Rayovac 2006 Annual Report Download - page 24

12 SPECTRUM BRANDS | 2006 ANNUAL REPORT
not be able to complete the integration in a timely manner, if at
all, and may not realize anticipated benefi ts or savings to the
extent or in the timeframe anticipated, if at all, or such benefi ts
and savings may require higher costs than anticipated.
We may face a number of risks related to foreign
currencies.
Our foreign sales and certain of our expenses are transacted
in foreign currencies. In fi scal 2006 approximately 42% of our
net sales and 26% of our operating expenses were denominated
in currencies other than U.S. dollars. Signifi cant changes in the
value of the U.S. dollar in relation to foreign currencies could
have a material effect on our business, fi nancial condition and
results of operations. Changes in currency exchange rates may
also affect our sales to, purchases from and loans to our subsidiar-
ies as well as sales to, purchases from and bank lines of credit
with our customers, suppliers and creditors that are denomi-
nated in foreign currencies. We expect that the amount of our
revenues and expenses transacted in foreign currencies will
increase as our Latin American, European and Asian operations
grow, and our exposure to risks associated with foreign curren-
cies could increase accordingly.
If we are unable to improve existing products and
develop new, innovative products, or if our competi-
tors introduce new or enhanced products, our sales
and market share may suffer.
Our future success will depend, in part, upon our ability to
improve our existing products and to develop, manufacture and
market new, innovative products. If we fail to successfully intro-
duce, market and manufacture new products or product innova-
tions, our ability to maintain or grow our market share may be
adversely affected, which in turn could materially adversely
affect our business, fi nancial condition and results of operations.
Both we and our competitors make signifi cant investments in
research and development. If our competitors successfully intro-
duce new or enhanced products that eliminate technological
advantages our products may have in a certain market segment or
otherwise outperform our products, or are perceived by con-
sumers as doing so, we may be unable to compete successfully in
market segments affected by these changes. In addition, we may
be unable to compete if our competitors develop or apply tech-
nology which permits them to manufacture products at a lower
relative cost. The fact that many of our principal competitors
have substantially greater resources than us increases this risk.
The patent rights or other intellectual property rights of third
parties, restrictions on our ability to expand or modify manufac-
turing capacity or constraints on our research and development
activity may also limit our ability to introduce products that are
competitive on a performance basis.
Our foreign operations may expose us to a number of risks
related to conducting business in foreign countries.
Our international operations and exports and imports to and
from foreign markets are subject to a number of special risks.
These risks include, but are not limited to:
• changes in the economic conditions or consumer prefer-
ences or demand for our products in these markets;
• economic and political destabilization, governmental cor-
ruption and civil unrest;
• restrictive actions by foreign governments (e.g., duties,
quotas and restrictions on transfer of funds);
• changes in foreign labor laws and regulations affecting our
ability to hire and retain employees;
• changes in U.S. and foreign laws regarding trade and invest-
ment; and
• diffi culty in obtaining distribution and support.
In many of the developing countries in which we operate,
there has not been signifi cant governmental regulation relating to
the environment, occupational safety, employment practices or
other business matters routinely regulated in the United States.
As such economies develop, it is possible that new regulations
may increase the expense of doing business in such countries. In
addition, social legislation in many countries in which we operate
may result in signifi cantly higher expenses associated with labor
costs, terminating employees or distributors and with closing
manufacturing facilities.
There are two particular EU Directives, the Restriction on
the Use of Hazardous Substances in Electrical and Electronic
Equipment (“RoHS”) and the Waste of Electrical and Electronic
Equipment (“WEEE”), that may have a material impact on our
business. RoHS, effective July 1, 2006, requires us to eliminate
specifi ed hazardous materials from products we sell in EU mem-
ber states. WEEE requires us to collect and treat, dispose of or
recycle certain products we manufacture or import into the EU
at our own expense. Complying or failing to comply with the EU
directives may harm our business. For example:
• Although contractually assured with our suppliers, we may
be unable to procure appropriate RoHS-compliant material
in suffi cient quantity and quality and/or be able to incorpo-
rate 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
fi scal 2007 for which there is reduced demand and which we
may need to write down.
2006 Form 10-K Annual Report
Spectrum Brands, Inc.