COMMITMENTS AND CONTINGENCIES

Leases

Harmonic leases its facilities under non-cancelable operating leases which expire at various dates through November 2022. In addition, Harmonic leases vehicles and phones in Israel under non-cancelable operating leases, the last of which expires in 2017. Total rent expense related to these operating leases was $9.8 million, $9.6 million and $7.1 million for the years ended December 31, 2014, 2013 and 2012, respectively. Future minimum lease payments under non-cancelable operating leases at December 31, 2014, are as follows (in thousands):



	Operating Leases
Year ending December 31,
2015	$	10,412
2016	8,908
2017	8,099
2018	7,943
2019	7,892
Thereafter	6,123
Total minimum payments	$	49,377

The Company accrues for estimated warranty costs at the time of product shipment. Management periodically reviews the estimated fair value of its warranty liability and records adjustments based on the terms of warranties provided to customers, historical and anticipated warranty claims experience, and estimates of the timing and cost of warranty claims. Activity for the Company’s warranty accrual, which is included in accrued liabilities, is summarized below (in thousands):



	Year ended December 31,
	2014			2013			2012
Balance at beginning of period	$	3,606		$	4,292		$	5,558
Transfer to Aurora as part of the sale of discontinued operations	—			(939		)	—
Accrual for current period warranties	7,281			7,158			5,798
Warranty costs incurred	(6,645		)	(6,905		)	(7,064		)
Balance at end of period	$	4,242		$	3,606		$	4,292

Standby Letters of Credit

As of December 31, 2014, the Company’s financial guarantees consisted of standby letters of credit outstanding, which were principally related to performance bonds and state requirements imposed on employers. The maximum amount of potential future payments under these arrangements was $0.4 million as of December 31, 2014.

Indemnification

Harmonic is obligated to indemnify its officers and the members of its Board pursuant to its bylaws and contractual indemnity agreements. Harmonic also indemnifies some of its suppliers and most of its customers for specified intellectual property matters pursuant to certain contractual arrangements, subject to certain limitations. The scope of these indemnities varies, but, in some instances, includes indemnification for damages and expenses (including reasonable attorneys’ fees). There have been no amounts accrued in respect of the indemnification provisions through December 31, 2014.

Guarantees

The Company has $0.4 million of guarantees in Israel, with the majority related to rent, as of December 31, 2014.

Royalties

Harmonic has licensed certain technologies from various companies. It incorporates these technologies into its own products and is required to pay royalties for such use, usually based on shipment of the related products. In addition, Harmonic has obtained research and development grants under various Israeli government programs that require the payment of royalties on sales of certain products resulting from such research. During the years ended December 31, 2014, 2013 and 2012 royalty expenses were $3.2 million, $4.4 million and $3.0 million, respectively, and they are included in product cost of revenue in the Company's Consolidated Statements of Operations.

Purchase Commitments with Contract Manufacturers and Vendors

The Company relies on a limited number of contract manufacturers and suppliers to provide manufacturing services for a substantial majority of its products. In addition, some components, sub-assemblies and modules are obtained from a sole supplier or limited group of suppliers. During the normal course of business, in order to reduce manufacturing lead times and ensure adequate component supply, the Company enters into agreements with certain contract manufacturers and suppliers that allow them to procure inventory and services based upon criteria as defined by the Company. The Company had $21.3 million of non-cancelable purchase commitments as of December 31, 2014.