Rayovac 2014 Annual Report Download - page 32

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, 2014, approximately 40% of our net sales and 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 of acquisitions in these
markets 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.
We source many products from China and other Asian countries. To the extent the Chinese Renminbi
(“RMB”) or other currencies appreciate with respect to the U.S. dollar, we may experience fluctuations in our
results of operations. Since 2005, the RMB has no longer been pegged to the U.S. dollar at a constant exchange
rate and instead fluctuates versus a basket of currencies. Although the People’s Bank of China regularly
intervenes in the foreign exchange market to prevent significant short-term fluctuations in the exchange rate, the
RMB may appreciate or depreciate within a flexible peg range against the U.S. dollar in the medium to long
term. Moreover, it is possible that in the future Chinese authorities may lift restrictions on fluctuations in the
RMB exchange rate and lessen intervention in the foreign exchange market.
While we may enter into hedging transactions in the future, the availability and effectiveness of these
transactions may be limited, and we may not be able to successfully hedge our exposure to currency fluctuations.
Further, we may not be successful in implementing customer pricing or other actions in an effort to mitigate the
impact of currency fluctuations and, thus, our results of operations may be adversely impacted.
Our international operations may expose us to risks related to compliance with the laws and regulations of
foreign countries.
We are subject to three EU Directives that may have a material impact on our business: Restriction of the
Use of Hazardous Substances in Electrical and Electronic Equipment, Waste of Electrical and Electronic
Equipment and the Directive on Batteries and Accumulators and Waste Batteries, discussed below. Restriction of
the Use of Hazardous Substances in Electrical and Electronic Equipment requires us to eliminate specified
hazardous materials from products we sell in EU member states. Waste of Electrical and Electronic Equipment
requires us to collect and treat, dispose of or recycle certain products we manufacture or import into the EU at
our own expense. The EU Directive on Batteries and Accumulators and Waste Batteries bans heavy metals in
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