Apple 2010 Annual Report Download - page 80

Table of Contents
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 it or an indemnified third-
party and, in the opinion of management, does
not have a potential liability related to unresolved infringement claims subject to indemnification that would materially adversely affect its
financial condition or operating results. Therefore, the Company did not record a liability for infringement costs as of either September 25, 2010
or September 26, 2009.
The Company has entered into indemnification agreements with its directors and executive officers. Under these agreements, the Company has
agreed to indemnify such individuals to the fullest extent permitted by law against liabilities that arise by reason of their status as directors or
officers and to advance expenses incurred by such individuals in connection with related legal proceedings. It is not possible to determine the
maximum potential amount of payments the Company could be required to make under these agreements due to the limited history of prior
indemnification claims and the unique facts and circumstances involved in each claim. However, the Company maintains directors and officers
liability insurance coverage to reduce its exposure to such obligations, and payments made under these agreements historically have not
materially adversely affected the Company’s financial condition or operating results.
Concentrations in the Available Sources of Supply of Materials and Product
Although most components essential to the Company’
s business are generally available from multiple sources, certain key components including
but not limited to microprocessors, enclosures, certain liquid crystal displays (“LCDs”), certain optical drives and application-
specific integrated
circuits (“ASICs”)
are currently obtained by the Company from single or limited sources, which subjects the Company to significant supply and
pricing risks. Many of these and other key components that are available from multiple sources including but not limited to NAND flash
memory, dynamic random access memory (“DRAM”) and certain LCDs, are subject at times to industry-
wide shortages and significant
commodity pricing fluctuations. In addition, the Company has entered into certain agreements for the supply of key components including but
not limited to microprocessors, NAND flash memory, DRAM and LCDs at favorable pricing, but there is no guarantee that the Company will be
able to extend or renew these agreements on similar favorable terms, or at all, upon expiration or otherwise obtain favorable pricing in the future.
Therefore, the Company remains subject to significant risks of supply shortages and/or price increases that can materially adversely affect its
financial condition and operating results.
The Company and other participants in the personal computer, and mobile communication and media device industries also compete for various
components with other industries that have experienced increased demand for their products. In addition, the Company uses some custom
components that are not common to the rest of these industries, and new products introduced by the Company often utilize custom components
available from only one source. When a component or product uses new technologies, initial capacity constraints may exist until the suppliers’
yields have matured or manufacturing capacity has increased. If the Company
’s supply of a key single-
sourced component for a new or existing
product were delayed or constrained, if such components were available only at significantly higher prices, or if a key manufacturing vendor
delayed shipments of completed products to the Company, the Company’
s financial condition and operating results could be materially
adversely affected. The Company’
s business and financial performance could also be adversely affected depending on the time required to
obtain sufficient quantities from the original source, or to identify and obtain sufficient quantities from an alternative source. Continued
availability of these components at acceptable prices, or at all, may be affected if those suppliers decided to concentrate on the production of
common components instead of components customized to meet the Company’s requirements.
Substantially all of the Company’
s Macs, iPhones, iPads, iPods, logic boards and other assembled products are now manufactured by
outsourcing partners, primarily in various parts of Asia. A significant concentration of this outsourced manufacturing is currently performed by
only a few outsourcing partners of the Company, often in single locations. Certain of these outsourcing partners are the sole-
sourced supplier of
components and manufacturing outsourcing for many of the Company’s key products including but not limited to final assembly
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