Rayovac 2012 Annual Report Download - page 30

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, 2012, approximately 46% of our net sales and 46% 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.
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.
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