Apple 2014 Annual Report Download - page 76

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Share-based Compensation
The following table shows a summary of the share-based compensation expense included in the Consolidated Statements of
Operations for 2014, 2013 and 2012 (in millions):
2014 2013 2012
Cost of sales $ 450 $ 350 $ 265
Research and development 1,216 917 668
Selling, general and administrative 1,197 986 807
Total share-based compensation expense $2,863 $2,253 $1,740
The income tax benefit related to share-based compensation expense was $1.0 billion, $816 million and $567 million for 2014,
2013 and 2012, respectively. As of September 27, 2014, the total unrecognized compensation cost related to outstanding
stock options, RSUs and restricted stock was $6.3 billion, which the Company expects to recognize over a weighted-average
period of 2.9 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 2014, 2013 and 2012 (in
millions):
2014 2013 2012
Beginning accrued warranty and related costs $ 2,967 $ 1,638 $ 1,240
Cost of warranty claims (3,760) (3,703) (1,786)
Accruals for product warranty 4,952 5,032 2,184
Ending accrued warranty and related costs $ 4,159 $ 2,967 $ 1,638
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. In the
opinion of management, there was not at least a reasonable possibility the Company may have incurred a material loss with
respect to indemnification of end-users of its operating system or application software for infringement of third-party intellectual
property rights. The Company did not record a liability for infringement costs related to indemnification as of September 27,
2014 or September 28, 2013.
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 individuals in connection with related
legal proceedings. It is not possible to determine the maximum potential amount of payments the Company could be required
to make under these agreements due to the limited history of prior indemnification claims and the unique facts and
circumstances involved in each claim. However, the Company maintains directors and officers liability insurance coverage to
reduce its exposure to such obligations, and payments made under these agreements historically have not been material.
Apple Inc. | 2014 Form 10-K | 74