Apple 2010 Annual Report Download - page 56

Download and view the complete annual report

Please find page 56 of the 2010 Apple annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 118

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118

Table of Contents
Company’s second quarter of 2010 was $25. Beginning in April 2010 in conjunction with the Company’
s announcement of iOS 4 for iPhone, the
Company lowered its ESP for the software upgrade right included with each iPhone to $10.
Beginning with initial sales of iPad in April 2010, the Company has also indicated it may from time-to-
time provide future unspecified software
upgrades and features free of charge to iPad customers. The Company’
s ESP for the embedded software upgrade right included with the sale of
each iPad is $10. In June 2010, the Company announced that certain previously sold iPod touch models would receive an upgrade to iOS 4 free
of charge and indicated iPod touch devices running on iOS 4 may from time-to-
time receive future unspecified software upgrades and features
free of charge. The Company’s ESP for the embedded software upgrade right included with each iPod touch sold beginning in June 2010 is $5.
The Company accounts for multiple element arrangements that consist only of software or software-
related products, including the sale of
upgrades to previously sold software, in accordance with industry specific accounting guidance for software and software-
related transactions.
For such transactions, revenue on arrangements that include multiple elements is allocated to each element based on the relative fair value of
each element, and fair value is determined by VSOE. If the Company cannot objectively determine the fair value of any undelivered element
included in such multiple-
element arrangements, the Company defers revenue until all elements are delivered and services have been performed,
or until fair value can objectively be determined for any remaining undelivered elements. When the fair value of a delivered element has not
been established, but fair value exists for the undelivered elements, the Company uses the residual method to recognize revenue. Under the
residual method, the fair value of the undelivered elements is deferred and the remaining portion of the arrangement fee is allocated to the
delivered elements and is recognized as revenue.
Except as described for iPhone, iPad, iPod touch and Apple TV, the Company generally does not offer unspecified upgrade rights to its
customers in connection with software sales or the sale of AppleCare extended warranty and support contracts. A limited number of the
Company’
s software products are available with maintenance agreements that grant customers rights to unspecified future upgrades over the
maintenance term on a when and if available basis. Revenue associated with such maintenance is recognized ratably over the maintenance term.
Shipping Costs
For all periods presented, amounts billed to customers related to shipping and handling are classified as revenue, and the Company’
s shipping
and handling costs are included in cost of sales.
Warranty Expense
The Company generally provides for the estimated cost of hardware and software warranties at the time the related revenue is recognized. The
Company assesses the adequacy of its pre-
existing warranty liabilities and adjusts the amounts as necessary based on actual experience and
changes in future estimates.
Software Development Costs
Research and development costs are expensed as incurred. Development costs of computer software to be sold, leased, or otherwise marketed are
subject to capitalization beginning when a product’
s technological feasibility has been established and ending when a product is available for
general release to customers. In most instances, the Company’
s products are released soon after technological feasibility has been established.
Therefore, costs incurred subsequent to achievement of technological feasibility are usually not significant, and generally most software
development costs have been expensed as incurred.
The Company did not capitalize any software development costs during 2010. In 2009 and 2008, the Company capitalized $71 million and $11
million, respectively, of costs associated with the development of Mac OS X
53