Rayovac 2015 Annual Report Download - page 49

December 31, 2014. AAG’s largest customer accounted for approximately 12% of net sales for the same period
and no other customer accounted for more than 10% of AAG’s net sales for the same period. The success of our
and AAG’s businesses depend, in part, on our ability to maintain our level of sales and product distribution
through high volume distributors, retailers, super centers and mass merchandisers.
Currently, neither we nor AAG have long-term supply agreements with a substantial number of our retail
customers, including our largest customers. These high-volume stores and mass merchandisers frequently reevaluate
the products they carry. A decision by our major customers to discontinue or decrease the amount of products
purchased from us, sell a national brand on an exclusive basis or change the manner of doing business with us, could
reduce our revenues and materially adversely affect our results of operations. See “Risk Factors-Risks Related to our
Business-Consolidation of retailers and our dependence on a small number of key customers for a significant
percentage of our sales may negatively affect our business, financial condition and results of operations”.
A change in governmental regulations regarding the use of refrigerant gas R-134a or its potential future
substitutes could have a material adverse effect on AAG’s ability to sell its aftermarket A/C products.
The refrigerant R-134a is critical component of AAG’s aftermarket A/C products and is used in products
which comprised approximately 90% of its gross sales in its fiscal year ended December 31, 2014. Older
generation refrigerants such as R-12 (Freon) have been regulated for some time in the United States and
elsewhere, due to concerns about their potential to contribute to ozone depletion. In recent years, refrigerants
such as R-134a, which is an approved substitute for R-12, have also become the subject of regulatory focus due
to their potential to contribute to global warming.
The European Union has passed regulations that require the phase out of R-134a in automotive cooling
systems in new vehicles by 2017. In the United States, AAG has reported that it cannot predict what future
action, if any, the EPA will take on the regulation of R-134a. But based on currently available information, it
believes that it would take some time for suitable alternatives to R-134a to come into full scale commercial
production and therefore such alternatives would not be readily available for wide spread use in new car models.
If the future use of R-134a is phased out or is limited or prohibited in jurisdictions in which we do business, the
future market for AAG’s products containing R-134a may be limited, which could have a material adverse
impact on its results of operations, financial condition, and cash flows.
In addition, regulations may be enacted governing the packaging, use and disposal of AAG’s products
containing refrigerants. For example, regulations are currently in effect in California that govern the sale and
distribution of products containing R-134a. While AAG has reported that it is not aware of any noncompliance
with such regulations, its failure to comply with these or possible future regulations in California, or elsewhere,
could result in material fines or costs or the inability to sell its products in those markets, which could have a
material adverse impact on the results of operations, financial condition and cash flows. If substitutes for R-134a
become widely used in A/C systems and their use for DIY and retrofit purposes are not approved by the EPA, it
could have a material adverse effect on AAG’s results of operations, financial condition, and cash flows. In
addition, the cost of HFO-1234yf, the leading long-term alternative to R-134a being proposed in the
United States and the European Union for use in the A/C systems of new vehicles, will likely be higher than that
of R-134a. If HFO-1234yf becomes widely used and AAG is able to develop products using HFO-1234yf, but is
unable to price its products to reflect the increased cost of HFO-1234yf, it could have a material adverse effect on
its results of operations, financial condition and cash flow.
All of AAG’s refrigerant products are produced at one facility, and a significant disruption or disaster at
such a facility could have a material adverse effect on its results of operations.
AAG’s manufacturing facility consists of one site which is located in Garland, Texas and thus it is
dependent upon the continued safe operation of this facility. Its facility is subject to various hazards associated
with the manufacturing, handling, storage, and transportation of chemical materials and products, including
35