Rayovac 2012 Annual Report Download - page 31

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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.
A deterioration in trade relations with China could lead to a substantial increase in tariffs imposed on goods
of Chinese origin, which potentially could reduce demand for and sales of our products.
We purchase a number of our products and supplies from suppliers located in China. China gained
Permanent Normal Trade Relations (“PNTR”) with the U.S. when it acceded to the World Trade Organization
(“WTO”), effective January 2002. The U.S. imposes the lowest applicable tariffs on exports from PNTR
countries to the U.S. In order to maintain its WTO membership, China has agreed to several requirements,
including the elimination of caps on foreign ownership of Chinese companies, lowering tariffs and publicizing its
laws. China may not meet these requirements and, as a result, it may not remain a member of the WTO, and its
PNTR trading status may not be maintained. If China’s WTO membership is withdrawn or if PNTR status for
goods produced in China were removed, there could be a substantial increase in tariffs imposed on goods of
Chinese origin entering the U.S. which could have a material adverse effect on our sales and gross margin.
Furthermore, on October 11, 2011, the U.S. Senate approved a bill to impose sanctions against China for its
currency valuation, although the future status of this bill is uncertain. If this bill is enacted into law, the U.S.
government may impose duties on products from China and other countries found to be subsidizing their exports
by undervaluing their currencies, which may increase the costs of goods produced in China, or prompt China to
retaliate with other tariffs or other actions. Any such series of events could have a material negative adverse
effect on our sales and gross margin.
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
batteries by establishing maximum quantities of heavy metals in batteries and mandates waste management of
these batteries, including collection, recycling and disposal systems, with the costs imposed upon producers and
importers such as us. The costs associated with maintaining compliance or failing to comply with the EU
Directives may harm our business. For example:
• Although contracts with our suppliers address related compliance issues, we may be unable to procure
appropriate Restriction of the Use of Hazardous Substances in Electrical and Electronic Equipment
compliant material in sufficient quantity and quality and/or be able to incorporate it into our product
procurement processes without compromising quality and/or harming our cost structure.
• We may face excess and obsolete inventory risk related to non-compliant inventory that we may hold
for which there is reduced demand, and we may need to write down the carrying value of such
inventories.
• We may be unable to sell certain existing inventories of our batteries in Europe.
Many of the developing countries in which we operate do not have significant governmental regulation
relating to environmental safety, occupational safety, employment practices or other business matters routinely
regulated in the U.S. or may not rigorously enforce such regulation. As these countries and their economies
develop, it is possible that new regulations or increased enforcement of existing regulations may increase the
expense of doing business in these countries. In addition, social legislation in many countries in which we
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