initiatives on the original timelines.

These impacts have caused, and may 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 may continue to cause, an adverse effect on our business, financial condition, and results of operations that may be material.

In addition, resurgences of COVID-19 variants after restrictions are lifted could cause governments to impose new or stricter closures, and limits on capacity or social distancing requirements.

These restrictions could cause consumer demand for food away from home to decline.

While we have experienced increased demand for our retail products, that increase in demand cannot entirely offset the decrease in demand from our foodservice customers.

Further, retail demand may gradually decline as consumers begin to shift purchases of fries to dining at restaurants as governments lift social restrictions.

We cannot predict whether and to what extent changes in consumer food purchasing behavior will persist even after the threat of the COVID-19 pandemic has been eliminated or how those changes would affect our business.

COVID-19 has disrupted, and the spread of pandemics or other contagious outbreaks may also disrupt, our customers, suppliers, vendors and joint venture and other business partners, and each of their financial conditions.

COVID-19 has disrupted, and the spread of future pandemics or other contagious outbreaks may also disrupt, 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 pandemics or other contagious outbreaks such as 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 have and may continue to 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.

In this regard, the potential duration and impacts of pandemics or other contagious outbreaks such as the COVID-19 pandemic, including the emergence and spread of COVID-19 variants and the continued availability and effectiveness of vaccines in the markets where we operate, 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.

The pandemic has resulted in significant disruption of global financial markets, labor shortages, supply chain interruptions, increased commodity costs, inflation, and economic uncertainty, which has adversely impacted our business and may continue to do so.

The impact of COVID-19 may also exacerbate other risks discussed in this Form 10-K.

The ultimate impact depends on the severity and duration of the COVID-19 pandemic and actions taken by governmental authorities and other third parties in response, each of which is uncertain, rapidly changing and difficult to predict.

The ultimate impact depends on the severity and duration of the COVID-19 pandemic, including the emergence and spread of variants, the

continued availability and effectiveness of vaccines, and actions taken by governmental authorities and other third parties in response, each of which is uncertain, rapidly changing and difficult to predict.

Any of these disruptions could have a material adverse effect on our business, financial condition, and results of operations.

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, water stress, health epidemics or pandemics or other contagious outbreaks, such as the 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.

Despite our ability to source raw materials necessary to meet demand for our products, certain ingredients and packaging, including edible oils and other commodities have been adversely impacted by shortages during the COVID-19 pandemic.

Although we are unable to predict the impact to our ability to source these materials in the future, we expect these supply pressures to continue in the near future.

In addition, we also incur expenses in connection with the transportation and delivery of our products.

Due to disruptions related to COVID-19 in our production facilities, we have experienced increases in transportation and warehousing costs.

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, have increased and may continue to increase our operating costs and could adversely affect our business, financial condition, and results of operations.

During fiscal 2021, as a result of the impacts of the COVID-19 pandemic, we were not able to, and in the future, 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.

As a result, the risk management procedures that we use may not always work as we intend.

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 COVID-19 pandemic, which has disrupted production and increased transportation and warehousing costs.

Labor shortages or stoppages, an inability to attract and retain key personnel, increased turnover or increases in labor and pension costs could adversely affect our business, financial condition, and results of operations.

Labor is a primary component of operating our business.

A number of factors may adversely affect the labor force available to us or increase labor costs, including high employment levels, federal unemployment subsidies, including unemployment benefits offered in response to the COVID-19 pandemic, and other government regulations.

The labor market has become increasingly tight and competitive, and we may face sudden and unforeseen challenges in the availability of labor, such as we have experienced during fiscal 2022 at some of our production facilities, which reduced our production run-rates and increased our manufacturing costs.

A sustained labor shortage or increased turnover rates within our workforce, caused by COVID-19 or as a result of general macroeconomic factors, have led and could in the future lead to production or shipping delays, increased costs, such as increased overtime to meet demand and increased wage rates to attract and retain employees, and could negatively affect our ability to efficiently operate our production and distribution facilities and overall business.

Further, 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 loss of the services of these persons could deplete our institutional knowledge and could have a material adverse effect on our business, financial condition, and results of operations.

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 are unable to hire and retain employees capable of performing at a high-level, develop adequate training and succession plans for leadership positions, or if mitigation measures we may take to respond to a decrease in labor availability, such as overtime and third-party outsourcing, have unintended negative effects, our business could be adversely affected.

Similarly, we have been negatively impacted and may in the future continue to be negatively impacted by labor shortages or increased labor costs experienced by our third-party business partners, including our logistics providers, suppliers and customers.

For example, reduced availability of trucking capacity due to shortages of drivers, primarily as a result of the COVID-19 pandemic, has caused an increase in the cost of transportation for us and our suppliers.

An overall labor shortage, lack of skilled labor, increased turnover or labor inflation, caused by COVID-19 or as a result of general macroeconomic factors, could have a material adverse impact on our business, financial condition, and results of operations.

In addition, health care, workers’ compensation, postretirement welfare, and pension costs are increasing.

Inflationary pressures and any shortages in the labor market could continue to 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 U.S.

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.

Changes in our relationships with our growers could adversely affect us.

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In some instances, we have entered into long-term agreements with growers;

however, a large portion of our potato needs are typically sourced on an annual contracted basis.

however, a portion of our potato needs are sourced on an annual contracted 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.

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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 2021, 2020 and 2019, net sales outside the United States, primarily in Australia, Canada, China, Japan, Korea, Mexico, and Taiwan, accounted for approximately 20% of our net sales.

We conduct a substantial and growing amount of business with customers located outside the U.S., including through our joint ventures.

During each of fiscal 2022, 2021 and 2020, net sales outside the U.S., primarily in Australia, Canada, China, Japan, Korea, Mexico, and Taiwan, accounted for approximately 17% 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 domestic and international sales and operations, many of which are outside of our control, could have a material adverse impact on our business, financial condition, and results of operations, including:

Many factors relating to our domestic and international sales and operations, many of which are outside of our control, have had, and could continue to 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, which may lead, and in the case of the COVID-19 pandemic, have led, to measures that 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;

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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 or treaties (e.g.

the United States – Mexico – Canada

Agreement), creation of new trade agreements or treaties, trade regulations, and increased or new tariffs, quotas, import or export licensing requirements, and other trade barriers imposed by governments.

● changes in trade, monetary and fiscal policies of the U.S.

and foreign governments, including modification or termination of existing trade agreements or treaties (e.g.

– Mexico – Canada Agreement), creation of new trade agreements or treaties, 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;

● negative economic developments in economies around the world and the instability of governments, including the actual or threat of wars, terrorist attacks, epidemics or civil unrest, including the war in Ukraine;

● 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;

● increased costs, disruptions in shipping or reduced availability of freight transportation and warehousing;

● increased costs, disruptions in shipping or reduced availability of freight transportation and warehousing, such as the reduced availability of shipping containers that we encountered in fiscal 2022;

● differing employment practices and labor standards in the international markets in which we operate;

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● potentially burdensome taxation.

● 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 all LIBOR tenors to disappear entirely after June 30, 2023 or to perform differently than in the past.

While we expect that reasonable alternatives to LIBOR will be implemented prior to the June 30, 2023 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.

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Customers include global, national and regional quick service and fast casual restaurants as well as small, independently operated restaurants, multinational, broadline foodservice distributors, regional foodservice distributors, and major food retailers.

Some of these customers independently represent a meaningful portion of our sales.

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.

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The foodservice distributors also sell products that compete with our products, and we sometimes need to reduce prices or provide rebates 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 our business.

Our largest customer, McDonald’s Corporation, accounted for approximately 11% of our consolidated net sales in fiscal 2021 and 10% of our consolidated net sales in both fiscal 2020 and 2019.

Our largest customer, McDonald’s Corporation, accounted for approximately 10% of our consolidated net sales during fiscal 2022.

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, such as the impacts of the COVID-19 pandemic and possible future pandemics or other contagious outbreaks.

Specifically, some customers, including McDonald’s Corporation, have exited from Russia.

Deterioration in the financial condition of significant customers could materially and adversely affect 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 2021, 2020, and 2019, export sales from the United States accounted for approximately 13%, 16% and 16%, respectively, of our total net sales.

Circumstances beyond our control, such as a labor dispute at a port or workforce disruption due to the COVID-19 pandemic or future pandemics or other contagious outbreaks, 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.

To serve our customers globally, we rely in part on our international joint ventures, but also on exports from the U.S.

During fiscal 2022, 2021, and 2020, export sales from the U.S.

accounted for approximately 12%, 13% and 16%, respectively, of our total net sales.

Circumstances beyond our control, such as a labor dispute at a port, or workforce disruption, including those due to the COVID-19 pandemic or future pandemics or other contagious outbreaks, could prevent us from exporting our products in sufficient quantities to meet customer opportunities.

During the latter half of fiscal 2022, limited shipping container availability along the U.S.

West Coast and disruptions to ocean freight networks across the Pacific Ocean resulted in lower export volumes in our Global segment.

We have access to production outside of the U.S.

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 existing customers’ needs and new customer opportunities, which could adversely affect our business, financial condition, and results of operations.

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Although we take steps to qualify and audit third parties with whom we do business, we cannot guarantee that all third parties will perform dependably or at all.

It is possible that events beyond our control, such as operational failures, labor issues, cybersecurity events, pandemics or other health issues, such as COVID-19, or other issues could impact our unaffiliated third parties.

It is possible that events beyond our control, such as operational failures, labor issues, cybersecurity events, global geopolitical conflict, such as the war in Ukraine, pandemics or other health issues, such as COVID-19, or other issues could impact our third parties.

If our third parties fail to deliver on their commitments, introduce unplanned risk to our operations (e.g., through cyber activity), or are unable to fulfill their obligations, we could experience manufacturing challenges, shipment delays, increased costs, or lost revenue, which could also impact our relationships with customers and our brand image.

In addition to our own manufacturing facilities, we source a portion of our products under co-packing agreements.

In addition to our own production facilities, we source a portion of our products under co-packing agreements.

The success of our business depends, in part, on maintaining a strong sourcing and manufacturing platform.

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Our inability to enter into satisfactory co-packing agreements could limit our ability to implement our business plan or meet customer demand.

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.

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.

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our research and development efforts;

environmental impact, including use of agricultural materials, packaging, energy use, and waste management;

our environmental impact, including use of agricultural materials, packaging, energy use, and waste management;

our failure to comply with local laws and regulations;

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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.

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 loss of the services of these persons could deplete our institutional knowledge and could have a material adverse effect on our business, financial condition, and results of operations.

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, attracting new high-quality employees, and developing adequate training and succession plans for leadership positions, our business could be materially and adversely affected.

If we are unable to complete potential acquisitions that strategically fit our business objectives, integrate acquired businesses, or execute on large capital projects, our business, financial condition, and results of operations could be materially and adversely affected.

From time to time, we evaluate acquisition candidates that may strategically fit our business objectives.

If we are unable to execute on large capital projects, complete potential acquisitions that strategically fit our business objectives, or integrate acquired businesses, our business, financial condition, and results of operations could be materially and adversely affected.

Demand for frozen potato products is growing, and we believe that this demand will continue to grow over the long-term.

To support our customers’ growth, we believe we must invest in our production capabilities either through capital expansion or acquisitions.

In 2021, we announced capital investments in a new french fry processing line in American Falls, Idaho and a new french fry processing facility in China.

If we are unable to complete these or other large capital projects, or encounter unexpected delays, higher costs or other challenges, including those related to supply chain disruptions and availability of necessary labor, materials, and equipment, our business, financial condition, and results of operations could be materially and adversely affected.

In addition, 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.

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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 or facilities, our business, financial condition, and results of operations could be materially and adversely affected.

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.

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.

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.

In addition, we and our respective partners may be liable for certain obligations or liabilities of the joint ventures.

As a result, we may be subject to additional obligations or liabilities over which we may not have complete control.

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.

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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, which period ends on November 9, 2021.

Technology Risks

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We also depend upon our information technology infrastructure for digital marketing activities and for electronic communications among our locations, personnel, customers, third-party manufacturers and suppliers.

The importance of such networks and systems has increased due to many of our employees working remotely as a result of the COVID-19 pandemic, which in turn has heightened our vulnerability to cyberattacks or other disruptions.

Despite careful security and controls design, implementation and updating, independent third-party verification and regular training of employees on information security and data protection, our information technology systems, some of which are dependent on services provided by third parties, may be vulnerable to, among other things, 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, ransomware and malware, hackers, employee error or malfeasance, and other causes.

While we have experienced threats to our data and systems, to date, we are not aware that we have experienced a material breach.

However, over time, and particularly recently, the sophistication of these threats continues to increase.

Sophisticated cybersecurity threats pose a potential risk to the security and viability of our information technology systems, as well as the confidentiality, integrity, and availability of the data stored on those systems, including cloud-based platforms.

In addition, new technology that could result in greater operational efficiency may further expose our computer systems to the risk of cyber-attacks.

The importance of such networks and systems has increased due to our adoption of flexible work-from-home policies for functional support areas, which in turn has heightened our vulnerability to cyberattacks or other disruptions.

Despite careful security and controls design, implementation and updating, independent third-party verification and annual training of employees on information security and data protection, our information technology systems, some of which are dependent on services provided by third parties, may be vulnerable to, among other things, 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, ransomware and malware, hackers, employee error or malfeasance, and other causes.

While we have experienced threats to our data and systems, to date, we are not aware that we have experienced a material breach to our systems.

However, third parties, including our partners and vendors, could also be a source of security risk to us, or cause disruptions to our normal operations, in the event of a breach of their own products, components, networks, security systems, and infrastructure.

For example, in December 2021, our third-party service provider for our workforce management software, the Ultimate Kronos Group (“ Kronos ”), experienced a ransomware attack that resulted in Kronos temporarily decommissioning the functionality of certain of its cloud software, requiring us to find and implement other procedures to continue our payroll processes, which was time consuming and burdensome but did not have a material adverse impact on our business.

In addition, over time, and particularly recently, as evidenced by the attack on Kronos, the sophistication of the cyber threats continues to increase.

Sophisticated cybersecurity threats, including potential cyberattacks from Russia targeted against the U.S., pose a potential risk to the security and viability of our information technology systems, as well as the confidentiality, integrity, and availability of the data stored on those systems, including cloud-based platforms.

In addition, new technology that could result in greater operational efficiency may further expose our computer systems to the risk of cyberattacks.

If we do not allocate and effectively manage the resources necessary to build and sustain the proper technology infrastructure and associated automated and manual control processes, we could be subject to billing and collection errors, business disruptions, or damage resulting from security breaches.

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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.

Problems with the transition, design, or implementation of our new enterprise resource planning system could interfere with our business and operations and adversely affect our financial condition.

We are in the process of implementing a new ERP system to replace our existing operating and financial systems.

Problems with the transition, design, or implementation of our new ERP system could interfere with our business and operations and adversely affect our financial condition.

We are in the process of building a new ERP system to replace our existing operating and financial systems.

The ERP system is designed to accurately maintain our financial records, enhance operational functionality, and provide timely information to our management team related to the operation of the business.

The ERP system implementation process has required, and will continue to require, the investment of significant personnel and financial resources.

While we have completed the first phase of our new ERP system implementation, we paused subsequent phases due to the uncertainty caused by COVID-19.

We are preparing to resume the next phase of the ERP implementation in fiscal 2022.

We have experienced, and may continue to experience, difficulties as we transition to new upgraded systems and processes.

Due to the uncertainty caused by COVID-19, we paused ERP work in fiscal 2021, after completing the first phase of implementation.

We recently resumed designing the next phase of our ERP implementation and are in the build stage.

We have experienced, and may continue to experience, difficulties as we transition to new upgraded systems and business processes.

These difficulties have and may include loss of data;

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Industry Risks

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, Russia, 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 noted above.

Unfavorable crop conditions in any one region could lead to significant demand on the other regions for production, which occurred in connection with the drought in Europe during fiscal 2019.

Our inability to mitigate any such conditions by leveraging our production capabilities in other regions could negatively impact our ability to meet existing customers’ needs and new customer opportunities and could decrease our profitability.

Our business is affected by potato crop performance.

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Environmental and climate conditions, such as soil quality, moisture, and temperature, affect the yield and 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, Russia, and the United Kingdom, where we believe the optimal potato growing conditions exist.

However, severe weather conditions, including protracted periods of extreme heat or cold, 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 that resulted in poor crop and significantly limited supply.

As a result, we source potatoes from specific regions of the U.S.

and specific countries abroad, including Argentina, 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, including protracted periods of extreme heat or cold, during the planting and growing season in these regions can significantly affect potato crop performance, such as the extreme heat in the Pacific Northwest in the summer of 2021 and the drought in Europe during fiscal 2019, both of which resulted in poor crop and significantly limited supply.

Further, because of the poor quality of the crop in the Pacific Northwest that was harvested in fall 2021, we encountered lower raw potato utilization rates in our production facilities during the second half of fiscal 2022, which increased our production costs.

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 existing customers’ needs and new customer opportunities, and our competitiveness and profitability could decrease.

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 existing customers’ needs and new customer opportunities, or we may experience manufacturing inefficiencies and higher costs, 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.

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 U.S., 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.

Unfavorable crop conditions in any one region could lead to significant demand on the other regions for production, which occurred in connection with the drought in Europe during fiscal 2019.

The sophistication and buying power of some of our customers could have a negative impact on profits.

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A strong competitive response from one or more of our competitors to our marketplace efforts could result in us reducing pricing, increasing spend on promotional activity, or losing market share.

For example, private label pricing has become more competitive recently as European competitors have increased their presence in the United States, as they leverage their excess production capacity due to decreased demand following government-imposed COVID-related social restrictions.

Competitive pressures may restrict our ability to increase prices, including in response to commodity and other input cost increases or additional improvements in product quality.

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As additional industry capacity comes online, or market demand otherwise decreases, including as a result of the COVID-19 pandemic or future pandemics or other contagious outbreaks, we may face competitive pressures that would restrict our ability to increase or maintain prices, or we may lose market share.

For example, during fiscal 2021, we faced increased pricing pressure for private label products due to excess production capacity in Europe that resulted from decreased demand following government-imposed COVID-related social restrictions.

Our profits would decrease as a result of a reduction in prices or sales volume.

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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.

For example, as consumers continue to 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.

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If consumers prefer private label products, which are typically sold at lower prices, then we could lose market share or sales volumes or shift our product mix to lower margin offerings.

During an economic downturn, factors such as increased unemployment, decreases in disposable income and declines in consumer confidence could cause a decrease in demand for our overall product offerings, particularly higher priced products, which could materially and adversely affect our business, financial condition, and results of operations.

During an economic downturn, factors such as increased unemployment, decreases in disposable income, inflation, and declines in consumer confidence could cause a decrease in demand for our overall product offerings, particularly higher priced products, which could materially and adversely affect our business, financial condition, and results of operations.

Distributors, restaurants and retailers may also become more conservative in response to these conditions and seek to reduce their inventories.

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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 regulation of food products, both within the U.S.

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 compound.

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In addition, the EFSA has 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.

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.

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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.

There is growing concern that carbon dioxide and other greenhouse gases in the atmosphere may have an adverse impact on global temperatures, weather patterns, and 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.

Adverse weather conditions and natural disasters can reduce crop size and crop quality, which in turn could reduce our supplies of raw potatoes, lower recoveries of usable raw potatoes, increase the prices of our raw potatoes, increase our cost of transporting and storing raw potatoes, or disrupt our production schedules or efficiencies.

Natural disasters and extreme weather conditions may disrupt the productivity of our facilities or the operation of our supply chain.

In addition, water is an important part of potato processing.

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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 be subject to curtailment or reduced access to resources or experience significant increases in our costs of operation and delivery.

In particular, increasing regulation of utility providers, fuel emissions, or fuel suppliers could substantially increase the distribution and supply chain costs of our products.

Also, consumers and customers may place an increased priority on purchasing products that are sustainably grown and made, requiring us to incur increased costs for additional transparency, due diligence, and reporting.

Further, any failure to achieve our goals with respect to reducing our impact on the environment or perception of a failure to act responsibly with respect to the environment or to effectively respond to regulatory requirements concerning climate change can lead to adverse publicity, which could damage our reputation.

As a result, climate change could negatively affect our business and operations.

See also “Industry Risks – Our business is affected by potato crop performance,” in this Item 1A.

Risk Factors above.

Our intellectual property rights are valuable, and any inability to protect them could reduce the value of our products and brands.

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Any of these occurrences may harm our business and financial results.

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, intellectual property, 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.

General Risks

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.

For example, during fiscal 2019, we identified a material weakness in internal control related to information technology general controls and as a result, concluded that our internal control over financial reporting was not effective as of May 26, 2019.

Although we implemented remedial measures and concluded the material weakness had been remediated as of May 31, 2020, there is no assurance these remedial measures will continue to be effective or that we may not later identify other material weaknesses in internal controls.

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.

UNRESOLVED STAFF COMMENTS

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors