Apple 2003 Annual Report Download - page 73

Beginning in the third quarter of 2003, the Company shortened its estimate of the expected life of new options granted to its employees from
4 years to 3.5 years. The Company bases its expected life assumption on its historical experience and on the terms and conditions of the stock
options it grants to employees. The change in the expected life assumption made during the third quarter of 2003 was the result of the expected
impact of shortening the contractual life of new options granted to employees from 10 years to 7 years and changing the vesting provisions of
new options granted to employees from 4 year straight-line annual vesting to 4 year straight-line quarterly vesting.
Note 10—Commitments and Contingencies
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 for terms of 5 to 10 years and
generally provide renewal options for terms of 3 to 5 additional years. Leases for retail space are for terms of 5 to 15 years and often contain
multi-year renewal options. As of September 27, 2003, the Company's total future minimum lease payments under noncancelable operating
leases were $600 million, of which $354 million related to leases for retail space.
Rent expense under all operating leases, including both cancelable and noncancelable leases, was $97 million, $92 million, and $80 million in
2003, 2002, and 2001, respectively. Future minimum lease
92
payments under noncancelable operating leases having remaining terms in excess of one year as of September 27, 2003, are as follows (in
millions):
Accrued Warranty and Indemnifications
The Company offers a basic limited parts and labor warranty on its hardware products. The basic warranty period for hardware products is
typically one year from the date of purchase by the end-user. The Company also offers a 90-day basic warranty for Apple software and for
Apple service parts used to repair Apple hardware products. The Company provides currently for the estimated cost that may be incurred under
its basic limited product warranties at the time related revenue is recognized. Factors considered in determining appropriate accruals for
product warranty obligations include the size of the installed base of products subject to warranty protection, historical warranty claim rates,
historical and projected cost-per-claim, and knowledge of specific product failures that are outside of the Company's typical experience. The
Company assesses the adequacy of its preexisting warranty liabilities and adjusts the amounts as necessary based on actual experience and
changes in future expectations.
The following table reconciles changes in the Company's accrued warranties and related costs (in millions):
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 licensing 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
Fiscal Years
2004
$
100
2005
100
2006
83
2007
64
2008
51
Later years
202
Total minimum lease payments
$
600
2003 2002 2001
Beginning accrued warranty and related costs
$
69
$
87
$
108
Cost of warranty claims
(71
)
(79
)
(92
)
Accruals for product warranties
69
61
71
Ending accrued warranty and related costs
$
67
$
69
$
87