Rayovac 2013 Annual Report Download - page 30

If we are unable to fully utilize our net operating losses, other than those restricted under Section 382 of the
IRC, as discussed above, to offset taxable income generated in the future, our results of operations could be
materially and negatively impacted.
Consolidation of retailers and our dependence on a small number of key customers for a significant
percentage of our sales may negatively affect our business, financial condition and results of operations.
As a result of consolidation of retailers and consumer trends toward national mass merchandisers, a
significant percentage of our sales are attributable to a very limited group of customers. Our largest customer
accounted for approximately 18% of our consolidated net sales for the fiscal year ended September 30, 2013. As
these mass merchandisers and retailers grow larger and become more sophisticated, they may demand lower
pricing, special packaging, or impose other requirements on product suppliers. These business demands may
relate to inventory practices, logistics, or other aspects of the customer-supplier relationship. Because of the
importance of these key customers, demands for price reductions or promotions, reductions in their purchases,
changes in their financial condition or loss of their accounts could have a material adverse effect on our business,
financial condition and results of operations.
Although we have long-established relationships with many of our customers, we do not have long-term
agreements with them and purchases are generally made through the use of individual purchase orders. Any
significant reduction in purchases, failure to obtain anticipated orders or delays or cancellations of orders by any
of these major customers, or significant pressure to reduce prices from any of these major customers, could have
a material adverse effect on our business, financial condition and results of operations. Additionally, a significant
deterioration in the financial condition of the retail industry in general could have a material adverse effect on our
sales and profitability.
In addition, as a result of the desire of retailers to more closely manage inventory levels, there is a growing
trend among them to purchase products on a “just-in-time” basis. Due to a number of factors, including
(i) manufacturing lead-times, (ii) seasonal purchasing patterns and (iii) the potential for material price increases,
we may be required to shorten our lead-time for production and more closely anticipate our retailers’ and
customers’ demands, which could in the future require us to carry additional inventories and increase our
working capital and related financing requirements. This may increase the cost of warehousing inventory or
result in excess inventory becoming difficult to manage, unusable or obsolete. In addition, if our retailers
significantly change their inventory management strategies, we may encounter difficulties in filling customer
orders or in liquidating excess inventories, or may find that customers are cancelling orders or returning products,
which may have a material adverse effect on our business.
Furthermore, we primarily sell branded products and a move by one or more of our large customers to sell
significant quantities of private label products, which we do not produce on their behalf and which directly
compete with our products, could have a material adverse effect on our business, financial condition and results
of operations.
As a result of our international operations, we face a number of risks related to exchange rates and foreign
currencies.
Our international sales and certain of our expenses are transacted in foreign currencies. During the fiscal
year ended September 30, 2013, approximately 41% of our net sales and 55% of our operating expenses were
denominated in foreign currencies. We expect that the amount of our revenues and expenses transacted in foreign
currencies will increase as our Latin American, European and Asian operations grow and, as a result, our
exposure to risks associated with foreign currencies could increase accordingly. Significant changes in the value
of the U.S. dollar in relation to foreign currencies will affect our cost of goods sold and our operating margins
and could result in exchange losses or otherwise have a material effect on our business, financial condition and
results of operations. Changes in currency exchange rates may also affect our sales to, purchases from and loans
to our subsidiaries as well as sales to, purchases from and bank lines of credit with our customers, suppliers and
creditors that are denominated in foreign currencies.
20