Apple 2012 Annual Report Download - page 40

five to 20 years, the majority of which are for 10 years, and often contain multi-year renewal options. As of
September 29, 2012, the Company’s total future minimum lease payments under noncancelable operating leases
were $4.4 billion, of which $3.1 billion related to leases for retail space.
Purchase Commitments with Outsourcing Partners and Component Suppliers
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. As of
September 29, 2012, the Company had outstanding off-balance sheet third-party manufacturing commitments
and component purchase commitments of $21.1 billion.
Other Obligations
In addition to the off-balance sheet commitments mentioned above, the Company had outstanding obligations of
$988 million as of September 29, 2012, that were comprised mainly of commitments to acquire capital assets,
including product tooling and manufacturing process equipment, and commitments related to advertising,
research and development, 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 29, 2012,
the Company had non-current deferred tax liabilities of $13.8 billion. Additionally, as of September 29, 2012, the
Company had gross unrecognized tax benefits of $2.1 billion and an additional $401 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 29, 2012 or September 24, 2011.
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.
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