Rayovac 2013 Annual Report Download - page 31

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.
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 If China’s WTO membership is withdrawn or if PNTR status for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 or a similar 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.
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