Apple 2015 Annual Report Download - page 67

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. As of September 26, 2015, the Company had a total of 463 retail
stores. 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 26, 2015, the Company’s total future minimum lease payments under noncancelable operating
leases were $6.3 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 $794 million, $717 million and $645
million in 2015, 2014 and 2013, respectively. Future minimum lease payments under noncancelable operating leases having remaining
terms in excess of one year as of September 26, 2015, are as follows (in millions):
2016 $ 772
2017 774
2018 744
2019 715
2020 674
Thereafter 2,592
Total $ 6,271
Other Commitments
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. Where
appropriate, the purchases are applied to inventory component prepayments that are outstanding with the respective supplier. As of
September 26, 2015, the Company had outstanding off-balance sheet third-party manufacturing commitments and component purchase
commitments of $29.5 billion.
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