Apple 2007 Annual Report Download - page 56

agreements, the Company prepaid $1.25 billion for flash memory components during 2006, which will be applied to certain inventory purchases
made over the life of each respective agreement. The Company utilized $208 million of the prepayment as of September 29, 2007.
Asset Retirement Obligations
The Company's asset retirement obligations are associated with commitments to return property subject to operating leases to original condition
upon lease termination. As of September 29, 2007, the Company estimated that gross expected future cash flows of $24 million would be
required to fulfill these obligations.
Other Obligations
Other outstanding obligations were $50 million as of September 29, 2007, primarily related to Internet and telecommunications services and the
estimated cost related to the $100 store credit the Company offered to customers who purchased an iPhone prior to the Company's
September 2007 price reduction.
Indemnifications
The Company generally does not indemnify end-users of its operating system and application software against legal claims that the software
infringes third-party intellectual property rights. Other agreements entered into by the Company sometimes include indemnification provisions
under which the Company could be subject to costs and/or damages in the event of an infringement claim against the Company or an
indemnified third-party. However, the Company has not been required to make any significant payments resulting from such an infringement
claim asserted against itself or an indemnified third-party and, in the opinion of management, does not have a liability related to unresolved
infringement claims subject to indemnification that would have a material adverse effect on its financial condition or operating results.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate and Foreign Currency Risk Management
The Company regularly reviews its foreign exchange forward and option positions, both on a stand-alone basis and in conjunction with its
underlying foreign currency and interest rate related exposures. However, given the effective horizons of the Company's risk management
activities and the anticipatory nature of the exposures, there can be no assurance the hedges will offset more than a portion of the financial
impact resulting from movements in either foreign exchange or interest rates. In addition, the timing of the accounting for recognition of gains
and losses related to mark-to-market instruments for any given period may not coincide with the timing of gains and losses related to the
underlying economic exposures and, therefore, may adversely affect the Company's financial condition and operating results.
Interest Rate Risk
While the Company is exposed to interest rate fluctuations in many of the world's leading industrialized countries, the Company's interest
income and expense is most sensitive to fluctuations in the general level of U.S. interest rates. As such, changes in U.S. interest rates affect the
interest earned on the Company's cash, cash equivalents, and short-term investments, the value of those investments, as well as costs associated
with foreign currency hedges.
The Company's short-term investment policy and strategy is to ensure the preservation of capital, meet liquidity requirements, and optimize
return in light of the current credit and interest rate environment. A portion of the Company's cash is managed by external managers within the
guidelines of the Company's investment policy and to an objective market benchmark. The Company's internal portfolio is benchmarked against
external manager performance, allowing for differences in liquidity needs.
The Company's exposure to market risk for changes in interest rates relates primarily to the Company's investment portfolio. The Company
places its short-term investments in highly liquid securities issued by highly rated issuers and, by policy, limits the amount of credit exposure to
any one issuer. The Company's
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