Apple 2006 Annual Report Download - page 108

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 10—Commitments and Contingencies (Continued)
renewal options for terms of 3 to 5 additional years. Leases for retail space are for terms of 5 to 20 years, the majority of which are for 10 years,
and often contain multi-year renewal options. As of September 30, 2006, the Company’s total future minimum lease payments under
noncancelable operating leases were approximately $1.2 billion, of which $887 million related to leases for retail space.
Rent expense under all operating leases, including both cancelable and noncancelable leases, was $138 million, $140 million, and $103 million
in 2006, 2005, and 2004, respectively. Future minimum lease payments under noncancelable operating leases having remaining terms in excess
of one year as of September 30, 2006, 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 its service parts used to
repair the Company’s 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 and projected 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 estimates.
The Company periodically provides updates to its applications and system software to maintain the software’s compliance with specifications.
The estimated cost to develop such updates is accounted for as warranty costs that are recognized at the time related software revenue is
recognized. Factors considered in determining appropriate accruals related to such updates include the number of units delivered, the number of
updates expected to occur, and the historical cost and estimated future cost of the resources necessary to develop these updates.
The following table reconciles changes in the Company’s accrued warranties and related costs (in millions):
107
Fiscal Years
2007
$
134
2008
134
2009
134
2010
132
2011
122
Thereafter
498
Total minimum lease payments
$
1,154
2006
2005
2004
Beginning accrued warranty and related costs
$
188
$
105
$
67
Cost of warranty claims
(267
)
(188
)
(105
)
Accruals for product warranties
363
271
143
Ending accrued warranty and related costs
$
284
$
188
$
105