Rayovac 2006 Annual Report Download - page 17

SPECTRUM BRANDS | 2006 ANNUAL REPORT 5
Substantially all of our rechargeable batteries and chargers,
portable lighting products, hair care and other personal care
products and our electric shaving and grooming products are
manufactured by third party suppliers that are primarily located
in the Asia/Pacifi c region. We maintain ownership of tooling and
the molds used by most of our suppliers.
We continually evaluate our facilities’ capacity and related
utilization. As a result of such analyses, we have closed a number
of manufacturing facilities during the past fi ve years. In general,
we believe our existing facilities are adequate for our present and
foreseeable needs.
Research and Development
Our research and development strategy is focused on new
product development and performance enhancements of our
existing products. We plan to continue to use our strong brand
names, established customer relationships and signifi cant
research and development efforts to introduce innovative prod-
ucts that offer enhanced value to consumers through new
designs and improved functionality.
In fi scal years 2006, 2005 and 2004, we invested $30.6 mil-
lion, $29.3 million and $23.2 million, respectively, in product
research and development.
Patents and Trademarks
We own or license from third parties a signifi cant number of
patents and patent applications throughout the world, relating to
products we sell and manufacturing equipment we use. We hold
a license that expires in March 2022 for certain alkaline battery
designs, technology and manufacturing equipment from
Matsushita Electrical Industrial Co., Ltd (“Matsushita”) to whom
we pay a royalty.
We also use and maintain a number of trademarks in our busi-
ness, including CUTTER, DINGO, GARDEN SAFE, HOT SHOT,
JUNGLETALK, MARINELAND, NATURE’S MIRACLE,
RAYOVAC, REMINGTON, REPEL, SCHULTZ, SPECTRACIDE,
SPECTRACIDE TERMINATE, STA-GREEN, TETRA, VARTA,
VIGORO and 8IN1. We seek trademark protection in the U.S. and
in foreign countries by all available means, including registration.
As a result of the October 2002 sale by VARTA AG of substan-
tially all of its consumer battery business to us and VARTA AG’s
subsequent sale of its automotive battery business to Johnson
Controls, Inc., we acquired rights to the VARTA trademark in the
consumer battery category, and Johnson Controls acquired rights
to the trademark in the automotive battery category. VARTA AG
and its VARTA Microbatteries subsidiary continue to have rights
to use the trademark with travel guides, industrial batteries and
microbatteries. We are party to a Trademark and Domain Names
Protection and Delimitation Agreement that governs ownership
and usage rights and obligations of the parties relative to the
VARTA trademark.
As a result of the common origins of the Remington business
we acquired in September 2003 and the Remington Arms
Company, Inc., the Remington trademark is owned by us and by
the Remington Arms Company Inc., each with respect to its
principal products as well as associated products. We own the
Remington trademark for electric shavers, shaver accessories,
grooming products and personal care products, while Remington
Arms owns the trademark for fi rearms, sporting goods and prod-
ucts for industrial use, including industrial hand tools. The terms
of a 1986 agreement between Remington and Remington Arms
provides for the shared rights to use the Remington trademark
on products which are not considered “principal products of
interest” for either company. We retain the Remington trademark
for nearly all products which we believe can benefi t from the use
of the brand name in our distribution channels.
On February 12, 2004, United executed a licensing, manufac-
turing and supply agreement with its largest customer at the time.
Under the agreement, United licensed its VIGORO and related
trademarks and became the exclusive manufacturer and supplier
for certain products branded with such trademarks through
December 31, 2008. If the customer achieves certain required
minimum purchase volumes and other conditions during the initial
four-year period, and the manufacturing and supply portion of the
agreement is extended for an additional three-year period as speci-
fi ed in the agreement, we (as successor) will assign the trademarks
to the customer not earlier than May 1, 2009, but otherwise within
30 days after the date upon which such required minimum pur-
chase volumes are achieved.
Competition
In our retail markets, we compete for limited shelf space and
consumer acceptance. Factors infl uencing product sales are brand
name recognition, perceived quality, price, performance, prod-
uct packaging and design innovation, as well as creative market-
ing, promotion and distribution strategies.
The battery marketplace is highly competitive. Most con-
sumer batteries manufactured throughout the world are sold by
one of four global companies: Spectrum Brands (manufacturer/
seller of Rayovac and VARTA brands); Energizer Holdings, Inc.
(manufacturer/seller of the Energizer brand); The Procter &
Gamble Company (manufacturer/seller of the Duracell brand);
and Matsushita (manufacturer/seller of the Panasonic brand). We
also face competition from the private label brands of major
retailers, particularly in Europe. The offering of private label bat-
teries by retailers may create pricing pressure. Typically, private
label brands are not supported by advertising or promotion, and
retailers sell these private label offerings at retail prices below
competing brands. The main barriers to entry for new competi-
tors are investment in technology research, cost of building man-
ufacturing capacity and the expense of building retail distribution
channels and consumer brands.
2006 Form 10-K Annual Report
Spectrum Brands, Inc.