| NEWPORT CORP ITEM 1A RISK FACTORS The following is a summary of certain risks we face in our business |
| They are not the only risks we face |
| Additional risks of which we are not presently aware or that we currently believe are immaterial may also harm our business and results of operations |
| The trading price of our common stock could decline due to the occurrence of any of these risks, and investors could lose all or part of their investment |
| In assessing these risks, investors should also refer to the other information contained or incorporated by reference in our other filings with the Securities and Exchange Commission |
| Our operating results are difficult to predict, and if we fail to meet the expectations of investors and/or securities analysts, the market price of our common stock will likely decline significantly |
| Our operating results in any given quarter have fluctuated and will likely continue to fluctuate |
| These fluctuations are typically unpredictable and can result from numerous factors including: • fluctuations in our customers’ capital spending, industry cyclicality (particularly in the semiconductor industry), levels of government funding available to our customers, and other economic conditions within the markets we serve; 17 ______________________________________________________________________ • demand for our products and the products sold by our customers; • the level of orders within a given quarter and preceding quarters; • the timing and level of cancellations and delays of orders for our products; • the timing of product shipments within a given quarter; • our timing in introducing new products; • variations in the mix of products we sell in each of the markets in which we do business; • changes in our pricing policies or in the pricing policies of our competitors or suppliers; • market acceptance of any new or enhanced versions of our products; • timing of new product introductions by our competitors; • the availability and cost of key components and raw materials we use to manufacture our products; • our ability to manufacture a sufficient quantity of our products to meet customer demand; • our ability to retain and attract key employees; • fluctuations in foreign currency exchange rates; and • our levels of expenses |
| We may in the future choose to change prices, increase spending, or add or eliminate products in response to actions by competitors or in an effort to pursue new market opportunities |
| These actions may also adversely affect our business and operating results and may cause our quarterly results to be lower than the results of previous quarters |
| Thus, unexpected variations in timing of sales, particularly for our higher-priced, higher-margin products such as our laser products, can cause significant fluctuations in our quarterly operating results |
| Orders expected in one quarter could shift to another period due to changes in the anticipated timing of customers’ purchase decisions or rescheduled delivery dates requested by our customers |
| Our operating results for a particular quarter or year may be adversely affected if our customers, particularly our largest customers, cancel or reschedule orders, or if we cannot fill orders in time due to unexpected delays in manufacturing, testing, shipping, and product acceptance |
| Also, we base our manufacturing on our forecasted product mix for the quarter |
| If the actual product mix varies significantly from our forecast, we may not be able to fill some orders during that quarter, which would result in delays in the shipment of our products and could shift sales to a subsequent period |
| In addition, our expenses for any given quarter are typically based on expected sales, and if sales are below expectations in any given quarter, the adverse impact of the shortfall on our operating results may be magnified by our inability to adjust spending quickly to compensate for the shortfall |
| Due to these and other factors, we believe that quarter-to-quarter comparisons of results from operations, or any other similar period-to-period comparisons, should not be construed as reliable indicators of our future performance |
| In any period, our results may be below the expectations of market analysts and investors, which would likely cause the trading price of our common stock to drop |
| 18 ______________________________________________________________________ We are dependent in part on the semiconductor equipment industry, which is volatile and unpredictable |
| A significant portion of our current and expected future business comes from sales of components, subsystems and laser products to manufacturers of semiconductor fabrication, wafer inspection and metrology equipment and sales of capital equipment to disk drive and integrated semiconductor device manufacturers |
| The semiconductor equipment market has historically been characterized by sudden and severe cyclical variations in product supply and demand |
| The timing, severity and duration of these market cycles are difficult to predict, and we may not be able to respond effectively to these cycles |
| The continuing uncertainty in this market severely limits our ability to predict our business prospects or financial results in this market |
| During industry downturns, our revenues from this market will decline suddenly and significantly |
| Our ability to rapidly and effectively reduce our cost structure in response to such downturns is limited by the fixed nature of many of our expenses in the near term and by our need to continue our investment in next-generation product technology and to support and service our products |
| In addition, due to the relatively long manufacturing lead times for some of the systems and subsystems we sell to this market, we may incur expenditures or purchase raw materials or components for products we cannot sell |
| Accordingly, downturns in the semiconductor capital equipment market may materially harm our operating results |
| Conversely, when upturns in this market occur, we must be able to rapidly and effectively increase our manufacturing capacity to meet increases in customer demand that may be extremely rapid, and if we fail to do so we may lose business to our competitors and our relationships with our customers may be harmed |
| A limited number of customers account for a significant portion of our sales to the microelectronics market, and if we lose any of these customers or they significantly curtail their purchases of our products, our results of operations would be harmed |
| Our sales to the microelectronics market (which is comprised primarily of semiconductor capital equipment and computer peripherals customers) constituted 28dtta6prca, 29dtta5prca and 32dtta0prca of our consolidated net sales for the year ended December 31, 2005, the year ended January 1, 2005 (which included Spectra-Physics’ results of operations for the period after July 16, 2004, the date of acquisition), and the year ended December 31, 2003, respectively |
| We rely on a limited number of customers for a significant portion of our sales to this market |
| Our top five customers in this market comprised approximately 53dtta0prca, 60dtta8prca, and 61dtta1prca of our sales to this market for the year ended December 31, 2005, the year ended January 1, 2005 (which included Spectra-Physics’ results of operations for the period after July 16, 2004, the date of acquisition), and the year ended December 31, 2003, respectively |
| No single customer in this market comprised 10prca or more of our consolidated net sales in 2005 |
| If any of our principal customers discontinues its relationship with us, replaces us as a vendor for certain products or suffers downturns in its business, our business and results of operations could be harmed significantly |
| In addition, because a relatively small number of companies dominate the front-end equipment portion of this market, and because those companies rarely change vendors in the middle of a product’s life cycle, it may be particularly difficult for us to replace these customers if we lose their business |
| The microelectronics market is characterized by rapid technological change, frequent product introductions, changing customer requirements and evolving industry standards |
| Because our customers face uncertainties with regard to the growth and requirements of these markets, their products and components may not achieve, or continue to achieve, anticipated levels of market acceptance |
| If our customers are unable to deliver products that gain market acceptance, it is likely that these customers will not purchase our products or will purchase smaller quantities of our products |
| We often invest substantial resources in developing our systems and subsystems in advance of significant sales of these systems and/or subsystems to such customers |
| A failure on the part of our customers’ products to gain market acceptance, or a failure of the semiconductor capital equipment market to grow would have a significant negative effect on our business and results of operations |
| Difficulties in executing our acquisitions could adversely impact our business |
| The Spectra-Physics acquisition, which we completed in July 2004, is the largest acquisition we have completed, and the complex process of integrating Spectra-Physics required significant resources |
| We continue to face ongoing business challenges that primarily include the geographic dispersion of our operations and realizing 19 ______________________________________________________________________ the potential benefits of the combined company’s expanded product line in our end markets |
| Although the integration of Spectra-Physics is complete, we will continue to incur cash outflows and additional costs related to this acquisition |
| We have spent and will continue to spend significant resources identifying and acquiring businesses, and the efficient and effective integration of our acquired businesses into our organization is critical to our growth |
| The process of integrating acquired companies into our operations requires significant resources and is time consuming, expensive and disruptive to our business |
| Further, we may not realize the benefits we anticipate from these acquisitions because of the following significant challenges: • potentially incompatible cultural differences between the two companies; • incorporating the acquired company’s technology and products into our current and future product lines, and successfully generating market demand for these expanded product lines; • potential additional geographic dispersion of operations; • the diversion of our management’s attention from other business concerns; • the difficulty in achieving anticipated synergies and efficiencies; • the difficulty in leveraging the acquired company’s and our combined technologies and capabilities across all product lines and customer bases; and • our ability to retain key customers and employees of an acquired company |
| Our failure to achieve the anticipated benefits of any past or future acquisition or to successfully integrate the operations of the companies we acquire could harm our business, results of operations and cash flows |
| Additionally, we may incur material charges in future quarters to reflect additional costs associated with past acquisitions or any future acquisitions we may make |
| Many of the markets and industries that we serve are subject to rapid technological change, and if we do not introduce new and innovative products or improve our existing products, our business and results of operations will be negatively affected |
| Many of our markets are characterized by rapid technological advances, evolving industry standards, shifting customer needs and new product introductions and enhancements |
| We depend to a significant extent upon our ability to enhance our existing products, to anticipate and address the demands of the marketplace for new and improved technology, either through internal development or by acquisitions, and to be price competitive |
| If we or our competitors introduce new or enhanced products, it may cause our customers to defer or cancel orders for our existing products |
| In addition, because certain of our markets experience severe cyclicality in capital spending, if we fail to introduce new products in a timely manner we may miss market upturns, and may fail to have our products or subsystems designed into our customers’ products |
| We may not be successful in acquiring, developing, manufacturing or marketing new products on a timely or cost-effective basis |
| If we fail to adequately introduce new, competitive products on a timely basis, our business and results of operations would be harmed |
| We offer products for multiple industries and must face the challenges of supporting the distinct needs of each of the markets we serve |
| We offer products for a number of markets, including microelectronics manufacturing, scientific research, aerospace and defense/security, life and health sciences, industrial manufacturing and communications |
| Because we operate in multiple markets, we must work constantly to understand the needs, standards and technical requirements of several different industries and must devote significant resources to developing different products for these 20 ______________________________________________________________________ industries |
| Product development is costly and time consuming |
| We must anticipate trends in our customers’ industries and develop products before our customers’ products are commercialized |
| If we do not accurately predict our customers’ needs and future activities, we may invest substantial resources in developing products that do not achieve broad market acceptance |
| Our decision to continue to offer products to a given market or to penetrate new markets is based in part on our judgment of the size, growth rate and other factors that contribute to the attractiveness of a particular market |
| If our product offerings in any particular market are not competitive or our analyses of a market are incorrect, our business and results of operations would be harmed |
| Because the sales cycle for some of our products is long and difficult to predict, and certain of our orders are subject to rescheduling or cancellation, we may experience fluctuations in our operating results |
| Many of our capital equipment, system and subsystem products are complex, and customers for these products require substantial time to make purchase decisions |
| These customers often perform, or require us to perform extensive configuration, testing and evaluation of our products before committing to purchasing them |
| The sales cycle for our capital equipment, system and subsystem products from initial contact through shipment typically varies, is difficult to predict and can last as long as one year |
| The orders comprising our backlog are generally subject to cancellation and changes in delivery schedules by our customers without significant penalty |
| We have from time to time experienced order rescheduling and cancellations that have caused our revenues in a given period to be materially less than would have been expected based on our backlog at the beginning of the period |
| If we experience such rescheduling and/or cancellations in the future, our operating results will fluctuate from period to period |
| These fluctuations could harm our results of operations |
| If we are delayed in introducing our new products into the marketplace, our operating results will suffer |
| Because certain of our products, particularly lasers, are sophisticated and complex, we may experience delays in introducing new products or enhancements to our existing products |
| If we do not introduce our new products or enhancements into the marketplace in a timely fashion, our customers may choose to use competitors’ products |
| In addition, because certain of our markets, such as the semiconductor equipment market, are highly cyclical in nature, if we fail to timely introduce new products in advance of an upturn in the market’s cycle, we may be foreclosed from selling products to many customers until the next cycle |
| As such, our inability to introduce new or enhanced products in a timely manner could cause our business and results of operations to suffer |
| We face significant risks from doing business in foreign countries |
| Our business is subject to risks inherent in conducting business internationally |
| For the year ended December 31, 2005, the year ended January 1, 2005 (which included Spectra-Physics’ results of operations for the period after July 16, 2004, the date of acquisition), and the year ended December 31, 2003, our international revenues accounted for approximately 46dtta6prca, 39dtta2prca and 34dtta1prca, respectively, of total net sales, with a substantial portion of international sales originating in Europe and, subsequent to our acquisition of Spectra-Physics, in Japan |
| We expect that international revenues will continue to account for a significant percentage of total net sales for the foreseeable future, and that in particular, the proportion of our sales to Asian customers will continue to increase as a result of the purchase of Spectra-Physics |
| Our international operations expose us to various risks, which include: • adverse changes or instability in the political or economic conditions in countries or regions where we manufacture or sell our products; • challenges of administering our business globally; • compliance with multiple and potentially conflicting regulatory requirements including export requirements, tariffs and other trade barriers; • longer accounts receivable collection periods; • overlapping, differing or more burdensome tax structures; 21 ______________________________________________________________________ • adverse currency fluctuations; • differing protection of intellectual property; • difficulties in staffing and managing each of our individual foreign operations; • increased risk of exposure to terrorist activities; and • trade restrictions and licensing requirements |
| In addition, fluctuations in foreign exchange rates could affect the sales price in local currencies of our products in foreign markets, potentially making our products less price competitive |
| Such exchange rate fluctuations could also increase the costs and expenses of our foreign operations or require us to modify our current business practices |
| If we experience any of the risks associated with international business, our business and results of operations could be significantly harmed |
| We face substantial competition, and if we fail to compete effectively, our operating results will suffer |
| The markets for our products are intensely competitive, and we believe that competition from both new and existing competitors will increase in the future |
| We compete in several specialized markets, against a limited number of companies in each market |
| We also face competition in some of our markets from our existing and potential customers who have developed or may develop products that are competitive to ours, or who engage subcontract manufacturers to manufacture subassembly products on their behalf |
| Many of our existing and potential competitors are more established, enjoy greater name recognition and possess greater financial, technological and marketing resources than we do |
| Other competitors are small and highly specialized firms that are able to focus on only one aspect of a market |
| We compete on the basis of product performance, features, quality, reliability and price and on our ability to manufacture and deliver our products on a timely basis |
| We may not be able to compete successfully in the future against existing or new competitors |
| In addition, competitive pressures may force us to reduce our prices, which could negatively affect our operating results |
| If we do not respond adequately to competitive challenges, our business and results of operations would be harmed |
| If we fail to protect our intellectual property and proprietary technology, we may lose our competitive advantage |
| Our success and ability to compete depend in large part upon protecting our proprietary technology |
| We rely on a combination of patent, trademark and trade secret protection and nondisclosure agreements to protect our proprietary rights |
| The steps we have taken may not be sufficient to prevent the misappropriation of our intellectual property, particularly in foreign countries where the laws may not protect our proprietary rights as fully as in the United States |
| The patent and trademark law and trade secret protection may not be adequate to deter third party infringement or misappropriation of our patents, trademarks and similar proprietary rights |
| In addition, patents issued to us may be challenged, invalidated or circumvented |
| Our rights granted under those patents may not provide competitive advantages to us, and the claims under our patent applications may not be allowed |
| We have in the past and may in the future be subject to or may initiate interference proceedings in the United States Patent and Trademark Office, which can demand significant financial and management resources |
| The process of seeking patent protection can be time consuming and expensive and patents may not be issued from currently pending or future applications |
| Moreover, our existing patents or any new patents that may be issued may not be sufficient in scope or strength to provide meaningful protection or any commercial advantage to us |
| We may in the future initiate claims or litigation against third parties for infringement of our proprietary rights in order to determine the scope and validity of our proprietary rights or the proprietary rights of our competitors, which claims could result in costly litigation, the diversion of our technical and management personnel and the assertion of counterclaims by the defendants, including counterclaims asserting invalidity of our patents |
| For example, we have notified several manufacturers of semiconductor wafer handling robots and load ports that we believe that they are infringing upon certain of our US patents, and may institute litigation against one or more of such companies in the future |
| We 22 ______________________________________________________________________ will take such actions where we believe that they are of sufficient strategic or economic importance to us to justify the cost |
| We have experienced, and may in the future experience, intellectual property infringement claims, which could be costly and time-consuming to defend |
| We have from time to time received communications from third parties alleging that we are infringing certain trademarks, patents or other intellectual property rights held by them |
| Any claims of infringement brought by third parties could result in protracted and costly litigation, and we could become subject to damages for infringement, or to an injunction preventing us from selling one or more of our products or using one or more of our trademarks |
| Such claims could also result in the necessity of obtaining a license relating to one or more of our products or current or future technologies, which may not be available on commercially reasonable terms or at all |
| Any intellectual property litigation and the failure to obtain necessary licenses or other rights or develop substitute technology may divert management’s attention from other matters and could have a material adverse effect on our business, financial condition and results of operations |
| In addition, the terms of our customer contracts typically require us to indemnify the customer in the event of any claim of infringement brought by a third party based on our products |
| Any such claims of this kind may have a material adverse effect on our business, financial condition or results of operations |
| If we are unable to attract new employees and retain and motivate existing employees, our business and results of operations will suffer |
| Our ability to maintain and grow our business is directly related to the service of our employees in each area of our operations |
| Our future performance will be directly tied to our ability to hire, train, motivate and retain qualified personnel |
| Competition for personnel in the technology marketplace is intense, and we have recently experienced attrition in certain management, engineering and product marketing positions |
| If we are unable to hire sufficient numbers of employees with the experience and skills we need or to retain our employees, our business and results of operations would be harmed |
| Our reliance on sole-source and limited source suppliers could result in delays in production and distribution of our products |
| We obtain some of the materials used to build our systems and subsystems, such as the sheet steel used in some of our vibration isolation tables, and the laser crystals used in certain of our laser products, from single or limited sources due to unique component designs as well as specialized quality and performance requirements needed to manufacture our products |
| If our components or raw materials are unavailable in adequate amounts at acceptable quality levels or are unavailable on satisfactory terms, we may be required to purchase them from alternative sources, if available, which could increase our costs and cause delays in the production and distribution of our products |
| If we do not obtain comparable replacement components from other sources in a timely manner, our business and results of operations will be harmed |
| Many of our suppliers require long lead-times to deliver the quantities of components that we need |
| If we fail to accurately forecast our needs, or if we fail to obtain sufficient quantities of components that we use to manufacture our products, then delays or reductions in production and shipment could occur, which would harm our business and results of operations |
| Our products could contain defects, which would increase our costs and harm our business |
| Certain of our products, especially our laser and automation products, are inherently complex in design and require ongoing regular maintenance |
| Further, the manufacture of these products often involves a highly complex and precise process |
| As a result of the technical complexity of these products, design defects, changes in our or our suppliers’ manufacturing processes or the inadvertent use of defective materials by us or our suppliers could adversely affect our manufacturing yields and product reliability, which could in turn harm our business, operating results, financial condition and customer relationships |
| 23 ______________________________________________________________________ We provide warranties for our products, and we accrue allowances for estimated warranty costs at the time we recognize revenue for the sale of the products |
| The determination of such allowances requires us to make estimates of product return rates and expected costs to repair or replace the products under warranty |
| We establish warranty reserves based on historical warranty costs for our products |
| If actual return rates or repair and replacement costs differ significantly from our estimates, adjustments to recognize additional cost of sales may be required in future periods |
| Our customers may discover defects in our products after the products have been fully deployed and operated under peak stress conditions |
| In addition, some of our products are combined with products from other suppliers, which may contain defects |
| As a result, should problems occur, it may be difficult to identify the source of the problem |
| If we are unable to identify and fix defects or other problems, we could experience, among other things: • loss of customers; • increased costs of product returns and warranty expenses; • damage to our brand reputation; • failure to attract new customers or achieve market acceptance; • diversion of development and engineering resources; or • legal action by our customers |
| The occurrence of any one or more of the foregoing factors could seriously harm our business, financial condition and results of operations |
| Our products are subject to potential product liability claims which, if successful, could adversely affect our results of operations |
| We are exposed to significant risks for product liability claims if personal injury or death results from the use of our products |
| We may experience material product liability losses in the future |
| We currently maintain insurance against product liability claims |
| However, our insurance coverage may not continue to be available on terms that we accept, if at all |
| This insurance coverage also may not adequately cover liabilities that we incur |
| A successful claim against us that exceeds our insurance coverage level, or any claim or product recall, could have a material adverse effect on our business, financial condition and results of operations |
| While we believe we currently have adequate internal control over financial reporting, we are required to evaluate our internal control over financial reporting each year, and any adverse results from such evaluation could result in a loss of investor confidence in our financial reports and have an adverse effect on our stock price |
| Pursuant to rules and regulations promulgated by the Securities and Exchange Commission under Section 404 of the Sarbanes-Oxley Act of 2002, we are required to furnish a report by our management each year on our internal control over financial reporting |
| This report contains, among other matters, an assessment of the effectiveness of our internal control over financial reporting as of the end of our fiscal year, including a statement as to whether or not our internal control over financial reporting is effective |
| This assessment must include disclosure of any material weaknesses in our internal control over financial reporting identified by management |
| This report must also contain a statement that our auditors have issued an attestation report on management’s assessment of such internal controls |
| The Committee of Sponsoring Organizations of the Treadway Commission (COSO) provides a framework for companies to assess and improve their internal control systems |
| Auditing Standard Nodtta 2 provides the professional standards and related performance guidance for auditors to attest to, and report on, management’s assessment of the effectiveness of internal control over financial reporting under Section 404 |
| Management’s assessment of internal 24 ______________________________________________________________________ controls over financial reporting requires management to make subjective judgments and, particularly because Section 404 and Auditing Standard Nodtta 2 are relatively new, some of the judgments will be in areas that may be open to interpretation and, therefore, the report may be uniquely difficult to prepare, and our auditors may not agree with our assessments |
| If we are unable to assert each year that our internal control over financial reporting is effective (or if our auditors are unable to attest that our management’s report is fairly stated or they are unable to express an opinion on the effectiveness of our internal controls), we could lose investor confidence in the accuracy and completeness of our financial reports, which would have an adverse effect on our stock price |
| In addition, if any unidentified material weaknesses were to result in fraudulent activity and/or a material misstatement or omission in our financial statements, we could suffer losses and be subject to civil and criminal penalties, all of which could have a material adverse effect on our business, financial condition and results of operations |
| Difficulties in implementing a new global information technology system could harm our business |
| We have begun the implementation of a new global information technology system |
| Our operations in different geographic areas are currently managed and monitored with a number of different and in some cases incompatible legacy software systems, many of which were implemented long before we acquired these operations |
| We anticipate that our new system, once implemented, will enable the more centralized, streamlined and efficient operation and monitoring of our business |
| We currently expect that the implementation will proceed in stages across the geographic breadth of the company, and will require a minimum of two years for completion |
| We anticipate incurring significant financial and resource costs in connection with the implementation of the new system, and our business will be subject to many difficulties as we replace the various legacy software systems that we currently use to manage and monitor our operations |
| These difficulties include disruption of our operations, loss of data, and the diversion of our management and key employees’ attention away from other business matters |
| The difficulties associated with the implementation, and our failure to realize the anticipated benefits from the implementation, could harm our business, results of operations and cash flows |
| Compliance with environmental regulations and potential environmental liabilities could adversely affect our financial results |
| Our operations are subject to various federal, state and local environmental protection regulations relating to the protection of the environment, including those governing discharges of pollutants into the air and water, the management and disposal of hazardous substances and wastes and the cleanup of contaminated sites |
| In the United States, we are subject to the federal regulation and control of the Environmental Protection Agency (EPA) |
| Comparable authorities are involved in other countries |
| Some of our operations require environmental permits and controls to prevent and reduce air and water pollution, and these permits are subject to modification, renewal and revocation by issuing authorities |
| Future developments, administrative actions or liabilities relating to environmental matters could have a material adverse effect on our business, results of operations or financial condition |
| Although we believe that our safety procedures for using, handling, storing and disposing of such materials comply with the standards required by state and federal laws and regulations, we cannot completely eliminate the risk of accidental contamination or injury from these materials |
| In the event of such an accident involving such materials, we could be liable for damages and such liability could exceed the amount of our liability insurance coverage (if any) and the resources of our business |
| Spectra-Physics’ Mountain View, California facility is an EPA-designated Superfund site and is subject to a cleanup and abatement order from the California Regional Water Quality Control Board |
| Spectra-Physics, along with several other entities with facilities located near the Mountain View, California facility, have been identified as Responsible Parties with respect to this Superfund site, due to releases of hazardous substances during the 1960s and 1970s |
| The site is mature, and investigations and remediation efforts have been ongoing for approximately 20 years |
| Spectra-Physics and the other Responsible Parties have entered into a cost-sharing agreement covering the costs of remediating the off-site groundwater impact |
| We have established reserves relating to the estimated cost of these remediation efforts, however our ultimate costs of remediation are difficult to predict |
| In addition, while we 25 ______________________________________________________________________ are not aware of any unresolved property damage or personal injury claims relating to this site, such claims could be made against us in the future |
| While Thermo Electron Corporation has agreed in connection with our purchase of Spectra-Physics to indemnify us, subject to certain conditions, for environmental liabilities relating to this site in excess of our reserves, this indemnity may not cover all liabilities relating to this site |
| In such event, our business, financial condition and results of operations could be adversely affected |
| These environmental regulations also include a variety of federal, state, local and international environmental regulations restricting the use and disposal of materials used in the manufacture of our products, or requiring design changes or recycling of our products |
| If we fail to comply with any present and future regulations, we could be subject to future liabilities, the suspension of manufacturing or a prohibition on the sale of products we manufacture |
| In addition, such regulations could restrict our ability to equip our facilities or could require us to acquire costly equipment, or to incur other significant expenses to comply with environmental regulations, including expenses associated with the recall of any non-compliant product and the management of historical waste |
| From time to time new regulations are enacted, and it is difficult to anticipate how such regulations will be implemented and enforced |
| We continue to evaluate the necessary steps for compliance with regulations as they are enacted |
| For example, the European Union has enacted the Restriction on the Use of Certain Hazardous Substances in Electrical and Electronic Equipment Directive (RoHS) and the Waste Electrical and Electronic Equipment Directive (WEEE) for implementation in each European Union member country |
| RoHS regulates the use of certain hazardous substances in certain products, and WEEE requires the collection, reuse and recycling of waste from certain products |
| The European Union member states are in the process of implementing RoHS and WEEE, and it is likely that each jurisdiction will interpret RoHS and WEEE differently in the course of implementation |
| Based on information we have received to date, certain of our products sold in these countries are or will likely be subject to RoHS and WEEE requirements |
| We will continue to monitor RoHS and WEEE guidance as it is announced by individual jurisdictions to determine our responsibilities |
| The incomplete guidance available to us to date suggests that in some instances we may not be directly responsible for compliance with RoHS and WEEE because some of our products may be subject to exemptions |
| However, because some products may not be exempt and because the products are sold under our brand name, we may at times become contractually or directly subject to such regulations |
| Also, final legislation from individual jurisdictions may impose different or additional responsibilities upon us |
| We are also aware of similar legislation that is currently in force or being considered in the United States, as well as other countries, such as Japan and China |
| Our failure to comply with any of such regulatory requirements or contractual obligations could result in our being directly or indirectly liable for costs, fines or penalties and third-party claims, and could jeopardize our ability to conduct business in countries in these regions |
| Natural disasters or power outages could disrupt or shut down our operations, which would negatively impact our operations |
| We are headquartered, and have significant operations, in the State of California and other areas where our operations are susceptible to damages from earthquakes, floods, fire, loss of power or water supplies, or other similar contingencies |
| We currently do not have comprehensive disaster recovery plans for all of our operations and facilities, and we have not formulated a companywide disaster recovery plan |
| If any of our facilities were to experience a catastrophic loss or significant power outages, it could disrupt our operations, delay production, shipments and revenue, and result in large expenses to repair or replace the facility, any of which would harm our business |
| We are predominantly uninsured for losses and interruptions caused by earthquakes |