Apple 2014 Annual Report Download - page 40

Purchase Commitments
The Company utilizes several outsourcing partners to manufacture sub-assemblies for the Company’s products and to
perform final assembly and testing of finished products. These outsourcing partners acquire components and build product
based on demand information supplied by the Company, which typically covers periods up to 150 days. The Company also
obtains individual components for its products from a wide variety of individual suppliers. Consistent with industry practice, the
Company acquires components through a combination of purchase orders, supplier contracts and open orders based on
projected demand information. Where appropriate, the purchases are applied to inventory component prepayments that
are outstanding with the respective supplier.
Other Obligations
The Company’s other obligations were comprised mainly of commitments to acquire capital assets, including product tooling
and manufacturing process equipment and commitments related to advertising, R&D, Internet and telecommunications
services and other obligations.
The Company’s other non-current liabilities in the Consolidated Balance Sheets consist primarily of deferred tax liabilities, gross
unrecognized tax benefits and the related gross interest and penalties. As of September 27, 2014, the Company had non-
current deferred tax liabilities of $20.3 billion. Additionally, as of September 27, 2014, the Company had gross unrecognized
tax benefits of $4.0 billion and an additional $630 million for gross interest and penalties classified as non-current liabilities. At
this time, the Company is unable to make a reasonably reliable estimate of the timing of payments in individual years in
connection with these tax liabilities; therefore, such amounts are not included in the above contractual obligation table.
Indemnification
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 it or an indemnified third-party. In the
opinion of management, there was not 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 September 27,
2014 or September 28, 2013.
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.
Apple Inc. | 2014 Form 10-K | 38