Plantronics 2013 Annual Report Download - page 25

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• Prices for commodities may rise based on demands from within our industry and other industries with which we compete
for raw materials and components. Additionally, if our suppliers experience increased demand or shortages, it could
affect the timeliness of deliveries to us and our customers. Any such shortages or further increases in prices could
materially adversely affect our business, financial condition, and results of operations.
• As part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the SEC adopted disclosure requirements
regarding the use of certain minerals, known as conflict minerals, which are mined from the Democratic Republic of
Congo and adjoining countries, as well as procedures regarding a manufacturer's efforts to identify and prevent the
sourcing of such minerals and metals produced from those minerals. The disclosure requirements became effective for
calendar year 2013. The implementation of these requirements could affect the sourcing and availability of metals used
in the manufacture of a limited number of parts contained in our products. For example, the implementation of these
disclosure requirements may decrease the number of suppliers capable of supplying our needs for certain metals, thereby
negatively affecting our ability to obtain products in sufficient quantities or at competitive prices. Our material sourcing
is broad based and multi-tiered, and we may be unable to conclusively verify the origins for all metals used in our products.
We may suffer financial and reputational harm if customers require, and we are unable to deliver, certification that our
products are conflict free. Regardless, we will incur additional costs associated with compliance with these disclosure
requirements, including time-consuming and costly efforts to determine the source of any conflict minerals used in our
products.
If we fail to forecast demand for our products or successfully match production to demand, we may lose business, become
obligated to purchase consigned inventory, or our gross margins could be materially adversely affected.
Our industry is characterized by rapid technological changes, evolving industry standards, frequent new product introductions,
short-term customer commitments and changes in demand. Production levels are forecasted based on anticipated and actual
demand for our products. Actual demand for our products depends on many factors, which makes it difficult to forecast. It is
particularly difficult to make accurate forecasts because of the uncertainties inherent in global and regional economies. Significant
unanticipated fluctuations in product supply or demand could cause operating problems. For example, if forecasted demand does
not develop, we could have excess inventory and capacity. We have experienced differences between actual and forecasted demand
in the past and expect differences to arise in the future.
We will lose opportunities to increase revenues and profits, may incur penalties for late delivery, and may be unable to later sell
the excess inventory if we are unable to timely deliver products to meet the market window of our retail customers. Conversely,
over-forecast of demand could result in higher inventories of finished products, components, and sub-assemblies. For example,
because our retail business has pronounced seasonality, we typically build inventory well in advance of the December quarter to
stock up for the anticipated demand. If we are unable to sell these inventories, we may have to write off some or all of our
inventories of excess products, unusable components, and sub-assemblies.
Moreover, a substantial portion of the raw materials, components, and subassemblies used in our products are provided by our
suppliers on a consignment basis. As such, we do not take possession of and title to the raw materials, components and subassemblies
until they are consumed in the production process. Prior to consumption in the production process, title and risk of loss to consigned
inventory remains solely with the suppliers. Consigned inventory not consumed in the production process is returnable to our
suppliers in accordance with the terms of our agreements with them. If we purchase all or a material portion of the materials and
components consigned by our suppliers, we could incur unanticipated expenses, including write-downs for excess and obsolete
inventory, which, if material, could negatively affect our business and financial results.
In addition, some of our products utilize long-lead time parts, which are only available from a limited set of vendors. The combined
effects of variability of demand from our customers with long-lead time of single sourced materials has in the past contributed to
inventory write-downs, particularly for our consumer products.
Furthermore, suppliers may choose to discontinue supplying raw materials or manufacturing one or more components or
subassemblies essential to our products, which may be difficult, time-consuming, or costly to replace. In certain instances, we
may choose to purchase large quantities of the raw materials, components, or subassemblies being discontinued as part of a last-
time buy strategy. For example, we have periodically made last-time purchases in excess of our short-term needs, which are
included in inventory and used over a period of several years. We routinely review inventory for usage potential, including
fulfillment of customer warranty obligations and spare part requirements, and we write down to the lower of cost or market value
the excess and obsolete inventory, which may have an adverse effect on our results of operations.
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