Plantronics 2006 Annual Report Download - page 24

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$17.6 million was for total construction costs of the building. If we are unable to effectively transition
outsourced production to our new Suzhou facility, we may be unable to meet demand from our customers
for certain products and our margins on these products may decrease.
We procure materials to meet forecasted customer requirements. Special products and large orders are
quoted for delivery after receipt of orders at specific lead times. We maintain minimum levels of finished
goods based on market demand in addition to inventories of raw materials, work in process, and sub-
assemblies and components. We reserve for inventory items determined to be either excess or obsolete.
ENVIRONMENTAL MATTERS
We are actively working to gain an understanding of the complete requirements concerning the removal
of certain potential environmentally sensitive materials from our products to comply with the European
Union Directives on Restrictions on certain Hazardous Substances on electrical and electronic equipment
(‘‘ROHS’’) and on Waste Electrical and Electronic Equipment (‘‘WEEE’’). Some of our customers are
requesting that we implement these new compliance standards sooner than the legislation would require.
While we believe that we will have the resources and ability to fully meet our customers’ requests, and
spirit of the ROHS and WEEE directives, if unusual occurrences arise or if we are wrong in our
assessment of what it will take to fully comply, there is a risk that we will not be able to meet the
aggressive schedule set by our customers or comply with the legislation as passed by the EU member
states. If that were to happen, a material negative effect on our financial results may occur.
We are subject to various federal, state, local and foreign environmental laws and regulations, including
those governing the use, discharge and disposal of hazardous substances in the ordinary course of our
manufacturing process. We believe that our current manufacturing operations comply in all material
respects with applicable environmental laws and regulations. We have included reserves for environmental
remediation in our financial statements related to one of our discontinued businesses as well as for ground
and soil contamination at our corporate headquarters in Santa Cruz, California, based upon manage-
ment’s assessment of exposure and the advice of outside environmental consultants. We believe that these
reserves will be sufficient to remediate the effects of the contamination found in accordance with the
requirements of federal, state and local authorities who have jurisdiction over these sites. While no claims
have been asserted against us in connection with these matters, there can be no assurance that such claims
will not be asserted in the future or that any resulting liability will not exceed the amount of the adjusted
reserve. Although we believe that our current manufacturing operations comply in all material respects
with applicable environmental laws and regulations, it is possible that future environmental legislation
may be enacted or current environmental legislation may be interpreted to create environmental liability
with respect to our other facilities, operations, or products.
INTELLECTUAL PROPERTY
We maintain a program of seeking patent protection for our technologies when we believe it is
commercially appropriate. As of April 29, 2006, we had 137 United States patents in force, expiring
between 2005 and 2022. Some of our patents are also issued in certain foreign countries.
Our success will depend in part on our ability to obtain patents and preserve other intellectual property
rights covering the design and operation of our products. We intend to continue to seek patents on our
inventions when appropriate. The process of seeking patent protection can be lengthy and expensive, and
there can be no assurance that patents will be issued for currently pending or future applications or that
our existing patents or any new patents issued will be of sufficient scope or strength or provide
meaningful protection or any commercial advantage to us. We may be subject to, or may initiate,
litigation or patent office interference proceedings, which may require significant financial and manage-
ment resources. The failure to obtain necessary licenses or other rights or the advent of litigation arising
out of any such intellectual property claims could have a material adverse effect on our operations.
18 ⯗Plantronics