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Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 8—Commitments and Contingencies (Continued)
Rent expense under all operating leases, including both cancelable and noncancelable leases, was $207 million, $151 million, and $138 million
in 2008, 2007, and 2006, respectively. Future minimum lease payments under noncancelable operating leases having remaining terms in excess
of one year as of September 27, 2008, 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. For products accounted for under subscription accounting pursuant to SOP No. 97-2, the Company recognizes warranty
expense as incurred.
The Company periodically provides updates to its applications and system software to maintain the software’s compliance with published
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 for the three fiscal years ended September 27,
2008 (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 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.
80
Fiscal Years
2009
$
195
2010
209
2011
200
2012
191
2013
177
Thereafter
788
Total minimum lease payments
$
1,760
2008
2007
2006
Beginning accrued warranty and related costs
$
230
$
284
$
188
Cost of warranty claims
(319
)
(281
)
(267
)
Accruals for product warranties
356
227
363
Ending accrued warranty and related costs
$
267
$
230
$
284