WDC » Topics » Note 4. Commitments and Contingencies

This excerpt taken from the WDC 10-K filed Aug 20, 2008.
Note 4.  Commitments and Contingencies
 
Lease Commitments
 
The Company leases certain facilities and equipment under long-term, non-cancelable operating and capital leases. The Company’s operating leases consist of leased property and equipment that expire at various dates through 2015.


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Table of Contents

 
WESTERN DIGITAL CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Rental expense under these operating leases, including month-to-month rentals, was $18 million, $15 million and $16 million in 2008, 2007 and 2006, respectively. The Company’s capital leases consist of leased equipment. These leases have maturity dates through July 2009 and interest rates averaging approximately 6.3%. Future minimum lease payments under operating and capital leases that have initial or remaining non-cancelable lease terms in excess of one year at June 27, 2008 are as follows (in millions):
 
                 
    Operating     Capital  
 
2009
  $ 13     $ 8  
2010
    12       1  
2011
    9        
2012
    7        
2013
    6        
Thereafter
    9        
                 
Total future minimum payments
  $ 56     $ 9  
                 
Less: interest on capital leases
             
                 
Total principal payable on capital leases
          $ 9  
                 
 
Product Warranty Liability
 
Changes in the warranty accrual for 2008, 2007 and 2006 were as follows (in millions):
 
                         
    2008     2007     2006  
 
Warranty accrual, beginning of period
  $ 90     $ 89     $ 92  
Charges to operations
    106       74       76  
Utilization
    (73 )     (52 )     (49 )
Changes in estimate related to pre-existing warranties
    (9 )     (21 )     (30 )
                         
Warranty accrual, end of period
  $ 114     $ 90     $ 89  
                         
 
Accrued warranty also includes amounts classified in non-current liabilities of $24 million at June 27, 2008 and $17 million at June 29, 2007.
 
Long-term Purchase Agreements
 
The Company has entered into long-term purchase agreements with various component suppliers. The commitments depend on specific products ordered and may be subject to minimum quality requirements and future price negotiations. For 2009, 2010, 2011, 2012, 2013 and thereafter, the Company expects these commitments to total approximately $673 million, $4 million, $4 million, $4 million, $3 million and $7 million, respectively. In conjunction with these agreements, the Company has advanced approximately $36 million related to 2009 purchase commitments which is included in advances to suppliers as of June 27, 2008.
 
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