Apple 2013 Annual Report Download - page 75

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.
Concentrations in the Available Sources of Supply of Materials and Product
Although most components essential to the Company’s business are generally available from multiple sources, a
number of components are currently obtained from single or limited sources. In addition, the Company competes
for various components with other participants in the markets for mobile communication and media devices and
personal computers. Therefore, many components used by the Company, including those that are available from
multiple sources, are at times subject to industry-wide shortage and significant pricing fluctuations that can
materially adversely affect the Company’s financial condition and operating results.
The Company uses some custom components that are not commonly used by its competitors, and new products
introduced by the Company often utilize custom components available from only one source. When a component
or product uses new technologies, initial capacity constraints may exist until the suppliers’ yields have matured
or manufacturing capacity has increased. If the Company’s supply of components for a new or existing product
were delayed or constrained, or if an outsourcing partner delayed shipments of completed products to the
Company, the Company’s financial condition and operating results could be materially adversely affected. The
Company’s business and financial performance could also be materially adversely affected depending on the
time required to obtain sufficient quantities from the original source, or to identify and obtain sufficient
quantities from an alternative source. Continued availability of these components at acceptable prices, or at all,
may be affected if those suppliers concentrated on the production of common components instead of components
customized to meet the Company’s requirements.
The Company has entered into various agreements for the supply of components; however, there can be no
guarantee that the Company will be able to extend or renew these agreements on similar terms, or at all.
Therefore, the Company remains subject to significant risks of supply shortages and price increases that can
materially adversely affect its financial condition and operating results.
Substantially all of the Company’s hardware products are manufactured by outsourcing partners that are located
primarily in Asia. A significant concentration of this manufacturing is currently performed by a small number of
outsourcing partners, often in single locations. Certain of these outsourcing partners are the sole-sourced
suppliers of components and manufacturers for many of the Company’s products. Although the Company works
closely with its outsourcing partners on manufacturing schedules, the Company’s operating results could be
adversely affected if its outsourcing partners were unable to meet their production commitments. The Company’s
purchase commitments typically cover its requirements for periods up to 150 days.
Other Off-Balance Sheet Commitments
Lease Commitments
The Company leases various equipment and facilities, including retail space, under noncancelable operating lease
arrangements. The Company does not currently utilize any other off-balance sheet financing arrangements. The
major facility leases are typically for terms not exceeding 10 years and generally provide renewal options for
terms not exceeding five additional years. Leases for retail space are for terms ranging from five to 20 years, the
majority of which are for 10 years, and often contain multi-year renewal options. As of September 28, 2013, the
Company’s total future minimum lease payments under noncancelable operating leases were $4.7 billion, of
which $3.5 billion related to leases for retail space.
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