Rayovac 2010 Annual Report Download - page 31

• difficulty in complying with foreign law;
• difficulty in obtaining distribution and support; and
• adverse tax consequences.
The foregoing factors may have a material adverse effect on our ability to increase or maintain our supply of
products, financial condition or results of operations.
Adverse weather conditions during our peak selling season for our home and garden control products could
have a material adverse effect on our Home and Garden Business.
Weather conditions in the U.S. have a significant impact on the timing and volume of sales of certain of our
lawn and garden and household insecticide and repellent products. Periods of dry, hot weather can decrease
insecticide sales, while periods of cold and wet weather can slow sales of herbicides.
Our products utilize certain key raw materials; any increase in the price of, or change in supply and
demand for, these raw materials could have a material and adverse effect on our business, financial
condition and profits.
The principal raw materials used to produce our products—including zinc powder, electrolytic manganese
dioxide powder, petroleum-based plastic materials, steel, aluminum, copper and corrugated materials (for
packaging)—are sourced either on a global or regional basis by us or our suppliers, and the prices of those raw
materials are susceptible to price fluctuations due to supply and demand trends, energy costs, transportation
costs, government regulations, duties and tariffs, changes in currency exchange rates, price controls, general
economic conditions and other unforeseen circumstances. In particular, during 2007 and 2008, and to date in
2010, we experienced extraordinary price increases for raw materials, particularly as a result of strong demand
from China. Although we may increase the prices of certain of our goods to our customers, we may not be able to
pass all of these cost increases on to our customers. As a result, our margins may be adversely impacted by such
cost increases. We cannot provide any assurance that our sources of supply will not be interrupted due to changes
in worldwide supply of or demand for raw materials or other events that interrupt material flow, which may have
an adverse effect on our profitability and results of operations.
We regularly engage in forward purchase and hedging derivative transactions in an attempt to effectively
manage and stabilize some of the raw material costs we expect to incur over the next 12 to 24 months; however,
our hedging positions may not be effective, or may not anticipate beneficial trends, in a particular raw material
market or may, as a result of changes in our business, no longer be useful for us. In addition, for certain of the
principal raw materials we use to produce our products, such as electrolytic manganese dioxide powder, there are
no available effective hedging markets. If these efforts are not effective or expose us to above average costs for
an extended period of time, and we are unable to pass our raw materials costs on to our customers, our future
profitability may be materially and adversely affected. Furthermore, with respect to transportation costs, certain
modes of delivery are subject to fuel surcharges which are determined based upon the current cost of diesel fuel
in relation to pre-established agreed upon costs. We may be unable to pass these fuel surcharges on to our
customers, which may have an adverse effect on our profitability and results of operations.
In addition, we have exclusivity arrangements and minimum purchase requirements with certain of our
suppliers for the Home and Garden Business, which increase our dependence upon and exposure to those
suppliers. Some of those agreements include caps on the price we pay for our supplies and in certain instances,
these caps have allowed us to purchase materials at below market prices. When we attempt to renew those
contracts, the other parties to the contracts may not be willing to include or may limit the effect of those caps and
could even attempt to impose above market prices in an effort to make up for any below market prices paid by us
prior to the renewal of the agreement. Any failure to timely obtain suitable supplies at competitive prices could
materially adversely affect our business, financial condition and results of operations.
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