LBY Libbey Inc

Item 1A. Risk Factors

The following factors are the most significant factors that can impact year-to-year comparisons and may affect the future performance of our businesses. New risks may emerge, and management cannot predict those risks or estimate the extent to which they may affect our financial performance.

Financial Risks

Our ability to obtain adequate financing or raise capital in the future may be limited.

Our ABL Facility matures on December 7, 2022 (or January 9, 2021, if our Senior Secured Term Loan B is not refinanced by that date) and our Senior Secured Term Loan B matures on April 9, 2021. If we cannot refinance the foregoing indebtedness upon their respective maturities or, more generally, obtain funding when needed, in each case on acceptable terms, we may be unable to continue to fund our capital requirements, which may have an adverse effect on our business, financial condition and results of operations. 

Our level of debt may limit our operating and financial flexibility.

As of December 31, 2019, we had $393.2 million aggregate principal amount of debt outstanding. Although our ABL Facility credit agreement and Term Loan B Senior Secured Credit Agreement generally do not contain financial covenants, the credit agreements contain other covenants that limit our operational and financial flexibility, such as by:

These covenants may limit our ability to engage in activities that may be in our long-term best interests.

In addition, our levels of indebtedness could:

If cash generated from operations is insufficient to satisfy our liquidity requirements, if we cannot service our debt, or if we fail to meet our covenants, we could have substantial liquidity problems. In those circumstances, we might be unable to make share repurchases and we might be forced to sell assets, delay planned investments, obtain additional equity capital or restructure our debt. Depending on the circumstances at the time, we may not be able to accomplish any of these actions on favorable terms or at all.

In addition, our failure to comply with the covenants contained in our loan agreements could result in an event of default that, if not cured or waived, could result in the acceleration of all of our indebtedness.

Downgrades of our credit ratings could adversely impact us.

Our credit ratings are important to our cost of capital. The major debt rating agencies routinely evaluate our debt based on a number of factors, including our financial strength and business risk as well as transparency with rating agencies and timeliness of financial reporting. In November 2019, Standard & Poor’s downgraded our corporate credit rating from B to B- and lowered the issue-level rating on our Term Loan B from B to B-, with a revised recovery rating from 2 to 3, in each case with a stable outlook. In addition, Moody’s Investor Service lowered our corporate family rating and Term Loan B from B2 to B3, with a stable outlook. These and potential further downgrades to our debt ratings could result in increased interest and other expenses on future borrowings and limit our ability to refinance our existing debt on acceptable terms or at all. Downgrades in our debt rating could also restrict our access to capital markets.

Our variable rate indebtedness subjects us to interest rate risk that could cause our debt service obligations to increase significantly.

Borrowings under our Senior Secured Term Loan B are at variable rates of interest and expose us to interest rate risk. Although we have entered into forward interest-rate swaps to fix the interest rate on a portion of our Senior Secured Term Loan B, if interest rates were to increase, our debt service obligations on the variable rate indebtedness would increase even if the amount borrowed were to remain the same. As a result, our net income and cash flows would decrease.

Our business requires significant capital investment and maintenance expenditures that we may be unable to fulfill.

Our operations are capital intensive, requiring us to maintain a large fixed cost base. Our total cash paid for capital expenditures were $31.2 million and $45.1 million for the years ended December 31, 2019 and 2018, respectively.

Our business may not generate sufficient operating cash flow and external financing sources may not be available in an amount sufficient to enable us to make anticipated capital expenditures.

If we are unable to control or pass on to our customers increases in key input costs, including the cost of raw materials, sourced products, utilities, packaging and freight, the profitability of our business may be materially and adversely affected.

Sand, soda ash, lime and corrugated packaging materials are the principal materials we use to make our products. We also rely heavily on natural gas, electricity, water and other utilities. In addition, we obtain glass tableware, ceramic dinnerware and metal flatware from third parties. Increases in the costs of these commodities or products may result from inflationary pressures as well as temporary shortages due to disruptions in supply caused by weather, transportation, production delays or other factors. If we experience shortages in commodities or sourced products, we may be forced to procure them from alternative suppliers, and we may not be able to do so on terms as favorable as our current terms or at all.

In addition, the cost of U.S. dollar-denominated purchases (including for raw materials) for our operations in the euro zone, Mexico and China may increase due to appreciation of the U.S. dollar against the euro, the Mexican peso or the Chinese renminbi, respectively.

If we are unsuccessful in managing our costs or in passing cost increases through to our customers through increased prices, our financial condition and results of operations may be materially and adversely affected.

The profitability of our business may be materially and adversely impacted if we are unable to fully absorb the high levels of fixed costs associated with our business.

The high levels of fixed costs of operating glass production plants encourage high levels of output, even during periods of reduced demand, which can lead to excess inventory levels and exacerbate the pressure on profit margins. In addition, significant portions of our selling, general and administrative expenses are fixed costs that neither increase nor decrease proportionately with sales. Our profitability is dependent, in part, on our ability to spread fixed costs over an increasing number of products sold and shipped, and if we reduce our rate of production our costs per unit increase, negatively impacting our gross margins. Decreased demand or the need to reduce inventories can lead to capacity adjustments that reduce our ability to absorb fixed costs and, as a result, may materially impact our profitability.

Fluctuation of the currencies in which we conduct operations could adversely affect our financial condition, results of operations and cash flows.

Our reporting currency is the U.S. dollar. A significant portion of our net sales, costs, assets and liabilities are denominated in currencies other than the U.S. dollar, primarily the euro, the Mexican peso, the Chinese renminbi and the Canadian dollar. In our Consolidated Financial Statements, we translate local currency financial results into U.S. dollars based on the exchange rates prevailing during the reporting period. During times of a strengthening U.S. dollar, the reported revenues and earnings of our international operations will be reduced because the local currencies will translate into fewer U.S. dollars. This could have a material adverse effect on our financial condition, results of operations and cash flow.

In addition, changes in the value, relative to the U.S. dollar, of the various currencies in which we conduct operations, including the euro, the Mexican peso and the Chinese renminbi, may result in significant changes in the indebtedness of our non-U.S. subsidiaries.

If we have an asset impairment in a business segment, our net earnings and net worth could be materially and adversely affected by a write-down of goodwill, intangible assets, fixed assets or right-of-use assets.

We have recorded a significant amount of goodwill, which represents the excess of cost over the fair value of the net assets of the business acquired; other identifiable intangible assets, including trademarks and trade names; and fixed assets and right-of-use assets. Impairment of goodwill, identifiable intangible assets, fixed assets or right-of-use assets may result from, among other things, deterioration in our performance, adverse market conditions, adverse changes in applicable laws or regulations, including changes that restrict the activities of or affect the products sold by our business, and a variety of other factors. Under U.S. GAAP, we are required to charge the amount of any impairment immediately to operating income.

We conduct an impairment analysis at least annually related to goodwill and other indefinite lived intangible assets. This analysis requires management to make significant judgments and estimates, primarily regarding expected financial performance, expected growth rates, and discount rates, identifying similar companies with comparable business factors and assessing comparable multiples. We determine expected financial performance and growth rates based on internally developed forecasts considering our future financial plans. We estimate the discount rate used based on an analysis of comparable company weighted average costs of capital that consider market assumptions obtained from independent sources. We identify similar companies with comparable business factors such as size, growth, profitability, risk and return on investment. We identify comparable multiples that we feel are most relevant to Libbey. The estimates that management uses in this analysis could be materially impacted by factors such as specific industry conditions, changes in cash flow from operations and changes in growth trends. In addition, the assumptions management uses are management’s best estimates based on projected results and market conditions as of the date of testing. Significant changes in these key assumptions could result in indicators of impairment when completing the annual impairment analysis. We assess our fixed assets for possible impairment whenever events or changes in circumstances indicate that the carrying value of these assets may not be recoverable. We remain subject to future financial statement risk in the event that goodwill, other identifiable intangible assets, fixed assets or right-of-use assets become impaired. For further discussion of key assumptions in our critical accounting estimates, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Estimates.”

In the second quarter of 2019, we recorded a $46.0 million non-cash goodwill impairment charge in the Mexico reporting unit of our Latin America reporting segment. Also during the second quarter of 2019, we recorded a non-cash impairment charge of $0.9 million related to Libbey Holland’s indefinite life intangible asset (Royal Leerdam^® trade name) in our EMEA reporting segment. For further information regarding these goodwill and indefinite life intangible asset impairments see note 4, Purchased Intangible Assets and Goodwill, to our Consolidated Financial Statements.

In the fourth quarter of 2019, we recorded a non-cash impairment charge of $18.3 million within the Holland asset group (within our EMEA reporting segment) resulting in a write down of the value of the property, plant and equipment and operating lease right-of-use assets. For further information regarding these long-lived asset impairments see note 5, Property, Plant and Equipment, and note 15, Leases, to our Consolidated Financial Statements.

The results of our October 1, 2019 annual impairment test indicated the estimated fair value of our reporting unit (within the U.S. & Canada reporting segment) that has goodwill exceeded the carrying value by approximately 50 percent. As of December 31, 2019, we had goodwill and other identifiable intangible assets of $50.3 million, net fixed assets of $233.9 million and right-of-use assets of $54.7 million. There can be no assurance that we will not record further impairment charges that may adversely impact our net earnings and net worth.

Uncertainty relating to the LIBOR calculation process and potential phasing out of LIBOR after 2021 may adversely affect the market value of our current or future debt obligations, including under our ABL Facility credit agreement and our Term Loan B Senior Secured Credit Agreement and our interest rate swaps.

We have a substantial amount of variable-rate debt and interest rate swaps indexed to LIBOR, and we may be adversely affected upon the transition away from LIBOR after 2021. On July 27, 2017, the U.K. Financial Conduct Authority announced that it intends to stop persuading or compelling banks to submit LIBOR rates after 2021. As a result, LIBOR may be discontinued by 2021. As a response to the phase out of LIBOR, the Federal Reserve Board and the Federal Reserve Bank of New York organized the Alternative Reference Rates Committee (“ARRC”), which identified the Secured Overnight Financing Rate (“SOFR”) as its preferred alternative to U.S. dollar-LIBOR in derivatives and other financial contracts. We are not able to predict when LIBOR will cease to be available or when there will be sufficient liquidity in the SOFR markets. At this time, it is impossible to predict whether the SOFR or another reference rate will become an accepted alternative to LIBOR, or the effect that any such changes, phase out, alternative reference rates or other reforms, if they occur, would have on the amount of interest paid on, or the market value of, our current or future debt obligations, including our ABL Facility credit agreement and our Term Loan B Senior Secured Credit Agreement and our interest rate swaps. Uncertainty as to the nature of such potential changes, phase out, alternative reference rates or other reforms may materially adversely affect the trading market for LIBOR-based securities, including our Term Loan B Senior Secured Credit Agreement. Reform of, or the replacement or phasing out of, LIBOR and proposed regulation of LIBOR and other “benchmarks” may materially adversely affect the market value of, the applicable interest rate on and the amount of interest paid on our current or future debt obligations, including our ABL Facility credit agreement and our Term Loan B Senior Secured Credit Agreement and our interest rate swaps.  

We face inventory risk.

We identify slow-moving and obsolete inventories and estimate appropriate loss provisions accordingly. No assurance can be given that we will not incur additional inventory charges. Such charges could materially adversely affect our financial condition and operating results.

The changes in the fair value of derivatives used as hedges would be reflected in our earnings if we have not elected hedge accounting, if our hedges do not qualify as highly effective or if we do not believe that forecasted transactions would occur.

We have derivative financial instruments to hedge our interest rate risk. In addition, in order to mitigate the variation in our operating results due to commodity price fluctuations, we have derivative financial instruments that hedge certain commodity price risks associated with forecasted future natural gas requirements. We may have derivative financial instruments that hedge foreign exchange rate risks associated with transactions denominated in some currencies other than the U.S. dollar. The results of our hedging practices could be positive, neutral or negative in any period, depending on price changes of the hedged exposures. We account for derivatives in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 815, “Derivatives and Hedging.” These derivatives qualify for hedge accounting if the hedges are highly effective and we have designated and documented contemporaneously the hedging relationships involving these derivative instruments. While we intend to continue to meet the conditions for hedge accounting, if our hedges do not qualify as highly effective or if we do not believe that forecasted transactions would occur, the changes in the fair value of the derivatives used as hedges would be reflected in our results of operations and could significantly impact our earnings.

If counterparties to our hedge and interest rate swap agreements fail to perform, the applicable agreements would not protect us from fluctuations in pricing of the applicable commodity or interest rates, as the case may be.

If the counterparties to our derivative financial instruments that hedge commodity price risks or interest rates were to fail to perform, we would no longer be protected from fluctuations in the pricing of the applicable commodities or in interest rates, and the impact of these fluctuations would impact our results of operations and financial condition.

Charges related to our employee pension and post-retirement welfare plans may adversely affect our results of operations and financial condition.

As part of our pension expense, we periodically incur pension settlement charges. We may incur further expenses related to our employee pension and post-retirement welfare plans that could have a material adverse effect on our results of operations and financial condition.

If our investments in e-commerce, new technology and other capital expenditures do not yield expected returns, our results of operations could be adversely affected.

We continue to invest in our glass tableware production equipment and make other capital expenditures to further improve our production efficiency, reduce our cost profile and expand and enhance our e-commerce capabilities. To the extent that these investments do not generate targeted levels of returns in terms of profitability, efficiency or improved cost profile, our financial condition and results of operations could be adversely affected.

Governmental conversion controls over the foreign currencies in which we operate could affect our ability to convert the earnings of our foreign subsidiaries into U.S. dollars.

While the Mexican government does not currently restrict, and for many years has not restricted, the right or ability of Mexican or foreign persons or entities to convert pesos into U.S. dollars or to transfer other currencies out of Mexico, in the future the Mexican government could institute restrictive exchange rate policies or governmental controls over the convertibility of pesos into U.S. dollars or other currencies. Restrictive exchange rate or conversion policies could limit our ability to transfer or convert the peso earnings of our Mexican subsidiary into other currencies, upon which we rely in part to satisfy our debt obligations through intercompany loans.

In addition, the government of China imposes controls on the convertibility of renminbi into foreign currencies and, in certain cases, the remittance of currency out of China. Shortages in the availability of foreign currency may restrict the ability of Libbey China to remit sufficient foreign currency to make payments to us. Under existing Chinese foreign exchange regulations, payments of current account items, including profit distributions, interest payments and expenditures from trade-related transactions, can be made in foreign currencies without prior approval from the Chinese State Administration of Foreign Exchange by complying with certain procedural requirements. However, approval from appropriate government authorities is required where renminbi are to be converted into foreign currencies and remitted out of China to pay capital expenses such as the repayment of bank loans denominated in foreign currencies. In the future, the Chinese government could institute restrictive exchange rate policies for current account transactions. These policies may limit our ability to remit proceeds received in connection with any strategic transactions we may undertake in connection with our review of strategic alternatives involving our China business and could adversely affect our results of operations and financial condition.

Our ability to recognize the benefit of deferred tax assets is dependent upon future taxable income and the timing of temporary difference reversals.

Assessing the recoverability of deferred tax assets requires management to make significant estimates related to expectations of future taxable income and the timing of reversals of temporary differences. To the extent that these factors differ significantly from estimates, our ability to realize the deferred tax assets could be impacted.

We may incur additional tax expense as a result of changes to tax laws, regulations and evolving interpretations thereof.

We are subject to the tax laws, regulations, and legal decisions in various tax jurisdictions. Our worldwide tax provision is based in part on many material judgments and interpretations of these bodies of law. Tax authorities in the various jurisdictions may not agree with our judgments and interpretations and may assess additional tax which could result in material changes to our tax liabilities and/or significant legal and consulting fees in defense thereof. Additionally, tax laws, regulations and legal precedents may change over time resulting in material changes to our tax provisions and deferred tax positions. Changes to tax laws, regulations, and legal precedents could contain statutory changes or interpretations that are inconsistent with the Company’s application of the law in the absence of such changes and could result in material adjustments to tax liabilities.

Risks associated with market conditions

Slowdowns or changes in trends in the retail, travel, restaurant, bar and entertainment industries, and in the retail and foodservice channels of distribution generally, may negatively impact demand for our products.

Our business is dependent on business and personal discretionary spending in the retail, travel, restaurant and bar or entertainment industries. Business and personal discretionary spending may decline during general economic downturns or during periods of uncertainty about economic conditions. In addition, austerity and other regulatory measures adopted by some governments may cause consumers in some markets that we serve to reduce or postpone spending. Consumers also may reduce or postpone spending in response to tighter credit, negative financial news, higher fuel and energy costs, higher taxes and healthcare costs and/or declines in income or asset values. Additionally, expenditures in the travel, restaurant and bar or entertainment industries may decline after incidents of terrorism, during periods of geopolitical conflict in which travelers become concerned about safety issues, during periods of severe weather or during periods when travel or entertainment might involve health-related risks such as severe outbreaks, epidemics or pandemics of contagious disease.

Changes in trends, including those impacting the restaurant and bar industry, also may negatively impact demand for our products. For example, shifts from dining at full-service restaurants to dining at quick-serve restaurants and grocerants (combined grocery stores and restaurants), or from dining at chain restaurants to dining at locally-owned restaurants, as well as a trend toward home delivery of meals and meal kits, may result in reduced demand for our products in the foodservice channel of distribution.

Additionally, changes in the buying preferences of consumers and customers may adversely impact the demand for and profitability of our products. For example, consumer buying preferences continue to shift from buying at brick-and-mortar stores to buying online. Similarly, in the foodservice channel of distribution, end users of our products such as bars and restaurants increasingly are demonstrating a preference to bypass traditional foodservice distributors in favor of buying online, particularly as they seek to replenish products originally purchased through traditional foodservice distributors. We launched our e-commerce capability in mid-2017 in response to the shifting buying preferences of consumers in the retail channel of distribution, and we initiated our e-commerce capability to the foodservice channel of distribution in late 2019. However, these changes in buying preferences may outpace our still-developing e-commerce capability. In addition, if and to the extent that our brick-and-mortar retail customers and traditional foodservice distribution partners perceive our e-commerce capabilities as a threat rather than as an opportunity to expand their own businesses, demand for our products from brick-and-mortar retail customers and traditional foodservice distribution parties may be adversely affected.

An inability to meet the demand for new products may adversely impact our ability to compete effectively and to grow our business.

Our strategy depends in part on the timing and market acceptance of new product offerings and our ability to continually renew our pipeline of new products and bring those products to market. This ability may be adversely affected by difficulties or delays in product development, such as the inability to identify viable new products, obtain adequate intellectual property protection, or gain market acceptance of new products, as well as by difficulties or longer-than-expected lead times in sourcing products. There are no guarantees that new products will prove to be commercially successful or profitable.

An inability to develop new or expand existing customer relationships may adversely impact our ability to grow our business.

Our ability to grow our business depends in part on our ability to develop new customer relationships and to expand relationships with existing customers. In the foodservice channel of distribution, our ability to develop new customer relationships and expand relationships with existing customers may be adversely impacted by the increasing trend toward consolidation among foodservice distributors. Failure to develop and expand such relationships could have a material adverse effect on our business, results of operations and financial condition.

Changing industry and market conditions may dictate strategic decisions to restructure some business units and discontinue others. These decisions may require us to record material restructuring charges.

On February 18, 2019, the Board of Directors of Libbey approved a plan to pursue strategic alternatives with respect to our business in the People’s Republic of China (PRC), including the sale or closure of our manufacturing and distribution facility located in Langfang, PRC. Due to the continued level of uncertainty surrounding the ultimate course of action, we are unable at this time to estimate an amount or range of amounts of any charges that we may incur in connection with the planned strategic review.

In the past, we have recorded other restructuring charges related to involuntary employee terminations, various facility abandonments, and various other restructuring activities. We continually evaluate ways to reduce our operating expenses through new restructuring opportunities, including more effective utilization of our assets, workforce, and operating facilities. In addition, changing industry and market conditions may dictate strategic decisions to restructure some business units and discontinue others. As a result, there is a risk, which is increased during economic downturns and with expanded global operations, that we may incur material restructuring charges in the future.

We face intense competition and competitive pressures that could adversely affect demand for our products and our results of operations and financial condition.

Our business is highly competitive, with the principal competitive factors being customer service, price, product quality, new product development, brand name, delivery time and breadth of product offerings. Advantages or disadvantages in any of these competitive factors may be sufficient to cause the customer to consider changing providers of the kinds of products that we sell.

Competitors include other glass tableware manufacturers, including large multinational companies such as Arc International (a French company), Paşabahçe (a unit of Şişecam Holdings, a Turkish company), Anchor Hocking (a U.S. company), AnHui DeLi Glassware Co., Ltd. (a Chinese company), Vicrila Industrias del Vidrio S.L.U. - VICRILA (a Spanish company), and various other manufacturers in Europe, Asia Pacific and the Americas; a variety of ceramic dinnerware and metalware manufacturers throughout the world, including Oneida Hospitality Group, Steelite and others; and a variety of sourcing or marketing companies. In addition, other products such as plastic and melamine compete with our glass tableware and ceramic dinnerware products.

Demand for our products may be adversely impacted by increased competitive pressures caused by the provision of subsidies by foreign countries to our competitors based in those countries; national and international boycotts and embargoes of other countries or U.S. imports and/or exports; the raising of tariff rates on, or increase of non-tariff trade barriers that apply to imports of our products to foreign countries; the lowering of tariff rates on imports into the U.S. of our foreign competitors’ products; and other changes to international agreements that improve access to the U.S. market for our competitors.

In addition, the cost-competitiveness of our products may be adversely affected by inflationary pressures that cause us to increase the prices of our products in order to maintain their profitability. In that connection, some of our competitors may have greater financial and capital resources than we do and continue to invest heavily to achieve increased production efficiencies. Competitors may have incorporated more advanced technology in their manufacturing processes, including more advanced automation techniques. Our labor and energy costs also may be higher than those of some foreign producers of glass tableware.

The cost-competitiveness of our products, as compared to foreign competition, also may be reduced as a result of major fluctuations in the value of the euro, the Mexican peso, the Chinese renminbi, which we refer to as the “RMB,” or the Canadian dollar relative to the U.S. dollar and other major currencies. For example, if the U.S. dollar appreciates against the euro, the Mexican peso or the Chinese renminbi, the purchasing power of those currencies effectively would be reduced compared to the U.S. dollar, making our U.S.-manufactured products more expensive in the euro zone, Mexico and China, respectively, compared to the products of local competitors, and making products manufactured by our foreign competitors in those locations more cost-competitive with our U.S.-manufactured products.

Our Mexican pension and U.S. and non-U.S. post-retirement welfare plans are unfunded; in the future, levels of funding of our U.S. pension plans could decline and our pension expense could materially increase.

We have not funded, and under Mexican law we are not obligated to fund, our Mexican pension plan. As of December 31, 2019, the unfunded amount of the projected benefit obligation for the Mexican pension plan was $41.3 million. In addition, although we have closed participation in our U.S. pension and post-retirement welfare plans, many of our employees participate in, and many of our former employees are entitled to benefits under, our U.S. and non-U.S. defined benefit pension plans and post-retirement welfare plans.

In connection with our employee pension and post-retirement welfare plans, we are exposed to market risks associated with changes in the various capital markets. Changes in long-term interest rates affect the discount rate that is used to measure our obligations and related expense. Our total pension and post-retirement welfare expense, including pension settlement charges, for all U.S. and non-U.S. plans was $6.4 million and $7.0 million for the fiscal years ended December 31, 2019 and 2018, respectively. We expect our total pension and post-retirement welfare expense for all U.S. and non-U.S. plans to be $9.4 million in 2020. Volatility in the capital markets affects the performance of our pension plan asset performance and related pension expense. For discussion regarding sensitivity to changes in key assumptions related to our pension and other post-retirement plans, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Estimates.”

Declines in interest rates or the market value of securities held by our U.S. pension plan, or certain other changes, could materially reduce the funded status of those plans and affect our pension expense and the level and timing of minimum required contributions to the plans under applicable law.

Natural gas and electricity, the principal fuels we use to manufacture our products, are subject to fluctuating prices that could adversely affect our results of operations and financial condition.

Natural gas and electricity are the primary sources of energy in most of our production processes. We do not have long-term contracts for natural gas. In addition, the price of electricity under long-term contracts for electricity may be variable. Accordingly, the cost of our natural gas and electricity is subject to market variables and fluctuating prices. Consequently, our operating results are strongly linked to the cost of natural gas and electricity. We utilize natural gas swap contracts with respect to our North American manufacturing facilities, and we aim to hedge 40 to 70 percent of our anticipated natural gas needs there. With respect to our international facilities, we utilize fixed-price contracts to fix a portion of our natural gas needs. In some countries in which we operate, including China, our ability to put in place fixed-priced contracts or natural gas swap contracts to fix the price of natural gas is limited. We spent $49.3 million and $53.5 million on natural gas and electricity for the years ended December 31, 2019 and 2018, respectively. We have no way of predicting to what extent natural gas or electricity prices will rise in the future. To the extent that we are not able to offset increases in natural gas or electricity prices, such as by passing along the cost to our customers, these increases could adversely impact our margins and operating performance.

The market price of our common stock is subject to volatility.

The market price of our common stock has historically been volatile and in the future could be subject to wide fluctuations in response to numerous factors, many of which are beyond our control. These factors include market conditions within the industries in which we operate, as well as general economic and market conditions, such as recessions; seasonality of our business operations; the general state of the securities markets and the market for stocks of companies in our industry; trading volumes; sales by holders of large amounts of our common stock; short selling; actual or anticipated variations in our operational results and cash flow; actual or anticipated variations in our earnings relative to our competition; changes in financial estimates by securities analysts; governmental legislation or regulation; downgrades in our credit ratings; our high level of indebtedness and availability of and cost of credit; and currency and exchange rate fluctuations. Volatility of our stock price may increase the risk that our stockholders will suffer a loss on their investment or be unable to sell or otherwise liquidate their holdings of our common stock.

Operational Risks

If we are unable to renegotiate collective bargaining agreements successfully when they expire, organized strikes or work stoppages by unionized employees may have an adverse effect on our operating performance.

We are party to collective bargaining agreements that cover most of our manufacturing employees. The agreement with our unionized employees in the Netherlands is scheduled to expire on June 30, 2020; the agreement with our unionized employees in Shreveport, Louisiana, is scheduled to expire on December 15, 2020; and the agreements with our unionized employees in Toledo, Ohio, are scheduled to expire on September 30, 2022. Under our collective bargaining agreements covering our unionized employees in Mexico, we negotiate wages annually and negotiate benefits every other year. In Portugal and China we have no written collective bargaining agreement with our unionized employees, but there are consultations with the unions on various matters, including annual negotiations regarding wages.

We may not be able to successfully negotiate new collective bargaining agreements without a labor disruption. If any of our unionized employees were to engage in a strike or work stoppage in connection with the negotiation of their existing collective bargaining agreements (as happened at our Toledo, Ohio manufacturing plant in 2016), or if we are unable in the future to negotiate acceptable agreements with our unionized employees in a timely manner, we could experience a significant disruption of operations. If we experience a work stoppage and we elect to engage replacement workers, we could experience increased costs. In addition, we could experience increased operating costs as a result of higher wages or benefits paid to union members upon the execution of new agreements with our labor unions. We also could experience operating inefficiencies as a result of preparations for disruptions in production, such as increasing production and inventories. Finally, companies upon which we are dependent for raw materials, transportation or other services could be affected by labor difficulties. These factors and any such disruptions or difficulties could have an adverse impact on our operating performance and financial condition.

In addition, we are dependent on the cooperation of our largely unionized workforce to implement and adopt our productivity initiatives that are critical to our ability to improve our production efficiency. The effect of strikes and other slowdowns may adversely affect the degree and speed with which we can adopt optimization objectives.

If we are unable to increase output or achieve operating efficiencies, the profitability of our business may be materially and adversely affected.

We may not be successful in increasing output at our manufacturing facilities or gaining operating efficiencies that may be necessary in order to ensure that our products and their prices remain competitive.

Unexpected equipment failures may lead to production curtailments or shutdowns.

Our manufacturing processes are dependent upon critical glass-producing equipment, such as furnaces, forming machines and lehrs. This equipment may incur downtime as a result of unanticipated failures, accidents, natural disasters or other force majeure events. We may in the future experience facility shutdowns or periods of reduced production as a result of such failures or events. Unexpected interruptions in our production capabilities would adversely affect our productivity and results of operations for the affected period. We also may face shutdowns if we are unable to obtain enough energy in the peak demand periods.

A loss of the services of key personnel could have a material adverse effect on our business.

Our continued success depends to a large degree upon our ability to attract and retain key management executives, as well as upon a number of members of technology, operations and sales and marketing staffs. The loss of some of our key executives or key members of our operating staff, or an inability to attract or retain other key individuals, could materially adversely affect us.

The design and implementation of our new enterprise resource planning system could face significant difficulties.

In 2018, we began the design and implementation of a new enterprise resource planning (ERP) system, requiring significant investment and human resources to deploy. It is possible that the system will be more expensive and take longer to fully implement than originally planned, including increased investment, higher fees and expenses of third parties, delayed implementation scheduling, and more on-going maintenance expense once implemented. If for any reason the implementation is not successful, we could be required to expense rather than capitalize related amounts. In addition, potential flaws in the implementation of the ERP system may pose risks to our ability to operate successfully and efficiently. These risks include, but are not limited to, inefficient use of employees, distractions to our core business, adverse customer reactions, loss of key information, delays in decision making, and unforeseen additional costs due to the inability to integrate vital information processes. 

We rely on increasingly complex information systems for management of our manufacturing, distribution, sales and other functions. If our information systems fail to perform these functions adequately, or if we experience an interruption in their operation, our business and results of operations could suffer.

All of our major operations, including manufacturing, distribution, sales and accounting, are dependent upon our complex information systems, including without limitation our enterprise resource planning (ERP) system. Our information systems are vulnerable to damage or interruption from:

In 2018 we began the phased implementation of a new ERP system. Any damage to, significant disruption in the operation of, or failure of our information systems, including our new ERP system, to perform as expected could disrupt our business; result in decreased sales, increased overhead costs, excess inventory and product shortages; and otherwise adversely affect our operations, financial performance and condition. We take significant steps to mitigate the potential impact of each of these risks, but there can be no assurance that these procedures will be completely successful.

In addition, although we take steps to secure our management information systems, including our computer systems, intranet and internet sites, email and other telecommunications and data networks, the security measures we have implemented may not be effective and our systems may be vulnerable to theft, loss, damage and interruption from a number of potential sources and events, including unauthorized access or security breaches and cyber attacks. Our reputation, brand, and financial condition could be adversely affected if, as a result of a significant cyber event or otherwise, our operations are disrupted or shutdown; our confidential, proprietary information is stolen or disclosed; data is manipulated or destroyed; we incur costs or are required to pay fines in connection with stolen customer, employee, or other confidential information; we must dedicate significant resources to system repairs or increase cyber security protection; or we otherwise incur significant litigation or other costs.

A severe outbreak, epidemic or pandemic of a contagious disease in a location where we have a facility, or from where we source raw materials or finished goods, could adversely impact our operations and financial condition.

Our facilities and our suppliers’ facilities may be impacted by the outbreak of certain public health issues, including epidemics, pandemics and other contagious diseases. If a severe outbreak were to occur where we or our suppliers have facilities, it could adversely impact our operations and financial condition. In December 2019 a novel strain of coronavirus surfaced in China. The extent to which the coronavirus will impact our results, particularly with respect to our manufacturing facility in China and exports of products that we source from China, will depend on future developments, which are highly uncertain and cannot be predicted.

Our exploration and pursuit of strategic alternatives for our business in China may not be successful.

In February 2019, we announced the pursuit of strategic alternatives for our business in China, including a potential sale or closure of our manufacturing and distribution facility in Langfang, China. There can be no assurance that the strategic exploration process will result in a transaction or other outcome. 

We may not be able to effectively integrate future businesses we acquire or joint ventures into which we enter.

Any future acquisitions that we might make or joint ventures into which we might enter are subject to various risks and uncertainties, including:

In addition, we cannot provide assurance that the integration and consolidation of newly acquired businesses or joint ventures will achieve any anticipated cost savings and operating synergies. The inability to integrate and consolidate operations and improve operating efficiencies at newly acquired businesses or joint ventures could have a material adverse effect on our business, financial condition and results of operations.

International risks

We are subject to risks associated with operating in foreign countries.

We operate manufacturing and other facilities throughout the world. As a result of our international operations, we are subject to risks associated with operating in foreign countries, including:

High levels of inflation in countries in which we operate or sell our products could adversely affect our operating results and cash flows.

Increases in inflation caused by or associated with currency devaluations or other economic conditions may result in reduced discretionary spending by consumers and therefore reduced demand for our products, as well as higher input costs for our businesses, as a result of which our results of operations and financial condition may be negatively impacted.

Legal and Regulatory Risks

Increasing legal and regulatory complexity will continue to affect our operations and results in potentially material ways.

Our legal and regulatory environment worldwide exposes us to complex compliance, litigation and similar risks that affect our operations and results in ways that potentially may be material. In many of our markets, including the U.S. and Europe, we are subject to increasing regulation, which has increased our cost of doing business. In developing markets, including in China, we face the risks associated with new and untested laws and judicial systems. Among the more important regulatory and litigation risks we face and must manage are the following:

We are subject to various environmental legal requirements and may be subject to new legal requirements in the future; these requirements could have a material adverse effect on our operations.

Our operations and properties, both in the U.S. and abroad, are subject to extensive laws, ordinances, regulations and other legal requirements relating to environmental protection, including legal requirements governing investigation and clean-up of contaminated properties as well as water discharges, air emissions, waste management and workplace health and safety. These legal requirements frequently change and vary among jurisdictions. For example, Chinese restrictions on air emissions have continued to evolve in the face of the extreme air pollution in China. Compliance with these requirements, or the failure to comply with these requirements, may have a material adverse effect on operations.

We have incurred, and expect to incur, costs to comply with environmental legal requirements, including requirements limiting greenhouse gas emissions, and these costs could increase in the future. Many environmental legal requirements provide for substantial fines, orders (including orders to cease operations) and criminal sanctions for violations. Also, certain environmental laws impose strict liability and, under certain circumstances, joint and several liability on current and prior owners and operators of these sites, as well as persons who sent waste to them, for costs to investigate and remediate contaminated sites. These legal requirements may apply to conditions at properties that we presently or formerly owned or operated, as well as at other properties for which we may be responsible, including those at which wastes attributable to us were disposed. A significant order or judgment against us, the loss of a significant permit or license or the imposition of a significant fine may have a material adverse effect on operations.

Our products and operations are subject to various health and safety requirements and may be subject to new health and safety requirements in the future; these requirements could have a material adverse effect on our operations.

Our products and operations are subject to certain legal requirements relating to health and safety, including occupational health and safety. These legal requirements frequently change and vary among jurisdictions. Compliance with these requirements, or the failure to comply with these requirements, may have a material adverse effect on our operations. If any of our products becomes subject to new regulations, or if any of our products becomes specifically regulated by additional governmental or other regulatory entities, the cost of compliance could be material. For example, the U.S. Consumer Product Safety Commission, or CPSC, regulates many consumer products, including glass tableware products that are externally decorated with certain ceramic enamels. New regulations or policies by the CPSC could require us to change our manufacturing processes, which could materially raise our manufacturing costs. In addition, such new regulations could reduce sales of our glass tableware products. Furthermore, a significant order or judgment against us by any governmental or regulatory entity relating to health or safety matters, or the imposition of a significant fine relating to such matters, may have a material adverse effect on our operations.

We are subject to complex corporate governance, public disclosure and accounting requirements to which most of our competitors are not subject.

We are subject to changing rules and regulations of federal and state government, as well as the stock exchange on which our common stock is listed. These entities, including the Public Company Accounting Oversight Board (“PCAOB”), the Securities and Exchange Commission (“SEC”) and the NYSE American exchange, have issued a significant number of new and increasingly complex requirements and regulations over the course of the last several years and continue to develop additional regulations and requirements in response to laws enacted by the U.S. Congress. For example, the Sarbanes-Oxley Act of 2002 and the rules and regulations subsequently implemented by the SEC and the PCAOB, imposed and may impose further compliance burdens and costs on us. Also, in July 2010, the Dodd-Frank Wall Street Reform and Protection Act (the “Dodd-Frank Act”) was signed into law. The Dodd-Frank Act includes significant corporate governance and executive compensation-related provisions that require the SEC to adopt additional rules and regulations in these areas. Our efforts to comply with new requirements of law and regulation are likely to result in an increase in expenses and a diversion of management’s time from other business activities. Also, those laws, rules and regulations may make it more difficult and expensive for us to attract and retain key employees and directors and to maintain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to maintain coverage.

Our competitors generally are not subject to these rules and regulations, because they do not have securities that are publicly traded on a U.S. securities exchange. As a result, our competitors generally are not subject to the risks identified above. In addition, the public disclosures that we are required to provide pursuant to these rules and regulations may furnish our competitors with greater competitive information regarding our operations and financial results than we are able to obtain regarding their operations and financial results, thereby placing us at a competitive disadvantage.

Estimates and assumptions that we make in accounting for our results from operations are dependent on future results, involve significant judgments, may be imprecise and may differ materially from actual results.

Several estimates and assumptions are made that affect the accounting for and recognition of assets, liabilities, revenues and expenses. These estimates and assumptions must be made due to certain information used in preparation of our financial statements which is dependent on future events, cannot be calculated with a high degree of precision from data available or is not capable of being readily calculated based on generally accepted methodologies. We believe that accounting for property, plant and equipment, operating lease right-of-use assets, goodwill, intangible assets, pension and other post-employment benefit plans, contingencies and litigation, and income taxes involves significant judgments and estimates used in the preparation of our Consolidated Financial Statements. Actual results for all estimates could differ materially from the estimates and assumptions that we use, which could have a material adverse effect on our financial condition and results of operations.

Our financial results and operations may be adversely affected by violations of anti-bribery laws.

The FCPA and similar anti-bribery laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business. Our policies mandate compliance with these anti-bribery laws. We operate in many parts of the world that have experienced governmental corruption to some degree and, in certain circumstances, strict compliance with anti-bribery laws may conflict with local customs and practices. We cannot assure you that our internal controls and procedures always will protect us from the reckless or criminal acts committed by our employees or agents. If we were found to be liable for FCPA violations (either due to our own acts or our inadvertence or due to the acts or inadvertence of others), we could be liable for criminal or civil penalties or other sanctions, which could have a material adverse effect on our business.

Our failure to protect our intellectual property or prevail in any intellectual property litigation could materially and adversely affect our competitive position, reduce net sales or otherwise harm our business.

Our success depends in part on our ability to protect our intellectual property rights. We rely on a combination of patent, trademark, copyright and trade secret laws, licenses, confidentiality and other agreements to protect our intellectual property rights. However, this protection may not be fully adequate. Our intellectual property rights may be challenged or invalidated, an infringement suit by us against a third party may not be successful and/or third parties could adopt trademarks similar to our own. In particular, third parties could design around or copy our proprietary furnace, manufacturing and mold technologies, which are important contributors to our competitive position in the glass tableware industry. We may be particularly susceptible to these challenges in countries where protection of intellectual property is not strong. In addition, we may be accused of infringing or violating the intellectual property rights of third parties. Any such claims, whether or not meritorious, could result in costly litigation and divert the efforts of our personnel. Our failure to protect our intellectual property or prevail in any intellectual property litigation could materially and adversely affect our competitive position, reduce net sales or otherwise harm our business.

Our financial results may be adversely impacted by product liability claims, recalls or other litigation that is determined adversely to us.

We are involved in various routine legal proceedings arising in the ordinary course of our business. We do not consider any pending legal proceeding as material. However, our financial results could be adversely affected by monetary judgments and the cost to defend legal proceedings in the future, including product liability claims related to the products we manufacture. Although we maintain product liability insurance coverage, potential product liability claims are subject to a self-insured retention or could be excluded under the terms of the policy.