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Item 1A. Risk Factors

2021-02-23 compared with 2020-02-24 · 369 added, 344 removed, 315 unchanged (69% of the section changed)

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Investing in our Common Stock involves a high degree of risk.

These risks include those described below and may include additional risks and uncertainties not presently known to us or that we currently deem immaterial.

You should carefully consider the following factors, as well as other information contained or incorporated by reference in this 10-K, before deciding to invest in shares of our Common Stock.

The trading price of our Common Stock could decline due to any of these risks, and you may lose all or part of your investment in our Common Stock.

Our business, financial condition, and results of operations could be materially adversely affected by any of these risks, and the trading price of our Common Stock could decline due to any of these risks, and you may lose all or part of your investment in our Common Stock.

Summary of Risk Factors

Our business is subject to a number of risks and uncertainties, including those risks discussed at-length below.

These risks include, among others, the following:

• Negative trends in overall business, financial market and economic conditions, and activity levels in our end markets may reduce demand for our products, which could have a material adverse effect on our business, financial condition, and results of operations.

• The outbreak of COVID-19 has had, and may continue to have, a negative impact on the global economy and on our business, operations, and results.

• Increases in interest rates used to finance home construction and improvements, such as mortgage and credit card interest rates, and the reduced availability of financing for the purchase of new homes and home construction and improvements, could have a material adverse impact on our business, financial condition, and results of operations.

• A decline in our relationships with our key customers, the amount of products they purchase from us, or a decline in our key customers’ financial condition could have a material adverse effect on our business, financial condition, and results of operations.

• We operate in a highly competitive business environment.

Failure to compete effectively could cause us to lose market share and/or force us to reduce the prices we charge for our products.

This competition could have a material adverse effect on our business, financial condition, and results of operations.

• Failure to maintain the performance, reliability, quality, and service standards required by our customers, or to timely deliver our products, could have a material adverse effect on our business, financial condition, and results of operations.

• A disruption in our operations due to natural disasters or acts of war could have a material adverse effect on our business, financial condition, and results of operations.

• We may not identify or effectively respond to consumer needs, expectations, or trends in a timely fashion, which could adversely affect our relationship with customers, our reputation, the demand for our brands, products, and services, and our market share.

• Prices and availability of the raw materials we use to manufacture our products are subject to fluctuations, and we may be unable to pass along to our customers the effects of any price increases.

• Our business may be affected by delays or interruptions in the delivery of raw materials, finished goods, and certain component parts.

A supply shortage or delivery chain interruption could have a material adverse effect on our business, financial condition, and results of operations.

• Changes in building codes and standards, including ENERGY STAR standards, could increase the cost of our products, lower the demand for our windows and doors, or otherwise adversely affect our business.

• Our failure to comply with the credit agreements governing our Credit Facilities and indentures governing the Senior Notes and Senior Secured Notes, including as a result of events beyond our control, could trigger events of default and acceleration of our indebtedness.

Defaults under our debt agreements could have a material adverse effect on our business, financial condition, and results of operations.

• The market price of our Common Stock may be highly volatile.

• Publishing earnings guidance subjects us to risks, including increased stock volatility, that could lead to potential lawsuits by investors.

• Some provisions of our charter documents and Delaware law may have anti-takeover effects that could discourage an acquisition of us by others, even if an acquisition would be beneficial to our shareholders and may prevent attempts by our shareholders to replace or remove our current management.

• Because Onex owns a substantial portion of our Common Stock, it may influence major corporate decisions and its interests may conflict with the interests of other holders of our Common Stock.

Risks Relating to Our Business and Industry

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For example, recent changes to U.S.

policies related to global trade and tariffs have resulted in uncertainty surrounding the future of the global economy as well as retaliatory trade measures implemented by other countries.

leadership roles, as a result of a new administration, may result in changes to policies related to global trade and tariffs which have resulted in uncertainty surrounding the future of the global economy as well as retaliatory trade measures implemented by other countries.

Increasing costs of steel and aluminum may impact customer spending as well as our raw materials costs.

Moreover, uncertain economic conditions continue in our Australasia segment, which entered a housing recession in 2019, and certain countries in our Europe segment.

Negative business, financial market, and economic conditions globally within the industries or regions we compete in may materially and adversely affect demand for our products, and our business, financial condition, and results of operations could be materially negatively impacted as a result.

Global economic impacts as a result of the COVID-19 pandemic remain uncertain.

Prior to the outbreak of COVID-19, Australia and certain European countries had entered housing and economic recessions, which were prolonged as a result of COVID-19.

Negative business, financial market, and economic conditions globally within the industries or regions we compete in may materially and adversely affect demand for our products.

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

The outbreak of COVID-19 has had, and may continue to have, a negative impact on the global economy and on our business, operations, and results.

The COVID-19 pandemic, and the measures taken to contain or mitigate it, have had dramatic adverse consequences for the economy, including the demand for goods and services, operations, supply chains, and financial markets.

The nature and scope of the consequences to date are difficult to evaluate precisely, and their future course is impossible to predict with confidence.

The COVID-19 crisis has had several significant effects on our employees, operations, supply chain, distribution system, customer demand, the housing market, and general market and economic conditions.

The effects we have experienced included the following:

• decreased demand for our products as a result of a slowdown in the U.S.

and global economies and resulting decreases in construction and R&R;

• increased storage costs as a result of larger volume of inventory that remains unsold;

• uncertain expense management in light of continued efforts to protect our employees;

• operational issues resulting from staffing shortages and absenteeism in our manufacturing and distribution facilities globally;

• complete or partial closures or other operational issues at one or more of our manufacturing or distribution facilities resulting from government action;

• difficulty sourcing materials necessary to fulfill production requirements or higher prices to fulfill our requirements as a result of suppliers experiencing closures or reductions in their capacity utilization levels.

These effects began in the latter weeks of March 2020 and continued throughout, to varying extents, the remainder of the year.

We experienced intermittent plant closures during 2020 as mandated by local governments and may continue to see similar closures as the COVID-19 pandemic continues to evolve.

Initiatives, including travel restrictions and quarantines, have and may continue to impact a significant percentage of our workforce and the workforce of our suppliers or transportation providers as they are unable to work as a result of the viral outbreak.

If additional factory closures are required or reductions in capacity utilization levels occur, we expect to incur additional direct costs due to reduced productivity and lost revenue.

If our suppliers experience closures or reductions in their capacity utilization levels in the future, we may have difficulty sourcing materials necessary to fulfill production requirements or be required to pay a higher price to fulfill our requirements.

In May 2020, we issued $250.0 million of Senior Secured Notes, the proceeds of which were used to repay the outstanding balance under our ABL Facility with the remainder to be used for general corporate purposes.

We cannot assure you that the available proceeds, or any of our other actions, will be sufficient to avoid liquidity constraints in the future or to mitigate any material or adverse effect of COVID-19 on our business, financial condition, or results of operations.

The effects of the COVID-19 crisis could be aggravated if the crisis continues, and we could also see additional impacts that might include the following:

• reduced economic activity severely impacting our customers’ financial condition and liquidity, reducing the likelihood they will be purchasing additional products from us and increasing the likelihood they may require additional time to pay us or will fail to pay us at all, which could significantly increase the amount of accounts receivable and require us to record additional allowances for doubtful accounts;

• reduced economic activity resulting in a prolonged recession, which could negatively impact consumer discretionary spending;

• a decrease in the principal that may be drawn under our ABL Facility as a result of a decrease in our accounts receivable and inventory;

• difficulty accessing debt and equity capital on attractive terms, or at all, an impact on our credit ratings, and a severe disruption and instability in the global financial markets or deterioration in credit and financing conditions that affect our access to capital necessary to fund business operations or to address maturing liabilities on a timely basis;

• negative impact on our future compliance with financial covenants under our Corporate Credit Facilities and other debt agreements, which could result in a default and potentially an acceleration of indebtedness;

• the potential negative impact on the health of our personnel, particularly if a significant number of them are impacted, decreasing our ability to ensure business continuity during this disruption.

If these effects are sustained, they could have accounting consequences such as impairments of fixed assets or goodwill.

They may also impact controls over financial reporting.

They could also affect our ability to execute our expansion plans or invest in research and development.

The adverse effect on our business, financial condition, or results of operations of any of the matters described above could be material.

The future impact of the COVID-19 crisis on our business, financial condition, or results of operations is highly uncertain and will depend on numerous evolving factors that we cannot predict, including, but not limited to:

• the duration, scope, and severity of the COVID-19 pandemic;

• the disruption or delay of production and delivery of materials and products in our supply chain;

• the impact of travel bans, work-from-home policies, or shelter-in-place orders;

• the temporary or prolonged shutdown of manufacturing facilities and decreased retail traffic;

• limited freight availability;

• the availability of financial assistance programs or other forms of governmental assistance;

• general economic, financial, and industry conditions, particularly conditions relating to liquidity, financial performance, and related credit issues in our industry, which may be amplified by the effects of COVID-19;

• the long-term effects of COVID-19 on the national and global economy, including on consumer confidence and spending, financial markets and the availability of credit for us, our suppliers, and our customers.

To the extent the COVID-19 pandemic or any other global health crisis does adversely affect our business, financial condition, or results of operations, it may also have the effect of heightening many of the “Risk Factors” included herein.

Increases in interest rates used to finance home construction and improvements, such as mortgage and credit card interest rates, and the reduced availability of financing for the purchase of new homes and home construction and improvements, could have a material adverse impact on our business, financial condition, and results of operations.

Our performance depends in part upon consumers having the ability to access third-party financing for the purchase of new homes and buildings and R&R of existing homes and other buildings.

The ability of consumers to finance these purchases is affected by the interest rates available for home mortgages, credit card debt, home equity or other lines of credit, and other sources of third-party financing.

While interest rates in many of the regions where we market and sell our products have generally decreased during 2020 and 2019, these rates are subject to increase in future periods by key central banks such as the U.S.

Federal Reserve and European Central Bank.

If interest rates were to increase and, consequently, the ability of prospective buyers to finance purchases of new homes or home improvement products is adversely affected, our business, financial condition, and results of operations may be materially and adversely affected.

In addition to increased interest rates, the ability of consumers to procure third-party financing is impacted by such factors as new and existing home prices, unemployment levels, high mortgage delinquency and foreclosure rates, and lower housing turnover.

Adverse developments affecting any of these factors could result in the imposition of more restrictive lending standards by financial institutions and reduce the ability of some consumers to finance home purchases or R&R expenditures.

A decline in our relationships with our key customers, the amount of products they purchase from us, or a decline in our key customers’ financial condition could have a material adverse effect on our business, financial condition, and results of operations.

Our business depends on our relationships with our key customers, which consist mainly of wholesale distributors and retail home centers.

Our top ten customers together accounted for approximately 40% of our net revenues in the year ended December 31, 2020, and our largest customer, The Home Depot, accounted for approximately 15% of our net revenues in the year ended December 31, 2020.

Although we have established and maintain significant long-term relationships with our key customers, we cannot assure you that all of these relationships will continue or will not diminish.

We generally do not enter into long-term contracts with our customers and they generally do not have an obligation to purchase products from us.

Accordingly, sales from customers that have accounted for a significant portion of our sales in past periods, individually or as a group, may not continue in future periods, or if continued, may not reach or exceed historical levels in any period.

For example, certain of our large customers perform periodic line reviews to assess their product offering, which have in the past and may in the future lead to loss of business and pricing pressures.

Some of our large customers may also experience economic difficulties or otherwise default on their obligations to us.

Furthermore, our pricing optimization strategy, which requires maintaining pricing discipline in order to improve profit margins, has in the past and may in the future lead to the loss of certain customers, including key customers, who do not agree to our pricing terms.

The loss of, or a diminution in our relationship with, any of our largest customers could lower our sales volumes, which could increase our costs and lower our profitability.

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

We operate in a highly competitive business environment.

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Some of our competitors may be less leveraged than we are, providing them with more flexibility to invest in new facilities and processes and also making them better able to withstand adverse economic or industry conditions.

In addition, some of our competitors, regardless of their size or resources, may choose to compete in the marketplace by adopting more aggressive sales policies, including price cuts, or by devoting greater resources to the development, promotion, and sale of their products.

of their products.

This could result in our loss of customers and/or market share to these competitors or being forced to reduce the prices at which we sell our products to remain competitive.

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The loss of, or a reduction in orders from, any significant customers, or decreases in the prices of our products, could have a material adverse effect on our business, financial condition, and results of operations.

Failure to maintain the performance, reliability, quality, and service standards required by our customers, or to timely deliver our products, could have a material adverse effect on our business, financial condition, and results of operations.

If our products have performance, reliability, or quality problems, our reputation and brand equity, which we believe is a substantial competitive advantage, could be materially adversely affected.

We may also experience increased and unanticipated warranty and service expenses.

Furthermore, we manufacture a significant portion of our products based on the specific requirements of our customers, and delays in providing our customers the products and services they specify on a timely basis could result in reduced or canceled orders and delays in the collection of accounts receivable.

Additionally, claims from our customers, with or without merit, could result in costly and time-consuming litigation that could require significant time and attention of management and involve significant monetary damages that could have a material adverse effect on our business, financial condition, and results of operations.

A disruption in our operations due to natural disasters or acts of war could have a material adverse effect on our business, financial condition, and results of operations.

We operate facilities worldwide.

Many of our facilities are located in areas that are vulnerable to hurricanes, earthquakes, wildfires, and other natural disasters.

In the event that a hurricane, earthquake, natural disaster, fire, pandemic, or other catastrophic event were to interrupt our operations for any extended period of time, it could delay shipment of merchandise to our customers, damage our reputation, or otherwise have a material adverse effect on our business, financial condition, and results of operations.

In addition, our operations may be interrupted by terrorist attacks or other acts of violence or war.

These attacks may directly impact our suppliers’ or customers’ physical facilities.

Furthermore, these attacks may make travel and the transportation of our supplies and products more difficult and more expensive and ultimately have a material adverse effect on our business, financial condition, and results of operations.

has entered into armed conflicts, which could have an impact on our sales and our ability to deliver product to our customers.

Political and economic instability in some regions of the world may also negatively impact the global economy and, therefore, our business.

The consequences of any of these armed conflicts are unpredictable, and we may not be able to foresee events that could have an adverse effect on our business or your investment.

More generally, any of these events could cause consumer confidence and spending to decrease or result in increased volatility in the worldwide financial markets.

They could also result in economic recessions.

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

We may not identify or effectively respond to consumer needs, expectations, or trends in a timely fashion, which could adversely affect our relationship with customers, our reputation, the demand for our brands, products, and services, and our market share.

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Recent years have seen shifts in consumer preferences and purchasing practices and changes in the business models and strategies of our customers.

Consumers are increasingly using the internet and mobile technology to research home improvement products and to inform and provide feedback on their purchasing and ownership

experience for these products.

Consumers are increasingly using the internet and mobile technology to research home improvement products and to inform and provide feedback on their purchasing and ownership experience for these products.

Trends towards online purchases could impact our ability to compete as we currently sell a significant portion of our products through retail home centers, wholesale distributors, and building products dealers.

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While we continue to invest in innovation, brand building, and brand awareness, and intend to increase our investments in these areas in the future, these initiatives may not be successful.

Failure to anticipate and successfully react to changing consumer preferences could have a material adverse effect on our business, financial condition, and results of operations.

anticipate and successfully react to changing consumer preferences could have a material adverse effect on our business, financial condition, and results of operations.

In addition, our competitors could introduce new or improved products that would replace or reduce demand for our products or create new proprietary designs and/or changes in manufacturing technologies that may render our products obsolete or too expensive for efficient competition in the marketplace.

Our failure to competitively respond to changing consumer and customer trends, demands, and preferences could cause us to lose market share, which could have a material adverse effect on our business, financial condition, and results of operations.

If our products have performance, reliability, or quality problems, our reputation and brand equity, which we believe is a substantial competitive advantage, could be materially adversely affected.

We may also experience increased and unanticipated warranty and service expenses.

Manufacturing realignments and cost savings programs may result in a decrease in our short-term earnings and operating efficiency or expected benefits may not be achieved.

We continually review our manufacturing operations to address market changes and to implement efficiencies presented by acquisitions.

Effects of periodic manufacturing integrations, realignments, and cost savings programs have in the past and could in the future result in a decrease in our short-term earnings and operating efficiency until the expected results are achieved.

Such programs may include the consolidation, integration, and upgrading of facilities, functions, systems, and procedures.

Such programs involve substantial planning, often require capital investments, and may result in charges for fixed asset impairments or obsolescence and substantial severance costs.

We also cannot assure you that we will achieve all of our cost savings.

Our ability to achieve cost savings and other benefits within expected time frames is subject to many estimates and assumptions.

These estimates and assumptions are subject to significant economic, competitive, and other uncertainties, some of which are beyond our control.

If these estimates and assumptions are incorrect, if we experience delays, or if other unforeseen events occur, our operations could experience disruption, and our business, financial condition, and results of operations could be materially and adversely affected.

Our business is seasonal, and revenue and profit can vary significantly throughout the year, which may adversely impact the timing of our cash flows and limit our liquidity at certain times of the year.

Our business is seasonal, and our net revenues and operating results vary significantly from quarter to quarter based upon the timing of the building season in our markets.

Our sales typically follow seasonal new construction and R&R industry patterns.

The peak season for home construction and R&R activity in the majority of the geographies where we market and sell our products generally corresponds with the second and third calendar quarters, and therefore our sales volume is typically higher during those quarters.

Our first and fourth quarter sales volumes are generally lower due to reduced R&R and new construction activity as a result of less favorable climate conditions in the majority of our geographic end markets.

Failure to effectively manage our inventory in anticipation of or in response to seasonal fluctuations could negatively impact our liquidity profile during certain seasonal periods.

We may be unable to protect our intellectual property, and we may face claims of intellectual property infringement.

We rely on a combination of patent, copyright, trademark, and trade secret laws, as well as confidentiality agreements, nondisclosure agreements, and other contractual commitments, to protect our intellectual property rights.

However, these measures may not be adequate or sufficient, and third parties may not always respect these legal protections even if they are aware of them.

In addition, our competitors may develop similar technologies and know-how without violating our intellectual property rights.

Furthermore, the laws of foreign countries may not protect our intellectual property rights to the same extent as the laws of the U.S.

The failure to obtain worldwide patent and trademark protection may result in other companies copying and marketing products based on our technologies or under brand or trade names similar to ours outside the jurisdictions in which we are protected.

This could impede our growth in existing regions, create confusion among consumers, and result in a greater supply of similar products that could erode prices for our protected products.

Litigation may be necessary to protect our intellectual property rights.

Intellectual property litigation can result in substantial costs, could distract our management, and could impinge upon other resources.

Our failure to enforce and protect our intellectual property rights may cause us to lose brand recognition and result in a decrease in sales of our products.

Moreover, while we are not aware that any of our products or brands infringes upon the proprietary rights of others, third parties may make such claims in the future.

From time to time, third parties may claim that we have infringed upon their intellectual property rights and we may receive notices from such third parties asserting such claims.

Any such infringement claims are thoroughly investigated and, regardless of merit, could be time-consuming and result in costly litigation or damages, undermine the exclusivity and value of our brands, decrease sales, or require us to enter into royalty or licensing agreements that may not be on acceptable terms and that could have a material adverse effect on our business, financial condition, and results of operations.

We continue to implement strategic initiatives, including JEM and our global footprint rationalization initiatives.

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Our future financial performance depends in part on our management’s ability to successfully implement our strategic initiatives, including JEM and our global footprint rationalization initiatives.

We cannot assure you that we will be able to continue to successfully implement these initiatives and related strategies throughout the geographic regions in which we operate or be able to continue improving our operating results.

We cannot assure you that we will be able to continue to successfully implement these initiatives and related strategies throughout the geographic regions in which we operate or be able to

continue improving our operating results.

Similarly, these initiatives, even if implemented in all of our geographic regions, may not produce similar results.

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We may, in addition, decide to alter or discontinue certain aspects of our business strategy at any time.

Changes in weather patterns, including as a result of global climate change, could significantly affect our financial results or financial condition.

Weather patterns may affect our operating results and our ability to maintain our sales volume throughout the year.

Because our customers depend on suitable weather to engage in construction projects, increased frequency or duration of extreme weather conditions could have a material adverse effect on our financial results or financial condition.

For example, unseasonably cool weather or extraordinary amounts of rainfall may decrease construction activity, thereby decreasing our sales.

Also, we cannot predict the effects that global climate change may have on our business.

In addition to changes in weather patterns, it might, for example, reduce the demand for construction, destroy forests (increasing the cost and reducing the availability of wood products used in construction), and increase the cost and reduce the availability of raw materials and energy.

New laws and regulations related to global climate change may also increase our expenses or reduce our sales.

We are exposed to political, economic, and other risks that arise from operating a multinational business.

We have operations in North America, Europe, Australia, and Asia.

In the year ended December 31, 2020, our North America segment accounted for approximately 60% of net revenues, our Europe segment accounted for approximately 28% of net revenues, and our Australasia segment accounted for approximately 12% of our net revenues.

Further, certain of our businesses obtain raw materials and finished goods from foreign suppliers.

Accordingly, our business is subject to political, economic, and other risks that are inherent in operating in numerous countries.

These risks include:

• the difficulty of enforcing agreements and collecting receivables through foreign legal systems;

• trade protection measures and import or export licensing requirements;

• the imposition of, or increases in, tariffs or other trade restrictions;

• required compliance with a variety of foreign laws and regulations, including the application of foreign labor regulations;

• tax rates in foreign countries and the imposition of withholding requirements on foreign earnings;

• difficulty in staffing and managing widespread operations;

• the imposition of, or increases in, currency exchange controls;

• potential inflation in applicable non-U.S.

• changes in general economic and political conditions in countries where we operate, including as a result of the impact of the withdrawal of the U.K.

from the E.U.

The success of our business depends in part on our ability to anticipate and effectively manage these and other risks.

We cannot assure you that these and other factors will not have a material adverse effect on our international operations or ultimately on our global business, financial condition, and results of operations.

Certain of our customers may expand through consolidation and internal growth, which may increase their buying power.

The increased size of our customers could have a material adverse effect on our business, financial condition, and results of operations.

Certain of our significant customers are large companies with strong buying power, and our customers may expand through consolidation or internal growth.

Consolidation could decrease the number of potential significant customers for our products and increase our reliance on key customers.

Further, the increased size of our customers could result in our customers seeking more favorable terms, including pricing, for the products that they purchase from us.

Accordingly, the increased size of our customers may further limit our ability to maintain or raise prices in the future.

This could have a material adverse effect our business, financial condition, and results of operations.

We are subject to the credit risk of our customers, suppliers, and other counterparties.

We are subject to the credit risk of our customers, because we provide credit to our customers in the normal course of business.

All of our customers are sensitive to economic changes and to the cyclical nature of the building industry.

Especially during protracted or severe economic declines and cyclical downturns in the building industry, our customers may be unable to perform on their payment obligations, including their debts to us.

Any failure by our customers to meet their obligations to us may have a material adverse effect on our business, financial condition, and results of operations.

In addition, we may incur increased expenses related to collections in the future if we find it necessary to take legal action to enforce the contractual obligations of a significant number of our customers.

Exchange rate fluctuations may impact our business, financial condition, and results of operations.

Our operations expose us to both transaction and translation exchange rate risks.

In the year ended December 31, 2020, 45% of our net revenues came from sales outside of the U.S., and we anticipate that our operations outside of the U.S.

will continue to represent a significant portion of our net revenues for the foreseeable future.

In addition, the nature of our operations often requires that we incur expenses in currencies other than those in which we earn revenue.

Because of the mismatch between revenues and expenses, we are exposed to significant currency exchange rate risk and we may not be successful in achieving balances in currencies throughout our operations.

In addition, if the effective price of our products were to increase as a result of fluctuations in foreign currency exchange rates, demand for our products could decline, which could adversely affect our business, financial condition, and results of operations.

Also, because our financial statements are presented in U.S.

dollars, we must translate the financial statements of our foreign subsidiaries and affiliates into U.S.

dollars at exchange rates in effect during or at the end of each reporting period, and increases or decreases in the value of the U.S.

dollar against other major currencies will affect our reported financial results, including the amount of our outstanding indebtedness.

Exchange rates, net, had a minimal impact on our consolidated net revenues in the year ended December 31, 2020 as compared to a negative impact of 3% in the year ended December 31, 2019.

We cannot assure you that fluctuations in foreign currency exchange rates, particularly the strengthening of the U.S.

dollar against major currencies, such as the Euro, the Australian dollar, the Canadian dollar, the British pound, or the currencies of large developing countries, would not materially adversely affect our business, financial condition, and results of operations.

We may be the subject of product liability claims or product recalls and we may not accurately estimate costs related to warranty claims.

Expenses associated with product liability claims and lawsuits and related negative publicity or warranty claims in excess of our reserves could have a material adverse effect on our business, financial condition, and results of operations.

Our products are used in a wide variety of residential, non-residential, and architectural applications.

We face the risk of exposure to product liability or other claims, including class action lawsuits, in the event our products are alleged to be defective or have resulted in harm to others or to property.

We may in the future incur liability if product liability lawsuits against us are successful.

Moreover, any such lawsuits, whether or not successful, could result in adverse publicity to us, which could cause our sales to decline materially.

In addition, it may be necessary for us to recall defective products, which would also result in adverse publicity, as well as resulting in costs connected to the recall and loss of sales.

We maintain insurance coverage to protect us against product liability claims, but that coverage may not be adequate to cover all claims that may arise, or we may not be able to maintain adequate insurance coverage in the future at an acceptable cost.

Any liability not covered by insurance could have a material adverse effect on our business, financial condition, and results of operations.

In addition, consistent with industry practice, we provide warranties on many of our products and we may experience costs associated with warranty claims if our products have defects in manufacture or design or they do not meet contractual specifications.

We estimate our future warranty costs based on historical trends and product sales, but we may fail to accurately estimate those costs and thereby fail to establish adequate warranty reserves for them.

If warranty claims exceed our estimates, it may have a material adverse effect on our business, financial condition, and results of operations.

We may make acquisitions or investments in other businesses, which may involve risks or may not be successful.

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Incurring additional debt to fund an acquisition may result in higher debt service and a requirement to comply with additional financial and other covenants, including potential restrictions on future acquisitions and distributions.

A decline in our relationships with our key customers, the amount of products they purchase from us, or a decline in our key customers’ financial condition, could have a material adverse effect on our business, financial condition, and results of operations.

Our business depends on our relationships with our key customers, which consist mainly of wholesale distributors and retail home centers.

Our top ten customers together accounted for approximately 35% of our net revenues in the year ended December 31, 2019 , and our largest customer, The Home Depot, accounted for approximately 14.6% of our net revenues in the year ended December 31, 2019 .