Plantronics 2006 Annual Report Download - page 36

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favorable than our terms. For example, some of our competitors are beginning to offer to consign
products rather than sell them directly to their customers. In order to compete effectively, we are offering
similar terms to select customers within our Audio Communications products space. Offering more
products on a consignment basis could potentially delay the timing of our revenue recognition, increase
inventory balances as well as require changes in our systems to track inventory and point of sale.
If we do not continue to distinguish our products, particularly our retail products, through distinctive,
technologically advanced features, and design, as well as continue to build and strengthen our brand
recognition, our business could be harmed. If we do not otherwise compete effectively, demand for our
products could decline, our gross margins could decrease, we could lose market share, and our revenues
and earnings could decline.
While we believe we comply with environmental laws and regulations, we are still exposed to
potential risks associated with environmental regulations.
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. To the extent that we incur claims for
environmental matters exceeding reserves or insurance for environmental liability, our operating results
could be negatively impacted.
Our products are subject to various regulatory requirements, and changes in such regulatory
requirements may adversely impact our gross margins as we comply with such changes or reduce our
ability to generate revenues if we are unable to comply.
Our products must meet the requirements set by regulatory authorities in the numerous jurisdictions in
which we sell them. As regulations and local laws change, we must modify our products to address those
changes. Regulatory restrictions may increase the costs to design and manufacture our products, resulting
in a decrease in our margins or a decrease in demand for our products if the costs are passed along.
30 ⯗Plantronics