Rayovac 2014 Annual Report Download - page 30

• political and economic instability, as a result of war, terrorist attacks, pandemics, natural disasters or
otherwise;
• lack of developed infrastructure;
• longer payment cycles and greater difficulty in collecting accounts;
• restrictions on transfers of funds;
• import and export duties and quotas, as well as general transportation costs;
• changes in domestic and international customs and tariffs;
• changes in foreign labor laws and regulations affecting our ability to hire and retain employees;
• inadequate protection of intellectual property in foreign countries;
• unexpected changes in regulatory environments;
• difficulty in complying with foreign law; 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.
Our products utilize certain key raw materials; any significant 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, brass, 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 the years 2012 and 2013, 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
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