Apple 2013 Annual Report Download - page 74

The following table shows a summary of the share-based compensation expense included in the Consolidated
Statements of Operations for 2013, 2012 and 2011 (in millions):
2013 2012 2011
Cost of sales ........................................................ $ 350 $ 265 $ 200
Research and development ............................................. 917 668 450
Selling, general and administrative ...................................... 986 807 518
Total share-based compensation expense ............................. $2,253 $ 1,740 $ 1,168
The income tax benefit related to share-based compensation expense was $816 million, $567 million and $467
million for 2013, 2012 and 2011, respectively. As of September 28, 2013, the total unrecognized compensation
cost related to outstanding stock options and RSUs was $4.7 billion, which the Company expects to recognize
over a weighted-average period of 3.0 years.
Note 10 – Commitments and Contingencies
Accrued Warranty and Indemnification
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 pre-
existing warranty liabilities and adjusts the amounts as necessary based on actual experience and changes in
future estimates.
The following table shows changes in the Company’s accrued warranties and related costs for 2013, 2012 and
2011 (in millions):
2013 2012 2011
Beginning accrued warranty and related costs .............................. $1,638 $ 1,240 $ 761
Cost of warranty claims ........................................... (3,703) (1,786) (1,147)
Accruals for product warranty ...................................... 5,032 2,184 1,626
Ending accrued warranty and related costs ................................ $2,967 $ 1,638 $ 1,240
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 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
infringement claim asserted against it or an indemnified third-party and, in the opinion of management, does not
have a potential liability related to unresolved infringement claims subject to indemnification that would
materially adversely affect its financial condition or operating results. Therefore, the Company did not record a
liability for infringement costs related to indemnification as of either September 28, 2013 or September 29, 2012.
The Company has entered into indemnification agreements with its directors and executive officers. Under these
agreements, the Company has agreed to indemnify such individuals to the fullest extent permitted by law against
liabilities that arise by reason of their status as directors or officers and to advance expenses incurred by such
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