Rayovac 2010 Annual Report Download - page 34

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. Complying 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
continue to hold in fiscal 2010 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
operate may result in significantly higher expenses associated with labor costs, terminating employees or
distributors and closing manufacturing facilities. Increases in our costs as a result of increased regulation,
legislation or enforcement could materially and adversely affect our business, results of operations and financial
condition.
We may not be able to adequately establish and protect our intellectual property rights, and the
infringement or loss of our intellectual property rights could harm our business.
To establish and protect our intellectual property rights, we rely upon a combination of national, foreign and
multi-national patent, trademark and trade secret laws, together with licenses, confidentiality agreements and
other contractual arrangements. The measures that we take to protect our intellectual property rights may prove
inadequate to prevent third parties from infringing or misappropriating our intellectual property. We may need to
resort to litigation to enforce or defend our intellectual property rights. If a competitor or collaborator files a
patent application claiming technology also claimed by us, or a trademark application claiming a trademark,
service mark or trade dress also used by us, in order to protect our rights, we may have to participate in expensive
and time consuming opposition or interference proceedings before the U.S. Patent and Trademark Office or a
similar foreign agency. Similarly, our intellectual property rights may be challenged by third parties or
invalidated through administrative process or litigation. The costs associated with protecting intellectual property
rights, including litigation costs, may be material. For example, our Small Appliances segment has spent several
million dollars on protecting its patented automatic litter box business over the last few years. Furthermore, even
if our intellectual property rights are not directly challenged, disputes among third parties could lead to the
weakening or invalidation of our intellectual property rights, or our competitors may independently develop
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