Apple 2014 Annual Report Download - page 77

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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 could 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 agreements for the supply of many 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 could 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
Operating Leases
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 contain multi-year renewal options. 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 27, 2014, the Company’s total future minimum lease payments under noncancelable operating leases were
$5.0 billion, of which $3.6 billion related to leases for retail space.
Rent expense under all operating leases, including both cancelable and noncancelable leases, was $717 million, $645 million
and $488 million in 2014, 2013 and 2012, respectively. Future minimum lease payments under noncancelable operating leases
having remaining terms in excess of one year as of September 27, 2014, are as follows (in millions):
2015 $ 662
2016 676
2017 645
2018 593
2019 534
Thereafter 1,877
Total $4,987
Apple Inc. | 2014 Form 10-K | 75