Apple 2006 Annual Report Download - page 70

Download and view the complete annual report

Please find page 70 of the 2006 Apple annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 143

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143

Lease Commitments
As of September 30, 2006, the Company had total outstanding commitments on noncancelable operating leases of approximately $1.2 billion,
$887 million of which related to the lease of retail space and related facilities. Lease terms on the Company’s existing major facility operating
leases range from 5 to 15 years.
Purchase Commitments with Contract Manufacturers and Component Suppliers
The Company utilizes several contract manufacturers to manufacture sub-assemblies for the Company’s products and to perform final
assembly and test of finished products. These contract manufacturers acquire components and build product based on demand information
supplied by the Company, which typically covers periods ranging from 30 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. Such purchase commitments
typically cover the Company’s forecasted component and manufacturing requirements for periods ranging from 30 to 150 days. As of
September 30, 2006, the Company had outstanding third-party manufacturing commitments and component purchase commitments of
approximately $2.3 billion.
During 2006, the Company entered into long-term supply agreements with Hynix Semiconductor, Inc., Intel Corporation, Micron
Technology, Inc., Samsung Electronics Co., Ltd., and Toshiba Corporation to secure supply of NAND flash memory through calendar year
2010. As part of these agreements, the Company prepaid $1.25 billion for flash memory components during 2006. These prepayments will be
applied to inventory purchases made over the life of each respective agreement.
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 30, 2006, the Company estimates that gross expected future cash flows of approximately
$19 million will be required to fulfill these obligations.
Other Obligations
The Company’s other obligations of approximately $39 million are primarily related to Internet and telecommunications services.
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, liquidity or results of
operations.
69