Apple 2011 Annual Report Download - page 72

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at least a reasonable possibility the Company may have incurred a material loss with respect to indemnification of end-
users of its operating
system or application software for infringement of third-
party intellectual property rights. The Company did not record a liability for
infringement costs related to indemnification as of either September 24, 2011 or September 25, 2010.
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 been
material.
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, a number of components are
currently obtained from single or limited sources, which subjects the Company to significant supply and pricing risks. Many components that are
available from multiple sources are at times subject to industry-
wide shortages and significant commodity pricing fluctuations. In addition, the
Company has entered into various agreements for the supply of components; however there can be no guarantee that the Company will be able to
extend or renew these agreements on similar terms, or at all. Therefore, the Company remains subject to significant risks of supply shortages and
price increases that can materially adversely affect its financial condition and operating results.
The Company and other participants in the mobile communication and media device, and personal computer industries also compete for various
components with other industries that have experienced increased demand for their products. The Company also 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 components for a new or existing product were delayed or
constrained, or if an outsourcing partner 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 materially 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
concentrated on the production of common components instead of components customized to meet the Company’s requirements.
Substantially all of the Company’s hardware products are manufactured by outsourcing partners that are primarily
located in Asia. A significant
concentration of this manufacturing is currently performed by a small number of outsourcing partners, often in single locations. Certain of these
outsourcing partners are the sole-sourced suppliers of components and manufacturer for many of the Company’
s products. Although the
Company works closely with its outsourcing partners on manufacturing schedules, the Company’
s operating results could be adversely affected
if its outsourcing partners were unable to meet their production commitments. The Company’
s purchase commitments typically cover its
requirements for periods up to 150 days.
Long-Term Supply Agreements
The Company has entered into long-
term agreements to secure the supply of certain inventory components. These agreements generally expire
between 2012 and 2022. As of September 24, 2011, the Company had a total of $2.3 billion of inventory component prepayments outstanding, of
which $728 million are classified as other
70