Rayovac 2005 Annual Report Download - page 67

obtain a necessary or desirable license, can obtain
such a license only on terms we consider to be
unattractive or unacceptable, or if we are unable to
redesign or re-brand our products or redesign our
processes to avoid actual or potential intellectual
property infringement. In addition, an unfavorable
ruling in an intellectual property litigation could
subject us to signifi cant liability, as well as require
us to cease developing, manufacturing or selling the
affected products or using the affected processes
or trademarks. There can be no assurance that we
would prevail in any intellectual property infringement
action, will be able to obtain a license to any third
party intellectual property on commercially reason-
able terms, successfully develop non-infringing alter-
native technology, trademarks, or trade dress on a
timely basis, or license non-infringing alternatives,
if any exist, on commercially reasonable terms. Any
signifi cant intellectual property impediment to our
ability to develop and commercialize our products
could have a material adverse effect on our busi-
ness, fi nancial condition and results of operations.
Our dependence on a few suppliers located in
Asia and one of our U.S. facilities for many of
our electric shaving and grooming and electric
personal care products makes us vulnerable
to a disruption in the supply of our products.
Substantially all of our electric shaving and
grooming and electric personal care products are
manufactured by suppliers located in Asia. Although
we have long-standing relationships with many of
these suppliers, we do not have long-term contracts
with them. Any adverse change in any of the following
could have a material adverse effect on our business,
fi nancial condition and results of operations:
• relationships with our suppliers;
• the fi nancial condition of our suppliers;
• the ability to import outsourced products; or
• our suppliers’ ability to manufacture and deliver
outsourced products on a timely basis.
If our relationship with one of our key suppliers
is adversely affected, we may not be able to quickly
or effectively replace such supplier and may not be
able to retrieve tooling and molds possessed by
such supplier.
In addition, we manufacture the majority of our
foil cutting systems for our shaving product lines,
using specially designed machines and proprietary
cutting technology, at one of our facilities. Damage
to this facility, or prolonged interruption in the oper-
ations of this facility for repairs or other reasons,
would have a material adverse effect on our ability
to manufacture and sell our shaving products.
Our dependence on, and the price of, raw materials
may adversely affect our profits.
The principal raw materials used to produce our
products – including granular urea, zinc powder, elec-
trolytic manganese dioxide powder and steel – are
sourced on a global or regional basis, and the prices
of those raw materials are susceptible to price fl uc-
tuations due to supply/demand trends, energy costs,
transportation costs, government regulations and
tariffs, changes in currency exchange rates, price
controls, the economic climate and other unforeseen
circumstances. We regularly engage in forward pur-
chase and hedging transactions in an attempt to
effectively manage our raw materials costs for the
next six to twelve months. These efforts may not be
effective and, if we are unable to pass on raw mate-
rials price increases to our customers, our future
profi tability may be materially adversely affected.
Specifi cally with respect to transportation costs, cer-
tain 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. There is no guarantee that we will be able
to pass these fuel surcharges on to our customers.
In addition, we have exclusivity arrangements and
minimum purchase requirements with certain of our
suppliers for our lawn and garden business, which
increases our dependence upon and exposure to
those suppliers. Also, certain agreements we have
with our suppliers for our lawn and garden business
expired in 2005 or are scheduled to expire in 2006.
Some of those agreements include caps on the
price we pay for our supplies from the relevant sup-
plier. In certain instances, these caps have allowed
us to purchase materials at below market prices.
Any renewal of those contracts may not include or
reduce the effect of those caps and could even
impose above market prices in an attempt by the
applicable supplier to make up for any below market
prices it had received from us prior to the renewal of
the agreement. Any failure to timely obtain suitable
supplies at competitive prices could materially
adversely affect our business, fi nancial condition
and results of operations.
2005 Form 10-K Annual Report
Spectrum Brands, Inc.
2005 ANNUAL REPORT 47