Apple 2008 Annual Report Download - page 53

Table of Contents
Off-Balance Sheet Arrangements and Contractual Obligations
The Company has not entered into any transactions with unconsolidated entities whereby the Company has financial guarantees, subordinated
retained interests, derivative instruments, or other contingent arrangements that expose the Company to material continuing risks, contingent
liabilities, or any other obligation under a variable interest in an unconsolidated entity that provides financing, liquidity, market risk, or credit
risk support to the Company.
The following table presents certain payments due by the Company under contractual obligations with minimum firm commitments as of
September 27, 2008 and excludes amounts already recorded on the Company’s balance sheet as current liabilities (in millions):
Lease Commitments
As of September 27, 2008, the Company had total outstanding commitments on noncancelable operating leases of $1.8 billion, $1.4 billion of
which related to the lease of retail space and related facilities. The Company’s major facility leases are generally for terms of 3 to 20 years and
generally provide renewal options for terms of 1 to 5 additional years. Leases for retail space are for terms of 5 to 20 years, the majority of which
are for 10 years, and often contain multi-year renewal options.
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. In addition, the Company has an off-balance
sheet warranty obligation for products accounted for under subscription accounting pursuant to SOP No. 97-2 whereby the Company recognizes
warranty expense as incurred. As of September 27, 2008, the Company had outstanding off-balance sheet third-party manufacturing
commitments, component purchase commitments, and estimated warranty commitments of $5.4 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, which will be applied to certain inventory
purchases made over the life of each respective agreement. The Company utilized $567 million of the prepayment as of September 27, 2008.
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 27, 2008, the Company estimated that gross expected future cash flows of $28 million would be
required to fulfill these obligations.
50
Total
Payments Due
in Less
Than 1 Year
Payments
Due in
1-
3 Years
Payments
Due in
4-
5 Years
Payments Due
in More
Than 5 Years
Operating leases
$
1,760
$
195
$
409
$
368
$
788
Purchase obligations
5,378
5,378
—
—
—
Asset retirement obligations
28
—
8
7
13
Other obligations
471
242
124
105
—
Total
$
7,637
$
5,815
$
541
$
480
$
801