Western Digital 2012 Annual Report Download - page 51

Purchase Orders
In the normal course of business, we enter into purchase orders with suppliers for the purchase of hard drive
components used to manufacture our products. These purchase orders generally cover forecasted component supplies
needed for production during the next quarter, are recorded as a liability upon receipt of the components, and gen-
erally may be changed or canceled at any time prior to shipment of the components. We also enter into purchase
orders with suppliers for capital equipment that are recorded as a liability upon receipt of the equipment. Our ability
to change or cancel a capital equipment purchase order without penalty depends on the nature of the equipment being
ordered. In some cases, we may be obligated to pay for certain costs related to changes to, or cancellation of, a purchase
order, such as costs incurred for raw materials or work in process of components or capital equipment.
We have entered into long-term purchase agreements with various component suppliers, which contain mini-
mum quantity requirements. However, the dollar amount of the purchases may depend on the specific products
ordered, achievement of pre-defined quantity or quality specifications or future price negotiations. The estimated
related minimum purchase requirements are included in “Purchase obligations” in the table above. We have also
entered into long-term purchase agreements with various component suppliers that carry fixed volumes and pricing
which obligate us to make certain future purchases, contingent on certain conditions of performance, quality and
technology of the vendor’s components. These arrangements are included under “Purchase obligations” in the table
above.
We enter into, from time to time, other long-term purchase agreements for components with certain vendors.
Generally, future purchases under these agreements are not fixed and determinable as they depend on our overall unit
volume requirements and are contingent upon the prices, technology and quality of the supplier’s products remaining
competitive. These arrangements are not included under “Purchase obligations” in the table above. Please see Item 1A
of this Annual Report on Form 10-K for a discussion of risks related to these commitments.
As a result of the Thailand floods and the impact on our ability to manufacture sufficient recording heads, we
entered into an agreement on November 15, 2011 with SAE Magnetics (H.K.) Ltd., a subsidiary of TDK (“SAE”), to
supply incremental heads. The agreement commenced in the third quarter of fiscal 2012 and includes quarterly
minimum volumes through fiscal 2013. We have had an ongoing supply relationship for heads with SAE over periods
spanning several years prior to this agreement.
Foreign Exchange Contracts
We purchase short-term, foreign exchange contracts to hedge the impact of foreign currency fluctuations on cer-
tain underlying assets, revenue, liabilities and commitments for operating expenses and product costs denominated in
foreign currencies. See Part II, Item 7A, under the heading “Disclosure About Foreign Currency Risk,” for a descrip-
tion of our current foreign exchange contract commitments and Part II, Item 8, Notes 1 and 11 in the Notes to Con-
solidated Financial Statements, included in this Annual Report on Form 10-K.
Indemnifications
In the ordinary course of business, we may provide indemnifications of varying scope and terms to customers,
vendors, lessors, business partners and other parties with respect to certain matters, including, but not limited to,
losses arising out of our breach of such agreements, products or services to be provided by us, or from intellectual
property infringement claims made by third parties. In addition, we have entered into indemnification agreements
with our directors and certain of our officers that will require us, among other things, to indemnify them against cer-
tain liabilities that may arise by reason of their status or service as directors or officers. We maintain director and offi-
cer insurance, which may cover certain liabilities arising from our obligation to indemnify our directors and officers in
certain circumstances.
It is not possible to determine the maximum potential amount under these indemnification agreements due to
the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular
agreement. Such indemnification agreements may not be subject to maximum loss clauses. Historically, we have not
incurred material costs as a result of obligations under these agreements.
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